-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UEJkI6ZE4UkrARy/p/e8ovocdG+3YGQlkWAFMzxi7cMogQQ1JaFnY6pxxlE14llN rdbyJ6QjIEBN/xryMOk4Tg== 0000950135-07-003978.txt : 20070628 0000950135-07-003978.hdr.sgml : 20070628 20070628170705 ACCESSION NUMBER: 0000950135-07-003978 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 29 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070628 DATE AS OF CHANGE: 20070628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BEARINGPOINT INC CENTRAL INDEX KEY: 0001113247 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 223680505 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-31451 FILM NUMBER: 07947622 BUSINESS ADDRESS: STREET 1: 1676 INTERNATIONAL DR CITY: MCLEAN STATE: VA ZIP: 22102 BUSINESS PHONE: 7037473000 MAIL ADDRESS: STREET 1: 1676 INTERNATIONAL DRIVE CITY: MCLEAN STATE: VA ZIP: 22102 FORMER COMPANY: FORMER CONFORMED NAME: KPMG CONSULTING INC DATE OF NAME CHANGE: 20000501 10-K 1 c15652e10vk.htm ANNUAL REPORT e10vk
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-K
 
 
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2006
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-31451
 
BEARINGPOINT, INC.
(Exact name of Registrant as specified in its charter)
 
 
     
DELAWARE   22-3680505
(State or other jurisdiction of
incorporation or organization) 		  (IRS Employer
Identification No.)
     
1676 International Drive, McLean, VA   22102
(Address of principal executive offices)   (Zip Code)
 
(703) 747-3000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12 (b) of the Act:
 
Common Stock, $.01 Par Value
 
Series A Junior Participating Preferred Stock Purchase Rights
 
Securities registered pursuant to Section 12 (g) of the Act: None
 
 
 
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES o  NO þ
 
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  YES o  NO þ
 
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 o  NO þ
 
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.  o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
     Large accelerated filer þ                 Accelerated filer o                 Non-accelerated filer o
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o  NO þ
 
As of June 30, 2006, the aggregate market value of the voting stock held by non-affiliates of the Registrant, based upon the closing price of such stock on the New York Stock Exchange on June 30, 2006, was approximately $1.7 billion.
 
The number of shares of common stock of the Registrant outstanding as of June 1, 2007 was 201,641,999.
 

 

 
TABLE OF CONTENTS
 
                 
        Page
   
Description
  Number
 
PART I.
Item 1.
  Business   1
Item 1A.
  Risk Factors   7
Item 1B.
  Unresolved Staff Comments   21
Item 2.
  Properties   21
Item 3.
  Legal Proceedings   22
Item 4.
  Submission of Matters to a Vote of Security Holders   25
 
PART II.
Item 5.
  Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   27
Item 6.
  Selected Financial Data   30
Item 7.
  Management’s Discussion and Analysis of Financial Condition and Results of Operations   33
Item 7A.
  Quantitative and Qualitative Disclosures About Market Risk   68
Item 8.
  Financial Statements and Supplementary Data   69
Item 9.
  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   69
Item 9A.
  Controls and Procedures   70
Item 9A(T).
  Controls and Procedures   77
Item 9B.
  Other Information   77
 
PART III.
Item 10.
  Directors and Executive Officers of the Registrant   78
Item 11.
  Executive Compensation   81
Item 12.
  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   101
Item 13.
  Certain Relationships and Related Transactions, and Director Independence   104
Item 14.
  Principal Accounting Fees and Services   105
 
PART IV.
Item 15.
  Exhibits, Financial Statement Schedules   106
       
Signatures
  112

 

 
PART I.
 
FORWARD-LOOKING STATEMENTS
 
Some of the statements in this Annual Report on Form 10-K constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements relate to our operations that are based on our current expectations, estimates and projections. Words such as “may,” “will,” “could,” “would,” “should,” “anticipate,” “predict,” “potential,” “continue,” “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” “goals,” “in our view” and similar expressions are used to identify these forward-looking statements. The forward-looking statements contained in this Annual Report include statements about our internal control over financial reporting, our results of operations and our financial condition. Forward-looking statements are only predictions and as such, are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events or our future financial performance that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecast in these forward-looking statements. The reasons for these differences include changes that occur in our continually changing business environment and the risk factors enumerated in Item 1A, “Risk Factors.” As a result, these statements speak only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
 
AVAILABLE INFORMATION
 
Our website address is www.bearingpoint.com. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”). Information contained or referenced on our website is not incorporated by reference into and does not form a part of this Annual Report.
 
In this Annual Report on Form 10-K, we use the terms “BearingPoint,” “we,” “the Company,” “our Company,” “our” and “us” to refer to BearingPoint, Inc. and its subsidiaries. All references to “years,” unless otherwise noted, refer to our twelve-month fiscal year. Through June 30, 2003, our fiscal year ended on June 30. In February 2004, our Board of Directors approved a change in our fiscal year end to a twelve-month period ending December 31. As a requirement of this change, the results for the six-month period from July 1, 2003 to December 31, 2003 was reported as a six-month transition period.
 
ITEM 1.  BUSINESS
 
General
 
BearingPoint, Inc. is one of the world’s largest management and technology consulting companies. We provide strategic consulting applications services, technology solutions and managed services to government organizations, Global 2000 companies and medium-sized businesses in the United States and internationally. Our services and focused solutions include implementing enterprise systems and business processes, improving supply chain efficiency, performing systems integration due to mergers and acquisitions, and designing and implementing customer management solutions. Our service offerings, which involve assisting our clients to capitalize on alternative business and systems strategies in the management and support of key information technology functions, are designed to help our clients generate revenue, increase cost-effectiveness, implement mergers and acquisitions strategies, manage regulatory compliance, and integrate information and transition clients to “next-generation” technology. In North America, we provide consulting services through our Public Services, Commercial Services and Financial Services industry groups in which we focus significant industry-specific knowledge and service offerings to our clients. Outside of North America, we are organized on a


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geographic basis, with operations in Europe, the Middle East and Africa (“EMEA”), the Asia Pacific region and Latin America.
 
We have started the transition of our business to a more integrated, global delivery model. In 2007, we created a Global Account Management Program and a Global Solutions Council represented by all of our business units that will focus on identifying opportunities for globalized solutions suites. Our Global Delivery Centers continue to grow, both in terms of personnel and the percentage of work they provide to our business units.
 
For more information about our operating segments, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segments” and Note 18, “Segment Information,” of the Notes to Consolidated Financial Statements.
 
Strategy
 
BearingPoint’s vision is to become recognized as the world’s leading management and technology consultancy, renowned for our passion and respected for our ability to help our clients solve their most pressing challenges. We operate in a highly competitive, global market. To drive profitable growth and gain market share, we are focused on doing the right work for the right clients. In 2006, we made significant strides in focusing our business activities, differentiating ourselves and our service offerings in the marketplace, and improving execution and management of our operations. Major strategic initiatives include:
 
  •     Focusing on Key Segments, Clients, Solutions and Geographies. We intend to play only where we can win. In 2006, we made continued progress in realigning our business to focus on the areas that offer the greatest growth and opportunity. We are also focused on higher-margin, higher-growth solutions with low capital requirements. We seek to divert resources away from non-strategic accounts and segments to focus on increasing our market share in critical, high-growth areas.
 
  •     Improving our Delivery Capability. To provide premium, cost-effective, high-quality technology services and solutions to global clients, we will continue to invest strategically in building our global delivery network, thereby scaling our low-cost resources. The anchors of our global network are China and India, supported by onshore and near-shore centers as appropriate. In 2006, we opened new Global Development Centers in Bangalore, India and Hattiesburg, Mississippi. We also continue to increase our capabilities in Shanghai and Dalian, China, and Sao Paulo, Brazil. To deliver seamless solutions on a global basis, we are driving increased adoption of our global delivery methodology.
 
  •     Expanding our Managed Services Business. We selectively focus on applications management in strategically identified industry sectors that are complementary to our systems integration business. Our goal is to increase our managed services revenue by supporting our own solutions in addition to targeted non-BearingPoint developed applications. By building a strong alliance partner network with applications providers such as SAP, Oracle, PeopleSoft, Siebel and Hyperion, we are well-positioned to architect solutions tailored to a client’s specific needs with a single point of accountability.
 
  •     Improving our Cost Structure. To remain competitive, we strive to continually improve our operational discipline and streamline our cost base across all functions and business units. In 2006, for example, we reduced real estate costs by consolidating offices, including closing offices in four countries, without impacting our ability to serve clients. We continue to align our people “pyramid,” reducing the number of managing directors and senior managers, while increasing the number of analysts and consultants. We strive to manage risk in our portfolio, as well as the potential associated costs, through efforts such as a more stringent corporate deal review process and standardized contracting policies.
 
  •     Reducing Employee Attrition. As a professional services company, our employees are a key differentiator, and we must continue to focus on enhancing employee development, increasing employee ownership and taking other measures in order to reduce employee attrition. We are


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  committed to increasing training and development opportunities for our employees through programs such as our new partnership with the Yale School of Management for world-class training, by rolling out career paths and core competencies for all of our employees, and by building a pay-for-performance culture at all levels.
 
  •     Investing in our Business. We are seeking investment opportunities in key areas to drive future growth. For example, to remain on the leading edge of critical trends, issues and technologies that impact our clients, we are focused on developing horizontal and vertical end-to-end solutions that are based on repeatable innovation and delivered seamlessly to global clients. To increase awareness of the BearingPoint brand among clients and prospects, we launched a new brand strategy and more aggressive marketing efforts in late 2006.
 
North American Industry Groups
 
Our North American operations are managed on an industry basis, enabling us to capitalize on our significant industry-specific knowledge. This industry-specific focus enhances our ability to monitor global trends and observe best practice behavior, to design specialized service offerings relevant to the marketplaces in which our clients operate, and to build sustainable solutions. All of these industry groups provide traditional management consulting, managed services and systems integration services to their respective clients.
 
Our three North American industry groups are as follows:
 
  •     Public Services serves a broad range of both public and private clients, including agencies of the U.S. Federal government such as the Departments of Defense, Homeland Security, Health and Human Services; provincial, state and local governments; public healthcare companies and private sector healthcare agencies; aerospace and defense companies; and higher education clients.
 
We have established, diversified and recurring relationships with our clients, and our specific offerings for these client groups include process improvement, program management, resource planning, managed services and integration services. Our experience and the size and scale of our practice afford us the opportunity to compete for larger proposals in these markets.
 
  •     Commercial Services supports a highly diversified range of clients, including those in the technology, consumer markets, manufacturing, life sciences, transportation and communications sectors, as well as companies in the chemicals, oil and gas industries, and private and public utilities.
 
  •     Financial Services directs its solutions to many of the world’s leading banking, insurance, securities, real estate, hospitality and professional services institutions. We strive to anticipate global industry trends, opportunities and needs, and then deliver solutions that transform our clients. These service offerings are designed to allow customers to capitalize on existing application systems and e-business strategies and development. We believe we have differentiated ourselves from our competition by combining in-depth technical knowledge of our customers’ markets with focused offerings.
 
International Operations
 
Currently, our operations outside of North America are organized on a geographic basis with alignment to our three North American industry groups, to enable consistency in our strategy and execution in the market. We presently have operations in the EMEA, Asia Pacific and Latin America regions. In 2006, we continued to experience solid growth in our systems integration business in France and continued expansion of our practice in the United Kingdom. In addition, we believe our Ireland practice is achieving increased acceptance in the marketplace. Furthermore, in Asia Pacific, we experienced an increase in systems integration work and engagements involving compliance with new local financial laws and regulations in our Japan practice as well as continued growth in Australia.


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As previously reported, we are currently exploring the potential for creating an opportunity for significant increases in employee ownership of our EMEA business for managing directors of that business. We believe that monetizing a significant portion of our investment in our EMEA business unit through external investment and employee acquisitions could help to further our goals of increasing shareholder value, increasing employee ownership, strengthening our balance sheet and boosting customer confidence. At this time, however, we are still in the exploratory phase, and no specific plans or timetable for a final decision have been approved by our Board of Directors.
 
Global Development Centers
 
To supplement our industry groups, we have invested in creating Global Development Centers (“GDCs”) with highly skilled resources to enhance our information technology sourcing flexibility and provide our clients with more comprehensive services and solutions. The GDCs, located internationally in China and India and domestically in Hattiesburg, Mississippi, are extensions of our global off-shore solutions capabilities, providing facilities and world-class resources at a lower cost for application development and support. We currently have several hundred employees staffed in our India and China GDCs and plan to expand our Hattiesburg center, which opened in 2006, to approximately 200 by 2007. In 2006, we created an additional GDC in Bangalore, India to increase our Indian operations. The GDCs are designed to be an expandable model, which we believe will provide us with the flexibility to adjust our GDC resources as necessary to dynamically meet client demand. Our GDC strategy involves growing each of our centers in a manner calculated to provide focused expertise to deliver our uniquely differentiated service offerings at a lower cost to our clients. We are not positioned to engage in rapid expansion of these facilities. Consequently, we may be unable to keep pace with our clients’ demands for GDC resources, if these demands dramatically increase.
 
Our Joint Marketing Relationships
 
As of December 31, 2006, our alliance program had approximately 48 relationships with key technology providers that support and complement our service offerings. Through this program, we have created joint marketing relationships to enhance our ability to provide our clients with high value services. Those relationships typically entail some combination of commitments regarding joint marketing, sales collaboration, training and service offering development.
 
Our most significant joint marketing and product development technology relationships are with Oracle Corporation (which includes Hyperion, Siebel Systems and PeopleSoft, which were acquired by Oracle), Microsoft Corporation, SAP AG, Hewlett-Packard Company, and IBM Corporation. We work together to develop comprehensive solutions to common business issues, offer the expertise required to deliver those solutions, develop new products, build out talent capabilities, capitalize on joint marketing opportunities and remain at the forefront of technology advances.
 
Competition
 
We operate in a highly competitive and rapidly changing market and compete with a variety of organizations that offer services similar to those we offer. Our competitors include specialized consulting firms, systems consulting and implementation firms, former “Big 4” and other large accounting and consulting firms, application software firms providing implementation and modification services, service and consulting groups of computer equipment companies, outsourcing companies, systems integration companies, aerospace and defense contractors and general management consulting firms. We also compete with our clients’ internal resources.
 
Some of our competitors have significantly greater financial and marketing resources, name recognition, and market share than we do. The competitive landscape continues to experience rapid changes and large, well


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capitalized competitors exist with the ability to attract and retain professionals and to serve large organizations with the high quality of services they require.
 
Winning larger, more complex projects generally requires more business development costs and time. Our pursuit of these larger, complex projects will increase the financial and marketing strength our competitors bring to bear against us. In the near term, pursuing longer, complex projects could also impact our utilization and selling, general and administrative expenses. To be successful under these challenging conditions, we must focus our skills and resources to best capitalize on our competitive advantages, selectively choosing only those offerings and markets where we feel we can uniquely differentiate ourselves from our competition. In 2006 and 2007, we continued to focus efforts on emerging technologies. For example, in 2007 we announced a global collaboration with Cassatt Corporation, aimed at helping companies and governments explore and deliver the benefits of utility computing solutions. We will continue this strategy beyond 2007 by focusing on particular outsourcing and managed services segments where we believe we can provide uniquely differentiated services for our clients.
 
We believe that the principal competitive factors in the markets in which we operate include scope of services, service delivery approach, technical and industry expertise, value added, availability of appropriate resources, global reach, pricing and relationships.
 
Our ability to compete also depends in part on several factors beyond our control, including our ability to hire, retain and motivate skilled professionals in the face of increasing competition for talent, and our ability to offer services at a level and price comparable or better than that of our competitors. There is a significant risk that changes in these dynamics could intensify competition and adversely affect our future financial results.
 
Intellectual Property
 
Our success has resulted in part from our methodologies and other proprietary intellectual property rights. We rely upon a combination of nondisclosure and other contractual arrangements, non-solicitation agreements, trade secrets, copyright and trademark laws to protect our proprietary rights and the rights of third parties from whom we license intellectual property. We also enter into confidentiality and intellectual property agreements with our employees that limit the distribution of proprietary information. We currently have only a limited ability to protect our important intellectual property rights. As of December 31, 2006, we had three issued patents in the United States and several patent applications pending to protect our products or methods of doing business.
 
We continue to expand our efforts to capture, protect and commercialize BearingPoint proprietary information. In 2006, we started focusing our efforts and investments to identify potentially reusable, proprietary intellectual property sooner in the design process and to take measures that will safeguard our intellectual property rights. We anticipate these initiatives will add value to particular client and market categories, and increase our earnings from proprietary assets.
 
Customer Dependence
 
During 2006 and 2005, our revenue from the U.S. Federal government, inclusive of government sponsored enterprises, was $983.1 million and $979.0 million, respectively, representing 28.5% and 28.9% of our total revenue, respectively. For 2006 and 2005, this included approximately $389.8 million and $381.3 million of revenue from the U.S. Department of Defense, respectively, representing approximately 11.3% and 11.3% of our total revenue for 2006 and 2005, respectively. A loss of all or a substantial portion of our contracts with the U.S. Federal government would have a material adverse effect on our business and results of operations. While most of our government agency clients have the ability to unilaterally terminate their contracts, our relationships are generally not with political appointees, and we have not historically experienced a loss of Federal government business with a change in administration. For more information regarding government


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proceedings and risks associated with U.S. government contracts, see Item 1A, “Risk Factors,” Item 3, “Legal Proceedings,” and Note 11, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements.
 
Employees
 
As of March 31, 2007, we had approximately 17,500 full-time employees, including approximately 15,200 billable professionals.
 
Our future growth and success largely depends upon our ability to attract, retain and motivate qualified employees, particularly professionals with the advanced information technology skills necessary to perform the services we offer. Our professionals possess significant industry experience, understand the latest technology and build productive business relationships. We are committed to the long-term development of our employees and will continue to dedicate significant resources to improving our hiring, training and career advancement programs. We strive to reinforce our employees’ commitment to our clients, culture and values through a comprehensive performance review system and a competitive compensation philosophy that rewards individual performance and teamwork.
 
For 2006, our voluntary annualized attrition rate was 25.6%, compared to our 2005 voluntary attrition rate of approximately 25.3%. For the three months ended March 31, 2007, our voluntary annualized attrition rate was 23.9%, compared to our voluntary annualized attrition rate of 24.2% for the three months ended March 31, 2006.
 
Our continuing issues related to our North American financial reporting systems and our internal controls have made it particularly critical and challenging for us to attract and retain experienced personnel. Because we are not current in our SEC periodic filings, significant features of many of our employee equity plans remained suspended in 2006, which (1) precluded our employees from realizing the appreciation in their equity-based awards, (2) resulted in the delayed implementation of most components of our Managing Director Compensation Plan, approved by the Compensation Committee of the Board of Directors in January 2006 (the “MD Compensation Plan”), and (3) impacted our ability to use equity to attract, motivate and retain our professionals. In 2006 and 2007, we took the following steps to enhance our ability to attract and retain our employees:
 
  •     In December 2006, our shareholders approved amendments to our long-term incentive plan (“LTIP”) that, among other things, provided for a 25 million share increase in the number of shares authorized for equity awards made under the LTIP. The LTIP amendments enabled us to implement a new equity-based retention strategy, which we launched in February 2007 by awarding approximately 21.9 million performance share units (“PSUs”) to our managing directors and a limited number of key employees. The PSUs vest in three years if we are able to achieve certain performance metrics. The program was designed to enhance retention of our current managing directors and to incent these individuals to drive Company performance. For additional information on the PSUs, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Business Priorities for 2007 and Beyond,” and Note 13, “Stock—Based Compensation,” of the Notes to Consolidated Financial Statements.
 
  •     In February 2007, we also granted performance cash awards providing for the payment of up to $50 million to a group of our managing directors and other high-performing senior-level employees. These cash retention awards generally are earned if we are able to achieve certain performance metrics, similar to those required under the PSU program. These performance cash awards were designed to retain our existing employees by diversifying their performance awards between cash and equity awards. For additional information on the performance cash awards, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Business Priorities for 2007 and Beyond,” and Note 13, “Stock—Based Compensation,” of the Notes to Consolidated Financial Statements.


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  •     In November 2006, we began our partnership with Yale University to create the BearingPoint Leadership Program at the Yale School of Management, an innovative education and training program focusing on career and leadership development for our employees. We believe that our collaboration with Yale will offer our employees and new recruits with a unique learning experience that will help improve our ability to recruit and retain talented and motivated employees, enhance the quality of the services we deliver to our clients and cultivate a shared set of values, skills and culture that we hope will come to define a career with us.
 
  •     As part of our increased emphasis on a “pay for performance” compensation structure, we introduced performance-based cash bonus incentives in 2006. In 2006, we paid performance-based cash bonuses in an aggregate amount of $16 million to select staff-level employees, based on 2005 performance. Through June 2007, we have paid performance-based cash bonuses totaling approximately $50 million ($34 million to staff, $17 million to managing directors), based on 2006 performance. We believe the payment of a bonus for 2006 performance was appropriate, for retention purposes and because we were able to sustain our underlying operations and our core business continued to perform, despite the issues we continue to face with respect to our financial accounting systems and efforts to become timely in our SEC periodic filings.
 
  •     Under our “BE an Owner” program, eligible employees below the managing director level were intended to receive a stock grant equivalent to 3% of their annual salaries as of October 3, 2005. In January 2006, we paid the first half of the amount (1.5% of annual salary as of October 3, 2005) to our eligible employees in cash, in an aggregate amount of $18.4 million. After we have become current in our SEC periodic filings and we are able to issue freely tradable shares of our common stock, we intend to make a special contribution of approximately $14 million (the remaining 1.5% of annual salary as of October 3, 2005) under our Employee Stock Purchase Plan (the “ESPP”) on behalf of these eligible employees, which will be used to purchase shares of our common stock pursuant to the terms of the ESPP.
 
Background
 
We were incorporated as a business corporation under the laws of the State of Delaware in 1999. We were part of KPMG LLP, now one of the “Big 4” accounting and tax firms. In January 2000, KPMG LLP transferred its consulting business to our Company. In February 2001, we completed our initial public offering, and on October 2, 2002, we changed our name to BearingPoint, Inc. from KPMG Consulting, Inc. Our principal offices are located at 1676 International Drive, McLean, Virginia 22102-4828. Our main telephone number is 703.747.3000.
 
In 2002, we significantly expanded our European presence with the purchase of KPMG Consulting AG (subsequently renamed BearingPoint GmbH), which included employees primarily in Germany, Switzerland and Austria. We continued to further our global expansion in 2002 by acquiring all or portions of the consulting practices of several global accounting firms in Brazil, Finland, France, Japan, Norway, Singapore, South Korea, Spain, Sweden, Switzerland and the United States.
 
ITEM 1A.  RISK FACTORS
 
Risks that Relate to our Failure to Timely File Periodic Reports with the SEC and our Internal Control over Financial Reporting
 
The process, training and systems issues related to financial accounting for our North American operations and the material weaknesses in our internal control over financial reporting continue to materially affect our financial condition and results of operations. So long as we are unable to resolve these issues and remediate these material weaknesses, we will be in jeopardy of being unable to timely file our periodic reports with the SEC as they come due, and it is likely that our financial condition and results of operations will


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continue to be materially and adversely affected. Furthermore, the longer the period of time before we become current in our periodic filings with the SEC and/or the number of subsequent failures to timely file any future periodic reports with the SEC could increase the likelihood or frequency of occurrence and severity of the impact of any of the risks described below.
 
Our continuing failure to timely file certain periodic reports with the SEC poses significant risks to our business, each of which could materially and adversely affect our financial condition and results of operations.
 
We did not timely file with the SEC our Forms 10-K for 2004, 2005 and 2006, and we have not yet filed with the SEC our Forms 10-Q for the quarterly periods ended March 31, 2006, June 30, 2006, September 30, 2006 and March 31, 2007. Consequently, we are not compliant with the reporting requirements under the Securities Exchange Act of 1934 (the “Exchange Act”) or the listing rules of the New York Stock Exchange (the “NYSE”).
 
Our inability to timely file our periodic reports with the SEC involves a number of significant risks, including:
 
  •     If we are not timely in filing our periodic reports by October 31, 2008, (i) a breach could be declared by our lenders under our senior secured credit facility, which may result in the lenders declaring our outstanding loans due and payable in whole or in part, and potentially resulting in a cross-default to one or more series of our convertible subordinated debentures and other indebtedness, and/or (ii) a breach could be claimed by holders of one or more series of our subordinated debentures resulting in a cross-default under our senior secured credit facility. See “—Risks that Relate to Our Liquidity.”
 
  •     If the NYSE ceases to grant us extensions to file our periodic reports with the NYSE, it has the right to begin proceedings to delist our common stock. A delisting of our common stock would have a material adverse effect on us by, among other things:
 
  •     reducing the liquidity and market price of our common stock;
 
  •     resulting in a possible event of default under and acceleration of our senior secured credit facility and triggering a right to the holders of our debentures to request us to repurchase all then outstanding debentures; and
 
  •     reducing the number of investors willing to hold or acquire our common stock, thereby restricting our ability to obtain equity financing.
 
  •     We may have difficulty retaining our clients and obtaining new clients.
 
  •     We are not eligible to use a registration statement to offer and sell freely tradable securities, which prevents us from accessing the public capital markets or delivering shares under our equity plans.
 
  •     Because we are not current in our SEC periodic filings, significant features of many of our employee equity plans remain suspended and our employees have effectively been precluded from realizing the appreciation in equity-based awards. The longer we are unable to deliver shares for purchase under our ESPP, the higher likelihood that we may experience increased rates of withdrawals by our employees of their accumulated contributions to our ESPP. For more information, see “—Risks that Relate to our Liquidity.”
 
Any of these events could materially and adversely affect our financial condition and results of operations.


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In 2004, we identified material weaknesses in our internal control over financial reporting, the remediation of which has materially and adversely affected our business and financial condition, and as of December 31, 2006, these material weaknesses remain.
 
As discussed in Item 9A, “Controls and Procedures,” of this Annual Report, our management has conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2006 and has identified a number of material weaknesses in internal control over financial reporting as of December 31, 2006. A detailed description of each material weakness is described in Item 9A of this Annual Report. Due to these material weaknesses, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2006. The existence of these material weaknesses continue to cause us to perform significant, substantial procedures to compensate for them. These material weaknesses, and other material weaknesses since remediated, also previously caused significant errors that led to the restatement of a number of our previously issued financial statements for certain fiscal periods prior to our year ended December 31, 2004.
 
Management’s conclusion as to the effectiveness of our internal control over financial reporting for 2006, as well as the material weaknesses that contributed to that conclusion, remain substantially the same as management’s conclusion, and the material weaknesses contributing to that conclusion, for 2005 and 2004. We were unsuccessful in our attempts to remediate significant numbers of material weaknesses by the end of 2006. We can currently give no assurances as to how many material weaknesses will be remediated by the end of 2007. We currently do not anticipate full remediation of all material weaknesses until 2008.
 
Moreover, we continue to experience difficulty in internally producing accurate and timely forecasted financial information due, in part, to issues related to the material control weaknesses and other deficiencies identified as part of management’s assessment of internal control over financial reporting and to the delays in filing our periodic reports with the SEC. While we continue to address many of the underlying issues that have affected our ability to produce accurate internal financial forecasts, there can be no assurance that our ability to produce such forecasts has sufficiently improved to enable us to accurately and timely predict and assess the ongoing cash demands or financial needs of our business. Moreover, our difficulties in producing accurate internal financial forecasts could continue to jeopardize the accuracy of any financial guidance we provide publicly.
 
We have engaged in, and continue to engage in, substantial efforts to address the material weaknesses in our internal control over financial reporting. We cannot be certain that any remedial measures we have taken or plan to take will ensure that we design, implement and maintain adequate controls over our financial processes and reporting in the future or will be sufficient to address and eliminate these material weaknesses. Our inability to remedy these identified material weaknesses or any additional deficiencies or material weaknesses that may be identified in the future, could, among other things, cause us to fail to file our periodic reports with the SEC in a timely manner, result in the need to restate financial results for prior periods, prevent us from providing reliable and accurate financial information and forecasts or from avoiding or detecting fraud, result in the loss of government contracts, or require us to incur further additional costs or divert management resources. Due to its inherent limitations, effective internal control over financial reporting can provide only reasonable assurances that transactions are properly recorded, or that the unauthorized acquisition, use or disposition of our assets, or inappropriate reimbursements and expenditures, will be detected. These limitations may not prevent or detect all misstatements or fraud, regardless of their effectiveness.
 
Furthermore, in order to sustain the timely production of our financial statements and SEC periodic reports, we must dramatically reduce the time required to prepare our financial statement accounts and balances. Until our material weaknesses have been remediated, we will not be able to fully minimize the time required to prepare our financial statement accounts and balances. Our ability to become timely and remain current in our SEC periodic filings will depend on, among other things, our ability to increase the focus of, and maximize the cooperation from, our client engagement teams and other corporate services in providing


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financial information and updates into our financial closing process on a timely basis. If we are unable to achieve these efficiencies, we may be unable to become timely in our SEC periodic filings, or to sustain being timely once current.
 
We face risks related to securities litigation and regulatory actions that could adversely affect our financial condition and business.
 
We are subject to several securities class-action litigation suits. We are also subject to an enforcement investigation by the SEC. These lawsuits and the SEC investigation are described in Item 3, “Legal Proceedings,” and Note 11, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements.
 
Our senior management and Board of Directors devote significant time to these matters. These lawsuits and the SEC investigation may cause us to incur significant legal expenses, could have a disruptive effect upon the operations of our business, and could consume inordinate amounts of the time and attention of our senior management and Board of Directors.
 
Depending on the outcome of these lawsuits and the SEC investigation, we may be required to pay material damages and fines, consent to injunctions on future conduct, or suffer other penalties, remedies or sanctions. The ultimate resolution of these matters could have a material adverse impact on our financial results and condition and, consequently, negatively impact the trading price of our common stock.
 
Risks that Relate to Our Business
 
Our business may be adversely impacted as a result of changes in demand, both globally and in individual market segments, for our consulting and systems integration services.
 
Our business tends to lag behind economic cycles; consequently, we may experience rapid decreases in demand at the onset of significant economic downturns while the benefits of economic recovery may take longer to realize. Economic and political uncertainties adversely impact our clients’ demand for our services. During an economic downturn, our clients and potential clients often cancel, reduce or defer existing contracts and delay entering into new engagements, thereby reducing new contract bookings. In general, companies also reduce the amount of spending on information technology products and services during difficult economic times, resulting in limited implementations of new technology and smaller engagements.
 
Our contracts funded by U.S. Federal government agencies, inclusive of government sponsored enterprises, accounted for approximately 28.5% of our revenue in 2006. We depend particularly on contracts funded by clients within the Department of Defense, which accounted for approximately 11.3% of our revenue in 2006. We believe that our U.S. Federal government contracts will continue to be a source of a significant amount of our revenue for the foreseeable future. Our business could be materially harmed if the Federal government reduces its spending or reduces the budgets of its departments or agencies. Reduced budget and other political and regulatory factors may cause these departments and agencies to reduce their purchases under, or exercise their rights to terminate, existing contracts, or may result in fewer or smaller new contracts to be awarded to us.
 
Our operating results will suffer if we are not able to maintain our billing and utilization rates or control our costs.
 
Our operating results are largely a function of the rates we are able to charge for our services and the utilization rates, or chargeability, of our professionals. Accordingly, if we are not able to maintain the rates we charge for our services or an appropriate utilization rate for our professionals, or if we cannot manage our cost structure, our operating results will be negatively impacted, we will not be able to sustain our profit margin and our profitability will suffer.


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Factors affecting the rates we are able to charge for our services include:
 
  •     our clients’ perception of our ability to add value through our services;
 
  •     our ability to access and use of lower-cost service delivery personnel, as compared to the ability of our competitors to do so;
 
  •     introduction of new services or products by us or our competitors;
 
  •     pricing policies of our competitors; and
 
  •     general economic conditions in the United States and abroad.
 
Factors affecting our utilization rates include:
 
  •     seasonal trends, primarily as a result of our hiring cycle and holiday and summer vacations;
 
  •     our ability to transition employees from completed projects to new engagements;
 
  •     our ability to forecast demand for our services and thereby maintain an appropriately balanced and sized workforce;
 
  •     our ability to manage attrition; and
 
  •     our ability to mobilize our workforce quickly or economically, especially outside the United States.
 
Our operating results are also a function of our ability to control our costs. If we are unable to control these costs, such as costs associated with the production of financial statements, settlement of lawsuits or management of a significantly larger and more diverse workforce, our results of operations could be materially and adversely affected.
 
We continue to incur selling, general and administrative (“SG&A”) expenses at levels significantly higher than those of our competitors. If we are unable to significantly reduce SG&A expenses over the near term, our ability to achieve, and make significant improvements in, net income and profitability will remain in jeopardy.
 
In recent years we have experienced exceptionally high levels of SG&A expenses, primarily as a result of continuing issues related to our North American financial reporting systems and our internal controls, higher than average costs associated with hiring and retaining our employees and other assorted costs, including legal expenses associated with various disputes and litigation. During 2006, we incurred external costs related to the closing of our financial statements of approximately $128.2 million, compared to approximately $94.6 million in 2005. We currently expect our costs for 2007 related to these efforts to be approximately $68 million. In addition, we also currently expect to incur an additional $24.6 million in costs in 2007 related to preparation for the transition to our new North American financial reporting systems. Given our decision to defer implementation of our North American financial reporting systems until mid-2008, the level of these external and preparatory costs may vary significantly. It is likely that higher than normal SG&A costs will continue through 2007 and 2008 as we seek to achieve our objectives of timely preparing and filing our financial statements and SEC periodic reports, remediating material weaknesses in our internal control over financial reporting and completing the replacement of our North American financial reporting systems.
 
Our ability to reduce future SG&A expenses is dependent, among other things, on:
 
  •     improving our controls around the financial closing process;
 
  •     remediating deficiencies in our internal controls;
 
  •     reducing the amount of time and effort spent to substantiate the accuracy and completeness of our financial results;
 
  •     reducing redundant systems and activities;
 
  •     streamlining the input and capture of data; and


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  •     hiring and retaining skilled finance and accounting personnel while decreasing the number of personnel required to support our financial close process, including reliance on contractors.
 
If we are unable to achieve these objectives, offset these costs through other expense reductions, or if we encounter additional difficulties or setbacks in achieving these objectives, our SG&A expenses could significantly exceed currently expected levels and, consequently, materially and adversely affect our competitive position, financial condition, results of operations and cash flows.
 
The systems integration consulting markets are highly competitive, and we may not be able to compete effectively if we are not able to maintain our billing rates or control our costs related to these engagements.
 
Systems integration consulting constitutes a significant part of our business. Historically, these markets have included a large number of participants and have been highly competitive. Recent increases in the number and availability of competing global delivery alternatives for systems integration work create ever increasing pricing pressures in these markets. We frequently compete with companies that have greater global delivery capabilities and alternatives, financial resources, name recognition and market share than we do. If we are unable to maintain our billing rates through delivering unique and differentiated systems integration solutions and control our costs through proper management of our workforce, global delivery centers and other available resources, we may lose the ability to compete effectively for this significant portion of our business.
 
Contracting with the Federal government is inherently risky and exposes us to risks that may materially and adversely affect our business.
 
We depend on contracts with U.S. Federal government agencies, particularly with the Department of Defense, for a significant portion of our revenue and consequently we are exposed to various risks inherent in the government contracting process, including the following:
 
  •     Our government contracts are subject to laws and regulations that provide government clients with rights and remedies not typically found in commercial contracts, which are unfavorable to us. These rights and remedies allow government clients, among other things, to:
 
  •     establish temporary holdbacks of funds due and owed to us under contracts for various reasons;
 
  •     terminate our facility security clearances and thereby prevent us from receiving classified contracts;
 
  •     cancel multi-year contracts and related orders if funds for contract performance for any subsequent year become unavailable;
 
  •     claim rights in products, systems and technology produced by us;
 
  •     prohibit future procurement awards with a particular agency if it is found that our prior relationship with that agency gives us an unfair advantage over competing contractors;
 
  •     subject the award of contracts to protest by competitors, which may require the suspension of our performance pending the outcome of the protest or our resubmission of a bid for the contract, or result in the termination, reduction or modification of the awarded contract; and
 
  •     prospectively reduce our pricing based upon achieving certain agreed service volumes or other metrics and reimburse any previously charged amounts subsequently found to have been improperly charged under the contract.
 
  •     Our failure to obtain and maintain necessary security clearances may limit our ability to perform classified work for government clients, which could cause us to lose business. In addition, security breaches in sensitive government systems that we have developed could damage our reputation and eligibility for additional work and expose us to significant losses.
 
  •     The Federal government audits and reviews our performance on contracts, pricing and cost allocation practices, cost structure, systems, and compliance with applicable laws, regulations and standards. If


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  the government finds that our costs are not reimbursable, have not been properly determined or are based on outdated estimates of our costs, we may not be allowed to bill for all or part of those costs, or we may have to refund cash that we have already collected, which may materially affect our operating margin and the expected timing of our cash flows.
 
  •     Government contracting officers have wide latitude in their ability to conclude as to the financial responsibility of companies that contract with agencies of the U.S. Federal government. Officers who conclude that a company is not financially responsible may withhold new engagements and terminate recently contracted engagements for which significant expenditures and outlays already may have been made.
 
  •     If the government uncovers improper or illegal activities in the course of audits or investigations, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines and suspension or debarment from doing business with Federal government agencies. These consequences could materially and adversely affect our revenue and operating results. The inherent limitations of internal controls, even when adequate, may not prevent or detect all improper or illegal activities.
 
  •     Government contracts, and the proceedings surrounding them, are often subject to more extensive scrutiny and publicity than other commercial contracts. Negative publicity related to our government contracts, regardless of its accuracy, may further damage our business by affecting our ability to compete for new contracts.
 
The impact of any of these occurrences or conditions could affect not only our business with the agency or department involved, but also other agencies and departments within the Federal government. Depending on the size of the project or the magnitude of the budget reduction, potential costs, penalties or negative publicity involved, any of these occurrences or conditions could have a material adverse effect on our business or our results of operations.
 
Our ability to attract, retain and motivate our managing directors and other key employees is critical to the success of our business. We continue to experience sustained, higher-than-industry average levels of voluntary turnover among our workforce, which has impacted our ability to grow our business.
 
Our success depends largely on our general ability to attract, develop, motivate and retain highly skilled professionals. Competition for skilled personnel in the consulting and technology services business is intense. In light of our current issues related to our North American financial reporting systems and our internal controls, it is particularly critical that we continue to attract and retain experienced finance personnel. Recruiting, training and retention costs and benefits place significant demands on our resources. In addition, because we are not current in our SEC periodic filings, the near-term value of our equity incentives is uncertain, and our ability to use equity to attract, motivate and retain our professionals is in jeopardy. Significant features of many of our employee equity plans remain suspended. The continuing loss of significant numbers of our professionals or the inability to attract, hire, develop, train and retain additional skilled personnel could have a serious negative effect on us, including our ability to obtain and successfully complete important engagements and thus maintain or increase our revenue.
 
Our contracts can be terminated by our clients with short notice, or our clients may cancel or delay projects.
 
Our clients typically retain us on a non-exclusive, engagement-by-engagement basis, rather than under exclusive long-term contracts. Most of our consulting engagements are less than 12 months in duration. Most of our contracts can be terminated by our clients upon short notice and without significant penalty. Large client projects involve multiple engagements or stages, and there is a risk that a client may choose not to retain us for additional stages of a project or that a client will cancel or delay additional planned engagements. These terminations, cancellations or delays could result from factors unrelated to our work product or the progress of the project, but could be related to business or financial conditions of the client or the economy


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generally. When contracts are terminated, cancelled or delayed, we lose the associated revenue, and we may not be able to eliminate associated costs in a timely manner. Consequently, our operating results in subsequent periods may be adversely impacted.
 
If we are not able to keep up with rapid changes in technology or maintain strong relationships with software providers, our business could suffer.
 
Our success depends, in part, on our ability to develop service offerings that keep pace with rapid and continuing changes in technology, evolving industry standards and changing client preferences. Our success also depends on our ability to develop and implement ideas for the successful application of existing and new technologies. We may not be successful in addressing these developments on a timely basis, or our ideas may not be successful in the marketplace. Also, products and technologies developed by our competitors may make our services or product offerings less competitive or obsolete. Any of these circumstances could have a material adverse effect on our ability to obtain and successfully complete client engagements.
 
In addition, we generate a significant portion of our revenue from projects to implement software developed by others. Our future success in the software implementation business depends, in part, on the continuing viability of these companies, their ability to maintain market leadership and our ability to maintain a good relationship with these companies.
 
Loss of our joint marketing relationships could reduce our revenue and growth prospects.
 
Our most significant joint marketing relationships are with Microsoft Corporation, Oracle Corporation and SAP AG. These relationships enable us to increase revenue by providing us additional marketing exposure, expanding our sales coverage, increasing the training of our professionals and developing and co-branding service offerings that respond to customer demand. The loss of one or more of these relationships could adversely affect our business by terminating current joint marketing and product development efforts or otherwise decreasing our revenue and growth prospects. Because most of our significant joint marketing relationships are nonexclusive, if our competitors are more successful in, among other things, building leading-edge products and services, these entities may form closer or preferred arrangements with other consulting organizations, which could materially reduce our revenue.
 
We are not likely to be able to significantly grow our business through mergers and acquisitions in the near term.
 
We have had limited success in valuing and integrating acquisitions into our business. Given past experiences, the current competing demands for our capital resources and limitations contained in our senior secured credit facility, we are unlikely to grow our business through significant acquisitions. Our inability to do so may competitively disadvantage us or jeopardize our independence.
 
There will not be a consistent pattern in our financial results from quarter to quarter, which may result in increased volatility of our stock price.
 
Our quarterly revenue and profitability have varied in the past and are likely to vary significantly from quarter to quarter, making them difficult to predict. This may lead to volatility in our stock price. Factors that could cause variations in our quarterly financial results include:
 
  •     the business decisions of our clients regarding the use of our services;
 
  •     seasonality, including the number of work days and holidays and summer vacations;
 
  •     the stage of completion of existing projects or their termination;
 
  •     cost overruns or revenue write-offs resulting from unexpected delays or delivery issues on engagements;


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  •     periodic differences between our clients’ estimated and actual levels of business activity associated with ongoing engagements;
 
  •     our ability to transition employees quickly from completed projects to new engagements;
 
  •     the introduction of new products or services by us or our competitors;
 
  •     changes in our pricing policies or those of our competitors;
 
  •     our ability to manage costs, including personnel costs and support services costs, particularly outside the United States where local labor laws may significantly affect our ability to mobilize personnel quickly or economically;
 
  •     currency exchange fluctuations;
 
  •     ongoing costs associated with our efforts to remediate material weaknesses in our internal control over financial reporting, and to produce timely and accurate financial information despite the continuing existence of these material weaknesses;
 
  •     changes in, or the application of changes to, accounting principles generally accepted in the United States, particularly those related to revenue recognition; and
 
  •     global, regional and local economic and political conditions and related risks, including acts of terrorism.
 
Our profitability may decline due to financial, regulatory and operational risks inherent in worldwide operations.
 
In 2006, approximately 33.3% of our revenue was attributable to activities outside North America. Our results of operations are affected by our ability to manage risks inherent in our doing business abroad. These risks include exchange rate fluctuation, regulatory concerns, terrorist activity, restrictions with respect to the movement of currency, access to highly skilled workers, political and economic stability, unauthorized and improper activities of employees and our ability to protect our intellectual property. Despite our best efforts, we may not be in compliance with all regulations around the world and may be subject to penalties and fines as a result. These penalties and fines may materially and adversely affect our profitability.
 
Some of our services are performed in high-risk locations, such as Iraq and Afghanistan, where the country or location is suffering from political, social or economic issues, or war or civil unrest. In those locations, we incur substantial costs to maintain the safety of our personnel. Despite these precautions, the safety of our personnel in these locations may continue to be at risk. Despite our best efforts, we may suffer the loss of our employees or those of our contractors. The risk of these losses and the costs of protecting against them may become prohibitive. If so, we may face taking a decision regarding removing our employees from one or more of these countries and ceasing to seek new work or complete the existing contracts that we have in those countries or regions. Such a decision could, directly or indirectly, materially and adversely affect our current and future revenue, as well as our profitability.
 
We may bear the risk of cost overruns relating to our services, thereby adversely affecting our profitability.
 
The effort and cost associated with the completion of our systems integration, software development and implementation or other services are difficult to estimate and, in some cases, may significantly exceed the estimates made at the time we commence the services. We often provide these services under level-of-effort and fixed-price contracts. The level-of-effort contracts are usually based on time and materials or direct costs plus a fee. Under these arrangements, we are able to bill our client based on the actual cost of completing the services, even if the ultimate cost of the services exceeds our initial estimates. However, if the ultimate cost exceeds our initial estimate by a significant amount, we may have difficulty collecting the full amount that we are due under the contract, depending upon many factors, including the reasons for the increase in cost, our communication with the client throughout the project, and the client’s satisfaction with the services. As a


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result, we could incur losses with respect to these services even when they are priced on a level-of-effort basis. If we provide these services under a fixed-price contract, we bear the risk that the ultimate cost of the project will exceed the price to be charged to the client. If we fail to accurately estimate our costs or the time required to perform under a contract, the profitability of these contracts may be materially and adversely affected.
 
We may face legal liabilities and damage to our professional reputation from claims made against our work.
 
Many of our engagements involve projects that are critical to the operations of our clients’ businesses. If we fail to meet our contractual obligations, we could be subject to legal liability, which could adversely affect our business, operating results and financial condition. The provisions we typically include in our contracts that are designed to limit our exposure to legal claims relating to our services and the applications we develop may not protect us or may not be enforceable in all cases. Moreover, as a consulting firm, we depend to a large extent on our relationships with our clients and our reputation for high caliber professional services and integrity to retain and attract clients and employees. As a result, claims made against our work may be more damaging in our industry than in other businesses. Negative publicity related to our client relationships, regardless of its accuracy, may further damage our business by affecting our ability to compete for new engagements.
 
Our services may infringe upon the intellectual property rights of others.
 
We cannot be sure that our services do not infringe on the intellectual property rights of others, and we may have infringement claims asserted against us. These claims may harm our reputation, cost us money and prevent us from offering some services. In some contracts, we have agreed to indemnify our clients for certain expenses or liabilities resulting from claimed infringements of the intellectual property rights of third parties. In some instances, the amount of these indemnities may be greater than the revenue we receive from the client. Any claims or litigation in this area may be costly and result in large awards against us and, whether we ultimately win or lose, could be time-consuming, may injure our reputation, may result in costly delays or may require us to enter into royalty or licensing arrangements. If there is a successful claim of infringement or if we fail to develop non-infringing technology or license the proprietary rights we require on a timely basis, our ability to use certain technologies, products, services and brand names may be limited, and our business may be harmed.
 
We have only a limited ability to protect our intellectual property rights, which are important to our success.
 
Our success depends, in part, upon our plan to develop, capture and protect re-usable proprietary methodologies and other intellectual property. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws to protect our intellectual property rights. Our efforts in this regard may not be adequate to prevent or deter infringement or other misappropriation of our intellectual property, and we may not be able to detect the unauthorized use of, or take appropriate and timely action to enforce, our intellectual property rights.
 
Depending on the circumstances, we may be required to grant a specific client certain intellectual property rights in materials developed in connection with an engagement, in which case we would seek to cross-license the use of such rights. In limited situations, however, we forego certain intellectual property rights in materials we help create, which may limit our ability to re-use such materials for other clients. Any limitation on our ability to re-use such materials could cause us to lose revenue-generating opportunities and require us to incur additional cost to develop new or modified materials for future projects.


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Risks that Relate to Our Liquidity
 
Our current cash resources might not be sufficient to meet our expected cash needs over time.
 
We have experienced recurring net losses. We have generated positive cash flow from operations in only three quarters since the beginning of our 2005 fiscal year. Historically, we have often failed, sometimes significantly, to achieve management’s periodic operating budgets and cash forecasts.
 
If we cannot consistently generate positive cash flow from operations, we will need to meet operating shortfalls with existing cash on hand, avail ourselves of the capital markets or implement or seek alternative strategies. These alternative strategies could include seeking improvements in working capital management, reducing or delaying capital expenditures, restructuring or refinancing our indebtedness, seeking additional debt or equity capital and selling assets. There can be no assurances that existing cash will be sufficient, we will have timely access to the capital markets or that any of these strategies can be implemented on satisfactory terms, on a timely basis, or at all.
 
We have been unable to issue shares of our common stock under our ESPP since February 1, 2005. The longer we are unable to issue shares of our common stock, the more likely our ESPP participants may elect to withdraw their accumulated cash contributions from the ESPP at rates higher than those we have historically experienced.
 
Under our ESPP, eligible employees may purchase shares of our common stock at a discount, through payroll deductions that accumulate over an offering period. Shares of common stock typically are purchased under the ESPP every six months. Because we are not current in our SEC periodic filings, we have been, and continue to be, unable to issue freely tradable shares of our common stock and have not issued any shares of common stock under the ESPP for our current offering period, which began on February 1, 2005. Employee ESPP contributions are currently included in our available cash balances on hand, amounting to approximately $22.4 million of accumulated contributions as of March 31, 2007. These contributions may be withdrawn by our employees on demand. If we experience withdrawal rates higher than those we have historically experienced, our cash flow could be materially and adversely affected.
 
Our 2007 Credit Facility imposes a number of restrictions on the way in which we operate our business and may negatively affect our ability to finance future needs, or do so on favorable terms. If we violate these restrictions, we will be in default under the 2007 Credit Facility, which may cross-default to our other indebtedness.
 
On May 18, 2007, we entered into a $400 million senior secured credit facility and on June 1, 2007, we amended and restated the credit facility to increase the aggregate commitments under the facility to $500 million (the “2007 Credit Facility”). The 2007 Credit Facility consists of term loans in an aggregate principal amount of $300 million and a letter of credit facility in an aggregate face amount at any time outstanding not to exceed $200 million. For more information on our 2007 Credit Facility, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Under the 2007 Credit Facility, certain of our corporate activities are restricted, which include, among other things, limitations on: disposition of assets; mergers and acquisitions; payment of dividends; stock repurchases and redemptions; incurrence of additional indebtedness; making of loans and investments; creation of liens; prepayment of other indebtedness; and engaging in certain transactions with affiliates. Any event of default under the 2007 Credit Facility or agreements governing our other significant indebtedness could lead to an acceleration of debt under the 2007 Credit Facility or other debt instruments that contain cross-default provisions. If the indebtedness under the 2007 Credit Facility were to be accelerated, our assets may not be sufficient to repay amounts due under the 2007 Credit Facility and the other debt securities then accelerated.


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If we cannot generate positive cash flow from our operations, we eventually may not be able to service our indebtedness.
 
Our ability to make scheduled payments of principal and interest on, or to refinance, our indebtedness and to satisfy our other debt obligations will depend primarily upon our future ability to generate positive cash flow from operations. If we cannot generate positive cash flow from operations, there can be no assurance that future borrowings or equity financing will be available for the payment or refinancing of any indebtedness. If we are unable to service our indebtedness, whether in the ordinary course of business or upon acceleration of such indebtedness, our financial condition, cash flows and results of operations would be materially affected.
 
We may be unable to obtain new surety bonds, letters of credit or bank guarantees in support of client engagements on acceptable terms.
 
Some of our clients, primarily in the state and local market, require us to obtain surety bonds, letters of credit or bank guarantees in support of client engagements. We may be required to post additional collateral (cash or letters of credit) to support our obligations under our surety bonds upon the demand of our surety providers. If we cannot obtain or maintain surety bonds, letters of credit or bank guarantees on acceptable terms, we may be unable to maintain existing client engagements or to obtain additional client engagements that require them. In turn, our current and planned revenue, particularly from our Public Services business, could be materially and adversely affected.
 
Downgrades of our credit ratings may increase our borrowing costs and materially and adversely affect our financial condition.
 
On February 6, 2007, Standard & Poor’s Rating Services (“Standard & Poor’s”) withdrew our senior unsecured rating of B- and our subordinated debt rating of CCC+ and removed them from CreditWatch. Separately, on October 6, 2006, Moody’s downgraded our corporate family rating to B2 from B1 and the ratings for two of our subordinated convertible bonds series to B3 from B2, and placed our ratings on review for further downgrade.
 
Actions such as those by the rating agencies may affect our ability to obtain financing or the terms on which such financing may be obtained. Our inability to obtain additional financing, or obtain additional financing on terms favorable to us, could hinder our ability to fund general corporate requirements, affect our stock price, limit our ability to compete for new business, and increase our vulnerability to adverse economic and industry conditions.
 
Our leverage may adversely affect our business and financial performance and may restrict our operating flexibility.
 
The level of our indebtedness and our ongoing cash flow requirements for debt services could:
 
  •     limit cash flow available for general corporate purposes, such as capital expenditures;
 
  •     limit our ability to obtain, or obtain on favorable terms, additional debt financing in the future for working capital or capital expenditures;
 
  •     limit our flexibility in reacting to competitive and other changes in our industry and economic conditions generally;
 
  •     expose us to a risk that a substantial decrease in net operating cash flows due to economic developments or adverse developments in our business could make it difficult to meet debt service requirements; and
 
  •     expose us to risks inherent in interest rate fluctuations because borrowings may be at variable rates of interest, which could result in high interest expense in the event of increases in interest rates.


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The holders of our debentures have the right, at their option, to require us to purchase some or all of their debentures upon certain dates or upon the occurrence of certain designated events, which could have a material adverse effect on our liquidity.
 
We have made two issuances of convertible subordinated debentures and two issuances of convertible senior subordinated debentures. For a description of these debentures, see Item 5, “Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Sales of Securities Not Registered Under the Securities Act.”
 
The holders of our debentures have the right to require us to repurchase any outstanding debentures upon certain dates and designated events. These events include certain change of control transactions and a termination of trading, which occurs if the Company’s common stock is no longer listed for trading on a U.S. national securities exchange. If we are unable to repurchase any of our debentures when due or otherwise breach any other debenture covenants, we may be in default under the related indentures, which could lead to an acceleration of unpaid principal and accrued interest under the indentures. Any such acceleration could lead to an acceleration of amounts outstanding under our 2007 Credit Facility. In the event of any acceleration of unpaid principal and accrued interest under our 2007 Credit Facility or under the debentures, we will not be permitted to make payments to the holders of the debentures until the unpaid principal and accrued interest under our 2007 Credit Facility have been fully paid.
 
Risks that Relate to Our Common Stock
 
The price of our common stock may decline due to the number of shares that may be available for sale in the future.
 
Sales of a substantial number of shares of our common stock, or the perception that such sales could occur, could adversely affect the market price of our common stock.
 
Upon conversion or exercise of our outstanding convertible debt and warrants, we will issue the following number of shares of our common stock, subject to anti-dilution protection and other adjustments, including upon certain change of control transactions:
 
                     
    Initial Per Share
 		        Total
 		 
    Conversion
 		    Initial
 		  Approximate
 		 
    Price/Exercise
 		    Conversion
 		  Number of
 		 
Convertible Debt and Warrants
  Price     Dates   Shares  
 
$250.0 million 2.50% Series A Convertible Subordinated Debentures due 2024
  $ 10.50     None (1)     23.8 million  
$200.0 million 2.75% Series B Convertible Subordinated Debentures due 2024
  $ 10.50     None (1)     19.0 million  
$200.0 million 5.0% Convertible Senior Subordinated Debentures due 2025
  $ 6.60     April 27, 2005     30.3 million  
$40.0 million 0.50% Convertible Senior Subordinated Debentures due 2010
  $ 6.75     July 15, 2006     5.9 million  
Warrants issued in connection with the July 2005 Senior Debentures
  $ 8.00     July 15, 2006     3.5 million  
                     
Total
                82.5 million  
                     
 
 
(1) The holders of the Series A Debentures and Series B Debentures have the right to convert the debentures into shares of common stock only upon the occurrence of certain triggering events.
 
As a result of our continuing delay in becoming current in our SEC periodic filings, we are not able to file a registration statement covering the shares issuable upon conversion of any of the debentures or exercise


19

 

of the July 2005 Warrants. Once such a registration statement is effective, more of the shares associated with such debentures and warrants may be sold. Any sales in the public market of such shares of common stock could adversely affect prevailing market prices of our common stock. In addition, under certain circumstances, the existence of the debentures may encourage short selling by market participants because the conversion of the debentures could depress the price of our stock.
 
As of March 31, 2007, our employees held stock options to purchase 34.7 million shares, representing approximately 17% of the 201,593,999 Company’s shares of common stock then outstanding and of which 31.6 million shares are currently vested. An additional number of stock options generally will become exercisable during the calendar years indicated below:
 
                             
    Exercise Price        
Number of Shares
  Range     Average     Calendar Year  
 
 1,470,000
  $ 5.72 — $10.00     $ 8.28       2007  (remainder of 2007)
961,000
    5.72 — 8.77       8.06       2008  
713,000
    7.20 — 8.70       7.85       2009  
 
Since 2005 we have significantly increased the issuance of equity in the form of restricted stock units (“RSUs”) and PSUs (collectively, “stock units”) to managing directors and other key employees, as a means of better aligning the interests of these employees with our shareholders and to enhance the retention of current managing directors. As of March 31, 2007, an aggregate of 21.8 million RSUs and 21.9 million PSUs, net of forfeitures, were issued and outstanding, respectively. The following shares of common stock are expected to be delivered upon settlement of these stock units during the calendar years indicated below (assuming settlement of the PSUs at 100% vesting in 2009):
 
         
Number of Shares
 
Calendar Year
 
8,717,582
  2007
4,138,191
  2008
30,839,099
  2009 and thereafter
 
Because we are not current in our SEC periodic filings, we are unable to issue freely tradable shares of our common stock. Consequently, we have not issued shares under our ESPP or LTIP since January and April 2005, respectively, and significant features of many of our employee equity plans remain suspended. We expect that once we are current in our SEC periodic filings and we are able to issue freely tradable shares of our common stock, our employees may wish to sell a significant number of these shares of common stock, which could materially depress the price of our common stock. Based on the accumulated contributions and the closing price of our common stock as of March 31, 2007, approximately 3.4 million shares would have been purchased through our ESPP as of such date if we could have issued shares under the ESPP. We are considering exercising various rights that we have to stagger the settlement of outstanding, vested stock units once we become current in our SEC periodic filings; however, these alternatives may not be well received by our employees. We have no comparable right to defer settlement of shares due under our ESPP.
 
There are significant limitations on the ability of any person or company to acquire the Company without the approval of our Board of Directors.
 
We have adopted a stockholders’ rights plan. Under this plan, after the occurrence of specified events that may result in a change of control, our stockholders will be able to purchase stock from us or our successor at half the then current market price. This right will not extend, however, to persons participating in takeover attempts without the consent of our Board of Directors or to persons whom our Board of Directors determines to be adverse to the interests of the stockholders. Accordingly, this plan could deter takeover attempts.


20

 

In addition, our certificate of incorporation and bylaws each contains provisions that may make the acquisition of our company more difficult without the approval of our Board of Directors. These provisions include the following, among others:
 
  •     our Board of Directors is classified into three classes, each of which will serve for staggered three-year terms;
 
  •     a director may be removed by our stockholders only for cause and then only by the affirmative vote of two-thirds of our voting stock;
 
  •     only our Board of Directors or the Chairman of our Board of Directors may call special meetings of our stockholders;
 
  •     our stockholders may not take action by written consent;
 
  •     our stockholders must comply with advance notice procedures in order to nominate candidates for election to our Board of Directors or to place stockholders’ proposals on the agenda for consideration at meetings of the stockholders;
 
  •     if stockholder approval is required by applicable law, any mergers, consolidations and sales of all or substantially all of our assets must be approved by the affirmative vote of at least two-thirds of our voting stock; and
 
  •     our stockholders may amend or repeal any of the foregoing provisions of our certificate of incorporation or our bylaws only by a vote of two-thirds of our voting stock.
 
ITEM 1B.  UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2.  PROPERTIES
 
Our properties consist of leased office facilities for specific client contracts and for sales, support, research and development, consulting, administrative and other professional personnel. Our corporate headquarters consists of approximately 235,000 square feet in McLean, Virginia. As of December 31, 2006, we occupied approximately 90 additional offices in the United States and approximately 59 offices in Latin America, Canada, the Asia Pacific region and EMEA. All office space referred to above is leased pursuant to operating leases that expire over various periods during the next 10 years. Portions of our office space are sublet under operating lease agreements, which expire over various periods during the next 10 years and are also being marketed for sublease or disposition. Although we believe our facilities are adequate to meet our needs in the near future, our business requires that our lease holdings accommodate the dynamic needs of our various consulting engagements and, given business demands, the makeup of our leasehold portfolio may change within the next twelve-month period to address these demands.
 
In May 2007, in connection with the settlement of our dispute with KPMG LLP (“KPMG”) regarding the transition services agreement entered into with KPMG in connection with our initial public offering, we amended certain real estate documents relating to a number of properties that we currently sublet from KPMG to either allow us to further sublease these properties to third parties, or to return certain properties we no longer utilize to KPMG, in return for a reduction of the amount of our sublease obligations to KPMG for those properties.


21

 

 
ITEM 3.  LEGAL PROCEEDINGS
 
Overview
 
We currently are a party to a number of disputes that involve or may involve litigation or other legal or regulatory proceedings. Generally, there are three types of legal proceedings to which we have been made a party:
 
  •     Claims and investigations arising from our continuing inability to timely file periodic reports under the Exchange Act, and the restatement of our financial statements for certain prior periods to correct accounting errors and departures from generally accepted accounting principles for those years (“SEC Reporting Matters”);
 
  •     Claims and investigations being conducted by agencies or officers of the U.S. Federal government and arising in connection with our provision of services under contracts with agencies of the U.S. Federal government (“Government Contracting Matters”); and
 
  •     Claims made in the ordinary course of business by clients seeking damages for alleged breaches of contract or failure of performance, by current or former employees seeking damages for alleged acts of wrongful termination or discrimination, and by creditors or other vendors alleging defaults in payment or performance (“Other Matters”).
 
We currently maintain insurance in types and amounts customary in our industry, including coverage for professional liability, general liability and management and director liability. Based on management’s current assessment and insurance coverages believed to be available, we believe that the Company’s financial statements include adequate provision for estimated losses that are likely to be incurred with regard to all matters of the types described above.
 
SEC Reporting Matters
 
2005 Class Action Suits. In and after April 2005, various separate complaints were filed in the U.S. District Court for the Eastern District of Virginia, alleging that the Company and certain of its current and former officers and directors violated Section 10(b) of the Exchange Act, Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by, among other things, making materially misleading statements between August 14, 2003 and April 20, 2005 with respect to our financial results in our SEC filings and press releases. On January 17, 2006, the court certified a class, appointed class counsel and appointed a class representative. The plaintiffs filed an amended complaint on March 10, 2006 and the defendants, including the Company, subsequently filed a motion to dismiss that complaint, which was fully briefed and heard on May 5, 2006. We were awaiting a ruling when, on March 23, 2007, the court stayed the case, pending the U.S. Supreme Court’s decision in the case of Makor Issues & Rights, Ltd v. Tellabs, argued before the Supreme Court on March 28, 2007. On June 21, 2007, the Supreme Court issued its opinion in the Tellabs case, holding that to plead a strong inference of a defendant’s fraudulent intent under the applicable federal securities laws, a plaintiff must demonstrate that such an inference is not merely reasonable, but cogent and at least as compelling as any opposing inference of non-fraudulent intent. The Supreme Court decision is expected to significantly inform the court’s decision regarding the complaint and our motion to dismiss the complaint. It is not possible to predict with certainty whether or not we will ultimately be successful in this matter or, if not, what the impact might be.
 
2005 Shareholder’s Derivative Demand. On May 21, 2005, we received a letter from counsel representing one of our shareholders requesting that we initiate a lawsuit against our Board of Directors and certain present and former officers of the Company, alleging breaches of the officers’ and directors’ duties of care and loyalty to the Company relating to the events disclosed in our report filed on Form 8-K, dated April 20, 2005. On January 21, 2006, the shareholder filed a derivative complaint in the Circuit Court of Fairfax County, Virginia, that was not served on the Company until March 2006. The shareholder’s complaint alleged that his demand


22

 

was not acted upon and alleged the breach of fiduciary duty claims previously stated in his demand. The complaint also included a non-derivative claim seeking the scheduling of an annual meeting in 2006. On May 18, 2006, following an extensive audit committee investigation, our Board of Directors responded to the shareholder’s demand by declining at that time to file a suit alleging the claims asserted in the shareholder’s demand. The shareholder did not amend the complaint to reflect the refusal of his demand. We filed demurrers on August 11, 2006, which effectively sought to dismiss the matter related to the fiduciary duty claims. On November 3, 2006, the court granted the demurrers and dismissed the fiduciary claims, with leave to file amended claims. As a result of our annual meeting of stockholders held on December 14, 2006, the claim seeking the scheduling of an annual meeting became moot. On January 3, 2007, the plaintiff filed an amended derivative complaint re-asserting the previously dismissed derivative claims and alleging that the Board’s refusal of his demand was not in good faith. The Company’s renewed motion to dismiss all remaining claims was heard on March 23, 2007 and no ruling has yet been entered.
 
SEC Investigation. On April 13, 2005, pursuant to the same matter number as its inquiry concerning our restatement of certain financial statements issued in 2003, the staff of the SEC’s Division of Enforcement requested information and documents relating to our March 18, 2005 Form 8-K. On September 7, 2005, we announced that the staff had issued a formal order of investigation in this matter. We subsequently have received subpoenas from the staff seeking production of documents and information, including certain information and documents related to an investigation conducted by our Audit Committee. We continue to provide information and documents to the SEC as requested. The investigation is ongoing and the SEC is in the process of taking the testimony of a number of our current and former employees, as well as one of our former directors.
 
In connection with the investigation by our Audit Committee, we became aware of incidents of possible non-compliance with the Foreign Corrupt Practices Act and our internal controls in connection with certain of our operations in China and voluntarily reported these matters to the SEC and U.S. Department of Justice in November 2005. Both the SEC and the Department of Justice are investigating these matters in connection with the formal investigation described above. On March 27, 2006, we received a subpoena from the SEC regarding information related to these matters.
 
Government Contracting Matters
 
California Subpoenas. In December 2004, we were served with a subpoena by the Grand Jury for the United States District Court for the Central District of California. The subpoena sought records relating to twelve contracts between the Company and the U.S. Federal government, including two General Service Administration (“GSA”) schedules, as well as other documents and records relating to our U.S. Federal government work. We have produced documents in accordance with an agreement with the Assistant U.S. Attorney. The focus of the review is upon our billing and time/expense practices, as well as alliance agreements where referral or commission payments were permitted. In July 2005, we received a subpoena by the U.S. Army related to Department of Defense contracts. We subsequently were served with several subpoenas issued by the inspectors general of the GSA and the Department of Defense. These subpoenas are largely duplicative of the grand jury subpoena. In December 2006, the Company’s counsel was informally informed by the Assistant U.S. Attorney involved in this matter that the government has declined to pursue any criminal proceedings arising out of this matter. The government continues to pursue the investigation on the civil side. We continue to cooperate fully and have produced substantial amounts of documents and other information. At this time, we cannot predict the outcome of the investigation.
 
Core Financial Logistics System. There is an ongoing investigation of the Core Financial Logistics System (“CoreFLS”) project by the Inspector General’s Office of the Department of Veterans Affairs and by the Assistant U.S. Attorney for the Central District of Florida. To date, we have been issued three subpoenas, in June 2004, December 2004 and May 2006, seeking the production of documents relating to the CoreFLS project. We are cooperating with the investigation and have produced documents in response to the subpoenas. To date, there have been no specific allegations of criminal or fraudulent conduct on our part or any


23

 

contractual claims filed against us by the Veterans Administration in connection with the project. We continue to believe we have complied with all of our obligations under the CoreFLS contract. We cannot, however, predict the outcome of the inquiry.
 
Other Matters
 
Peregrine Litigation. We were named as a defendant in several civil lawsuits regarding certain software resale transactions with Peregrine Systems, Inc. during the period 1999 and 2001, in which purchasers and other individuals who acquired Peregrine stock alleged that we participated in or aided and abetted a fraudulent scheme by Peregrine to inflate Peregrine’s stock price, and we were also sued by a trustee succeeding the interests of Peregrine for the same conduct. In December 2005, we executed conditional settlement agreements whereby we were released from liability in these matters and in all claims for indemnity by KPMG, our former parent, in each of these cases. We issued settlement payments of approximately $36.9 million with respect to these matters in September 2006. In addition, on January 5, 2006, we finalized an agreement with KPMG, providing conditional mutual releases to each other from fee advancement and indemnification claims with respect to these matters, with no settlement payment or other exchange of monies between the parties.
 
We did not settle the In re Peregrine Systems, Inc. Securities Litigation and on January 19, 2005, the matter was dismissed by the trial court as it relates to us. The plaintiffs have appealed the dismissal and briefing of the appeal has been completed. To the extent that any judgment is entered in favor of the plaintiffs against KPMG, KPMG has notified us that it will seek indemnification for any such sums. The Company disputes KPMG’s entitlement to any such indemnification.
 
On November 16, 2004, Larry Rodda, a former employee, pled guilty to one count of criminal conspiracy in connection with the Peregrine software resale transactions that continue to be the subject of the government inquiries. Mr. Rodda also was named in a civil suit brought by the SEC. We were not named in the indictment or civil suit, and are cooperating with the government investigations.
 
Series B Debenture Suit. On September 8, 2005, certain holders of our 2.75% Series B Convertible Subordinated Debentures (the “Series B Debentures”) provided a purported Notice of Default to us based upon our failure to timely file certain of our SEC periodic reports due in 2005. Thereafter, these holders asserted that as a result, the principal amount of the Series B Debentures, accrued and unpaid interest and unpaid damages were due and payable immediately.
 
The indenture trustee for the Series B Debentures then brought suit against us and, on September 19, 2006, the Supreme Court of New York ruled on motion that we were in default under the indenture for the Series B Debentures and ordered that the amount of damages be determined subsequently at trial. We believed the ruling to be in error and on September 25, 2006, appealed the court’s ruling and moved for summary judgment on the matter of determination of damages.
 
After further negotiations, we and the relevant holders of our Series B Debentures entered into a First Supplemental Indenture (the “First Supplemental Indenture”) with The Bank of New York, as trustee, which amends the subordinated indenture governing our 2.50% Series A Convertible Subordinated Debentures due 2024 (the “Series A Debentures”) and the Series B Debentures. Concurrently, we and the relevant holders of our Series B Debentures lawsuit agreed to discontinue the lawsuit.
 
The First Supplemental Indenture modifies the debentures to include: (i) a waiver of our SEC reporting requirements under the subordinated indenture through October 31, 2008, (ii) the interest rate payable on all Series A Debentures from 3.00% per annum to 3.10% per annum until December 23, 2011, and (iii) adjustment of the interest rate payable on all Series B Debentures from 3.25% per annum to 4.10% per annum until December 23, 2014.


24

 

In order to address any possibility of a claim of cross-default, on November 2, 2006, we entered into a First Supplemental Indenture with The Bank of New York, as trustee, which amends the indenture governing our 5.0% Convertible Senior Subordinated Debentures due 2025. The supplemental indenture includes a waiver of our SEC reporting requirements through October 31, 2007 and provides for further extension through October 31, 2008 upon our payment of an additional fee of 0.25% of the principal amount of the debentures. We paid to certain consenting holders of these debentures a consent fee equal to 1.00% of the outstanding principal amount of the debentures. In addition, on November 9, 2006, we entered into an agreement with the holders of our 0.50% Convertible Senior Subordinated Debentures due July 2010, pursuant to which we paid a consent fee equal to 1.00% of the outstanding principal amount of the debentures, in accordance with the terms of the purchase agreement governing the issuance of these debentures.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
On December 14, 2006, we held our 2006 Annual Meeting of Stockholders. Set forth below is information concerning each matter submitted to a vote at the meeting.
 
Election of Directors. Our stockholders elected the following persons as Class II directors, to hold office until the annual meeting of stockholders to be held in 2008 and their respective successors have been duly elected and qualified, and as Class III directors, to hold office until the annual meeting of stockholders to be held in 2009 and their respective successors have been duly elected and qualified, as applicable.
 
                 
Nominee
  For     Withhold  
 
Class II Directors:
               
Wolfgang Kemna
    146,986,049       15,119,408  
Albert L. Lord
    150,959,411       11,146,046  
J. Terry Strange
    147,088,156       15,017,301  
Class III Directors:
               
Roderick C. McGeary
    160,035,388       2,070,069  
Harry L. You
    160,822,084       1,283,373  
 
Approval of Amended and Restated BearingPoint, Inc. 2000 Long-Term Incentive Plan. Our stockholders approved the adoption of the Amended and Restated BearingPoint, Inc. 2000 Long-Term Incentive Plan.
 
                 
For
 
Against
   
Abstain
 
 
122,729,827
    37,623,511       1,752,079  
 
Ratification of Appointment of PricewaterhouseCoopers LLP. Our stockholders ratified the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our 2006 fiscal year.
 
                 
For
 
Against
   
Abstain
 
 
155,829,428
    5,636,361       68,896  


25

 

Executive Officers of the Company
 
Information about our executive officers as of June 1, 2007, is provided below.
 
Judy A. Ethell, 48, has been Chief Financial Officer since October 2006 and Executive Vice President—Finance and Chief Accounting Officer since July 2005. Previously, she held various positions with PricewaterhouseCoopers LLP (“PwC”) between 1982 and 2005. From 2003 to 2005, Ms. Ethell was a Partner and Tax Site Leader of PwC, where her duties included managing client service, human resources, marketing, and management of the St. Louis, Missouri Tax office. From 2001 to 2003, Ms. Ethell was a National Tour Partner (Tax) of PwC.
 
F. Edwin Harbach, 53, has been President and Chief Operating Officer since January 2007. From 1976 until his retirement in 2004, Mr. Harbach held various positions with and served in leadership roles at Accenture Ltd, a global management consulting, technology services and outsourcing company, including chief information officer, Managing Partner of Japan and Managing Director of Quality and Client Satisfaction.
 
Laurent C. Lutz, 47, has been General Counsel and Secretary since March 2006. From 1999 to 2006, Mr. Lutz was Assistant General Counsel, Corporate Finance and Securities, of Accenture Ltd, a global management consulting, technology services and outsourcing company.
 
Roderick C. McGeary, 56, has been a member of our Board of Directors since August 1999 and Chairman of the Board of Directors since November 2004. Since March 2005, Mr. McGeary has served the Company in a full-time capacity, focusing on clients, employees and business partners. From 2004 until 2005, Mr. McGeary served as our Chief Executive Officer. From 2000 to 2002, Mr. McGeary was the Chief Executive Officer of Brience, Inc., a wireless and broadband company. Mr. McGeary is a director of Cisco Systems, Inc., a worldwide leader in networking for the Internet, and Dionex Corporation, a manufacturer and marketer of chromatography systems for chemical analysis.
 
Harry L. You, 48, has been a member of our Board of Directors and Chief Executive Officer since March 2005. Mr. You also served as the Company’s Interim Chief Financial Officer from July 2005 until October 2006. From 2004 to 2005, Mr. You was Executive Vice President and Chief Financial Officer of Oracle Corporation, a large enterprise software company. From 2001 to 2004, Mr. You was the Chief Financial Officer of Accenture Ltd, a global management consulting, technology services and outsourcing company. Mr. You is a director of Korn Ferry International, a leading provider of recruitment and leadership development services.
 
The term of office of each officer is until election and qualification of a successor or otherwise in the discretion of the Board of Directors.
 
There is no arrangement or understanding between any of the above-listed officers and any other person pursuant to which any such officer was elected as an officer.
 
None of the above-listed officers has any family relationship with any director or other executive officer. Please see “Certain Relationships and Related Transactions, and Director Independence—Judy Ethell/Robert Glatz” for information about Ms. Ethell’s relationship with Robert Glatz, a managing director and member of our management team.


26

 

 
PART II.
 
ITEM 5.  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Market Information
 
Our common stock is traded on the NYSE under the trading symbol “BE.” Until we are current in all of our periodic reporting requirements with the SEC, the NYSE will identify us as a late filer on its website and consolidated tape by affixing the letters “LF” to our common stock ticker symbol.
 
We did not file our annual reports on Form 10-K for 2005 and 2004 on a timely basis. We filed our 2004 Form 10-K on January 31, 2006 and our 2005 Form 10-K on November 22, 2006. We did not file this Annual Report on Form 10-K on a timely basis.
 
The following table sets forth the high and low sales prices for our common stock as reported on the NYSE for the quarterly periods indicated.
 
Price Range of Common Stock
 
                 
    Price Range of
 		 
    Common Stock  
    High     Low  
 
Fiscal Year 2007
               
Second Quarter (as of June 22)
  $ 8.00     $ 6.90  
First Quarter
    8.56       7.33  
Fiscal Year 2006
               
Fourth Quarter
    8.89       7.44  
Third Quarter
    9.00       7.36  
Second Quarter
    9.59       7.55  
First Quarter
    9.16       7.77  
Fiscal Year 2005
               
Fourth Quarter
    7.99       6.54  
Third Quarter
    8.50       7.27  
Second Quarter
    8.82       4.65  
First Quarter
    8.89       7.34  
Fiscal Year 2004
               
Fourth Quarter
    9.98       7.29  
Third Quarter
    9.25       7.22  
Second Quarter
    11.00       8.03  
First Quarter
    11.30       9.50  


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Holders
 
At June 1, 2007, we had approximately 858 stockholders of record.
 
Dividends
 
We have never paid cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock for at least the next 12 months. We intend to retain all of our earnings, if any, for general corporate purposes, and, if appropriate, to finance the expansion of our business. Our 2007 Credit Facility contains limitations on our payment of dividends. Our future dividend policy will also depend on our earnings, capital requirements, financial condition and other factors considered relevant by our Board of Directors.
 
Issuer Purchases of Equity Securities
 
In July 2001, our Board of Directors authorized us to repurchase up to $100.0 million of our common stock, and in April 2005, the Board of Directors authorized a stock repurchase program for an additional $100.0 million for common stock repurchases to be made over a twelve-month period beginning on April 11, 2005. We did not repurchase shares during this twelve-month period and the April 2005 authorization has now expired. Any shares repurchased under these stock repurchase programs are held as treasury shares.
 
We did not repurchase any of our common stock during 2006, and we do not intend to repurchase any shares of common stock until we are current in our periodic filings with the SEC. In addition, our 2007 Credit Facility contains limitations on our ability to repurchase shares of our common stock. At December 31, 2006 we were authorized to repurchase up to $64.3 million of our common stock.
 
Sales of Securities Not Registered Under the Securities Act
 
In 2006, we did not make any sales of securities not registered under the Securities Act. In 2004 and 2005, we completed the sale of the following convertible debt and warrants, all of which were sold pursuant to exemptions from registration provided by Section 4(2) or Regulation D under the Securities Act:
 
  •     On December 22, 2004, we completed the sale of the $225.0 million aggregate principal amount of our 2.50% Series A Convertible Subordinated Debentures due 2024 (the “Series A Debentures”) and the $175.0 million aggregate principal amount of our 2.75% Series B Convertible Subordinated Debentures due 2024 (the “Series B Debentures”).
 
  •     On January 5, 2005, we completed the sale of an additional $25.0 million aggregate principal amount of our Series A Debentures and an additional $25.0 million of our Series B Debentures.
 
  •     On April 27, 2005, we completed the sale of the $200.0 million aggregate principal amount of our 5.00% Convertible Senior Subordinated Debentures due 2025 (the “April 2005 Senior Debentures”).
 
  •     On July 15, 2005, we completed the sale of the $40.0 million aggregate principal amount of our 0.50% Convertible Senior Subordinated Debentures due July 2010 (the “July 2005 Senior Debentures”) and common stock warrants (the “July 2005 Warrants”) to purchase up to 3.5 million shares of our common stock.


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Equity Compensation Plan Information
(as of December 31, 2006)
 
                         
    (a)     (b)     (c)  
                Number of securities
 		 
                remaining available
 		 
    Number of securities
 		    Weighted-average
 		    for future issuance
 		 
    to be issued upon
 		    exercise price of
 		    under equity
 		 
    exercise of
 		    outstanding
 		    compensation plans
 		 
    outstanding options,
 		    options, warrants
 		    (excluding securities
 		 
Plan Category
  warrants and rights     and rights     reflected in column (a))  
 
Equity Compensation Plans Approved by Security Holders
    53,844,732     $ 11.10       58,768,750 (1)(2)
Equity Compensation Plans Not Approved by Security Holders
    —       —       —  
                         
Total
    53,844,732     $ 11.10       58,768,750  
                         
 
 
(1) Includes 35,019,474 shares of common stock available for grants of stock options, restricted stock, stock appreciation rights and other stock-based awards under our LTIP and 23,749,276 shares of common stock available for issuance under our ESPP.
 
(2) Under our LTIP, the number of shares of common stock authorized for grants or awards under the plan is 92,179,333. Under our ESPP, the number of shares of our common stock available for purchase is 3,766,096 shares, plus an annual increase on the first day of each of our fiscal years beginning on July 1, 2001 and ending on June 30, 2026 equal to the lesser of (i) 30 million shares, (ii) three percent of the shares outstanding on the last day of the immediately preceding fiscal year or (iii) a lesser number of shares as determined by our Board of Directors or the Compensation Committee of the Board.
 
Other Equity Plan Information
 
Effective as of September 14, 2006, the previously announced temporary blackout period pursuant to Regulation BTR ended because the Company’s 401(k) Plan was amended to permanently prohibit participant purchases and Company contributions of Company common stock under the 401(k) Plan.


29

 

COMPARATIVE STOCK PERFORMANCE
 
Our Peer Group (the “Peer Group”) consists of Accenture Ltd, Computer Sciences Corporation, Electronic Data Systems Corporation, and Cap Gemini Ernst & Young. We believe that the members of the Peer Group are most comparable to us in terms of client base, service offerings and size.
 
The following graph compares the total stockholder return on our common stock from 2002 through 2006 with the total return on the S&P 500 Index and the Peer Group. The graph assumes that $100 is invested initially and all dividends are reinvested.
 
(PERFORMANCE GRAPH)
 
ITEM 6.  SELECTED FINANCIAL DATA
 
Our selected financial data below are derived from our audited Consolidated Financial Statements and related Notes included elsewhere in this report as of and for the years ended December 31, 2006, 2005, and 2004. The selected data as of the six months ended December 31, 2003, and for the year ended June 30, 2003, are also derived from audited financial statements. The selected financial data for the year ended June 30, 2002 are derived from unaudited consolidated financial statements and, in the opinion of management, have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of results for these periods. Selected financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and the related Notes thereto included herein.


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Statements of Operations
 
                                                 
                      Six Months
 		             
    Year Ended     Ended
 		    Year Ended  
    December 31,
 		    December 31,
 		    December 31,
 		    December 31,
 		    June 30,
 		    June 30,
 		 
    2006     2005     2004     2003     2003     2002  
                                  (unaudited)  
    (in thousands, except per share amounts)  
 
Revenue
  $ 3,444,003     $ 3,388,900     $ 3,375,782     $ 1,522,503     $ 3,157,898     $ 2,383,099  
                                                 
Costs of service:
                                               
Costs of service
    2,863,856       3,001,327       2,816,559       1,221,249       2,436,864       1,761,444  
Lease and facilities restructuring charge
    29,621       29,581       11,699       61,436       17,283       —  
Impairment charges
    —       —       —       —       —       23,914  
                                                 
Total costs of service
    2,893,477       3,030,908       2,828,258       1,282,685       2,454,147       1,785,358  
Gross profit
    550,526       357,992       547,524       239,818       703,751       597,741  
Amortization of purchased intangible assets
    1,545       2,266       3,457       10,212       45,127       3,014  
Goodwill impairment charge (1)
    —       166,415       397,065       127,326       —       —  
Selling, general and administrative expenses
    748,250       750,867       641,176       272,250       550,098       477,230  
                                                 
Operating income (loss)
    (199,269 )     (561,556 )     (494,174 )     (169,970 )     108,526       117,497  
Insurance settlement
    38,000       —       —       —       —       —  
Interest / other income (expense), net (2)
    (19,774 )     (37,966 )     (17,644 )     (1,773 )     (10,493 )     1,217  
Loss on early extinguishment of debt
    —       —       (22,617 )     —       —       —  
                                                 
Income (loss) before taxes and cumulative effect of change in accounting principle
    (181,043 )     (599,522 )     (534,435 )     (171,743 )     98,033       118,714  
Income tax expense (3)
    32,397       122,121       11,791       4,872       65,342       80,263  
                                                 
Income (loss) before cumulative effect of change in accounting principle
    (213,440 )     (721,643 )     (546,226 )     (176,615 )     32,691       38,451  
Cumulative effect of change in accounting principle, net of tax (4)
    —       —       —       —       —       (79,960 )
                                                 
Net income (loss) applicable to common stockholders (5)
  $ (213,440 )   $ (721,643 )   $ (546,226 )   $ (176,615 )   $ 32,691     $ (41,509 )
                                                 
Earnings (loss) per share—basic and diluted:
                                               
Income (loss) before cumulative effect of change in accounting principle applicable to common stockholders
  $ (1.01 )   $ (3.59 )   $ (2.77 )   $ (0.91 )   $ 0.18     $ 0.24  
Cumulative effect of change in accounting principle
    —       —       —       —       —       (0.50 )
                                                 
Net income (loss) applicable to common stockholders
  $ (1.01 )   $ (3.59 )   $ (2.77 )   $ (0.91 )   $ 0.18     $ (0.26 )
                                                 


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Balance Sheet Data
 
                                                 
    December 31,
 		    December 31,
 		    December 31,
 		    December 31,
 		    June 30,
 		    June 30,
 		 
    2006     2005     2004     2003     2003     2002  
                                  (unaudited)  
    (in thousands)  
 
Cash, cash equivalents, and restricted cash (6)
  $ 392,668     $ 376,587     $ 265,863     $ 122,475     $ 121,790     $ 222,636  
Total assets
    1,939,240       1,972,426       2,182,707       2,211,613       2,150,210       948,029  
Long-term liabilities
    1,078,930       976,501       648,565       408,324       375,991       28,938  
Total debt
    671,850       674,760       423,226       248,228       277,176       1,846  
Total liabilities
    2,116,541       2,017,998       1,558,009       1,141,618       1,006,990       384,935  
Total stockholders’ equity (deficit)
    (177,301 )     (45,572 )     624,698       1,069,995       1,143,220       563,094  
 
 
(1) During the years ended December 31, 2005 and 2004 and the six months ended December 31, 2003, we recorded goodwill impairment charges of $166.4 million, $397.1 million and $127.3 million, respectively. For additional information regarding these goodwill impairment charges and international acquisitions, see Note 5, “Business Acquisitions, Goodwill and Other Intangible Assets,” of the Notes to Consolidated Financial Statements.
 
(2) During the year ended December 31, 2004, we recorded a change in accounting principle resulting in a charge of $0.5 million related to the elimination of a one-month lag in reporting for certain Asia Pacific subsidiaries, as well as a subsidiary within the EMEA region. While the elimination of the one-month lag is considered a change in accounting principle, the effect of the change is included in other income (expense) due to the immateriality of the change in relation to consolidated net loss.
 
(3) During the year ended December 31, 2005, we recorded a valuation allowance of $55.3 million, primarily against our U.S. deferred tax assets to reflect our conclusions that it is more likely than not that these tax benefits would not be realized. For additional information, see Note 14, “Income Taxes,” of the Notes to Consolidated Financial Statements.
 
(4) During the year ended June 30, 2002, we recognized a transitional impairment loss of $80.0 million as the cumulative effect of a change in accounting principle in connection with adopting Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
 
(5) During the fourth quarter of 2006, the one-month reporting lag in the remaining EMEA entities was eliminated. The elimination of one month of activity increased our 2006 consolidated net loss for the year ended December 31, 2006 by $1.2 million.
 
(6) Restricted cash amounts at December 31, 2006, 2005 and 2004 were $3.1 million, $121.2 million and $21.1 million, respectively. As of December 31, 2003, June 30, 2003 and June 30, 2002, there was no restricted cash.


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ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements included elsewhere in this Annual Report. This Annual Report contains forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”
 
Overview
 
We provide strategic consulting applications services, technology solutions and managed services to government organizations, Global 2000 companies and medium-sized businesses in the United States and internationally. In North America, we provide consulting services through our Public Services, Commercial Services and Financial Services industry groups in which we focus significant industry-specific knowledge and service offerings to our clients. Outside of North America, we are organized on a geographic basis, with operations in EMEA, the Asia Pacific region and Latin America.
 
We have started the transition of our business to a more integrated, global delivery model. In 2007, we created a Global Account Management Program and a Global Solutions Council represented by all of our industry groups that will focus on identifying opportunities for globalized solutions suites. Our Global Delivery Centers continue to grow, both in terms of personnel and the percentage of work they provide to our business units.
 
Economic and Industry Factors
 
We believe that our clients’ spending for consulting services is partially correlated to, among other factors, the performance of the domestic and global economy as measured by a variety of indicators such as gross domestic product, government policies, mergers and acquisitions activity, corporate earnings, U.S. Federal and state government budget levels, inflation and interest rates and client confidence levels, among others. As economic uncertainties increase, clients’ interests in business and technology consulting historically have turned more to improving existing processes and reducing costs rather than investing in new innovations. Demand for our services, as evidenced by new contract bookings, also does not uniformly follow changes in economic cycles. Consequently, we may experience rapid decreases in new contract bookings at the onset of significant economic downturns while the benefits of economic recovery may take longer to realize.
 
The markets in which we provide services are increasingly competitive and global in nature. While supply and demand in certain lines of business and geographies may support price increases for some of our standard service offerings from time to time, to maintain and improve our profitability we must constantly seek to improve and expand our unique service offerings and deliver our services at increasingly lower cost levels. Our Public Services industry group, which is our largest, also must operate within the U.S. Federal, state and local government markets where unique contracting, budgetary and regulatory regimes control how contracts are awarded, modified and terminated. Budgetary constraints or reductions in government funding may result in the modification or termination of long-term government contracts, which could dramatically affect the outlook of that business.
 
Revenue and Income Drivers
 
We derive substantially all of our revenue from professional services activities. Our revenue is driven by our ability to continuously generate new opportunities to serve clients, by the prices we obtain for our service offerings, and by the size and utilization of our professional workforce. Our ability to generate new business is directly influenced by the economic conditions in the industries and regions we serve, our anticipation and response to technological change, the type and level of technology spending by our clients and by our clients’


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perception of the quality of our work. Our ability to generate new business is also indirectly and increasingly influenced by our clients’ perceptions of our ability to manage our ongoing issues surrounding our financial accounting, internal controls and SEC reporting capabilities.
 
Our gross profit consists of revenue less our costs of service. The primary components of our costs of service include professional compensation and other direct contract expenses. Professional compensation consists of payroll costs and related benefits associated with client service professional staff (including the vesting of various stock awards, tax equalization for employees on foreign and long-term domestic assignments and costs associated with reductions in workforce). Other direct contract expenses include costs directly attributable to client engagements. These costs include out-of-pocket costs such as travel and subsistence for client service professional staff, costs of hardware and software, and costs of subcontractors. If we are unable to adequately control or estimate these costs, or properly anticipate the sizes of our client service and support staff, our profitability will suffer.
 
Our operating profit reflects our revenue less costs of service and certain additional items that include, primarily, SG&A expenses, which include costs related to marketing, information systems, depreciation and amortization, finance and accounting, human resources, sales force, and other expenses related to managing and growing our business. Write-downs in the carrying value of goodwill and amortization of intangible assets have also reduced our operating profit.
 
Our operating cash flow is derived predominantly from gross operating profit and how we manage our receivables and payables.
 
Key Performance Indicators
 
In evaluating our operating performance and financial condition, we focus on the following key performance indicators: bookings, revenue growth, gross margin (gross profit as a percentage of revenue), utilization, days sales outstanding, free cash flow and attrition.
 
  •     Bookings. We believe that information regarding our new contract bookings provides useful trend information regarding how the volume of our new business changes over time. Comparing the amount of new contract bookings and revenue provides us with an additional measure of the short-term sustainability of revenue growth. Information regarding our new bookings should not be compared to, or substituted for, an analysis of our revenue over time. There are no third-party standards or requirements governing the calculation of bookings. New contract bookings are recorded using then existing currency exchange rates and are not subsequently adjusted for currency fluctuations. These amounts represent our estimate at contract signing of the net revenue expected over the term of that contract and involve estimates and judgments regarding new contracts as well as renewals, extensions and additions to existing contracts. Subsequent cancellations, extensions and other matters may affect the amount of bookings previously reported. Bookings do not include potential revenue that could be earned from a client relationship as a result of future expansion of service offerings to that client, nor does it reflect option years under contracts that are subject to client discretion. In addition, government contracts or work orders are not included in bookings until related appropriations spending has been properly approved and, then, only to the extent of the amount of spending approved. Consequently, there can be significant differences between the times of contract signing and new contract booking recognition. Although our level of bookings provides an indication of how our business is performing, we do not characterize our bookings, or our engagement contracts associated with new bookings, as backlog because our engagements generally can be cancelled or terminated on short notice or without notice.
 
  •     Revenue Growth. Unlike bookings, which provide only a general sense of future expectations, period-over-period comparisons of revenue provide a meaningful depiction of how successful we have been in growing our business over time.


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  •     Gross Margin (gross profit as a percentage of revenue). Gross margin is a meaningful tool for monitoring our ability to control our costs of services. Analysis of the various cost elements, including professional compensation expense, effects of foreign exchange rate changes and the use of subcontractors, as a percentage of revenue over time can provide additional information as to the key challenges we are facing in our business. The cost of subcontractors is generally more expensive than the cost of our own workforce and can negatively impact our gross profit. While the use of subcontractors can help us to win larger, more complex deals, and also may be mandated by our clients, we focus on limiting the use of subcontractors whenever possible in order to minimize our costs. We also utilize certain adjusted gross margin metrics in connection with the vesting and settlement of certain employee incentive awards. For a discussion of these metrics, see Item 11, “Executive Compensation—Compensation Discussion and Analysis.”
 
  •     Utilization. Utilization represents the percentage of time our consultants are performing work, and is defined as total hours charged to client engagement or to non-chargeable client-relationship projects divided by total available hours for any specific time period, net of holiday and paid vacation hours. In 2006, we changed how we define utilization to make this metric more consistent with how we believe our industry peer group measures this metric. Utilization percentages for 2005 set forth herein have been adjusted to conform to this new definition.
 
  •     Days Sales Outstanding (“DSO”). DSO is an operational metric that approximates the amount of earned revenue that remains unpaid by clients at a given time. DSOs are derived by dividing the sum of our outstanding accounts receivable and unbilled revenue, less deferred revenue, by our average net revenue per day. “Average net revenue per day” is determined by dividing total net revenue for the most recently ended trailing twelve-month period by 365.
 
  •     Free Cash Flow. Free cash flow is calculated by subtracting purchases of property and equipment from cash provided by operating activities. We believe free cash flow is a useful measure because it allows better understanding and assessment of our ability to meet debt service requirements and the amount of recurring cash generated from operations after expenditures for fixed assets. Free cash flow does not represent our residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. We use free cash flow as a measure of recurring operating cash flow. Free cash flow is a non-GAAP financial measure. The most directly comparable financial measure calculated in accordance with generally accepted accounting principles in the United States of America (“GAAP”) is net cash provided by operating activities.
 
  •     Attrition. Attrition, or voluntary total employee turnover, is calculated by dividing the number of our employees who have chosen to leave the Company within a certain period by the total average number of all employees during that same period. Our attrition statistic covers all of our employees, which we believe provides metrics that are more compatible with, and comparable to, those of our competitors.
 
Readers should understand that each of the performance indicators identified above are utilized by many companies in our industry and by those who follow our industry. There are no uniform standards or requirements for computing these performance indicators, and, consequently, our computations of these amounts may not be comparable to those of our competitors.
 
2006 Highlights
 
In 2006, we were able to sustain our underlying operations and our core business continued to perform, despite the issues we continue to face with respect to our financial accounting systems and efforts to become timely in our SEC periodic reports. We began to see the benefits of restructuring efforts undertaken in previous years, particularly in our Asia Pacific and EMEA industry groups, as well as management actions aimed at improving our profitability. These benefits allowed us to show significant improvements in gross


35

 

profit and net income (loss) while maintaining relatively constant year-over-year levels of bookings and revenue. We were also successful in resolving and settling a number of long-running contractual disputes.
 
We were able to achieve these results despite increasing pricing pressures and competition for the retention of skilled personnel—two current industry-wide phenomena that affect us more acutely due to our continuing efforts to timely produce our financial statements and file our periodic reports with the SEC. We continue to be uniquely challenged in these regards and by persisting negative perceptions regarding our financial position that may have been, in our opinion, unjustifiably increased by our settlement of a vigorously contested lawsuit initiated by several holders of our Series B Debentures.
 
Of particular note in 2006 are the following:
 
  •     New contract bookings for 2006 were $3,130.0 million, a slight decrease from new contract bookings of $3,130.7 million for 2005. We experienced strong bookings growth in all of our industry groups other than Commercial Services and Financial Services, with the most notable growth in our EMEA and Public Services industry groups. Commercial Services bookings were significantly lower when compared year-over-year, primarily due to 2005 bookings in excess of $100 million related to the signing of our contract with Hawaiian Telcom Communications, Inc. (the “HT Contract”), one of the largest contracts in our history. The short-term uncertainty and confusion precipitated by the dispute with certain holders of our Series B Debentures also appears to have had some temporary effect on bookings during the fourth quarter of 2006, particularly in our Financial Services business unit, which resulted in a year-over-year decrease in bookings for that business unit and can be expected to impact its revenue in early 2007. New contract bookings for the three months ended March 31, 2007 were approximately $709.5 million, compared with new contract bookings of $804.6 million for the three months ended March 31, 2006. Bookings growth in our international operations was not sufficient to offset contraction in our North American industry groups. In North America, Public Service bookings appear to have been impacted by increasing uncertainty surrounding the timing of approval of various Federal contract appropriations being precipitated by various factors, including ongoing congressional debates regarding military operations in Iraq and Afghanistan and the 2008 Federal budget. Year-over-year decreases in Public Services bookings for the three months ended March 31, 2007 are substantially attributable to growth in the first quarter of 2007 of the total contract value of new Federal contracts signed for which appropriations approval remained pending (“unfunded Federal contracts”) at March 31, 2007. We do not record unfunded Federal contracts as new contract bookings while appropriation approvals remain pending as there can be no assurances that these approvals will be forthcoming in the near future, if at all. Public Services bookings were also affected by one exceptionally large booking in our State, Local and Education (“SLED”) sector in the first quarter of 2005. Outside of our Public Services business unit, new contract bookings in North America were also negatively affected by commercial clients segregating larger projects into series of smaller work orders.
 
  •     Our revenue for 2006 was $3,444.0 million, representing an increase of $55.1 million, or 1.6%, over 2005 revenue of $3,388.9 million. Significant revenue increases in Asia Pacific, Public Services and EMEA were substantially offset by Commercial Services revenue declines and reversals attributable to the settlement of disputes with two significant telecommunications industry clients.
 
  •     Our gross profit for 2006 was $550.5 million, compared to $358.0 million for 2005. Gross profit as a percentage of revenue increased to 16.0% during 2006 from 10.6% during 2005. Revenue increases, as well as reductions in professional compensation expense and other direct contract expenses, were relatively equal contributors to this improvement.
 
  •     During 2006 and 2007, we worked with Hawaiian Telcom Communications, Inc., a telecommunications industry client (“HT”), to resolve issues relating to our delivery of services for the design, build and operation of various information technology systems. On February 8, 2007, we entered into a Settlement Agreement and Transition Agreement with HT. Pursuant to the Settlement Agreement, we paid $52 million, $38 million of which was paid by certain of our insurers. In


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  addition, we waived approximately $29.6 million of invoices and other amounts otherwise payable by HT to the Company. The Transition Agreement governed our transitioning of the remaining work under the HT Contract to a successor provider, which has been completed. In 2006 and 2005, we incurred losses of $28.2 million and $111.7 million, respectively, under the HT Contract.
 
  •     On June 18, 2007, we entered into a settlement with a telecommunications industry client resolving the client’s claims under a client-initiated “audit” of certain of the Company’s time and expense charges relating to an engagement that closed in 2003. In connection with the settlement, we will make six equal annual payments to the client in an aggregate amount of $24 million, with the first payment made on the signing date in return for a full release of the client’s claims. While this settlement provides us with the opportunity to perform services for this client in the future, the dispute has and will likely continue to negatively affect the level of new bookings anticipated from this client in 2007.
 
  •     On May 22, 2007, we settled certain disputes with KPMG that had arisen between our companies related to the February 2001 Transition Services Agreement. KPMG had asserted that we were liable to it for approximately $31 million under the Transition Services Agreement for certain technology service termination costs. While neither company admitted any liability under these claims, these claims were mutually released. In addition, we agreed to amend a number of real estate subleases between KPMG and BearingPoint, and consent to the further subletting of others. The settlement further involves cash payments by us to KPMG of $5 million over a three-year time frame.
 
  •     We incurred SG&A expenses of $748.3 million in 2006, representing a decrease of $2.6 million, or 0.3%, from SG&A expenses of $750.9 million in 2005. While we achieved costs savings by reducing the size of our sales force and other business development expenses, these cost savings were significantly offset by continuing increases in our finance and accounting costs, primarily for sub-contracted labor and other costs related to the closing of our 2005 financial statements, and charges related to our agreement with Yale University. During 2006, we incurred external costs related to the closing of our financial statements of approximately $128.2 million, compared to approximately $94.6 million for 2005. We currently expect our costs for 2007 related to these efforts to be approximately $68 million.
 
  •     For 2006, we decided to allocate $17 million among our managing directors as a performance cash bonus because: (i) we had not previously paid performance-based bonuses to our managing directors and desired to begin implementing our “pay for performance” philosophy; (ii) we were able to sustain our underlying operations and our core business continued to perform, despite the issues we continue to face with respect to our financial accounting systems and efforts to become timely in our SEC periodic reports; and (iii) we were unable to provide for bonuses under the MD Compensation Plan. Bonuses were not paid under the MD Compensation Plan because the plan has not yet been fully activated and the target levels of profitability set forth under the plan were not achieved due to our ongoing issues related to our financial accounting systems and internal controls and their related impact on our ability to become timely in our SEC periodic reports and deliver shares of common stock under equity-based awards. The amount of the bonus was determined by giving consideration to, and was partially covered by, the total base compensation we budgeted for payment to our managing directors for 2006. The total bonus exceeded the actual amount of compensation that would have been paid to our managing directors for 2006 by $10 million. Management believes the $192.5 million increase in 2006 gross profit across all industry groups justified payment of these amounts.
 
  •     For 2006, while all of our material weaknesses in our internal control over financial reporting cited for 2005 remain, we have remediated certain aspects of these material weaknesses, and improvements in our internal control over financial reporting continue. Over the course of 2006, we undertook significant remediation efforts, which reduced the total numbers of deficiencies and material weaknesses that continue to contribute to the material weaknesses in our internal control environment by 24% and 33%, respectively. Senior management implemented and caused to be sustained


37

 

  significant changes to personnel, including finance and accounting personnel in our corporate offices, processes and policies and have communicated the importance of our Standards of Business Conduct and ethics, and the importance of internal control over financial reporting. In addition, senior management caused to be implemented policies and processes and other mechanisms around the identification of our long-term assignment personnel in the United States and the accuracy and completeness of the related financial accounts.
 
  •     In 2006, we realized a net loss of $213.4 million, or a loss of $1.01 per share, compared to a net loss of $721.6 million, or a loss of $3.59 per share, in 2005. The decline in net loss in 2006 as compared to 2005 is attributable to several factors, including:
 
  •     Our gross profit across all industry groups in 2006 improved over our 2005 gross profit by $192.5 million;
 
  •     We did not have a goodwill impairment charge in 2006, compared to a $166.4 million goodwill impairment charge incurred in 2005;
 
  •     We recorded $38 million in 2006 for an insurance settlement in connection with our settlement with HT; and
 
  •     Our income tax provision for 2006 was lower than our income tax provision for 2005, as the 2005 amount included a $55.3 million increase to valuation allowance primarily against our U.S. deferred tax assets.
 
Contributing to the net loss for 2006 were $48.2 million of losses related to the previously mentioned settlements with telecommunication clients, $57.4 million for bonuses payable to our employees, $53.4 million of non-cash compensation expense related to the vesting of stock-based awards, $29.6 million of lease and facilities restructuring charges and the previously mentioned $33.6 million year-over-year increase in external costs related to the closing of our financial statements.
 
  •     Utilization for 2006 was 76.2%, compared with 75.8% in 2005. Utilization for the three months ended March 31, 2007 was 76.6%.
 
  •     Free cash flow for 2006 and 2005 was $8.1 million and ($153.9) million, respectively. Net cash provided by and (used in) operating activities in 2006 and 2005 was $58.7 million and ($113.1) million, respectively. Purchases of property and equipment in 2006 and 2005 were $50.6 million and $40.8 million, respectively. The change in free cash flow for 2006 compared to 2005 resulted primarily from the following:
 
  •     We lowered our DSOs through enhancements in our cash collections efforts. At December 31, 2006, our DSOs stood at 82 days, representing a decrease of 12 days, or 13%, from our DSOs at December 31, 2005. Our continued focus on this metric during 2006 improved our free cash flow by $136.3 million as compared to 2005;
 
  •     We experienced higher operating profitability in our business, as evidenced by the sharp decline in operating loss for 2006 as compared to 2005; and
 
  •     We experienced greater cash outflows in 2006 due to payments made for professional services and related expenses accrued under the HT Contract during 2005, and in connection with our settlement with Peregrine Systems, Inc.
 
  •     In November 2006, we settled litigation with certain holders of our Series B Debentures who had alleged that we were in default under the applicable indenture as a result of our failure to timely provide certain SEC periodic reports to the trustee. Although we continue to believe we were not in default under the applicable indenture, and a subsequent court’s decision has provided support for our belief, this dispute exemplifies some of the recurring challenges presented to the growth of our business by the continuation of our inability to timely file our SEC periodic reports. We continue to be guardedly optimistic that achieving our goal of becoming current in our SEC periodic reports in


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  2007 and beginning to timely file our SEC periodic reports in 2008 will help alleviate some of the business pressures we have recently experienced in this regard.
 
  •     In 2006, we continued to focus on enhancing our global operations model. We launched an on-line, centrally managed Strategy and Operating Manual that standardizes and centralizes our operating processes and procedures, including legal and financial compliance procedures. We also created improved contracting procedures that will be implemented in the second half of 2007, which will provide additional references, resources and rigor around the contracting process. We also established a Global Account Management Program and governance structure that will focus on the identification and management of key global accounts and a Global Solutions Council represented by all of our industry groups that will focus on identifying opportunities for globalized solution suites.
 
  •     In 2006, we increased the use of lower cost resources, both offshore (China and India) and domestically (Hattiesburg, Mississippi). We focused our global delivery centers on developing specific skills and capabilities that would enhance our delivery capabilities. In 2006, we opened new facilities in Bangalore, India to expand our offshore footprint in an increasingly competitive market. In 2007, we will continue to optimize our global delivery model to improve our cost structure for our clients, and we expect to continue to aggressively increase the number of engagement hours delivered through our global delivery centers.
 
  •     In the first half of 2006, we hired a new General Counsel and Chief Compliance Officer, each with significant prior regulatory and compliance experience. We have strengthened our compliance programs by (1) restructuring and centralizing our compliance efforts under our Chief Compliance Officer, (2) developing and implementing in 2006 firm-wide enhanced compliance training with respect to the Foreign Corrupt Practices Act (the initial roll-out of which was completed by over 95% of our workforce), (3) adopting in 2007 a new Standards of Business Conduct based on best industry practices (to replace our prior Code of Business Conduct and Ethics) and (4) creating in 2007 a Compliance Committee comprised of members of our senior management whose focus will be to properly organize and allocate the necessary resources to address broader, Company-wide compliance efforts.
 
  •     During 2006, we spent approximately $28.0 million related to the maintenance of our existing North American financial reporting systems and the preparation of our transition to new North American financial reporting systems. We finalized decisions regarding the design of, and obtained licenses for the components needed to substantially replace, our North American financial reporting systems. For additional information regarding the transformation of our North American financial reporting systems, see “—Principal Business Priorities for 2007 and Beyond.”
 
  •     During 2006, we completed the deployment of our Program Control function, composed of approximately 200 accounting professionals, designed to support the completeness and accuracy of engagement accounting details in North America. This function is designed to build effective financial controls into the lifecycle of a contract by supporting the timely assembly and review of revenue recognition, engagement close-out and other contract cost elements as part of our daily operations. The success of this function will depend on a number of factors, including our ability to attract and retain qualified finance professionals, the implementation of an effective control environment over client contract accounting and the development of financial systems, and the acceptance and utilization of these systems by our managing directors, to support the function.
 
  •     As of December 31, 2006, we had approximately 17,500 full-time employees, including approximately 15,300 consulting professionals, which represented a decrease in billable headcount of approximately 0.6% from full-time employees and consulting professionals at December 31, 2005 of 17,600 and 15,400, respectively. As of March 31, 2007, we had approximately 17,500 full-time employees, including approximately 15,200 consulting professionals.
 
  •     Our voluntary, annualized attrition rate for 2006 was 25.6%, compared to 25.3% for 2005. The highly competitive industry in which we operate, and our continuing issues related to our North


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  American financial reporting systems and internal controls, have made it particularly critical and challenging for us to attract and retain experienced personnel. Our voluntary, annualized attrition rate for the three months ended March 31, 2007 was 23.9%, compared to our voluntary annualized attrition rate of 24.2% for the three months ended March 31, 2006.
 
  •     In November 2006, we began our partnership with Yale University to create the BearingPoint Leadership Program at Yale School of Management, an innovative education and training program focusing on career and leadership development for our employees. Participants are taught a curriculum jointly developed by a faculty composed of both Yale professors and BearingPoint specialists, including a consulting skills workshop for experienced professionals and management skills training for newly hired or promoted managers and managing directors. We believe that our collaboration with Yale will offer our employees and new recruits with a unique learning experience that will help improve our ability to recruit and retain talented and motivated employees, provide them with the skills and training that will enhance the delivery of services to our clients and cultivate a shared set of values, skills and culture that we hope will come to define a career with us. Furthermore, we believe that our relationship with a top-tier university will augment our brand and enhance our recruiting opportunities.
 
  •     In April 2007, the U.S. Defense Contract Audit Agency (“DCAA”) issued a report on its audit of our financial capability, which concluded that our financial condition is acceptable for performing government contracts. The DCAA examined our financial condition and capability to determine if we have adequate financial resources to perform government contracts in the current and near-term (up to one year). We expect that after the filing of this Annual Report on Form 10-K, the DCAA will begin a new audit of our financial capability, to re-assess our financial condition.
 
  •     As previously reported, in May 2006, the DCAA issued a report on its audit of our control environment and overall accounting systems controls, which audit began in 2005. The DCAA report concluded that our accounting system was “inadequate in part,” meaning that our system is adequate for government contracting. The DCAA report contained four condition statements, the most material of which relates to our failure to timely file our periodic reports with the SEC. The remaining three condition statements have been significantly or completely remediated.
 
  •     On February 6, 2007, Standard & Poor’s Rating Services (“Standard & Poor’s”) withdrew our senior unsecured rating of B- and our subordinated debt rating of CCC+ and removed us from CreditWatch, in accordance with its policy of withdrawing ratings for companies that have not been current in their SEC filings for an extended period of time. Separately, on October 6, 2006, Moody’s downgraded our corporate family rating to B2 from B1 and the ratings for two of our subordinated convertible bonds series to B3 from B2, and placed our ratings on review for further downgrade.
 
Principal Business Priorities for 2007 and Beyond
 
In early 2007, our Board of Directors determined that our principal business priorities are: (1) enhance shareholder value, (2) become timely in our financial and SEC periodic reporting, (3) replace our North American financial reporting systems, (4) reduce employee attrition, (5) increase client awareness, confidence and satisfaction, and (6) strengthen our balance sheet. Identified below are management’s current and planned initiatives to achieve the priorities established by our Board of Directors.
 
Enhance Shareholder Value. We recognize that shareholder value is measured in bottom line results. We are also keenly aware that to improve shareholder value in the coming years we must focus not only on improving our business model, but also on becoming timely and economical in producing our financial statements and periodic reports. Our 2007 initiatives related to improving our business model include:
 
  •     Focus on Larger and More Profitable Clients and Projects. We must continue to focus our sales efforts on more profitable and growing client accounts and projects. Our long-term clients continue to predominate our revenue base, and we intend to prioritize our efforts around deepening these


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  relationships. With respect to smaller projects, we are standardizing our approach so as to either increase their profitability or avoid adding them to our portfolio. A key factor in returning to positive cash flow from operations will be our ability to significantly reduce our SG&A expenses associated with marginally profitable opportunities.
 
  •     Focus on Strengths and Specialization. We are seeking to improve the clarity of our business strategy by requiring our industry groups and managed services teams to further refine their respective areas of focus in terms of exclusively targeted segments, industries and offerings, and to more clearly differentiate their products and services.
 
  •     Increase Use of Offshore Services. We are continuing to increase the use of lower cost resources both offshore (China and India) and domestically (Hattiesburg, Mississippi) to support engagement work. Our EMEA practice is also exploring Central European near-shore capabilities. Our ability to counter the increasing success of offshore service providers in gaining market share in lower-margin, high volume market offerings will continue to depend on our ability to achieve our strategy of leveraging our comparatively limited network of global delivery centers and lower cost resources, with the goal of sustaining profitable growth in more sophisticated, strategic and transformational type engagements. While we had some success in this area in 2006, in order to continue to be able to combat increasing competition, we must continue to show improvements in both increasing the volume of our services delivered offshore and maintaining our margins on that work.
 
  •     Leverage Project Management and Reduce Cost of Delivery. We are leveraging our workforce more effectively by improving our managing director-to-staff ratio on projects from 1:17 as of March 31, 2005 to 1:24 as of December 31, 2006. We continue to seek to improve this ratio in 2007 and beyond. We also are implementing stricter criteria concerning the use of subcontractors to reduce our use of subcontractors and drive greater utilization of internal resources.
 
  •     Utilize Professional Services Staff More Efficiently. We are striving to become more efficient in recruiting, training and utilizing our professional services staff. Historically, we have faced challenges associated with transitioning employees from completed projects to new engagements, forecasting demand for our services, maintaining an appropriately balanced and sized workforce, and managing attrition. Our current staffing and, hence, recruiting efforts are managed on an industry group basis. We must continue to focus on improving both the processes and systems surrounding recruiting individuals with the right skill sets and staffing client engagements globally in a more efficient manner. We are actively seeking and soon hope to hire an experienced human resources executive to reinvigorate and redesign our human resources function.
 
  •     Manage By Standardized Metrics. Our new Chief Operating Officer is implementing a standardized key performance indicator scorecard for all industry groups and segments that will reinforce consistent management reporting.
 
  •     Improve Risk Management Processes. We have now implemented engagement risk management processes at both business unit and firm-wide levels to better evaluate prospective engagement and execution risks. Through these steps we intend to implement specific operations procedures to be utilized within our industry groups and deal review procedures to review significant proposals and contracts. Our legal team is completing a review of the terms of our larger, more risky engagements, the results of which will be used to conduct periodic deal assessments and reviews throughout the course of these engagements.
 
  •     Reduce Cost and Improve Quality of Corporate Services. We continue to aggressively explore cost reduction opportunities to move non-core administrative activities offshore. In 2007, we also plan to reduce our infrastructure costs by (1) eliminating costs associated with previous revenue recognition processes with the full deployment of our Program Control Function, (2) reducing employee attrition, thereby reducing related costs relating to hiring and exiting employees, (3) reducing our reliance on external consultants, and (4) consolidating our information technology hosting providers.


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Become Timely in Our Financial and SEC Periodic Reporting. Becoming timely and more economical in producing accurate financial statements and SEC periodic reports is critical to our ability to enhance shareholder value in the coming years. While our objective is to complete our financial statements for the third quarter of 2007 and become current in our SEC periodic reporting with the filing of our quarterly report on Form 10-Q for that period with the SEC, in order to sustain accurate and timely production of our financial statements and timely file our SEC periodic reports, we must dramatically reduce the amount of time required to conduct our periodic financial closing process. Though we continue to incrementally improve on the amount of time required to conduct this process, we will not be able to fully minimize that amount of time until we have remediated the material weaknesses in our internal control over financial reporting and fully transitioned to our new North American financial reporting systems. We currently do not anticipate full remediation of all material weaknesses until 2008.
 
After significant analysis and debate, we have decided that we must prioritize our efforts to achieve and sustain timely financial and SEC periodic reporting in 2007 and early 2008, even as we continue to remediate our existing material weaknesses. The consequences of this decision are that we will need to continue to utilize our existing North American financial reporting systems longer than we previously planned and, during this time, we will need to rely heavily on our client engagement teams to fully accept and utilize the tools and resources we have provided them to build effective controls into the lifecycle of our contracts and assemble and review client contract accounting information on a timely basis as part of our daily operations, rather than subsequent to the end of the relevant financial reporting period.
 
While we remain confident with the proposed design for our new North American financial reporting systems, as well as our decision to transition to these systems as a longer-term improvement to our internal control environment, we are also very mindful of the risks associated with the transitioning to these new systems, particularly while we are striving to become timely and current in our financial and SEC periodic reporting. It is likely the transition to our new North American financial reporting systems will not begin before the last half of 2008.
 
Our 2007 initiatives related to becoming timely in our financial and SEC periodic reporting include:
 
  •     Shorten the Financial Closing Process. To achieve and sustain timely financial and SEC periodic reporting, public companies with properly functioning internal controls prepare their financial statement accounts and balances (“the financial closing process”) on a monthly cycle within fifteen days of month’s end. Since we first identified a significant number of material weaknesses in our internal control over financial reporting in 2004, we have conducted only a quarterly financial closing process. The financial closing process for the first quarter of 2007 is not complete. We will be transitioning to a monthly financial closing process when we begin the preparation of our financial statement accounts and balances for the third quarter of 2007. We are targeting achievement of a monthly financial closing process 30 days after month’s end, beginning with the first quarter of 2008. Our ability to achieve this target on time will depend, in part, on (1) becoming timely and maintaining only one open monthly cycle at a time, (2) strengthening overall control processes to rely more on systems (rather than manual) processes, (3) gaining experience with new underlying tools and processes, (4) moving to a real-time quarterly review process by our auditors, (5) completing organizational build-outs in certain areas, (6) retaining an appropriate number of qualified Finance personnel, particularly in our international locations, and (7) full cooperation from our client engagement teams and other corporate services in timely providing financial information and updates into our financial closing process.
 
  •     Improve Disclosure Controls. Under the SEC’s reporting requirements, we must file our quarterly reports within forty days of the end of each fiscal quarter and our annual reports within sixty days of the end of each fiscal year. We are very proud of the significant improvements made by our Finance and Legal teams in 2006 in the preparation, review and completion of the content of our SEC periodic reports. However, our disclosure controls process must be further streamlined and coordinated across the Company for us to achieve timely filing of our SEC periodic reports, given


42

 

  that our monthly financial closing process is targeted to be reduced to no less than 30 days by early 2008.
 
  •     Remediate Material Weaknesses. We must remediate the material weaknesses in our financial reporting to remove the significant amounts of manual, time-consuming steps that currently exist in our financial closing process to be able to consistently file our SEC periodic reports on a timely basis. Resolving these material weaknesses is also crucial to being able to obtain timely and accurate standardized metrics with which to manage our business, increase cash collections and further reduce our DSOs, assuming we can achieve our targets for shortening the financial closing process. We were unsuccessful in our attempts to remediate all of our material weaknesses by the end of 2006 and can give no assurances as to how many material weaknesses we will be able to remediate by the end of 2007. We currently do not anticipate full remediation of all material weaknesses until 2008, however, we must make significant progress in our remediation during 2007, if we are to sustain timely financial and SEC periodic reporting in 2008.
 
Replace Our North American Financial Reporting Systems. We continue to prepare for the transformation of our North American financial reporting systems. During 2006, we spent approximately $28.0 million related to the maintenance of our existing North American financial reporting systems and the preparation of our transition to new North American financial reporting systems, and we currently expect to incur an additional $24.6 million and $33.4 million in 2007 and 2008, respectively, in these efforts. We will be transitioning from our existing North American financial reporting systems to two industry-standard applications. For our Public Services business in North America, we plan to implement an industry-standard platform for U.S. government contract accounting. We plan to implement the same financial system for our North American commercial operations that has worked successfully for our EMEA operations. Our planning and design phase is near complete. We believe that our existing North American financial reporting systems are currently performing at an operating level that will allow us, in the short-term, to prepare our financial statements and make our periodic filings with the SEC on a timely basis, assuming we can achieve our targets for shortening the financial closing process and obtaining timely and accurate financial information and updates from our client engagement teams and other corporate services.
 
Reduce Employee Attrition. We are seeking to reduce attrition by raising our levels of employee ownership to align the interests of our employees with those of our shareholders, providing improved training opportunities and seeking to better understand and manage employee career expectations.
 
  •     PSU Program. In February 2007, the Compensation Committee approved the issuance of up to 25 million PSUs to our managing directors and other high-performing senior-level employees, including its executive officers. The PSU awards, each of which initially represents the right to receive at the time of settlement one share of the Company’s common stock, will vest on December 31, 2009. Generally, for any PSU award to vest, two performance-based metrics must be achieved for the performance period beginning on February 2, 2007 and ending on December 31, 2009: (1) the Company must first achieve a compounded average annual growth target in consolidated business unit contribution, and (2) total shareholder return for shares of the Company’s common stock must be at least equal to the 25th percentile of total shareholder return of the Standard & Poor’s 500 (“S&P 500”). For information, see Item 11, “Executive Compensation —Compensation Discussion and Analysis.” Depending on the Company’s total shareholder return relative to those companies that comprise the S&P 500, the PSU awards will vest on December 31, 2009 at percentages varying from 0% to 250% of the number of PSU awards originally awarded, and will settle on various dates in 2010 and 2011. We have no plans to make additional equity awards on a broad basis to our existing employees through 2009.
 
  •     Performance Cash Awards. In February 2007, the Compensation Committee also granted performance cash awards providing for the payment of up to $50 million to a group of our managing directors and other high-performing senior-level employees, including executive officers. Generally, 50% of these cash retention awards will be earned on December 31, 2007, and 50% will be earned


43

 

  on December 31, 2008, subject to the Company achieving the same compounded growth rate target in consolidated business unit contribution as required under the PSU program for the relevant period of time. If, however, the minimum compounded annual growth in consolidated business unit contribution has not been achieved at the end of each of those years, the awards may still be fully earned (up to the full remaining available amount of the award) if compounded average annual growth for the three-year period ended December 31, 2009 is achieved. Amounts earned will be paid by March 31, 2010 or, if the determination of amounts earned cannot be made by March 31, within 30 days of the date when the determination is made. Furthermore, we believe this cash award program provides retentive benefits for its participants, particularly when our equity based awards are illiquid, while further enhancing a pay-for-performance culture within the Company.
 
  •     Enhance Employee Training. To help our employees develop the skills they need to be successful with clients and advance their careers, we will further implement our training programs, including the joint training program with Yale University. In 2007, our curriculum includes consulting skills workshops for both our new analysts as well as our more experienced consultants, a management skills workshop for top performing managers focused on our company’s vision, direction, strategy and culture, and leadership workshops, both at the senior manager and new managing directors levels. We expect that in 2007, over 1,500 of our employees will participate in one of our programs at Yale.
 
  •     In 2007, we will be developing a new High-Performing Senior Manager Program focused on identifying and developing high-performing employees, which will be supported by a new curriculum and new promotion processes. This program will represent our investment in enhanced succession planning as well as our commitment to developing our next generation of leaders.
 
  •     In 2007, we are implementing two initiatives aimed at enhancing career development and performance management for our employees. The BearingPoint Core Competencies provide career guidance to our employees by defining a roadmap for career development and progression, setting forth a standardized set of behaviors that can be used to assess performance within each career level and identify areas for development. These core competencies are supplemented by our new Career Model, which sets forth three specialized career paths, applicable across our organization, for focused development and advancement for our staff. The Career Model encourages our employees to actively consider their long-term career goals within our organization, and to take actions that will help them achieve these goals. We believe that having a standardized framework for assessing our employees will enhance the structure of our cash and incentive compensation programs.
 
  •     Improve Employee Culture. We are continuing our efforts to enhance the attractiveness of career opportunities at BearingPoint. We intend to improve our corporate culture by, among other things, (1) implementing an integrated career and compensation framework, (2) initiating periodic employee satisfaction surveys, (3) utilizing employee satisfaction and attrition metrics by our industry groups, segments, client teams and individual managing directors, (4) increasing the time spent by management with our employees, and (5) enhancing our internal human resources functions.
 
Increase Client Awareness, Confidence and Satisfaction. Our 2007 initiatives related to enhancing our clients’ confidence and satisfaction include:
 
  •     Invest in Our Brand. In late 2006, we launched a new brand strategy and began a more aggressive marketing effort in late 2006. These programs are designed to increase awareness of BearingPoint as a leading global management and technology firm among clients and prospects in key markets. Developed through extensive internal and external research, our new brand strategy and messaging more clearly define who we are, what we do and how we are different from our competitors. We launched our new brand in February 2007 to our employees, to help improve communication,


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  increase employee morale and retention, and equip employees with enhanced sales and marketing materials to be more successful in the marketplace.
 
  •     Redirect Our Marketing Efforts. In connection with our new brand strategy, we initiated a fully integrated marketing program featuring our re-designed internet site, print and online advertising, events, sponsorships, thought leadership, public relations and client references. In the summer of 2007, we plan to launch a targeted marketing campaign to make an impact in the public services market, particularly in the Washington, D.C. area. This focused campaign will include strategic advertising in key business publications and targeted vertical publications in the government sector. We expect our brand re-positioning efforts will continue throughout 2007 and beyond.
 
  •     Develop Common Operating Model and Methodologies. We are implementing a common operating model across our geographic regions to provide clients with integrated global solutions. We are evaluating the effectiveness and acceptance within our businesses of our common service delivery methodologies. We expect to develop, enhance and standardize common methodologies and to enforce more rigorously their consistent use across the organization. From these efforts, we expect to realize increased efficiencies and improved client service quality.
 
  •     Client Satisfaction Surveys. Our Client Satisfaction Program has served as a valuable tool for gaining insight into our client relationships. The program helps us to understand how we are perceived in the market and identify differentiators that distinguish us from our competitors. In 2006, we redesigned our client satisfaction survey, translated the survey into nine languages, and expanded the program to increase the number of participating clients and translated to every business unit. In addition, we added a measure to gauge satisfaction at the engagement level, to augment the account-level reviews that were already in place. In 2007, we intend to continue to expand the scope and scale of the program, to gain a further understanding of our clients’ expectations and levels of satisfaction within all of our industry sectors.
 
Strengthen Our Balance Sheet. Our 2007 efforts to strengthen our balance sheet include:
 
  •     New Credit Facility. Our 2007 Credit Facility, consists of (1) term loans in the aggregate principal amount of $300 million and (2) a letter of credit facility in an aggregate face amount at any time outstanding not to exceed $200 million. The 2007 Credit Facility provides us with significantly greater financial resources than our 2005 Credit Facility did, and on terms that will allow us to focus on achieving and sustaining timely completion of our financial statements and filing of our SEC periodic filing without artificially imposed, interim financial reporting deadlines such as those that were imposed under the 2005 Credit Facility. For additional information regarding the 2007 Credit Facility, see “—Liquidity and Capital Resources.”
 
  •     Reduce our DSOs and Improve Operating Cash Flow. While we made significant strides in reducing DSOs in 2006, we have not yet achieved industry averages. To achieve further meaningful reductions in DSOs, we have focused on this metric at all leadership levels and are working to increase the functionality of, and training on, North American financial reporting systems to aid in the prompt generation of client invoices and account aging schedules. At December 31, 2006, our DSOs stood at 82 days, which we believe to be significantly above the current DSO average for information technology service companies.
 
  •     Improve Internal Cash Management. Through May 31, 2007, we have repatriated approximately $83.6 million from our international subsidiaries in 2007. In connection with this effort, we undertook a detailed review of our existing internal processes relating to cash management and have identified a series of steps that we can take to more efficiently utilize cash within our different geographic regions and more efficiently allocate firm-wide costs among all of our geographic regions.


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Segments
 
Our reportable segments for 2006 consist of our three North America industry groups (Public Services, Commercial Services, and Financial Services), our three international regions (EMEA, Asia Pacific and Latin America) and the Corporate/Other category (which consists primarily of infrastructure costs). Revenue and gross profit information about our segments are presented below, starting with each of our industry groups and then with each of our three international regions (in order of size).
 
Our chief operating decision maker, the Chief Executive Officer, evaluates performance and allocates resources among the segments. Accounting policies of our segments are the same as those described in Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements. Upon consolidation, all intercompany accounts and transactions are eliminated. Inter-segment revenue is not included in the measure of profit or loss for each reportable segment. Performance of the segments is evaluated on operating income excluding the costs of infrastructure functions (such as information systems, finance and accounting, human resources, legal and marketing) as described in Note 18, “Segment Information,” of the Notes to Consolidated Financial Statements. During 2005, we combined our Communications, Content and Utilities and Consumer, Industrial and Technology industry groups to form the Commercial Services industry group.
 
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
 
Revenue. Our revenue for 2006 was $3,444.0 million, an increase of $55.1 million, or 1.6%, over 2005 revenue of $3,388.9 million. The following tables present certain revenue information and performance metrics for each of our reportable segments during 2006 and 2005. Amounts are in thousands, except percentages. For additional geographical revenue information, please see Note 18, “Segment Information,” of the Notes to Consolidated Financial Statements.
 
                                 
    2006     2005     $ Change     % Change  
 
Revenue
                               
Public Services
  $ 1,339,358     $ 1,293,390     $ 45,968       3.6 %
Commercial Services
    554,806       663,797       (108,991 )     (16.4 %)
Financial Services
    399,331       379,592       19,739       5.2 %
EMEA
    703,083       662,020       41,063       6.2 %
Asia Pacific
    360,001       312,190       47,811       15.3 %
Latin America
    82,319       75,664       6,655       8.8 %
Corporate/Other
    5,105       2,247       2,858       n/m  
                                 
Total
  $ 3,444,003     $ 3,388,900     $ 55,103       1.6 %
                                 
 
                         
    Impact of
 		    Revenue growth
 		       
    currency
 		    (decline), net of
 		       
    fluctuations     currency impact     Total  
 
Revenue
                       
Public Services
    0.0 %     3.6 %     3.6 %
Commercial Services
    0.0 %     (16.4 )%     (16.4 %)
Financial Services
    0.0 %     5.2 %     5.2 %
EMEA
    0.9 %     5.3 %     6.2 %
Asia Pacific
    (3.2 )%     18.5 %     15.3 %
Latin America
    9.3 %     (0.5 )%     8.8 %
Corporate/Other
    n/m       n/m       n/m  
Total
    0.1 %     1.5 %     1.6 %


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n/m = not meaningful
 
  •     Public Services revenue increased in 2006, with strong revenue growth in certain sectors, particularly in the SLED and Emerging Markets sectors. SLED revenue increased due to significant increases in revenue from a number of our key clients. Emerging Markets revenue increased primarily from revenue increases on several large existing multi-year contracts and also from revenue associated with several new contracts signed in 2006. Revenue declined in our Civilian business sector due to reduced information technology spending and an increasingly competitive environment.
 
  •     Commercial Services revenue decreased in 2006, primarily due to a $57.5 million year-over-year decrease in revenue associated with the HT Contract and a reduction of $20.0 million in revenue related to the resolution of a billings dispute with another large telecommunications client regarding an engagement completed in 2003. Reduced customer demand for our services, particularly in the telecommunications industry, also affected our revenue. These decreases were partially offset by the recognition in 2006 of approximately $22.3 million in previously deferred revenue.
 
  •     Financial Services revenue increased in 2006, primarily due to revenue growth in our Insurance and Banking sectors, offset by declines in our Global Markets sector. Insurance sector revenue increased in response to industry-wide demand for major technology updates and upgrades to operational systems. Banking sector revenue increases were attributable to existing client engagements and the introduction of some new clients into our traditional client base. Global Markets sector revenue declined as we increased the proportion of work derived from lower rate per hour offshore resources in response to client demand, which affected our revenue.
 
  •     EMEA revenue increased in 2006, primarily due to strong revenue growth in the United Kingdom, France, Ireland and Switzerland. Revenue growth in the United Kingdom was driven by our continued expansion in that region, while France continued to benefit from an expanding systems integration practice and additional penetration into the French public sector market in 2006. Ireland and Switzerland revenue growth were generally attributable to increased demand for consulting services in local markets. Revenue in Germany declined due to a combination of the impact of adjustments in billable headcount precipitated by the restructuring of our German practice, increased pressure on pricing, and a reduction in the spending levels of German public sector clients.
 
  •     Asia Pacific revenue increased in 2006, primarily due to significant revenue growth in Australia and Japan. Australian revenue increased primarily due to a significant new client engagement in the telecommunications industry. Japanese revenue increased due to revenue growth from system implementation contracts and projects involving compliance with Japan’s Financial Instruments and Exchange Law, though a substantial portion of this revenue growth was derived from the use of subcontractors. Asia Pacific revenue was negatively affected in 2006 by the weakening of foreign currencies against the U.S. dollar, primarily the Japanese Yen.
 
  •     Latin America revenue increased in 2006, primarily as a function of the weakening of the U.S. dollar against local currencies in Latin America (particularly the Brazilian Real), along with local currency revenue growth and increasing engagement hours in Brazil, offset by deteriorating revenue in Mexico. Revenue in Brazil increased due to the addition of significant client engagements, while revenue in Mexico declined as they continue to restructure the business to position itself for future growth.
 
  •     Corporate/Other: Our Corporate/Other segment does not contribute significantly to our revenue.
 
Gross Profit. During 2006, our revenue increased $55.1 million and total costs of service decreased $137.4 million when compared to 2005, resulting in an increase in gross profit of $192.5 million, or 53.8%.


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Gross profit as a percentage of revenue increased to 16.0% for 2006 from 10.6% for 2005. The change in gross profit for 2006 compared to 2005 resulted primarily from the following:
 
  •     Professional compensation expense decreased as a percentage of revenue to 49.8% for 2006, compared to 52.2% for 2005. We experienced a net decrease in professional compensation expense of $53.8 million, or 3.0%, to $1,716.6 million for 2006 from $1,770.4 million for 2005. The decrease in 2006 from 2005 was primarily due to higher professional compensation expense recorded in 2005 (as compared to 2006) related to the loss accrual for the HT Contract. Stock compensation expense for 2006 was $41.0 million, as compared to $76.3 million for 2005. Cash bonuses earned in 2006 by our highest-performing employees were $49.0 million, as compared to $17.8 million earned in 2005.
 
  •     Other direct contract expenses decreased as a percentage of revenue to 26.0% for 2006 compared to 28.7% for 2005. We experienced a net decrease in other direct contract expenses of $75.8 million, or 7.8%, to $897.0 million for 2006 from $972.8 million for 2005. The decrease in 2006 from 2005 was primarily due to other direct contract expenses recorded in 2005 related to the loss accrual for the HT Contract. In addition, the decline was driven by reduced subcontractor expenses as a result of the increased use of internal resources and a decrease of resales of procured materials.
 
  •     Other costs of service as a percentage of revenue decreased to 7.3% for 2006 from 7.6% for 2005. We experienced a net decrease in other costs of service of $7.9 million, or 3.1%, to $250.2 million for 2006 from $258.1 million for 2005. The decrease in 2006 from 2005 was primarily attributable to a reduction in administrative support and related costs for our business units.
 
  •     In 2006 we recorded, within the Corporate/Other operating segment, a charge of $29.6 million for lease and facilities restructuring costs, compared to a $29.6 million charge for lease, facilities and other exit activities in 2005. These costs for 2006 related primarily to the fair value of future lease obligations associated with office space, primarily within the EMEA and North America regions, which we will no longer be using.
 
Gross Profit by Segment. The following tables present certain gross profit and margin information and performance metrics for each of our reportable segments for years 2006 and 2005. Amounts are in thousands, except percentages.
 
                                 
    Year Ended December 31,              
    2006     2005     $ Change     % Change  
 
Gross Profit
                               
Public Services
  $ 263,841     $ 238,904     $ 24,937       10.4 %
Commercial Services
    81,419       (11,142 )     92,561       830.7 %
Financial Services
    135,187       110,602       24,585       22.2 %
EMEA
    129,523       87,702       41,821       47.7 %
Asia Pacific
    80,448       53,636       26,812       50.0 %
Latin America
    9,058       4,321       4,737       109.6 %
Corporate/Other
    (148,950 )     (126,031 )     (22,919 )     n/m    
                                 
Total
  $ 550,526     $ 357,992     $ 192,534       53.8 %
                                 


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    Year Ended December 31,  
    2006     2005  
 
Gross Profit as a % of revenue
               
Public Services
    19.7 %     18.5 %
Commercial Services
    14.7 %     (1.7 %)
Financial Services
    33.9 %     29.1 %
EMEA
    18.4 %     13.2 %
Asia Pacific
    22.3 %     17.2 %
Latin America
    11.0 %     5.7 %
Corporate/Other
    n/m       n/m  
Total
    16.0 %     10.6 %
 
n/m = not meaningful
 
Changes in gross profit by segment were as follows:
 
  •     Public Services gross profit increased in 2006 despite a substantial reduction in gross profits in our SLED practice and increases in professional compensation expense related to hiring needs related to demand for our services.
 
  •     Commercial Services gross profit increased in 2006, despite significantly lower revenue, primarily due to a $45.5 million year-over-year reduction in losses from the HT Contract. Other factors contributing to the increase in gross profit were the cost savings realized from 2005 workforce realignments and reduced subcontractor expenses as a result of the increased use of internal resources.
 
  •     Financial Services gross profit increased in 2006, due to higher revenue combined with a decline in compensation expenses. The decrease in compensation expenses is primarily due to more efficient utilization of Company shared staff in this segment and efficient use of offshore resources.
 
  •     EMEA gross profit increased in 2006, due primarily to higher revenue and improved profitability in France and Ireland along with significantly improved profitability in Spain as a result of higher utilization and lower costs. Slight declines in compensation expense and other direct contract expenses also contributed to the increase in gross profit, though compensation expense for 2006 continued to be affected by severance and other costs related to the internal restructuring of the Company’s German practice.
 
  •     Asia Pacific gross profit increased in 2006, primarily due to significant improvements in profitability and staff utilization in the Company’s Australian and Chinese businesses. Due to the high demand for resources in the Japanese market and limited availability of qualified personnel, increases in subcontractor expenses served to depress the growth of gross profit in the Company’s Japanese operations. Significant regional improvements in compensation expense derived from the 2005 workforce reductions in Japan and China were substantially offset by additional compensation expenses associated with the use of the Company’s personnel from outside the region in connection with a significant new telecommunications industry engagement in Australia.
 
  •     Latin America gross profit increased in 2006, due to higher revenue offset by an increase in compensation expenses, driven by higher billable headcount to meet the growth of our business in the region, predominantly Brazil.
 
  •     Corporate/Other consists primarily of rent expense and other facilities related charges.


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Amortization of Purchased Intangible Assets. Amortization of purchased intangible assets decreased $0.7 million to $1.5 million in 2006 from $2.3 million for 2005.
 
Goodwill Impairment Charges. In 2006, there was no goodwill impairment charge. In 2005, a goodwill impairment loss of $166.4 million was recognized. For 2005, it was determined that the carrying amount of our EMEA and Commercial Services segments’ goodwill exceeded the implied fair value of that goodwill by $102.2 million and $64.2 million, respectively.
 
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $2.6 million, or 0.3%, to $748.3 million for 2006 from $750.9 million for 2005. Selling, general and administrative expenses as a percentage of gross revenue decreased to 21.7% for 2006 from 22.2% for 2005. The decrease was primarily due to costs savings from the reduction in the size of the Company’s sales force and reducing other business development expenses. Offsetting these decreases were increases in costs for finance and accounting, primarily for sub-contracted labor and other costs directly related to the 2005 financial statement close. In addition, the Company incurred additional SG&A expenses during 2006 related to an agreement with Yale University, as described above.
 
Interest Income. Interest income was $8.7 million and $9.0 million in 2006 and 2005, respectively. Interest income is earned primarily from cash and cash equivalents, including money-market investments. The slight decrease in interest income was due to lower levels of cash available to be invested in money markets during 2006 as compared to 2005.
 
Interest Expense. Interest expense was $37.2 million and $33.4 million in 2006 and 2005, respectively. Interest expense is attributable to our debt obligations, consisting of interest due along with amortization of loan costs and loan discounts. The increase in interest expense was due to higher average debt balances in 2006 as compared to 2005.
 
Insurance Settlement. During 2006, related to the Settlement Agreement with Hawaiian Telcom Communications, Inc., we recorded $38.0 million for an insurance settlement. See Note 11, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements for more information.
 
Other Income/Expense, net. Other income, net, was $8.7 million in 2006, and other expense, net, was $13.6 million in 2005. The balances in each period primarily consist of realized foreign currency exchange gains and losses.
 
Income Tax Expense. We incurred income tax expense of $32.4 million for the year ended December 31, 2006 and income tax expense of $122.1 million for the year ended December 31, 2005. The principal reasons for the difference between the effective income tax rate on loss from continuing operations of (17.9)% and (20.4)% for years ended December 31, 2006 and 2005, respectively, and the U.S. Federal statutory income tax rate are the nondeductible goodwill impairment charge of $0 million and $118.5 million; nondeductible meals and entertainment expense of $22.0 million and $19.6 million; increase to deferred tax asset valuation allowance of $76.8 million and $223.0 million; state and local income taxes of $(6.7) million and $(12.7) million; impact of foreign recapitalization of $5.4 million and $82.0 million; foreign taxes of $(3.8) million and $13.7 million; income tax reserves of $8.4 million and $18.6 million; non-deductible interest of $10.7 million and $7.7 million; foreign dividend income of $13.6 million and $9.3 million and other non-deductible items of $10.0 million and $3.7 million, respectively.
 
Net Loss. For 2006, we incurred a net loss of $213.4 million, or a loss of $1.01 per share. Contributing to the net loss for 2006 were $48.2 million of losses related to the previously mentioned settlements with telecommunication clients, $57.4 million accrued for bonuses payable to our employees, $53.4 million of non-cash compensation expense related to the vesting of stock-based awards, $29.6 million of lease and facilities restructuring charges and the previously mentioned $33.6 million year-over-year increase in external costs related to the closing of our financial statements. For 2005, we incurred a net loss of $721.6 million, or


50

 

a loss of $3.59 per share. Included in our results for 2005 were a $166.4 million goodwill impairment charge, $111.7 million of operating losses related to the HT Contract, $81.8 million of non-cash compensation expense related to the vesting of Retention RSUs, a $55.3 million increase in the valuation allowance primarily against our U.S. deferred tax assets, and $29.6 million of lease and facilities restructuring charges.
 
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 
Revenue. Our revenue for 2005 was $3,388.9 million, an increase of $13.1 million, or 0.4%, over 2004 revenue of $3,375.8 million. The following tables present certain revenue information and performance metrics for each of our reportable segments during 2005 and 2004. Amounts are in thousands, except percentages. For additional geographical revenue information, please see Note 18, “Segment Information,” of the Notes to Consolidated Financial Statements.
 
                                 
    Year Ended December 31,              
    2005     2004     $ Change     % Change  
 
Revenue
                               
Public Services
  $ 1,293,390     $ 1,343,670     $ (50,280 )     (3.7 %)
Commercial Services
    663,797       654,022       9,775       1.5 %
Financial Services
    379,592       326,452       53,140       16.3 %
EMEA
    662,020       642,686       19,334       3.0 %
Asia Pacific
    312,190       328,338       (16,148 )     (4.9 %)
Latin America
    75,664       79,302       (3,638 )     (4.6 %)
Corporate/Other
    2,247       1,312       935       n/m  
                                 
Total
  $ 3,388,900     $ 3,375,782     $ 13,118       0.4 %
                                 
 
                         
          Revenue
 		       
          growth
 		       
    Impact of
 		    (decline), net
 		       
    currency
 		    of currency
 		       
    fluctuations     impact     Total  
 
Revenue
                       
Public Services
    0.0 %     (3.7 )%     (3.7 %)
Commercial Services
    0.0 %     1.5 %     1.5 %
Financial Services
    0.0 %     16.3 %     16.3 %
EMEA
    0.1 %     2.9 %     3.0 %
Asia Pacific
    1.1 %     (6.0 )%     (4.9 %)
Latin America
    12.9 %     (17.5 )%     (4.6 %)
Corporate/Other
    n/m       n/m       n/m  
Total
    0.4 %     0.0 %     0.4 %
 
n/m = not meaningful
 
  •     Public Services revenue decreased in 2005, primarily attributable to expected reductions of $33.8 million in revenue derived from our subcontractors and resales of procured materials (which we must bill our clients, thereby increasing our revenue) and revenue reductions of $10.0 million associated with two loss contracts, both of which more than offset increases in headcount and chargeable hours resulting from our expanding use of employees at lower average bill rates.
 
  •     Commercial Services revenue increased in 2005, primarily driven by revenue growth with transportation clients and a significant contract with Hawaiian Telcom Communications, Inc., which was partially offset by revenue declines from certain of our clients in the manufacturing and high-tech industries.


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  •     Financial Services revenue increased in 2005, primarily due to revenue growth in all sectors, with especially strong growth in the Insurance and Global Market sectors. Revenue growth was principally due to an increase in demand for our services. Our average billing rates improved slightly year-over-year, as our ability to obtain higher rates per hour on certain of our market offerings offset the increasing use of lower-priced offshore personnel as a component of our overall pricing model.
 
  •     EMEA revenue increased in 2005, primarily due to combined revenue growth in France and the United Kingdom of $53.6 million, partially offset by a $29.8 million revenue decline in Germany. Our business in France experienced a significant shift into systems integration work, while revenue growth in the United Kingdom was driven by our continued expansion in that region. Revenue for Germany declined as a result of decreasing utilization caused by continued deterioration of market conditions in Germany which, consequently, led us to lower billable headcount.
 
  •     Asia Pacific revenue decreased in 2005, driven primarily by decreasing demand for services in Japan and China and the planned elimination of subcontractor usage in the region, which more than offset the improved billing rates achieved across the region in 2005 due to significantly lower revenue write-offs during the year. Limited opportunities in Japan and China led to significant staff reductions and lower utilization rates in those countries.
 
  •     Latin America revenue decreased in 2005, primarily as modest revenue growth in Brazil offset significant declines in revenue in all other countries in which we operate in the region. Revenue was also negative impacted by the weakening of the U.S. dollar against local currencies in Latin America (particularly the Brazilian Real).
 
  •     Corporate/Other: Our Corporate/Other segment does not contribute significantly to our revenue.
 
Gross Profit. During 2005, our revenue increased $13.1 million and total costs of service increased $202.7 million when compared to 2004, resulting in a decrease in gross profit of $189.5 million, or 34.6%. Gross profit as a percentage of revenue decreased to 10.6% for 2005 from 16.2% for 2004. The change in gross profit for 2005 compared to 2004 resulted primarily from the following:
 
  •     Professional compensation expense increased as a percentage of revenue to 52.2% for 2005, compared to 45.4% for 2004. We experienced a net increase in professional compensation expense of $238.0 million, or 15.5%, to $1,770.4 million for 2005 from $1,532.4 million for 2004. The increase in professional compensation expense was primarily the result of hiring additional billable employees in response to increased demand for our services. In addition, $74.9 million of this amount was related to the vesting of Retention RSUs.
 
  •     Other direct contract expenses decreased as a percentage of revenue to 28.7% for 2005 compared to 29.4% for 2004. We experienced a net decrease in other direct contract expenses of $18.7 million, or 1.9%, to $972.8 million for 2005 from $991.5 million for 2004. The change was driven primarily by reduced subcontractor expenses as a result of the increased use of internal resources.
 
  •     Other costs of service as a percentage of revenue decreased to 7.6% for 2005 from 8.7% for 2004. We experienced a net decrease in other costs of service of $34.5 million, or 11.8%, to $258.1 million for 2005 from $292.6 million for 2004. The decrease in 2005 from 2004 was primarily due to the settlement costs of $36.9 million involving or related to certain legal actions involving Peregrine Systems, Inc. (see Item 3, “Legal Proceedings,”) included in our 2004 results.
 
  •     In 2005 we recorded, within the Corporate/Other operating segment, a charge of $29.6 million for lease and facilities restructuring costs, compared to an $11.7 million charge for lease, facilities and other exist activities in 2004. These costs for 2005 related primarily to the fair value of future lease obligations associated with our previously announced reduction in office space, primarily within the North America, EMEA and Asia Pacific regions, which we no longer use.


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Gross Profit by Segment. The following tables present certain gross profit and margin information and performance metrics for each of our reportable segments for 2005 and 2004. Amounts are in thousands, except percentages.
 
                                 
    Year Ended December 31,              
    2005     2004     $ Change     % Change  
 
Gross Profit
                               
Public Services
  $ 238,904     $ 290,582     $ (51,678 )     (17.8 %)
Commercial Services
    (11,142 )     129,784       (140,926 )     (108.6 %)
Financial Services
    110,602       101,075       9,527       9.4 %
EMEA
    87,702       96,236       (8,534 )     (8.9 %)
Asia Pacific
    53,636       31,063       22,573       72.7 %
Latin America
    4,321       13,454       (9,133 )     (67.9 %)
Corporate/Other
    (126,031 )     (114,670 )     (11,361 )     n/m  
                                 
Total
  $ 357,992     $ 547,524     $ (189,532 )     (34.6 %)
                                 
 
                 
    Year Ended December 31,  
    2005     2004  
 
Gross Profit as a % of revenue
               
Public Services
    18.5 %     21.6 %
Commercial Services
    (1.7 %)     19.8 %
Financial Services
    29.1 %     31.0 %
EMEA
    13.2 %     15.0 %
Asia Pacific
    17.2 %     9.5 %
Latin America
    5.7 %     17.0 %
Corporate/Other
    n/m       n/m  
Total
    10.6 %     16.2 %
 
n/m = not meaningful
 
Changes in gross profit by segment were as follows:
 
  •     Public Services gross profit decreased in 2005, in large measure due to a $97.9 million increase in compensation expense (including non-cash compensation expense of $25.5 million relating to the vesting of Retention RSUs) and the $50.3 million reduction in gross revenue, which on a combined basis, more than offset significant reductions of $65.7 million in other direct contract expenses and $30.8 million in other costs of services.
 
  •     Commercial Services gross profit decreased in 2005, as significantly higher gross revenue was eroded by significant cost overruns and loss accruals, most notably $111.7 million on the previously described HT Contract, which included increases in subcontractor expense accruals and hardware and software purchases that collectively increased our other direct contract expenses by $66.6 million which are substantially not recoverable. Significant increases in compensation expense, including non-cash compensation expense relating to the vesting of Retention RSUs, also contributed to the decrease in gross profit.
 
  •     Financial Services gross profit increased in 2005, as higher revenue across all sectors more than offset significant incremental increases in compensation expense related to a substantial increase in headcount, non-cash compensation expense relating to the vesting of Retention RSUs ($7.5 million) and additional cash bonuses ($3.0 million).


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  •     EMEA gross profit decreased in 2005, as incremental increases in compensation expense due to severance costs associated with workforce realignments in Germany, France and Spain ($27.0 million) and non-cash compensation expense related to the vesting of the Retention RSUs ($13.8 million) more than offset increases in revenue.
 
  •     Asia Pacific gross profit increased substantially in 2005, despite a decrease in revenue due, in large measure, to significant demonstrated improvements in cost management and realization of contract revenue.
 
  •     Latin America gross profit decreased in 2005, as increases in other direct contract expenses and compensation expense attributable to fringe benefits, non-cash compensation expense related to Retention RSUs and workforce realignments offset modest revenue growth in the region.
 
  •     Corporate/Other consists primarily of rent expense and other facilities related charges, which increased in 2005 primarily due to the lease and facilities restructuring charges discussed above.
 
Amortization of Purchased Intangible Assets. Amortization of purchased intangible assets decreased $1.2 million to $2.3 million for 2005 from $3.5 million for 2004.
 
Goodwill Impairment Charges. In 2005 and 2004, goodwill impairment losses of $166.4 million and $397.1 million, respectively, were recognized. For 2005, it was determined that the carrying amount of our EMEA and Commercial Services segments’ goodwill exceeded the implied fair value of that goodwill by $102.2 million and $64.2 million, respectively. Similarly, in 2004, the EMEA segment’s carrying value of goodwill was adjusted downward by $397.1 million.
 
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $109.7 million, or 17.1%, to $750.9 million for 2005 from $641.2 million for 2004. Selling, general and administrative expenses as a percentage of gross revenue increased to 22.2% for 2005 from 19.0% for 2004. The increase was primarily due to significant costs for sub-contracted labor and other costs directly related to the financial closing process for 2005. We expect to incur expenses in years 2006 and 2007 relating to the preparation of our Consolidated Financial Statements for 2005 and 2006 to remain at this higher than historical level.
 
Interest Income. Interest income was $9.0 million and $1.4 million in 2005 and 2004, respectively. Interest income is earned primarily from cash and cash equivalents, including money-market investments. The increase in interest income was due to a higher level of cash available to be invested in money-markets during 2005 as compared to 2004.
 
Interest Expense. Interest expense was $33.4 million and $18.7 million in 2005 and 2004, respectively. Interest expense is attributable to our debt obligations, consisting of interest due along with amortization of loan costs and loan discounts. The increase in interest expense was due to higher average debt balances in 2005 as compared to 2004.
 
Loss on Early Extinguishment of Debt. We did not have a loss on early extinguishment of debt during 2005. In December 2004, we recorded a loss on early extinguishment of debt of $22.6 million related to the make whole premium, unamortized debt issuance costs and fees that were paid in connection with the early extinguishment of $220.0 million of our senior notes.
 
Other Expense, net. Other expense, net was $13.6 million and $0.4 million in 2005 and 2004, respectively. The balances in each period primarily consist of realized foreign currency exchanges losses.
 
Income Tax Expense. We incurred income tax expense of $122.1 million in 2005 and an income tax expense of $11.8 million in 2004. The principal reasons for the difference between the effective income tax rate on loss from continuing operations of (20.4)% and (2.2)% for 2005 and 2004, respectively, and the U.S. Federal statutory income tax rate are the nondeductible goodwill impairment charge of $118.5 million


54

 

and $385.9 million; nondeductible meals and entertainment expense of $19.6 million and $19.2 million; increase to deferred tax asset valuation allowance of $223.0 million and $24.8 million; state and local income taxes of $(12.7) million and $(8.2) million; impact of foreign recapitalization of $82.0 million and $54.8 million; foreign taxes of $13.7 million and $(1.0) million; income tax reserves of $18.6 million and $7.9 million and other nondeductible items of $8.2 million and $26.3 million, respectively.
 
Net Loss. For 2005, we incurred a net loss of $721.6 million, or a loss of $3.59 per share. Included in our results for 2005 were a $166.4 million goodwill impairment charge, $111.7 million of operating losses related to the HT Contract, $81.8 million of non-cash compensation expense related to the vesting of Retention RSUs, a $55.3 million increase in the valuation allowance primarily against our U.S. deferred tax assets, and $29.6 million of lease and facilities restructuring charges. For 2004, we incurred a net loss of $546.2 million, or a loss of $2.77 per share. Included in our results for 2004 are a $397.1 million goodwill impairment charge, $51.4 million for certain litigation settlement charges and $11.7 million of lease and facilities restructuring charges.
 
Obligations and Commitments
 
As of December 31, 2006, we had the following obligations and commitments to make future payments under contracts, contractual obligations and commercial commitments (amounts are in thousands):
 
                                         
          Payment due by Period  
          Less than
 		                After
 		 
Contractual Obligations
  Total     1 year     1-3 years     3-5 years     5 years  
 
Long-term debt (1)
  $ 1,101,004     $ 27,110     $ 51,325     $ 72,732     $ 949,837  
Operating leases
    349,745       75,472       133,406       75,829       65,038  
Unconditional purchase obligations (2)
    99,594       51,278       36,126       9,190       3,000  
Obligations under the pension and postretirement medical plans
    47,558       3,808       7,869       8,433       27,448  
Microsoft Collaboration Agreement (3)
    4,689       4,689       —       —       —  
                                         
Total
  $ 1,602,590     $ 162,357     $ 228,726     $ 166,184     $ 1,045,323  
                                         
 
 
(1) Long-term debt includes both principal and interest scheduled payment obligations. Certain of our long-term debt allows the holders the right to convert the debentures into shares of our common stock or cash (at the Company’s option) in earlier periods than presented above. For additional information, see Note 6, “Notes Payable,” of the Notes to Consolidated Financial Statements.
 
(2) Unconditional purchase obligations include material agreements to purchase goods or services, principally software and telecommunications services, that are enforceable and legally binding and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Unconditional purchase obligations exclude agreements that are cancelable without penalty.
 
(3) For additional information, see Note 10, “Collaboration Agreement,” of the Notes to Consolidated Financial Statements.


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Liquidity and Capital Resources
 
The following table summarizes the cash flow statements for 2006, 2005 and 2004 (amounts are in thousands):
 
                                 
    Year Ended December 31,  
                      2006 to 2005
 		 
    2006     2005     2004     Change  
 
Net cash provided by (used in):
                               
Operating activities
  $ 58,680     $ (113,071 )   $ 48,265     $ 171,751  
Investing activities
    67,570       (141,043 )     (109,387 )     208,613  
Financing activities
    (7,316 )     274,152       176,538       (281,468 )
Effect of exchange rate changes on cash and cash equivalents
    15,297       (9,508 )     6,919       24,805  
                                 
Net increase in cash and cash equivalents
  $ 134,231     $ 10,530     $ 122,335     $ 123,701  
                                 
 
Operating Activities. Net cash provided by operating activities during 2006 increased $171.8 million over 2005. This increase was primarily attributable to improved profitability and a decrease in accounts receivable, as our DSOs decreased to 82 days at December 31, 2006 from 94 days at December 31, 2005, providing an additional $136.3 million. These items were partially offset by the cash outflow to support the professional services and related expenses required under the HT Contract, and, to a lesser extent, payments made for the Peregrine settlement of $36.9 million.
 
Net cash used in operating activities during 2005 increased $161.3 million over 2004. This increase was due to a net loss of $721.6 million adjusted by impairment of goodwill of $166.4 million and stock-based compensation expense of $85.8 million in 2005 as compared to a net loss of $546.2 million adjusted by impairment of goodwill of $397.1 million and stock-based compensation expense of $9.9 million in 2004. These items were partially offset by $127.5 million in cash generated from working capital, primarily due to a decrease in our DSOs to 94 days at December 31, 2005 from 103 days at December 31, 2004, largely due to more aggressive collections efforts, and $58.4 million and $3.2 million in income tax refunds received during 2005 and 2004, respectively.
 
Investing Activities. Net cash provided by investing activities during 2006 increased $208.6 million over 2005. This increase was predominantly due to the change in the amount of restricted cash posted as collateral for letters of credit and surety bonds. The requirement to deposit and maintain cash collateral terminated as part of the March 31, 2006 amendment to the 2005 Credit Facility, and such cash collateral was released to us. The increase was offset by an increase of $9.7 million in capital expenditures in 2006 over 2005.
 
Net cash used in investing activities during 2005 was $141.0 million, an increase of $31.7 million over 2004. This increase was due to an increase in restricted cash of $79.1 million for cash collateral posted in support of bank guarantees for letters of credit and surety bonds, which was partially offset by a decrease in capital expenditures of $47.5 million. The decline in capital expenditures was due primarily to higher hardware and software costs incurred during 2004 for the implementation of our North America financial reporting systems.
 
Financing Activities. Net cash used in financing activities during 2006 was $7.3 million, primarily due to repayments of our Japanese term loans. Net cash provided by financing activities for 2005 was $274.2 million, resulting primarily from the proceeds on the issuance of debentures with an aggregate principal amount of $290.0 million, as more fully described in “—Debt Obligations,” below.
 
In addition, issuances of common stock from our ESPP generated $0, $14.9 million and $26.9 million in cash during 2006, 2005 and 2004, respectively. Because we are not current in our SEC periodic filings, we are unable to issue freely tradable shares of our common stock. Consequently, we were unable to make any public


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offerings of our common stock in 2006 or 2005 and have not issued shares under the LTIP or ESPP since early 2005. These sources of financing will remain unavailable to us until we are again current in our SEC periodic filings.
 
Additional Cash Flow Information
 
2007. At March 31, 2007, we had global cash balances of approximately $249.0 million. Our 2007 Credit Facility consists of (1) term loans in the aggregate principal amount of $300 million and (2) a letter of credit facility in an aggregate face amount at any time outstanding not to exceed $200 million. Borrowings under the 2007 Credit Facility will be used for general corporate purposes, including the payment of obligations outstanding under our prior credit facility, and payment of the fees and expenses of the 2007 Credit Facility. For additional information regarding the 2007 Credit Facility, see “— 2007 Credit Facility.”
 
Our decision to obtain the 2007 Credit Facility was based, in part, on the fact that the North American cash balances have been negatively affected in the first quarter of 2007 by, among other things, cash collection levels not maintaining pace with the levels achieved in the fourth quarter of 2006 and payments made in connection with (1) the uninsured portion of the settlement of the dispute with HT, (2) ongoing costs relating to the design and implementation of the new North American financial reporting systems, (3) ongoing costs relating to production and completion of our financial statements, (4) other additional accrued expenses for 2006 paid in the first quarter of 2007, and (5) our current expectations that operations will not generate cash before the latter part of 2007.
 
Outlook. We currently expect that our operations will continue to use, rather than provide a source of cash through the latter part of 2007. Based on current internal estimates, we nonetheless believe that our cash balances, together with cash generated from operations and borrowings made under our 2007 Credit Facility, will be sufficient to provide adequate funds for our anticipated internal growth and operating needs. Our management may seek alternative strategies, intended to further improve our cash balances and their accessibility, if current internal estimates for cash uses for 2007 prove incorrect. These activities include: initiating further cost reduction efforts, seeking improvements in working capital management, reducing or delaying capital expenditures, seeking additional debt or equity capital and selling assets.
 
After consultation with a number of our external financial advisors and various credit sources, we continue to believe that our available receivables and expected earnings before interest, tax, depreciation and amortization are, notwithstanding our not being current in our SEC periodic filings, sufficient to provide us with access to the private equity and debt placement markets. However, there can be no assurance that the Company will be able to issue equity or debt with acceptable terms and the proceeds from any such issuances, subject to certain exceptions, must first be used to repay amounts owed under our 2007 Credit Facility.
 
Based on the foregoing and our current state of knowledge of the outlook for our business, we currently believe that cash provided from operations, existing cash balances and borrowings under our 2007 Credit Facility will be sufficient to meet our working capital needs through the end of 2007. However, actual results may differ from current expectations for many reasons, including losses of business that could result from our continuing failure to timely file periodic reports with the SEC, the occurrence of any event of default that could provide our lenders with a right of acceleration (e.g., non-payment), possible delisting from the NYSE, further downgrades of our credit ratings or unexpected demands on our current cash resources (e.g., to settle lawsuits). For additional information regarding various risk factors that could affect our outlook, see Item 1A, “Risk Factors.” If cash provided from operations is insufficient and/or our ability to access the capital markets is impeded, our business, operations, results and cash flow could be materially and adversely affected.


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Debt Obligations
 
The following tables present a summary of the activity in our debt obligations for 2006 and 2005:
 
                                         
    Balance
 		                      Balance
 		 
    December 31,
 		                      December 31,
 		 
    2005     Borrowings     Repayments     Other (b)     2006  
 
Convertible debentures
  $ 668,054     $      —     $ —     $ 3,436     $ 671,490  
Yen-denominated term loan (January 31, 2003)
    2,803       —       (2,802 )     (1 )     —  
Yen-denominated term loan (June 30, 2003)
    1,402       —       (1,442 )     40       —  
Other
    2,501       —       (2,262 )     121       360  
                                         
Total notes payable
  $ 674,760     $ —     $ (6,506 )   $ 3,596     $ 671,850  
                                         
 
 
                                                 
    Balance
 		          Discounts on
 		                Balance
 		 
    December 31,
 		          Senior
 		                December 31,
 		 
    2004     Borrowings     Debentures (a)     Repayments     Other (b)     2005  
 
Convertible debentures
  $ 400,000     $ 290,000     $ (23,361 )   $ —     $ 1,415     $ 668,054  
Yen-denominated term loan (January 31, 2003)
    9,724       —       —       (6,089 )     (832 )     2,803  
Yen-denominated term loan (June 30, 2003)
    4,863       —       —       (2,891 )     (570 )     1,402  
Yen-denominated line of credit(c)
    7,795       —       —       (6,796 )     (999 )     —  
Other
    844       2,874       —       (1,209 )     (8 )     2,501  
                                                 
Total notes payable
  $ 423,226     $ 292,874     $ (23,361 )   $ (16,985 )   $ (994 )   $ 674,760  
                                                 
 
 
(a) Amount represents a discount to the $40,000 principal amount of the July 2005 Senior Debentures.
 
(b) Other changes in notes payable consist of amortization of notes payable discount and foreign currency translation adjustments.
 
(c) Yen-denominated line of credit was terminated on December 16, 2005.
 
At December 31, 2006, we had total outstanding debt of $671.9 million, compared to total outstanding debt of $674.8 million at December 31, 2005. The $2.9 million decrease in total outstanding debt was mainly attributable to the repayment of Yen-denominated term loans as well as other German debt offset by the amortization of notes payable discount related to the convertible debentures.
 
For information on the Series B Debenture litigation matter that we settled in late 2006, see Item 3, “Legal Proceedings—Other Matters.”
 
Debt Ratings
 
On February 6, 2007, Standard & Poor’s Rating Services (“Standard & Poor’s”) withdrew our senior unsecured rating of B- and our subordinated debt rating of CCC+ and removed them from CreditWatch. Separately, on October 6, 2006, Moody’s downgraded our corporate family rating to B2 from B1 and the ratings for two of our subordinated convertible bonds series to B3 from B2, and placed our ratings on review for further downgrade.


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2007 Credit Facility
 
On May 18, 2007, we entered into a $400 million senior secured credit facility and on June 1, 2007, we amended and restated the credit facility to increase the aggregate commitments under the facility from $400.0 million to $500.0 million. The 2007 Credit Facility consists of (1) term loans in an aggregate principal amount of $300.0 million (the “Term Loans”) and (2) a letter of credit facility in an aggregate face amount at any time outstanding not to exceed $200.0 million (the “LC Facility”). Borrowings under the 2007 Credit Facility will be used for general corporate purposes, including the payment of obligations outstanding under the 2005 Credit Facility, and the payment of fees, commissions and expenses incurred by us in connection with the 2007 Credit Facility. Interest on the Term Loans is calculated, at the Company’s option, (1) at a rate equal to 3.5% plus the London Interbank Offered Rate, or LIBOR, or (2) at a rate equal to 2.5% plus the higher of (a) the federal funds rate plus 0.5% and (b) UBS AG, Stamford Branch’s prime commercial lending rate. As of June 1, 2007, we have borrowed $300.0 million under the Term Loans, and an aggregate of approximately $89.3 million of letters of credit previously outstanding under the 2005 Credit Facility has been assumed under the LC Facility.
 
Our obligations under the 2007 Credit Facility are secured by liens and security interests in substantially all of our assets and most of our material domestic subsidiaries, as guarantors of such obligations (including a pledge of 65% of the stock of certain of our foreign subsidiaries), subject to certain exceptions.
 
The 2007 Credit Facility requires us to make prepayments of outstanding Term Loans and cash collateralize outstanding Letters of Credit in an amount equal to (i) 100% of the net proceeds received from property or asset sales (subject to exceptions), (ii) 100% of the net proceeds received from the issuance or incurrence of additional debt (subject to exceptions), (iii) 100% of all casualty and condemnation proceeds (subject to exceptions), (iv) 50% of the net proceeds received from the issuance of equity (subject to exceptions) and (v) for each fiscal year ending on or after December 31, 2008 (and, at our election for the second half of the 2007 fiscal year), the difference between (a) 50% of the Excess Cash Flow (as defined in the 2007 Credit Facility) and (b) any voluntary prepayment of the Term Loan or the LC Facility (as defined in the 2007 Credit Facility) (subject to exceptions). If the Term Loan is prepaid or the LC Facility is reduced prior to May 18, 2008 with other indebtedness or another letter of credit facility, we may be required to pay a prepayment premium of 1% of the principal amount of the Term Loan so prepaid or LC Facility so reduced if the cost of such replacement indebtedness of letter of credit facility is lower than the cost of the 2007 Credit Facility. In addition, we are required to pay $750,000 in principal plus any accrued and unpaid interest at the end of each quarter, commencing on June 29, 2007 and ending on March 31, 2012.
 
The 2007 Credit Facility contains affirmative and negative covenants:
 
  •     The affirmative covenants include, among other things: the delivery of unaudited quarterly and audited annual financial statements, all in accordance with generally accepted accounting principles; certain monthly operating metrics and budgets; compliance with applicable laws and regulations (excluding, prior to October 31, 2008, compliance with certain filing requirements under the securities laws); maintenance of existence and insurance; after October 31, 2008, as requested by the Administrative Agent, maintenance of credit ratings; and maintenance of books and records (subject to the material weaknesses previously disclosed in our 2005 Form 10-K).
 
  •     The negative covenants, which (subject to exceptions) restrict certain of our corporate activities, include, among other things, limitations on: disposition of assets; mergers and acquisitions; payment of dividends; stock repurchases and redemptions; incurrence of additional indebtedness; making of loans and investments; creation of liens; prepayment of other indebtedness; and engaging in certain transactions with affiliates.
 
Events of default under the 2007 Credit Facility include, among other things: defaults based on nonpayment, breach of representations, warranties and covenants, cross-defaults to other debt above $10 million, loss of lien on collateral, invalidity of certain guarantees, certain bankruptcy and insolvency


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events, certain ERISA events, judgments against us in an aggregate amount in excess of $20 million, and change of control events.
 
Under the terms of the 2007 Credit Facility, we are not required to become current in our SEC periodic filings until October 31, 2008. Until October 31, 2008, our failure to provide annual audited or quarterly unaudited financial statements, to keep our books and records in accordance with GAAP or to timely file our SEC periodic reports will not be considered an event of default under the 2007 Credit Facility. The timing of the requirement that we become current in our SEC periodic filings is aligned with the timing set forth in the waivers obtained under certain of our indentures. As previously disclosed, the indenture governing the Series A Debentures and Series B Debentures was amended to include a waiver of our SEC reporting requirements under the indenture through October 31, 2008. In addition, the indenture governing the April 2005 Debentures was amended to include a waiver of our SEC reporting requirements under such indenture through October 31, 2007, or through October 31, 2008 if we elect to pay an additional fee to certain holders of such debentures.
 
Discontinued 2005 Credit Facility
 
On July 19, 2005, we entered into a $150.0 million Senior Secured Credit Facility (the “2005 Credit Facility”). Our 2005 Credit Facility provided for up to $150.0 million in revolving credit and advances. Advances under the revolving credit line were limited by the available borrowing base, which was based upon a percentage of eligible accounts receivable. As of December 31, 2006, we had approximately $23.7 million available under the borrowing base.
 
In 2005 and 2006, we entered into five amendments to the 2005 Credit Facility. Among other things, these amendments revised certain covenants contained in the 2005 Credit Facility, including the extensions of the filing deadlines for our 2005, 2006 and 2007 SEC periodic reports and an increase in the amounts of civil litigation payments that we are permitted to pay and in the aggregate amount of investments and indebtedness that we are permitted to make and incur with respect to our foreign subsidiaries. In addition, in 2007 we obtained several limited waivers that, among other things, waived the delivery requirement of our periodic filings to the lenders under the facility.
 
The 2005 Credit Facility was terminated on May 18, 2007. On that date, all outstanding obligations under the 2005 Credit Facility were paid or assumed under the 2007 Credit Facility, and all liens and security interests under the 2005 Credit Facility were released.
 
Guarantees and Indemnification Obligations
 
In the normal course of business, we have indemnified third parties and have commitments and guarantees under which we may be required to make payments in certain circumstances. These indemnities, commitments and guarantees include: indemnities to third parties in connection with surety bonds; indemnities to various lessors in connection with facility leases; indemnities to customers related to intellectual property and performance of services subcontracted to other providers; and indemnities to directors and officers under the organizational documents and agreements with them. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. Certain of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments we could be obligated to make. We estimate that the fair value of these agreements was minimal. Accordingly, no liabilities have been recorded for these agreements as of December 31, 2006. Information regarding the amounts of our outstanding surety and surety-related bonds and letters of credit can be found above.
 
We are also required, in the course of business, particularly with certain of our Public Services clients, largely in the state and local markets, to obtain surety bonds, letters of credit or bank guarantees for client engagements. At December 31, 2006, we had $101.9 million in outstanding surety bonds and $89.3 million in letters of credit extended to secure certain of these bonds. The issuers of our outstanding surety bonds may, at any time, require that we post collateral (cash or letters of credit) to fully secure these obligations.


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Critical Accounting Policies and Estimates
 
The preparation of our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires that management make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Management’s estimates, assumptions and judgments are derived and continually evaluated based on available information, historical experience and various other assumptions that are believed to be reasonable under the circumstances. Because the use of estimates is inherent in the North American financial reporting systems, actual results could differ from those estimates. The areas that we believe are our most critical accounting policies include:
 
  •     revenue recognition,
 
  •     valuation of accounts receivable,
 
  •     valuation of goodwill,
 
  •     accounting for income taxes,
 
  •     valuation of long-lived assets,
 
  •     accounting for leases,
 
  •     restructuring charges,
 
  •     legal contingencies,
 
  •     retirement benefits,
 
  •     accounting for stock-based compensation, and
 
  •     accounting for intercompany loans.
 
A critical accounting policy is one that involves making difficult, subjective or complex accounting estimates that could have a material effect on our financial condition and results of operations. Critical accounting policies require us to make assumptions about matters that are highly uncertain at the time of the estimate, and different estimates that we could have used, or changes in the estimate that are reasonably likely to occur, may have a material impact on our financial condition or results of operations.
 
Revenue Recognition
 
We earn revenue from three primary sources: (1) technology integration services where we design, build and implement new or enhanced system applications and related processes, (2) services to provide general business consulting, such as system selection or assessment, feasibility studies, business valuations and corporate strategy services and (3) managed services in which we manage, staff, maintain, host or otherwise run solutions and systems provided to our customers. Contracts for these services have different terms based on the scope, deliverables and complexity of the engagement, which require us to make judgments and estimates in recognizing revenue. Fees for these contracts may be in the form of time-and-materials, cost-plus or fixed price.
 
Technology integration services represent a significant portion of our business and are generally accounted for under the percentage-of-completion method in accordance with the Statement of Position (“SOP”) 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”). Under the percentage-of-completion method, management estimates the percentage-of-completion based upon costs to the client incurred as a percentage of the total estimated costs to the client. When total cost estimates exceed estimated revenue, we accrue for the estimated losses immediately. The use of the percentage-of-completion method requires significant judgment relative to estimating total contract revenue and costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in estimated salaries and other costs.


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Incentives and award payments are included in estimated revenue using the percentage-of-completion method when the realization of such amounts is deemed probable upon achievement of certain defined goals. Estimates of total contract revenue and costs are continuously monitored during the term of the contract and are subject to revision as the contract progresses. When revisions in estimated contract revenue and costs are determined, such adjustments are recorded in the period in which they are first identified.
 
Revenue for general business consulting services is recognized as work is performed and amounts are earned in accordance with the Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104, “Revenue Recognition” (“SAB 104”). We consider amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured. For contracts with fees based on time-and-materials or cost-plus, we recognize revenue over the period of performance. Depending on the specific contractual provisions and nature of the deliverable, revenue may be recognized on a proportional performance model based on level of effort, as milestones are achieved or when final deliverables have been provided.
 
For our managed service arrangements, we typically implement or build system applications for customers that we then manage or run for periods that may span several years. Such arrangements include the delivery of a combination of one or more of our service offerings and are governed by Emerging Issues Task Force (“EITF”) Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” In managed service arrangements in which the system application implementation or build has standalone value to the customer, and we have evidence of fair value for the managed or run services, we bifurcate the total arrangement into two units of accounting: (i) the system application implementation or build, which is recognized as technology integration services using the percentage-of-completion method under SOP 81-1, and (ii) the managed or run services, which are recognized under SAB 104 ratably over the estimated life of the customer relationship. In instances where we are unable to bifurcate a managed service arrangement into separate units of accounting, the total contract is recognized as one unit of accounting under SAB 104. In such instances, total fees and costs related to the system application implementation or build are deferred and recognized together with managed or run services upon completion of the software application implementation or build ratably over the estimated life of the customer relationship. Certain managed service arrangements may also include transaction-based services in addition to the system application implementation or build and managed services. Fees from transaction-based services are recognized as earned if we have evidence of fair value for such transactions; otherwise, transaction fees are spread ratably over the remaining life of the customer relationship period as received. The determination of fair value requires us to use significant judgment. We determine the fair value of service revenue based upon our recent pricing for those services when sold separately and/or prevailing market rates for similar services.
 
Revenue includes reimbursements of travel and out-of-pocket expenses with equivalent amounts of expense recorded in other direct contract expenses. In addition, we generally enter into relationships with subcontractors where we maintain a principal relationship with the customer. In such instances, subcontractor costs are included in revenue with offsetting expenses recorded in other direct contract expenses.
 
Unbilled revenue consists of recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients as of the balance sheet date. Management anticipates that the collection of these amounts will occur within one year of the balance sheet date. Billings in excess of revenue recognized for which payments have been received are recorded as deferred revenue until the applicable revenue recognition criteria have been met.
 
Valuation of Accounts Receivable
 
We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Assessing the collectibility of customer receivables requires management judgment. We determine our allowance for doubtful accounts by specifically analyzing individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current


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economic and accounts receivable aging trends, and changes in our customer payment terms. Our valuation reserves are periodically re-evaluated and adjusted as more information about the ultimate collectibility of accounts receivable becomes available.
 
Valuation of Goodwill
 
Goodwill is the amount by which the cost of acquired net assets in a business acquisition exceeded the fair value of net identifiable assets on the date of purchase. We assess the impairment of goodwill and identifiable intangible assets on at least an annual basis on April 1 and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable, as prescribed in the Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).
 
An impairment review of the carrying amount of goodwill is conducted if events or changes in circumstances indicate that goodwill might be impaired. Factors we consider important that could trigger an impairment review include significant underperformance relative to historically or projected future operating results, identification of other impaired assets within a reporting unit, the more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold, significant adverse changes in business climate or regulations, significant changes in senior management, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, significant negative industry or economic trends, a significant decline in our stock price for a sustained period, or a significant unforeseen decline in our credit rating. Determining whether a triggering event has occurred includes significant judgment from management.
 
The goodwill impairment test prescribed by SFAS 142 requires us to identify reporting units and to determine estimates of the fair value of our reporting units as of the date we test for impairment unless an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. As of December 31, 2006, our reporting units consisted of our three North America industry groups and our three international regions. To identify impairment, the fair value of the reporting unit is first compared with its carrying value. If the reporting unit’s allocated carrying value exceeds its fair value, we undertake a second evaluation to assess the required impairment loss to the extent that the carrying value of the goodwill exceeds its implied fair value. The fair value of a reporting unit is the amount for which the unit as a whole could be bought or sold in a current transaction between willing parties. We estimate the fair values of our reporting units using a combination of the discounted cash flow valuation model and comparable market transaction models. Those models require estimates of future revenue, profits, capital expenditures and working capital for each unit as well as comparability with recent transactions in the industry. We estimate these amounts by evaluating historical trends, current budgets, operating plans and industry data. Determining the fair value of reporting units and goodwill includes significant judgment by management and different judgments could yield different results.
 
Accounting for Income Taxes
 
Provisions for federal, state and foreign income taxes are calculated on reported pre-tax earnings based on current tax law and also include, in the current period, the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provisions differ from the amounts currently receivable or payable because certain items of income and expense are recognized in different time periods for financial reporting purposes than for income tax purposes. Significant judgment is required in determining income tax provisions and evaluating tax positions. We establish reserves for income tax when, despite the belief that our tax positions are fully supportable, there remain certain positions that are probable to be challenged and possibly disallowed by various authorities. The consolidated tax provision and related accruals include the impact of such reasonably estimable losses and related interest as deemed appropriate. To the extent that the probable tax outcome of these matters changes, such changes in estimate will impact the income tax provision in the period in which such determination is made.


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The majority of our deferred tax assets at December 31, 2006 consisted of federal, foreign and state net operating loss carryforwards that will expire between 2007 and 2026. During 2006, the valuation allowance against federal, state, and certain foreign net operating loss and foreign tax credit carryforwards increased $69.4 million over the year ended 2005, due to additional losses.
 
Since our inception, various foreign, state and local authorities have audited us in the area of income taxes. Those audits included examining the timing and amount of deductions, the allocation of income among various tax jurisdictions and compliance with foreign, state and local tax laws. In evaluating the exposure associated with various tax filing positions we accrue charges for exposures related to uncertain tax positions.
 
During 2005, the Internal Revenue Service commenced a federal income tax examination for the tax periods ended June 30, 2001, June 30, 2003, December 31, 2003, December 31, 2004 and December 31, 2005. We are unable to determine the ultimate outcome of these examinations, but we believe that we have established appropriate reserves related to apportionment of income between jurisdictions, the impact of the restatement items and certain filing positions. We are also under examination from time to time in foreign, state and local jurisdictions.
 
At December 31, 2006, we believe we have appropriately accrued for exposures related to uncertain tax positions. To the extent we were to prevail in matters for which accruals have been established or be required to pay amounts in excess of reserves, our effective tax rate in a given financial statement period may be materially impacted.
 
During 2006, 2005 and 2004, none of the established reserves expired based on the statute of limitations with respect to certain tax examination periods. In addition, an increase to the reserve for tax exposures of $13.8 million, $51.6 million, and $8.0 million, respectively, was recorded as an income tax expense for additional exposures, including interest and penalties.
 
The carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the value of these assets. If we are unable to generate sufficient future taxable income in these jurisdictions, a valuation allowance is recorded when it is more likely than not that the value of the deferred tax assets is not realizable. Management evaluates the realizability of the deferred tax assets and assesses the need for any valuation allowance. In 2006, we determined that it was more likely than not that a significant amount of our deferred tax assets primarily in the U.S. may not be realized, therefore we recorded a valuation allowance against those deferred assets.
 
Valuation of Long-Lived Assets
 
Long-lived assets primarily include property and equipment and intangible assets with finite lives (purchased software, internal capitalized software, and customer lists). In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” we periodically review long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows expected to result from the use and eventual disposition of the asset to the carrying amount of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results.
 
Accounting for Leases
 
We lease office facilities under non-cancelable operating leases that expire at various dates through 2017, along with options that permit renewals for additional periods. Rent abatements and escalations are considered in the determination of straight-line rent expense for operating leases. Leasehold improvements made at the inception of or during the lease are amortized over the shorter of the asset life or the lease term. We receive


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incentives to lease office facilities in certain areas which are recorded as a deferred credit and recognized as a reduction to rent expense on a straight-line basis over the lease term.
 
Restructuring Charges
 
We periodically record restructuring charges resulting from restructuring our operations (including consolidation and/or relocation of operations), changes in our strategic plan or management responses to increasing costs or declines in demand. The determination of restructuring charges requires management to utilize significant judgment and estimates related to expenses for employee benefits, such as costs of severance and termination benefits, and costs for future lease commitments on excess facilities, net of estimated future sublease income. In determining the amount of lease and facilities restructuring charges, we are required to estimate such factors as future vacancy rates, the time required to sublet excess facilities and sublease rates. These estimates are reviewed and potentially revised on a quarterly basis based on available information and known market conditions. If our assumptions prove to be inaccurate, we may need to make changes in these estimates that could impact our financial position and results of operations.
 
Legal Contingencies
 
We are currently involved in various claims and legal proceedings. We periodically review the status of each significant matter and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss. We use significant judgment in both the determination of probability and the determination as to whether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information at that time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise our estimates. Such revisions in the estimates of potential liabilities could have a material impact on our financial position and results of operations. We expense legal fees as incurred.
 
Retirement Benefits
 
Our pension plans and postretirement benefit plans are accounted for using actuarial valuations required by SFAS No. 87, “Employers’ Accounting for Pensions,” SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” and SFAS 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans.” The pension plans relate to our plans for employees in Germany and Switzerland. Accounting for retirement plans requires management to make significant subjective judgments about a number of actuarial assumptions, including discount rates, salary growth, long-term return on plan assets, retirement, turnover, health care cost trend rates and mortality rates. Depending on the assumptions and estimates used, the pension and postretirement benefit expense could vary within a range of outcomes and have a material effect on our financial position and results of operations. In addition, the assumptions can materially affect accumulated benefit obligations and future cash funding. For 2006, the discount rate to determine the benefit obligation for the pension plans was 4.2%. The discount rate reflects the rate at which the pension benefits could be effectively settled. The rate is based upon comparable high quality corporate bond yields with maturities consistent with expected pension payment periods. A 100 basis point increase in the discount rate would decrease the 2007 pension expense for the plans by approximately $1.9 million. A 100 basis point decrease in the discount rate would increase the 2007 pension expense for the plans by approximately $3.7 million. The expected long-term rate of return on assets for the 2006 was 4.5%. This rate represents the average of the long-term rates of return for the defined benefit plan weighted by the plans’ assets as of December 31, 2006. To develop this assumption, we considered historical asset returns, the current asset allocation and future expectations of asset returns. The actual long-term rate of return from July 1, 2003 until December 31, 2006 was 4.5%. A 100 basis point increase or decrease in the expected long-term rate of return on the plans’ assets would have approximately a $0.2 million impact on our 2007 pension expense. As of December 31, 2006, the pension plan had an $6.5 million unrecognized actuarial loss that will be expensed over the average future working lifetime of active participants.


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We also offer a postretirement medical plan to the majority of our full-time U.S. employees and managing directors who meet specific eligibility requirements. For 2006, the discount rate to determine the benefit obligation was 5.8%. The discount rate reflects the rate at which the benefits could be effectively settled. The rate is based upon comparable high quality corporate bond yields with maturities consistent with expected retiree medical payment periods. A 100 basis point increase or decrease in the discount rate would have approximately a $0.6 million impact on the 2006 retiree medical expense for the plan. As of December 31, 2006, the pension plan had $2.4 million in unrecognized actuarial losses that will be expensed over the average future working lifetime of active participants.
 
Accounting for Stock-Based Compensation
 
We have various stock-based compensation plans under which we have granted stock options, restricted stock awards and stock units to certain officers, employees and non-employee directors. We also have the ESPP and BE an Owner plans that allow for employees to purchase Company stock at a discount. We granted both service-based and performance-based stock units and stock options during 2006. For all awards, the fair value is fixed on the date of grant based on the number of stock units or stock options issued and the fair value of the Company’s stock on the date of grant. For the performance-based stock units and stock options, each quarter we compare the actual performance results with the performance conditions to determine the probability of the award fully vesting. The determination of successful compliance with the performance conditions requires significant judgment by management, as differing outcomes may have a significant impact on current and future stock compensation expense.
 
We adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”) on January 1, 2006. This standard requires that all share-based payments to employees be recognized in the statements of operations based on their fair values. We have used the Black-Scholes model to determine the fair value of our stock option awards. Under the fair value recognition provisions of SFAS 123(R), share-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment, including estimating stock price volatility and employee stock option exercise behaviors. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted. As stock-based compensation expense recognized in the consolidated statements of operations is based on awards that ultimately are expected to vest, the amount of expense has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience. If factors change and we employ different assumptions in the application of SFAS 123(R), the compensation expense that we record in the future periods may differ significantly from what we have recorded in the current period.
 
We adopted the modified prospective transition method permitted under SFAS 123(R) and consequently have not adjusted results from prior years. Under the modified prospective transition method, the 2006 compensation cost includes expense relating to the remaining unvested awards granted prior to December 31, 2005 along with new grants made during 2006. For grants which vest based on certain specified performance criteria, the grant date fair value of the shares is recognized over the requisite period of performance once achievement of criteria is deemed probable. For grants that vest through the passage of time, the grant date fair value of the award is recognized over the vesting period.
 
We elected the alternative transition method as outlined in Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards” (“FSP 123(R)-3”), to calculate the historical pool of excess tax benefits available to offset tax shortfalls in periods following the adoption of SFAS 123(R).
 
The after-tax stock-based compensation expense impact of adopting SFAS 123(R) for the year ended December 31, 2006 was $25.7 million with a $0.12 per share reduction to diluted earnings per share. Prior to the adoption of SFAS 123(R), we used the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” and related


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interpretations, including Financial Interpretation (“FIN”) 44, “Accounting for Certain Transactions Involving Stock Compensation”, for our plans. Under this accounting method, stock option compensation awards that are granted with an exercise price at the current fair value of our common stock as of the date of the award generally did not require compensation expense to be recognized in the consolidated statement of operations. Stock-based compensation expense recognized for our employee stock option plans, restricted stock units and restricted stock awards was $85.8 million in 2005, net of tax.
 
As of December 31, 2006, unrecognized compensation costs and related weighted-average lives over which the costs will be amortized were as follows:
 
                 
    Unrecognized
 		       
    Compensation
 		    Weighted-Average
 		 
    Costs     Life in Years  
 
Stock options
  $ 11,052       1.7  
Restricted stock and stock unit awards
    41,153       3.1  
ESPP
    4,713       1.0  
                 
Total
  $ 56,918       2.6  
                 
 
Accounting for Intercompany Loans
 
Intercompany loans are classified between long- and short-term based on management’s intent regarding repayment. Translation gains and losses on short-term loans are recorded in other income (expense), net, in our Consolidated Financial Statements and similar gains and losses on long-term loans are recorded as other comprehensive income in our Consolidated Statements of Changes in Stockholders’ Equity (Deficit). Accordingly, changes in management’s intent relative to the expected repayment of these intercompany loans will change the amount of translation gains and losses included in our Consolidated Financial Statements.
 
Accounting for Employee Global Mobility and Tax Equalization
 
We have a tax equalization policy designed to ensure that our employees on domestic long-term and foreign assignments will be subject to the same level of personal tax, regardless of the tax jurisdiction in which the employee works. We accrue for tax equalization expenses in the period incurred. If the estimated tax equalization liability, including related interest and penalties, is determined to be greater or less than amounts due upon final settlement, the difference is recorded in the current period.
 
Recently Issued Accounting Pronouncements
 
In June 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. We will be required to adopt this interpretation in the first quarter of fiscal year 2007. We are currently evaluating the requirements of FIN 48 and have not yet determined the impact on our Consolidated Financial Statements.
 
In September 2006, the SEC staff issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires registrants to quantify the impact of correcting all misstatements using both the “rollover” method, which focuses primarily on the impact of a misstatement on the income statement and is the method we currently use, and the “iron curtain” method, which focuses primarily on the effect of correcting the period-end balance sheet. The use of both of these methods is referred to as the “dual


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approach” and should be combined with the evaluation of qualitative elements surrounding the errors in accordance with SAB No. 99, “Materiality” (“SAB 99”). The adoption of SAB 108 during 2006 did not have a material impact on our Consolidated Financial Statements.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for the fiscal year beginning January 1, 2008. We are currently evaluating the impact of the provisions of SFAS 157.
 
In December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2, “Accounting for Registration Payment Arrangements” (“FSP No. EITF 00-19-2”). FSP No. EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” FSP No. EITF 00-19-2 also requires additional disclosure regarding the nature of any registration payment arrangements, alternative settlement methods, the maximum potential amount of consideration and the current carrying amount of the liability, if any. FSP No. EITF 00-19-2 shall be effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of issuance of FSP No. EITF 00-19-2. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of FSP No. EITF 00-19-2, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. We are currently evaluating the impact FSP No EITF 00-19-2 could have on our financial position, results of operations or cash flows.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FAS 115” (“SFAS 159”). The new statement allows entities to choose, at specific election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of the provisions of SFAS 159.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to a number of market risks in the ordinary course of business. These risks, which include interest rate risk and foreign currency exchange risk, arise in the normal course of business rather than from trading activities.
 
Interest Rate Risk
 
Our exposure to potential losses due to changes in interest rates is minimal as our outstanding debt obligations have fixed interest rates. The fair value of our debt obligations may increase or decrease for


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various reasons, including fluctuations in the market price of our common stock, fluctuations in market interest rates and fluctuations in general economic conditions.
 
The table below presents principal cash flows (net of discounts) and related weighted average interest rates by scheduled maturity dates for our debt obligations as of December 31, 2006:
 
                                                         
    Expected Maturity Date
    Year ended December 31,
    (In thousands of U.S. Dollars, except interest rates)
    2007     2008   2009   2010     2011   Thereafter     Total     Fair Value
 
U.S. Dollar Functional Currency
                                                       
Series A Convertible Subordinated Debentures
    —       —     —     —       —   $ 250,000     $ 250,000     $ 247,825
Average fixed interest rate
    —       —     —     —       —     3.10 %     3.10 %      
U.S. Dollar Functional Currency
                                                       
Series B Convertible Subordinated Debentures
    —       —     —     —       —   $ 200,000     $ 200,000     $ 206,260
Average fixed interest rate
    —       —     —     —       —     4.10 %     4.10 %      
U.S. Dollar Functional Currency
                                                       
Series C Convertible Subordinated Debentures
    —       —     —     —       —   $ 200,000     $ 200,000     $ 273,260
Average fixed interest rate
    —       —     —     —       —     5.00 %     5.00 %      
U.S. Dollar Functional Currency
                                                       
Convertible Senior Subordinated Debentures
    —       —     —   $ 40,000       —     —     $ 40,000     $ 48,536
Average fixed interest rate
    —       —     —     0.50 %     —     —       0.50 %      
U.S. Dollar Functional Currency
  $ 360       —     —     —       —     —     $ 360     $ 360
Average fixed interest rate
    5.60 %     —     —     —       —     —       5.60 %      
 
Foreign Currency Exchange Risk
 
We operate internationally and are exposed to potentially adverse movements in foreign currency rate changes. Any foreign currency transaction, defined as a transaction denominated in a currency other than the U.S. dollar, will be reported in U.S. dollars at the applicable exchange rate. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expense items are translated at average rates for the period.
 
We have foreign exchange exposures related primarily to short-term intercompany loans denominated in non-U.S. dollars to certain of our foreign subsidiaries. The potential gain or loss in the fair value of these intercompany loans that would result from a hypothetical change of 10% in exchange rates would be approximately $6.9 million and $9.2 million as of December 31, 2006 and 2005, respectively. For additional information refer to Note 2, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
See the index included on Page F-1, Index to Consolidated Financial Statements.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
As previously reported, on February 5, 2007, the Chairman of the Audit Committee of the Board (the “Audit Committee”) was notified by our independent registered public accounting firm, PricewaterhouseCoopers LLP (“PwC”), that PwC was declining to stand for re-election and that the client-auditor relationship between the Company and PwC would cease upon PwC’s completion of services related to the audit of our annual financial statements for fiscal 2006 and related 2006 quarterly reviews.


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During the Company’s years ended December 31, 2005 and December 31, 2006, and through June 28, 2007, there were no disagreements between the Company and PwC on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure that, if not resolved to PwC’s satisfaction, would have caused it to make reference to the matter in connection with its report on the Company’s consolidated financial statements for the relevant year, and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K, except that the Company disclosed that material weaknesses existed in its internal control over financial reporting for 2006 and 2005. The material weaknesses identified are discussed in Item 9A of the Company’s Annual Reports on Form 10-K for the year ended December 31, 2006 and for the year ended December 31, 2005. The Company has authorized PwC to respond fully to any inquiries of its successor concerning the material weaknesses. PwC’s audit reports on the Company’s consolidated financial statements for the years ended December 31, 2006 and December 31, 2005 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
 
On February 9, 2007, the Audit Committee of the Board of Directors of the Company, as part of its periodic review and corporate governance practices, determined to engage Ernst & Young LLP (“Ernst & Young”) as the Company’s independent registered public accounting firm commencing with the audit for the year ending December 31, 2007. Ernst & Young also has been engaged as the independent registered public accounting firm for the Plan, commencing with the audit for the Plan’s year ending December 31, 2007. During the Company’s years ended December 31, 2005 and December 31, 2006, and through February 9, 2007, neither the Company, nor anyone on its behalf, consulted with Ernst & Young with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements for 2006 or 2005, and no written report or oral advice was provided by Ernst & Young to the Company that Ernst & Young concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing, or financial reporting issue for 2006 or 2005 or (ii) any matter that was the subject of either a disagreement as defined in Item 304(a)(1)(iv) of Regulation S-K or a reportable event as described in Item 304(a)(1)(v) of Regulation S-K.
 
ITEM 9A. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
As of the end of the period covered by this Annual Report, management performed, with the participation of our Chief Executive Officer and our Chief Financial Officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on the evaluation and the identification of the material weaknesses in internal control over financial reporting described below, as well as our inability to file this Annual Report within the statutory time period, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2006, the Company’s disclosure controls and procedures were not effective.
 
Because of the material weaknesses identified in our evaluation of internal control over financial reporting, we performed additional procedures so that our consolidated financial statements as of and for the


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year ended December 31, 2006, including quarterly periods, are presented in accordance with GAAP. Our additional procedures included, but were not limited to:
 
i) recalculating North America revenue and related accounts, such as accounts receivable, unbilled revenue, deferred revenue and costs of service as of and for the year ended December 31, 2006 by validating data to independent source documentation;
 
ii) reviewing 100% of all contracts including contract modifications, accruals, and recognition of sub-contractor costs in 2006 in the United States;
 
iii) providing GAAP revenue recognition guidance on certain international contracts focusing on those contracts with a value in excess of $2 million and selected other contracts deemed to be of high risk;
 
iv) performing a comprehensive search for unrecorded liabilities at December 31, 2006;
 
v) performing a comprehensive global search to identify the complete population of employees deployed on expatriate assignments during 2006 and recalculating related compensation expense classified as costs of service, and employee income tax liabilities as of and for the year ended December 31, 2006;
 
vi) performing additional reconciliations of payroll expense to cash payments for payroll including salaries, bonuses, and other wages; as well as agreement of bonus accruals to supporting documentation and subsequent cash disbursements;
 
vii) performing additional review of lease and facility charges (performed by our GAAP Technical Accounting Policy Group) to ensure charges complied with GAAP and were complete and accurate;
 
viii) performing substantive procedures in areas related to our income taxes in order to provide reasonable assurance as to the related financial statement amounts and disclosures;
 
ix) verifying a significant sample of stock-based grants back to supporting documentation and manually agreeing certain assumptions used in the SFAS 123(R) calculations; and
 
x) performing additional closing procedures, including detailed reviews of journal entries, re-performance of account reconciliations and analyses of balance sheet accounts.
 
The completion of these and other procedures resulted in the identification of adjustments related to our consolidated financial statements as of and for the year ended December 31, 2006, which significantly delayed the filing of this Annual Report.
 
We believe that because we performed the substantial additional procedures described above and made appropriate adjustments, the consolidated financial statements for the periods included in this Annual Report are fairly stated in all material respects in accordance with GAAP.
 
Management’s Report on Internal Control over Financial Reporting
 
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management has conducted, with the participation of our Chief Executive Officer and our Chief Financial Officer, an assessment, including testing of the effectiveness of our internal control over financial reporting as of December 31, 2006. Management’s assessment of internal control over financial reporting was conducted


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using the criteria in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
 
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. In connection with management’s assessment of our internal control over financial reporting, we identified the following material weaknesses in our internal control over financial reporting as of December 31, 2006.
 
1. We did not maintain an effective control environment over financial reporting. Specifically, we identified the following material weaknesses:
 
  •     We did not maintain a sufficient complement of personnel in our foreign locations with an appropriate level of knowledge, experience and training in the application of GAAP and in internal control over financial reporting commensurate with our financial reporting requirements.
 
  •     We did not maintain and communicate sufficient formalized and consistent finance and accounting policies and procedures. We also did not maintain effective controls designed to prevent or detect instances of non-compliance with established policies and procedures specifically with respect to the application of accounting policies at foreign locations.
 
  •     We did not enforce the consistent performance of manual controls designed to complement system controls over our North American financial accounting system. As a result, transactions and data were not completely and accurately recorded, processed and reported in the financial statements.
 
  •     We did not maintain adequate controls to ensure that employees could report actual or perceived violations of our policies and procedures. In addition, we did not have sufficient procedures to ensure the appropriate notification, investigation, resolution and remediation procedures were applied to reported violations.
 
The material weaknesses in our control environment described above contributed to the existence of the material weaknesses discussed in items 2 through 9 below. Additionally, these material weaknesses could result in a misstatement to substantially all our financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
 
2. We did not maintain effective controls, including monitoring, over our financial close and reporting process. Specifically, we identified the following material weaknesses in the financial close and reporting process:
 
  •     We did not maintain formal, written policies and procedures governing the financial close and reporting process.
 
  •     We did not maintain effective controls to ensure that management oversight and review procedures were properly performed over the accounts and disclosures in our financial statements. In addition, we did not maintain effective controls to ensure adequate management reporting information was available to monitor financial statement accounts and disclosures.
 
  •     We did not maintain effective controls over the recording of recurring and non-recurring journal entries. Specifically, effective controls were not designed and in place to provide reasonable assurance that journal entries were prepared with sufficient supporting documentation and reviewed and approved to ensure the completeness and accuracy of the entries recorded.
 
  •     We did not maintain effective controls to provide reasonable assurance that accounts were complete and accurate and agreed to detailed support and that reconciliations of accounts were properly performed, reviewed and approved.


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  •     We did not maintain effective controls to provide reasonable assurance that foreign currency translation amounts resulting from intercompany loans were accurately recorded and reported in the consolidated financial statements.
 
These material weaknesses contributed to the material weaknesses identified in items 3 through 9 below and resulted in adjustments to our consolidated financial statements for the year ended December 31, 2006. Additionally, these material weaknesses could result in a misstatement to substantially all of our financial statement accounts and disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected.
 
3. We did not design and maintain effective controls over the completeness, accuracy, existence, valuation and disclosure of revenue, costs of service, accounts receivable, unbilled revenue, deferred contract costs, and deferred revenue. Specifically, we identified the following material weaknesses:
 
  •     We did not design and maintain effective controls to provide reasonable assurance over the initiation, recording, processing, and reporting of customer contracts, including the existence of and adherence to policies and procedures, adequate segregation of duties and adequate monitoring by management.
 
  •     We did not design and maintain effective controls to provide reasonable assurance that contract costs, such as engagement subcontractor costs, were completely and accurately accumulated.
 
  •     We did not design and maintain effective controls to provide reasonable assurance that we adequately evaluated customer contracts to identify and provide reasonable assurance regarding the proper application of the appropriate method of revenue recognition in accordance with GAAP.
 
  •     We did not design and maintain effective controls to provide reasonable assurance regarding the completeness of information recorded in the financial accounting system. Specifically, we did not design and have in place effective controls to provide reasonable assurance that invoices issued outside of the financial accounting system were appropriately recorded in the general ledger. As a result, we did not ensure that cash received was applied to the correct accounts in the appropriate accounting period.
 
4. We did not design and maintain effective controls over the completeness, accuracy, existence, valuation, and disclosure of our accounts payable, other current liabilities, other long-term liabilities and related expense accounts. Specifically, we did not design and maintain effective controls over the initiation, authorization, processing, recording, and reporting of purchase orders and invoices as well as authorizations for cash disbursement to provide reasonable assurance that liability balances and operating expenses were accurately recorded in the appropriate accounting period and to prevent or detect misappropriation of assets. In addition, we did not have effective controls to: i) provide reasonable assurance regarding the complete identification of subcontractors used in performing services to our customers; or ii) monitor subcontractor activities and accumulation of subcontractor invoices to provide reasonable assurance regarding the complete and accurate recording of contract-related subcontractor costs.
 
5. We did not design and maintain effective controls over the completeness and accuracy of costs related to expatriate compensation expense and related tax liabilities. Specifically, we did not maintain effective controls to identify and monitor employees working away from their home country for extended periods of time. In addition, we did not maintain effective controls to completely and properly calculate the related compensation expense and employee income tax liability attributable to each tax jurisdiction.
 
6. We did not design and maintain effective controls over the completeness, accuracy, valuation, and disclosure of our payroll, employee benefit and other compensation liabilities and related expense accounts. Specifically, we did not have effective controls designed and in place to provide reasonable assurance of the authorization, initiation, recording, processing, and reporting of employee related costs including bonus, health and welfare, severance, compensation expense, and stock-based compensation amounts in the accounting records. Additionally, we did not design and maintain effective controls over the administration of employee


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data or controls to provide reasonable assurance regarding the proper authorization of non-recurring payroll changes.
 
7. We did not design and maintain effective controls over the completeness, accuracy, existence, valuation and disclosure of property and equipment and related depreciation and amortization expense. Specifically, we did not design and maintain effective controls to provide reasonable assurance that asset additions and disposals were completely and accurately recorded; depreciation and amortization expense was accurately recorded based on appropriate useful lives assigned to the related assets; existence of assets was confirmed through periodic inventories; and the identification and determination of impairment losses were performed in accordance with GAAP. In addition, we did not design and maintain effective controls to provide reasonable assurance of the adherence to our capitalization policy, and we did not design and maintain effective controls to provide reasonable assurance that expenses for internally developed software were completely and accurately capitalized, amortized, and adjusted for impairment in accordance with GAAP.
 
8. We did not design and maintain effective controls over the completeness, accuracy, valuation, and disclosure of our prepaid lease and long-term lease obligation accounts and the related amortization and lease rental expenses. Specifically, we did not design and maintain effective controls to provide reasonable assurance that new, amended, and terminated leases, and the related assets, liabilities and expenses, including those associated with rent holidays, escalation clauses, landlord/tenant incentives and asset retirement obligations, were reviewed, approved, and accounted for in accordance with GAAP.
 
9. We did not design and maintain effective controls over the completeness, accuracy, existence, valuation and presentation and disclosure of our income tax payable, deferred income tax assets and liabilities, the related valuation allowance and income tax expense. Specifically, we identified the following material weaknesses:
 
  •     We did not design and maintain effective controls over the accuracy and completeness of the components of our income tax provision calculations and related reconciliation of our income tax payable and of differences between the tax and financial reporting basis of our assets and liabilities with our deferred income tax assets and liabilities. We also did not maintain effective controls to identify and determine permanent differences between our income for tax and financial reporting income purposes.
 
  •     We did not maintain effective controls, including monitoring, over the calculation and recording of foreign income taxes, including tax reserves, acquired tax contingencies associated with business combinations and the income tax impact of foreign debt recapitalization. In addition, we did not maintain effective controls over determining the correct foreign jurisdictions or tax treatment of certain foreign subsidiaries for United States tax purposes.
 
  •     We did not design and maintain effective controls over withholding taxes associated with interest payable on intercompany loans and intercompany trade payables between various tax jurisdictions.
 
Each of the control deficiencies discussed in items 3 through 9 above resulted in adjustments to our consolidated financial statements for the year ended December 31, 2006. Additionally, these control deficiencies could result in misstatements of the aforementioned financial statement accounts and disclosures that would result in a material misstatement of our annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that each of the control deficiencies in items 3 through 9 above constitutes a material weakness.
 
Because of the material weaknesses described above, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2006, based on the Internal Control—Integrated Framework issued by COSO.


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Our assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this Annual Report.
 
Remediation of Material Weaknesses in Internal Control over Financial Reporting
 
We have engaged in, and continue to engage in, substantial efforts to address the material weaknesses in our internal control over financial reporting and the ineffectiveness of our disclosure controls and procedures.
 
The Company has remediated its material weakness with respect to senior management setting the proper tone by placing importance on internal control over financial reporting and by placing importance on adherence to the code of business conduct and ethics through the following actions:
 
  •     Senior management made key hires in specific management positions.
 
  •     Senior management made strategic replacements of certain country and regional leadership.
 
  •     Senior management and regional and country leaders consistently communicated the proper tone as to internal control over financial reporting and adherence to the code of business conduct and ethics throughout their respective organizations.
 
  •     Senior management and regional and country leaders initiated specific efforts to design and implement improvements in internal controls over financial reporting whose primary objective was focused on the completeness and accuracy of financial accounts.
 
  •     Senior management instituted under the direction of its new Chief Compliance Officer comprehensive training on the Foreign Corrupt Practices Act, delivered in eight different languages, which was monitored to determine completion of the training. This resulted in over 95% of all employees world-wide completing the training and the required test.
 
We added significant skills and competencies to our corporate finance and accounting function by hiring individuals with strong technical skills and significant experience in areas deemed appropriate to their assigned responsibilities, including the creation of a GAAP Technical Accounting Policy Group, thereby remediating the material weakness with respect to a sufficient complement of personnel in our corporate offices.
 
The Company has remediated its material weakness with respect to the tracking of its long-term assignment employees (“LTA”) in the United States and the recording of the related expenses and tax liabilities by implementing the following mechanisms:
 
  •     A comprehensive LTA policy.
 
  •     Training and testing to measure the comprehension of the LTA policy including tracking of completion of the training and the related test. Completion rates were above 90%.
 
  •     A comprehensive tracking system that identifies potential LTA personnel and accumulates and records appropriate cost data and related liabilities.
 
In addition to the foregoing remediation activities, we continued to strengthen the control environment and the accuracy and completeness of the financial accounts. Except as noted above, the following remediation efforts, certain of which commenced in fiscal 2006 and continue in 2007, were insufficiently mature to fully remediate any additional material weaknesses in fiscal 2006:
 
  •     We established a global remediation project, under the direction of the Chief Financial Officer, in order to provide oversight and direction in an effort to establish an effective control environment.
 
  •     We strengthened our Internal Audit function by adding individuals with specialized skills where deemed appropriate.


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  •     We continued the implementation of our finance transformation program, the objective of which was to design and develop remediation strategies to address material weaknesses and improve internal controls.
 
  •     We designed and implemented a global closing process designed to identify and define close tasks for both financial and non-finance functional areas, due dates for close procedures, task completion and ownership, and process integration.
 
  •     We implemented a financial close management tool which allows us to track progress against approximately 1,500 closing tasks.
 
  •     We implemented a “Program Control” initiative, consisting in excess of 250 professionals with requisite skills, designed to support the completeness and accuracy of project accounting details in North America.
 
  •     We implemented improvements to our billing process, established policies and procedures limiting any invoicing outside of our financial system, and significantly reduced manual billing errors and unapplied cash balances.
 
  •     In the first quarter of 2007, we deployed a new contract set up process and application to guide the comprehensive review of contract and project set-up data within the accounting system.
 
  •     In the second quarter of 2007, we deployed and conducted extensive training on an application referred to as the “Project Control Workbench.” Combined with other process changes, enhanced controls and reporting, this application will improve the accuracy and timeliness of submission of project accounting data needed for accounting for subcontractor accruals, estimate-at-complete, estimate-to-complete, and revenue recognition in North America.
 
  •     We implemented improved processes to identify, monitor, track and account for employees working outside their home country for extended periods of time including account reconciliations, data reviews, and tax cost projection analyses.
 
  •     We implemented new processes designed to improve the completeness, accuracy and timing of accounting for expatriate assignments, including the development of a tracking application to assist in the compiling and reporting of employee-related costs.
 
  •     We deployed an automated tool to assist with the process of requesting time and expense adjustments.
 
  •     We performed in-depth access reviews in certain regions of the applicable payroll systems to ensure proper access restrictions.
 
  •     We created an oversight function within the Corporate Controller group to provide additional analyses, review and oversight for fixed assets.
 
  •     We implemented procedures to include a regular review of asset impairment.
 
  •     In the first quarter of 2007, we completed a fixed asset inventory in addition to our periodic “electronic” inventory of laptops and desktops, to validate asset existence.
 
  •     We centralized all lease administration, enabling us to capture all lease obligations and lease terms, and measure the completeness and accuracy of our lease records.
 
  •     We implemented a review of certain monthly leasing activity reports to identify lease-related commitments.
 
  •     We implemented a process to identify real-time lease activity or other lease term changes with respect to our leased facilities.
 
The foregoing initiatives have enabled us to significantly improve our control environment, the completeness and accuracy of underlying accounting data, and the timeliness with which we are able to close our books. Management is committed to continuing efforts aimed at fully achieving an operationally effective


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control environment and timely filing of regulatory required financial information. The remediation efforts noted above are subject to the Company’s internal control assessment, testing and evaluation processes. While these efforts continue, we will rely on additional substantive procedures and other measures as needed to assist us with meeting the objectives otherwise fulfilled by an effective control environment.
 
Changes in Internal Control over Financial Reporting
 
As noted above, senior management implemented and caused to be sustained significant changes to personnel, including finance and accounting personnel in our corporate offices, processes and policies and have communicated the importance of our Standards of Business Conduct and ethics, and the importance of internal control over financial reporting. In addition, senior management caused to be implemented policies and processes and other mechanisms around the identification of our long-term assignment personnel in the United States and the accuracy and completeness of the related financial accounts. These measures matured sufficiently such that in the fourth quarter of 2006, their sustainability and impact were considered sufficient. These changes represent material changes that have occurred in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 9A(T). CONTROLS AND PROCEDURES
 
Not applicable.
 
ITEM 9B. OTHER INFORMATION
 
None.


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PART III.
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
Our Board of Directors (the “Board”) currently consists of nine directors. Our directors are divided into three classes serving staggered three-year terms. Information about our directors as of June 1, 2007, is provided below. For information about our executive officers, please see “Executive Officers” included in Part I of this Annual Report.
 
Class I Directors Whose Terms Expire in 2007
 
Douglas C. Allred, age 56, has been a member of our Board of Directors since January 2000. Mr. Allred is a private investor. Mr. Allred retired from his position as Senior Vice President, Office of the President, of Cisco Systems, Inc. in 2003. Mr. Allred was Senior Vice President, Customer Advocacy, Worldwide Consulting and Technical Services, Customer Services, and Cisco Information Technology of Cisco Systems, Inc. from 1991 to 2002. Mr. Allred is a Governor on the Washington State University Foundation Board of Governors.
 
Betsy J. Bernard, age 52, has been a member of our Board of Directors since March 2004. Ms. Bernard is a private investor. Ms. Bernard was President of AT&T Corporation from 2002 to 2003. From 2001 to 2002, Ms. Bernard was President and Chief Executive Officer of AT&T Consumer. Ms. Bernard is a director of The Principal Financial Group, a global financial institution.
 
Spencer C. Fleischer, age 53, has been a member of our Board of Directors since July 2005. Mr. Fleischer is a senior managing member and Vice Chairman of Friedman Fleischer & Lowe GP II, LLC, a company sponsoring and managing several investment funds that make investments in private and public companies, and has served in such capacity since 1998. Mr. Fleischer was appointed to the Board of Directors in accordance with the terms of the securities purchase agreement, dated July 15, 2005, relating to the July 2005 Senior Debentures among the Company and certain affiliates of Friedman Fleischer & Lowe, LLC. If Mr. Fleischer ceases to be affiliated with the purchasers or ceases to serve on our Board of Directors, so long as the purchasers collectively hold at least 40% of the original principal amount of the July 2005 Senior Debentures, the purchasers or their designee have the right to designate a replacement director to the Board of Directors.
 
Class II Directors Whose Terms Expire in 2008
 
Wolfgang Kemna, age 49, has been a member of our Board of Directors since April 2001. Mr. Kemna is Managing Director of Steeb Anwendungssysteme GmbH, a wholly owned subsidiary of SAP AG (“SAP”). Mr. Kemna was Executive Vice President of Global Initiatives of SAP from 2002 to 2004. He was also a member of SAP’s extended executive board from 2000 to 2004.
 
Albert L. Lord, age 61, has been a member of our Board of Directors since February 2003. Mr. Lord is Chairman of the board of directors of SLM Corporation, commonly known as “Sallie Mae,” and has served in this capacity since 2005. Mr. Lord was Vice Chairman and Chief Executive Officer of Sallie Mae from 1997 to 2005.
 
J. Terry Strange, age 63, has been a member of our Board of Directors since April 2003. Mr. Strange retired from KPMG where he served as Vice Chair and Managing Partner of the U.S. Audit Practice from 1996 to 2002. During this period, Mr. Strange also served as the Global Managing Partner of the Audit Practice of KPMG International and was a member of its International Executive Committee. Mr. Strange is a director of Compass BancShares, Inc., a financial services company, New Jersey Resources Corp., an energy services holding company, Group 1 Automotive, Inc., a holding company operating in the automotive retailing industry, and Newfield Exploration Company, an independent crude oil and natural gas exploration and production company.


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Class III Directors Whose Terms Expire in 2009
 
Roderick C. McGeary, age 56, has been a member of our Board of Directors since August 1999 and Chairman of the Board of Directors since November 2004. Since March 2005, Mr. McGeary has served the Company in a full-time capacity, focusing on clients, employees and business partners. From 2004 until 2005, Mr. McGeary served as our Chief Executive Officer. From 2000 to 2002, Mr. McGeary was the Chief Executive Officer of Brience, Inc., a wireless and broadband company. Mr. McGeary is a director of Cisco Systems, Inc., a worldwide leader in networking for the Internet, and Dionex Corporation, a manufacturer and marketer of chromatography systems for chemical analysis.
 
Jill S. Kanin-Lovers, age 55, has been a member of our Board of Directors since May 2007. Ms. Kanin-Lovers served as Senior Vice President of Human Resources & Workplace Management at Avon Products, Inc. from 1998 to 2004. Ms. Kanin-Lovers is a member of the Board of Directors of Dot Foods, Inc., one of the nation’s largest food redistributors, Heidrick & Struggles, a leading global search firm, and First Advantage Corporation, a leading provider of risk mitigation and business solutions. Ms. Kanin-Lovers also teaches Corporate Governance for the Rutgers University Mini-MBA program.
 
Harry L. You, age 48, has been a member of our Board of Directors since March 2005. Mr. You has served as Chief Executive Officer of the Company since March 2005. Mr. You also served as the Company’s Interim Chief Financial Officer from July 2005 until October 2006. From 2004 to 2005, Mr. You was Executive Vice President and Chief Financial Officer of Oracle Corporation, a large enterprise software company. From 2001 to 2004, Mr. You was the Chief Financial Officer of Accenture Ltd, a global management consulting, technology services and outsourcing company. Mr. You is a director of Korn Ferry International, a leading provider of recruitment and leadership development services.
 
No family relationships exist between any of the directors or between any director and any executive officer of the Company.
 
Presiding Director of Executive Sessions of Non-Management Directors
 
Our non-management directors who are not employees of the Company meet separately on a periodic basis. The Board has designated Douglas C. Allred as the Presiding Director for all meetings of the executive sessions of non-management directors.
 
Audit Committee
 
Our Audit Committee is currently composed of Messrs. Strange (Chair), Kemna and Lord. The Board has affirmatively determined that each member of the Audit Committee has no material relationship with the Company (either directly or as a partner, stockholder or officer of the Company) and is independent of the Company and its management under the listing standards of the NYSE and the applicable regulations of the SEC. Mr. Strange serves on the audit committee of four other publicly registered companies. The Board has determined that such simultaneous service does not impair Mr. Strange’s ability to serve on the Company’s Audit Committee. In addition, the Board has determined that Mr. Strange is an Audit Committee Financial Expert.
 
Compensation Committee Interlocks and Insider Participation
 
The members of our Compensation Committee for 2006 were Messrs. Allred (Chair) and Strange and Ms. Bernard. On May 10, 2007, Ms. Kanin-Lovers was appointed to the Compensation Committee, and on June 18, 2007, Mr. Strange stepped down from the committee. No member of the Compensation Committee is a former or current officer or employee of the Company or any of the Company’s subsidiaries. To the Company’s knowledge, there were no other relationships involving members of the Compensation Committee requiring disclosure in this section of this Annual Report.


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Standards of Business Conduct
 
On May 10, 2007, the Board approved our Standards of Business Conduct (the “SBC”), which superseded our prior Code of Business Conduct and Ethics as of May 31, 2007. The SBC was developed as part of our commitment to enhancing our culture of integrity and our corporate governance policies. The SBC reflects changes in law and regulation, best practices and updates to the Company’s policies. In addition, the SBC contains new or enhanced policies and/or procedures relating to violations of the SBC, conflicts of interest (including those related to the giving and receiving of gifts and entertainment), financial disclosures, the importance of maintaining the confidentiality of Company, client and competitor information, data privacy and protection, Company property, investor and media relations, records management, and lobbying/political activities. The SBC applies to all of our directors and employees, including our principal executive officer, principal financial officer and principal accounting officer. The SBC is posted on our website, at www.bearingpoint.com, and is filed as an exhibit to this Annual Report. We intend to satisfy the disclosure requirement regarding any amendment to, or waiver of, a provision of the SBC for our Chief Executive Officer, Chief Financial Officer, Corporate Controller or persons performing similar functions, by posting such amendment or waiver on our within the applicable deadline that may be imposed by government regulation following the amendment or waiver.
 
Committee Charters
 
In addition, our Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter and Nominating and Corporate Governance Committee Charter are posted on the Company’s website, at www.bearingpoint.com. A printed copy of these documents, as well as our Standards of Business Conduct, will be made available upon request.
 
Annual Certifications
 
The certifications by our Chief Executive Officer and Chief Financial Officer regarding the quality of our public disclosures are filed as Exhibits 31.1 and 31.2, respectively, to this Annual Report. We have also submitted to the NYSE a certificate of our Chief Executive Officer certifying that he is not aware of any violation by the Company of the NYSE corporate governance listing standards.
 
Communications with Board of Directors
 
The Board welcomes your questions and comments. If you would like to communicate directly with our Board, our non-management directors of the Board as a group or Mr. Allred, as the Presiding Director, then you may submit your communication to our General Counsel and Corporate Secretary by writing to them at the following address:
 
BearingPoint, Inc.
c/o General Counsel and Corporate Secretary
8725 W. Higgins Road
Chicago, IL 60631
 
All communications and concerns will be forwarded to our Board, our non-management directors as a group or our Presiding Director, as applicable. We also have established a dedicated telephone number for communicating concerns or comments regarding compliance matters to the Company. The phone number is 1-800-206-4081 (or 240-864-0229 for international callers), and is available 24 hours a day, seven days a week. Our Standards of Business Conduct prohibits any retaliation or other adverse action against any person for raising a concern. If you wish to raise your concern in an anonymous manner, then you may do so.


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Section 16(a) Beneficial Ownership Reporting Compliance
 
Under the U.S. Federal securities laws, directors and executive officers, as well as persons who beneficially own more than ten percent of our outstanding common stock, must report their initial ownership of the common stock and any changes in that ownership to the SEC. The SEC has designated specific due dates for these reports, and we must identify in this Annual Report those persons who did not file these reports when due. Based solely on a review of copies of Forms 3, 4 or 5 filed by us on behalf of our directors and executive officers or otherwise provided to us and copies of Schedule 13Gs, we believe that all of our directors, executive officers and greater than ten percent stockholders complied with their applicable filing requirements for 2006. In 2005, however, Judy Ethell, our Chief Financial Officer, failed to report a Form 4 to report the issuance of RSUs to Robert Glatz, her spouse, in connection with his employment in August 2005. The issuance of RSUs to Mr. Glatz, which was previously described in our Annual Reports on Form 10-K for fiscal years 2004 and 2005 (filed with the SEC on January 31, 2006 and November 22, 2006, respectively), was reported on a Form 4 on June 28, 2007.
 
ITEM 11. EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
The success of our business largely depends on our ability to attract, retain and motivate qualified employees, particularly professionals with the advanced information technology skills necessary to perform the services we offer. Our management and the Compensation Committee of our Board of Directors devote a significant amount of time and attention to addressing the compensation of our professionals. Our Compensation Committee has the authority to determine the compensation for our executive officers, including making individual compensation decisions, and reviewing and structuring the compensation programs applicable to our executive officers. Our executive officers are our Chairman of the Board, Chief Executive Officer, Chief Financial Officer, Chief Operating Officer and General Counsel and Secretary. This compensation discussion and analysis provides perspective on our compensation objectives and policies for our Chief Executive Officer, our Chief Financial Officer and our other executive officers. We believe that an understanding of our approach to managing director compensation generally is useful to an understanding of our business model and our particular compensation practices as it relates to our executive officers. For additional information, see Item 1, “Business—Employees,” Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Business—Priorities for 2007 and Beyond,” and “—Managing Director Compensation Plan.”
 
Overall Compensation Philosophy and Objectives
 
Overall, our compensation philosophy is to enhance corporate performance and stockholder value by aligning the financial interests of our managing directors, including our executive officers, with those of our stockholders. We strive to implement this philosophy by tying a significant portion of our managing directors’ compensation to our financial performance.
 
We design our compensation programs to:
 
  •     attract and retain the best possible talent;
 
  •     motivate our people’s efforts to achieve long-term positive returns for our stockholders;
 
  •     increase the use of performance and equity-based awards;
 
  •     communicate metrics to influence employee performance and accountability;
 
  •     provide for cash and long-term incentive compensation at levels that are competitive with companies within our industry (targeting to remain around the 50th percentile); and
 
  •     recognize outstanding individual performance.


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How Compensation is Determined
 
Mix of Total Compensation. Our Compensation Committee and management collaborate to determine the mix of compensation for our employees, both among short and long-term compensation and cash and non-cash compensation. Our management team establishes and recommends cash compensation for all of our employees, including our executive officers. Our Compensation Committee reviews management’s recommendations of guidelines for salary and cash bonus increases for our employees, determines cash compensation for our executive officers, and establishes guidelines and structures for the issuance of equity-based compensation so as to establish the mix of total compensation for our employees.
 
In the past, our business model rewarded revenue growth and utilization; however, in 2006, management and our Compensation Committee changed this approach, to emphasize profitability and individual performance in establishing the mix of total compensation to be paid to our executive officers.
 
Market Benchmarking. The Compensation Committee reviews and considers peer benchmarking information in determining the mix or relationship of compensation elements for our executive officers.
 
We target total compensation for our executive officers to be consistent with peer companies performing at comparable levels. To evaluate the reasonableness and competitiveness of our compensation, we obtain information on market pay levels from various sources, including nationally recognized compensation surveys, SEC filings of selected, publicly-traded benchmark companies and first-hand experience obtained from the marketplace in hiring employees. In addition, we typically engage a consultant to gather information on pay levels and practices for a group of comparable management and technology consulting companies based in the United States. For each comparable company, the Compensation Committee’s consultant collects information regarding total compensation levels for executive officers (including base salary, annual bonus, long-term incentives and other compensation) and other related items. The Compensation Committee’s consultant summarizes and reviews this information, as well as information from leading published compensation surveys, with the Compensation Committee.
 
Role of Compensation Committee and Management in Executive Officer Compensation Decisions. The Compensation Committee evaluates the performance of our executive officers and approves their annual compensation, including salary, bonus, incentive and equity compensation. The Compensation Committee takes into consideration management’s recommendations for the total compensation of our executive officers. For our executive officers, the Compensation Committee generally considers the Company’s performance within our industry, the challenges we continue to face in improving our business operations, as well as each individual’s current contribution and expected future contribution to our performance. The Chief Executive Officer meets with the Compensation Committee to discuss the performance review for each executive officer (other than himself) and to make compensation recommendations. The Chairman of the Board participates in the review and discussion of the Chief Executive Officer’s compensation. The Compensation Committee considers these views when making its compensation determinations, as well as an analysis of short-term and long-term compensation prepared by its outside consultant that compares the individual’s compensation for the prior two years, evaluates the compensation recommendations made by management and provides a market analysis comparing these compensation amounts to a group of peer companies. In making compensation decisions, the Compensation Committee also considers the results of the “360 degree” performance review process we have implemented, which is intended to broaden the scope of our review process for managing directors and allows peers and direct and indirect reports to review and assess the performance of our managing directors, including our executive officers.
 
Management Team Employment Agreements. Since November 2004, there have been significant changes to our executive management team as a result of the issues related to our North American financial reporting systems, internal controls, various ongoing investigations and related litigation. During the past two years, the Compensation Committee and management have devoted a significant amount of time to attract highly motivated and experienced individuals to comprise our new executive management team and to provide leadership to the Company. In 2005 and 2006, the Board of Directors appointed a new Chief Executive


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Officer, Chief Financial Officer and General Counsel, and, in 2007, the Board appointed a new Chief Operating Officer. We entered into written employment agreements with Mr. You, our Chief Executive Officer, Ms. Ethell, our Chief Financial Officer, Mr. Lutz, our General Counsel and Secretary and Mr. Harbach, our Chief Operating Officer. Prior to agreeing upon the compensation terms of these employment agreements, the Compensation Committee took into consideration competitive market compensation information based upon peer group data and the data of companies with a similar market capitalization. Furthermore, it was necessary to compensate Mr. You, Ms. Ethell and Mr. Lutz with additional equity grants and other signing bonus payments to offset compensation that would have been earned or benefits that would have been received by such individuals had they remained with their previous employers.
 
Equity Compensation Programs
 
In connection with our 2006 Annual Meeting of Stockholders, our Board of Directors included a proposal to amend the LTIP to, among other things, provide for a 25 million share increase in the number of shares authorized for equity awards made under the LTIP. In soliciting proxies from our largest stockholders, we informed our stockholders that the increased share capacity would be used to implement a new equity-based retention strategy for 2007, under which awards would vest over several years and be subject to performance-based vesting criteria. Our management and the Compensation Committee made these recommendation because they realized that (1) approximately 70% of the RSUs we issued in 2005 would vest by January 1, 2007 and (2) the number of shares available under our LTIP would not allow us to issue substantial amounts of equity in the near future. Furthermore, because most of our outstanding stock option awards were granted before 2005, we believed those stock options had limited retentive value since they were granted with exercise prices that were still above our common stock’s current stock price. We believe that performance-based equity is viewed more favorably than RSUs by our stockholders because vesting is conditioned upon performance criteria that can be objectively measured rather than mere continuation of employment. Our stockholders approved the LTIP amendments on December 14, 2006.
 
Generally, we do not expect the Compensation Committee to make any additional grants of RSUs or PSUs to our executive officers through the end of 2009. Until that time, we expect that any bonus compensation earned by our executive officers will be paid in cash.
 
PSU Program. In February 2007, the Compensation Committee adopted a performance share unit (“PSU”) program for the Company’s highest-performing managing directors and senior managers, including our executive officers. The PSU program was implemented recognizing that: (i) we had achieved some important milestones in our efforts to become timely in our SEC periodic filings; (ii) we were beginning to achieve a level of operational stability under the direction and guidance of our new executive management team; and (iii) our managing directors had demonstrated their ability to maintain our core business under adverse conditions. As a result, management and the Compensation Committee determined that the PSUs should be structured with a view to promoting longer-term retention. The Compensation Committee concluded that the greatest retentive potential would be achieved if the PSUs were initially granted as large, three-year cliff vesting awards rather than in smaller increments with shorter vesting periods. To ensure that vesting of the PSUs was sufficiently tied to Company performance, the vesting of the PSUs was tied to achievement of performance targets of both minimum growth in consolidated business unit contribution (“CBUC”), defined as (i) consolidated net revenue less (ii) professional compensation, other costs of service and sales, general and administrative expense (excluding stock compensation expense, bonus expense, interest expense and infrastructure expense) and total shareholder return. CBUC was selected as a performance metric that we believe demonstrates the core growth of each of our industry groups. In addition, total shareholder return was selected as a “best practice” performance metric that we believe is a measure important to our stockholders. In determining the thresholds for these performance targets, the Compensation Committee selected target levels that, in its estimation, would require Company growth, yet also be reasonably achievable to encourage and incent our employees to perform. For additional information on the PSU Program, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Principal Business—Priorities for 2007 and Beyond.”


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Restricted Stock Units (“RSUs”). We will continue to grant RSUs for various purposes, including as awards granted in connection with promotions and, when we have become current in our SEC periodic reports, as part of developing attractive employment offers for new recruits. The vesting of these RSUs continues to be time-based, either with a three-year cliff vesting provision or vesting ratably over four years. By comparison, we expect that future RSUs granted to our executive officers, if any, will include performance-based vesting requirements. While we may incrementally increase the relative proportion of variable compensation of our executive officers through RSU grants, we currently expect that through 2009, the predominant source of equity awards held by our executive officers will be derived from PSUs.
 
While we have maintained parity with our major competitors on base cash compensation for our executive officers, relevant market data indicates that we continue to lag behind our competitors in the categories of cash incentive and long-term, equity incentive compensation. We believe the issuance of PSU awards help to balance the mix of fixed and variable compensation of our executive officers, aligning us more closely with the compensation structures offered by our competitors.
 
Principal Components of Executive Officer Compensation
 
The principal elements of our executive officer compensation program consist of base salary, annual incentive cash bonuses and, at appropriate intervals, long-term incentive compensation in the form of grants of stock-based awards. We also provide deferred compensation plans, health and welfare (including medical), retirement and other perquisites and benefits to our executive officers generally available to our other employees.
 
In determining 2006 compensation, we did not engage an outside consultant to assist the Compensation Committee. Compensation determinations, however, were based in part upon compensation information about executive officers at other systems integration and consulting firms gathered by Watson Wyatt Worldwide. In 2006 and 2007, we engaged Towers Perrin as our compensation consultant to prepare compensation analyses of our executive officers, provide market data information used to determine the payment of 2006 bonuses and 2007 compensation and provide guidance on our long-term compensation strategies, including the structuring of our PSU program.
 
Fixed Compensation
 
Base Salaries. Base salaries for our executive officers are determined by evaluating the responsibilities of the position held, the experience and performance of the individual and market information comparing such salaries to the competitive marketplace for executive talent, with emphasis on our primary competitors in the management and technology consulting industry. The Compensation Committee considers salary adjustments based upon the recommendation of the Chief Executive Officer (other than with respect to his salary), the Compensation Committee’s evaluation of Company performance and the performance of the executive officer, taking into account any additional or new responsibilities assumed by the individual executive officer in connection with promotions or organizational changes. Salary represents a smaller percentage of total compensation for our executive officers than for our less senior managing directors, with a greater percentage of the executive officers’ compensation being tied to performance and our share price.
 
Determination of 2006 Base Salaries. The employment agreements that we entered into with Mr. You, Ms. Ethell and Mr. Lutz provided for their respective base annual salaries during 2006, as reflected in the “Summary Compensation Table” on page 91. Pursuant to their employment agreements (entered into in 2005), base salary for each of Mr. You and Ms. Ethell was unchanged from 2005 to 2006. Mr. McGeary and Mr. Roberts do not have specific employment agreements with the Company.
 
For 2006, the Compensation Committee approved a base salary for Mr. McGeary in the range of $650,000 to $750,000, and delegated its authority to the Chief Executive Officer to make the final determination of his base salary. Our Chief Executive Officer determined that Mr. McGeary’s base salary for


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2006 should be $650,000, based on Mr. McGeary’s active involvement with the Board, his contributions as Chief Executive Officer of the Company in 2005, which included the hiring of the new executive management team and his participation in employee roadshows and other communications intended to maintain employee morale and address employee attrition.
 
In determining Mr. Robert’s base salary for 2006, the Compensation Committee considered various factors, such as Mr. Robert’s willingness to assume the role of Chief Operating Officer in 2005, the time and effort he spent assisting Mr. You in his new role as Chief Executive Officer, his efforts in addressing morale within the Finance team and helping to abate attrition and his contributions to our Managing Director Compensation Committee.
 
Variable Compensation
 
Annual Incentive Bonus. Generally, our executive officers would be eligible to receive annual incentive bonuses pursuant to our MD Compensation Plan, under the same terms and conditions applicable to the Company’s managing directors. However, currently, the Compensation Committee determines the target bonus amounts for Mr. You, Ms. Ethell and Mr. Lutz generally in accordance with the terms of their employment agreements. Any such bonuses paid to our executive officers are paid in lieu of MD Compensation Plan amounts. During 2006, we paid the annual bonuses set forth in the “Summary Compensation Table” on page 91. Bonuses earned for performance during one year are paid in the following year.
 
Determination of 2006 Annual Incentive Bonuses. In 2006, the Compensation Committee determined to award Mr. You, Mr. McGeary and Mr. Roberts cash bonuses equal to 7.8% of their base salaries, which was the percentage applied to determine cash bonuses for each managing director who achieved a “meets expectations” rating for 2006 performance. Although Mr. You was eligible to receive up to 100% of his bonus salary as set forth in his employment agreement, Mr. You and the Compensation Committee agreed that it was appropriate to alter the basis for determining his bonus compensation for 2006. In addition to the cash bonus, the Compensation Committee made conditional RSU awards to Mr. You and Mr. McGeary that would vest based on their achievement of certain performance targets. The stipulated performance targets were not achieved and these awards were not granted. However, for a discussion of a smaller, subsequent award that was made to Mr. You, see “2006 Long-Term Incentive Compensation” below. For 2006, the Compensation Committee determined to award Ms. Ethell and Mr. Lutz cash bonuses equal to 60% and 100%, respectively, of their base salaries (although Mr. Lutz was paid a pro rated amount, since his employment with the Company started in March 2006).
 
The Compensation Committee’s determinations of cash bonuses awarded to our executive officers in 2006, as well as determinations of 2007 compensation, were based in part on the following considerations:
 
     
Harry You
 
•    outstanding feedback in the “360 degree” peer review process
   
•    successful motivation of the Company’s managing directors to drive Company performance
   
•    progress made and left to be achieved with respect to the Company’s SEC filing status
   
•    evaluations by Board members


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Roderick McGeary
 
•    time dedicated to Board of the Directors and effectiveness in fulfilling Chairman role; liaison role between management and the Board
   
•    management roles and responsibilities, in addition to Board role
   
•    executive sponsor of the Company’s transition to new financial reporting systems
   
•    executive management role in addressing contractual or engagement relationship issues
     
Judy Ethell
 
•    development of Finance leadership team
   
•    responsibilities related to development of financial reporting systems
   
•    oversight of internal audit, internal controls and Sarbanes-Oxley efforts
   
•    progress achieved and remaining to be achieved with respect to the filing of the Company’s SEC periodic reports
   
•    expanded responsibilities as Chief Financial Officer
   
•    evaluations by the Audit Committee
     
Laurent Lutz
 
•    restructuring of the Legal department
   
•    stewardship of key external constituencies—e.g., SEC, New York Stock Exchange, insurers
   
•    creation and implementation of compliance function
   
•    success in managing and resolving various disputes and lawsuits
   
•    level of contribution in Board of Directors and committee meetings
   
•    implementation and oversight of improved disclosure controls
     
Rich Roberts
 
•    individual performance rating among managing directors
   
•    leadership role within the Public Services business unit
 
Long-Term Incentive Compensation
 
2006 Long-Term Incentive Compensation. In addition to their annual cash incentive bonuses, Mr. You and McGeary received grants of RSUs in connection with their 2006 performance. When the Compensation Committee determined Mr. You’s 2006 base compensation, the Compensation Committee also decided that to incent Mr. You’s performance, it would make a conditional grant of RSUs to Mr. You at the end of 2006 if Mr. You achieved certain performance milestones. Mr. You was eligible to receive a grant of 187,500 RSUs, to vest 25% on the grant date and 25% annually over the next three years, subject to the achievement of Company performance milestones for 2006. In early 2007, the Compensation Committee determined that these milestones had not been achieved, and as a result, these RSUs were not granted. The Compensation Committee did acknowledge, however, that Mr. You had made substantial contributions to the Company in 2006 (as set forth above) and, as a result, the Compensation Committee decided to make a smaller award of 72,992 RSUs to Mr. You, as bonus compensation for his performance.
 
In evaluating Mr. McGeary’s compensation for 2006, the Compensation Committee considered market data indicating that while Mr. McGeary’s cash compensation was commensurate for his position and responsibilities, his long-term incentive compensation was lower than market. Based on the factors set forth above, as well as an analysis of the mix of Mr. McGeary’s fixed and variable compensation, the Compensation Committee determined that it would increase Mr. McGeary’s long-term compensation. As a result, Mr. McGeary was granted 29,197 RSUs on February 12, 2007.

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None of our executive officers received equity grants in 2006 as part of their compensation for 2006. Several of our executive officers, however, received equity grants for reasons other than as part of their 2006 compensation. For an explanation of these grants, please see the “Summary Compensation Table” on page 91.
 
On April 20, 2005, pursuant to Regulation BTR, the Company announced there would be a blackout period under the Company’s 401(k) plan. Due to existence of the blackout period, the Company was unable to make issuances of equity awards to its executive officers prior to September 14, 2006. The Company’s 401(k) Plan was subsequently amended to permanently prohibit participant purchases and Company contributions of its common stock under the 401(k) Plan and as a result of this action, the blackout period under the 401(k) Plan ended, effective as of September 14, 2006 and the Company was again able to make equity-based awards to its executive officers.
 
To date, we have not instituted any equity ownership requirements for our executive officers. We did not consider any such policy in 2006 due to the BTR blackout mentioned above, as well as the complexities and risks associated with open-market purchases of our common stock by our executive officers while we are not current in our SEC periodic filings. We expect to consider an equity ownership policy once we have become current in our SEC periodic filings.
 
2007 Compensation
 
Base Salary. In determining 2007 compensation, management and the Compensation Committee agreed that the executive officers would receive the standard 4% increase in base compensation provided to all the Company’s other managing directors in 2007. The Compensation Committee approved the following 2007 salaries for our executive officers:
 
         
    Base Salary
 		 
Name
  for 2007  
 
Harry L. You
  $ 780,000  
Roderick C. McGeary
    676,000  
Judy A. Ethell
    520,000  
Laurent C. Lutz
    520,000  
 
In January 2007, Mr. Harbach was appointed as our Chief Operating Officer, replacing Mr. Roberts as an executive officer of the Company. Mr. Harbach’s base salary for 2007, set forth in his employment agreement with the Company, is $700,000.
 
PSU Awards. As part of our 2007 compensation program, the Compensation Committee approved in March 2007 the issuance of PSU awards to our executive officers. The Compensation Committee determined the amount of each PSU award granted to our executive officers by reviewing each executive officer’s individual performance and responsibilities and roles within the Company and by assessing and comparing the executive officer’s total compensation, including previously granted incentive awards and the balance of fixed and variable compensation, with competitive market data provided by Towers Perrin. PSU awards were granted to the following individuals:
 
         
    Total Number
 		 
    of
 		 
Name
  PSUs Granted (1)  
 
Harry L. You
    959,079  
Roderick C. McGeary
    255,754  
Judy A. Ethell
    306,905  
Laurent C. Lutz
    383,632  


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(1) The PSUs will vest on December 31, 2009 if two performance-based metrics are achieved for the performance period beginning on February 2, 2007 and ending on December 31, 2009. The Company must first achieve a compounded average annual growth target in consolidated business unit contribution. Then, depending on the Company’s total shareholder return relative to those companies that comprise the S&P 500, the percentage of PSU awards that vest will vary from 0% to 250%. The “Total Number of PSUs Granted” assumes that 100% of the PSU awards vest.
 
Mr. Harbach did not receive a PSU award since he received a grant of 888,325 RSUs on January 8, 2007 as part of his employment arrangement with the Company.
 
Other Compensation
 
Deferred Compensation Plans. We have a “Deferred Compensation Plan” and a “Managing Directors Deferred Compensation Plan.” The two plans are substantially identical and permit a select group of management and highly compensated employees to accumulate additional income for retirement and other personal financial goals by making elective deferrals of compensation to which they will become entitled to in the future. Our deferred compensation plans are nonqualified and unfunded, and participants are unsecured general creditors of the Company as to their accounts. Managing directors, including our executive officers, and other highly compensated executives selected by the plans’ administrative committee are eligible to participate in the plans. None of our executive officers have participated in our deferred compensation plans.
 
Other Benefits. We offer a variety of health and welfare and retirement programs to all eligible employees. Our executive officers are generally eligible for the same health and welfare programs on the same basis as our other employees. Our retirement program for U.S. employees consists of a 401(k) program, in which executive officers participate on the same terms and conditions as other eligible employees. We match the individual employee’s contribution to the program of 25% of the first 6% of pre-tax eligible compensation contributed to the plan, and, at our discretion, may make additional discretionary contributions of up to 25% of the first 6% of pre-tax eligible compensation contributed to the plan. Employee contributions to the 401(k) program for our executive officers, as well as other more highly compensated employees, are limited by federal law. We have not made up for the impact of these statutory limitations on named executives through any type of nonqualified deferred compensation or other program.
 
Perquisites and Other Compensation. In general, we have historically avoided the use of perquisites and other types of non-cash benefits for executive officers and expect this policy to continue. Certain of our executive officers have received perquisites such as reimbursements of moving expenses and legal fees and gross-up payments in connection with the same as set forth in their respective employment agreements.
 
Regulatory Considerations
 
The Internal Revenue Code contains a provision that limits the tax deductibility of certain compensation paid to our executive officers to the extent it is not considered performance-based compensation under the Internal Revenue Code. We have adopted policies and practices to facilitate compliance with Section 162(m) of the Internal Revenue Code. It is intended that awards granted under the LTIP to such persons will qualify as performance-based compensation within the meaning of Section 162(m) and regulations under that section.
 
In making decisions about executive compensation, we also consider the impact of other regulatory provisions, including the provisions of Section 409A of the Internal Revenue Code regarding non-qualified deferred compensation and the change-in-control provisions of Section 280G of the Internal Revenue Code. In accordance with recent IRS guidance interpreting Section 409A, the LTIP will be administered in a manner that is in good faith compliance with Section 409A. The Board intends that any awards under the LTIP satisfy the applicable requirements of Section 409A. Generally, Section 409A is inapplicable to incentive stock


88

 

options and restricted stock and also to nonqualified stock options so long as the exercise price for the nonqualified option may never be less than the fair market value of the common stock on the date of grant.
 
In making decisions about executive compensation, we also consider how various elements of compensation will impact our financial results including the impact of SFAS 123(R) which requires us to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. SFAS 123(R) was a consideration in adopting restricted stock units as a long-term equity incentive.
 
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
 
The Compensation Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis section of this Annual Report on Form 10-K with the Company’s management and, based on such review and discussion, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K.
 
COMPENSATION COMMITTEE
 
Douglas C. Allred (Chair)
Betsy Bernard
Jill S. Kanin-Lovers*
J. Terry Strange**
 
*Member of the Compensation Committee since May 10, 2007
 
**Member of the Compensation Committee during 2006 and through June 18, 2007


89

 

Summary of Cash and Certain Other Compensation
 
The Summary Compensation Table below sets forth information concerning all compensation for services in all capacities to the Company for 2006 of those persons who were the Chief Executive Officer, Chief Financial Officer and the three other most highly compensated executive officers of the Company for 2006 (“named executive officers”).
 
Summary Compensation Table
 
                                                                 
                                  Non-Equity
 		             
                                  Incentive
 		             
                      Stock
 		    Option
 		    Plan
 		    All Other
 		       
Name and
 		        Salary
 		    Bonus
 		    Awards
 		    Awards
 		    Compensation
 		    Compensation
 		    Total
 		 
Principal Position
  Year     ($) (1)     ($) (1)     ($) (2)     ($) (2)     ($)     ($)     ($)  
 
Harry L. You(3)
    2006       750,000       58,500       938,900       2,519,300       —       331,828       4,598,528  
Chief Executive Officer
                                                               
Roderick C. McGeary
    2006       662,640       50,712       250,000       263,732       —       —       1,227,084  
Chairman of the Board
                                                               
Judy A. Ethell(4)
    2006       500,000       300,000       690,700       1,131,000       —       3,797       2,625,497  
Chief Financial Officer
                                                               
Laurent C. Lutz(5)
    2006       411,059       1,311,059       —       —       525,000       78,431       2,325,549  
General Counsel and Secretary
                                                               
Richard J. Roberts(6)
    2006       650,000       50,700       855,400       332,160       —       3,977       1,892,237  
Chief Operating Officer
                                                               
 
 
(1) Unless otherwise noted, “Bonus” amounts consist of performance-based cash bonuses accrued in the fiscal year for which the bonus has been earned. We have entered into employment agreements with Mr. You, Ms. Ethell and Mr. Lutz that set forth the terms of their compensation.
 
(2) Unless otherwise noted, stock awards, which consist of RSUs, and stock options were granted in accordance with our LTIP. If dividends are declared on our common stock while any RSUs are outstanding, the number of shares to be granted upon settlement of the RSUs will be adjusted to reflect the payment of such dividends. Amounts reflected in the table as 2006 compensation reflect the dollar amount recognized for financial statement reporting purposes in 2006 in accordance with SFAS 123(R) for equity award expense. For additional information about 2006 awards of RSUs, stock options, and other non-equity incentive plan compensation, see “ — Grants of Plan-Based Awards.”
 
(3) Mr. You’s “All Other Compensation” includes reimbursements of $259,568 for costs related to the sale of his residences, $17,117 in commuting expenses, $51,532 in tax equalization payments with respect to the reimbursement of moving expenses and certain state taxes paid by Mr. You, $2,361 in personal travel expenses and $1,250 in Company matching contributions under our 401(k) Plan.
 
(4) On October 3, 2006, we entered into a letter agreement with Ms. Ethell relating to the rescission and replacement of certain grants of nonqualified stock options and RSUs made to her in July 2005 in connection with her employment with the Company. On July 1, 2005, Ms. Ethell received a grant for 292,000 RSUs and a stock option grant to purchase 600,000 shares of common stock (collectively, the “2005 Awards”). The 2005 Awards were intended to be of effect only after the Company had become current in its SEC periodic filings; however, we reconsidered the rationale behind this approach and as a result, we canceled the 2005 Awards and made subsequent replacement grants to Ms. Ethell, effective as of September 19, 2006 (the “2006 Awards”). The 2006 Awards consist of: (a) stock options to purchase up to 600,000 shares of our common stock, of which 25% vested upon grant, and, subject to achievement of certain performance criteria, 25% will vest on July 1 in each of 2007 through 2009, (b) 292,000 RSUs, of which 204,400 vested on date of grant, and, subject, to achievement of certain performance criteria, an additional 29,200 will vest on July 1 in each of 2007 through 2009, and (c) 94,000 RSUs, of which 25% vested on date of grant, and subject to achievement of certain performance criteria, 25% will vest on July 1 in each of 2007 through 2009.
 
(5) Mr. Lutz’s annual base salary for 2006 was $500,000. The amount reported as Mr. Lutz’s salary is the amount actually paid in 2006. Mr. Lutz’s 2006 bonus compensation consists of a $900,000 signing bonus and $411,059 of bonus compensation (pro rated, based on an annual performance bonus of $500,000). Mr. Lutz’s 2006 non-equity incentive plan compensation is more fully described under “ — Grants of Plan-Based Awards.” Mr. Lutz’s “All Other Compensation” consists of $41,857 in legal fees paid on Mr. Lutz’s behalf in connection with the negotiation of his employment arrangements with the Company, reimbursement of $36,574 in tax equalization payments with respect to the reimbursement of legal fees and certain state taxes paid by Mr. Lutz.
 
(6) Effective as of January 8, 2007, Mr. Roberts no longer serves as our Chief Operating Officer in connection with the appointment of F. Edwin Harbach as our President and Chief Operating Officer.


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Grants of Plan-Based Awards
 
The following table provides information relating to equity awards made in 2006 to our named executive officers. All of the following awards that relate to our common stock were made pursuant to our LTIP.
 
                                                                         
                                                    Grant
 		 
                                              Exercise
 		    Date Fair
 		 
                                              Price of
 		    Value of
 		 
          Estimated Future Payouts Under
 		    Estimated Future Payouts Under
 		    Option
 		    Stock and
 		 
    Grant
 		    Non-Equity Incentive Plan Awards     Equity Incentive Plan Awards     Awards
 		    Option
 		 
Name
  Date     Threshold ($)     Target ($)     Maximum ($)     Threshold (#)     Target (#)     Maximum (#)     ($/Sh)     Awards  
 
Harry You
    —       —       —       —       —       —       —       —       —  
Roderick C. McGeary (1)
    9/25/2006       —       —       —       —       —       29,411       —     $ 249,994  
Judy A. Ethell (2)
    9/19/2006       —       —       —       —       —       600,000     $ 8.70       2,883,600  
      9/19/2006       —       —       —       —       —       292,000       —       2,540,400  
      9/19/2006       —       —       —       —       —       94,000       —       817,800  
Laurent C. Lutz (3)
    2/27/2006       —       —     $ 1,750,000 (3)     —       —       — (3)     —       —  
Richard J. Roberts (4)
    9/25/2006       —       —       —       —       —       77,343       —       657,416  
      9/25/2006       —       —       —       —       —       93,177       —       792,005  
 
 
(1) Mr. McGeary was granted 29,411 RSUs that vest 25% on January 1 in each of 2007 through 2010.
 
(2) Ms. Ethell was granted the following awards: (a) stock options to purchase up to 600,000 shares of our common stock, of which 25% vested upon grant, and, subject to achievement of certain performance criteria, 25% will vest on July 1 in each of 2007 through 2009, (b) 292,000 RSUs, of which 204,400 vested on date of grant, and, subject, to achievement of certain performance criteria, an additional 29,200 will vest on July 1 in each of 2007 through 2009, and (c) 94,000 RSUs, of which 25% vested on date of grant, and subject to achievement of certain performance criteria, 25% will vest on July 1 in each of 2007 through 2009. These grants were made pursuant to a letter agreement between the Company and Ms. Ethell, effective as of October 3, 2006, and replaced grants made to Ms. Ethell in 2005 in connection with her employment with the Company. The 2005 Awards were intended to be modified to be of effect only after the Company had become current on its SEC periodic filings, however, the rationale behind this approach was reconsidered by the Company. As a result, the 2005 Awards were canceled and the Compensation Committee approved these subsequent grants to Ms. Ethell, effective as of September 19, 2006.
 
(3) Mr. Lutz was granted the following: on the earlier of (i) the date an effective registration statement on Form S-8 is filed or is on file and (ii) the date, if any, we cease to be a reporting company under the Exchange Act, a grant of RSUs having an aggregate value of $1.75 million; provided, however, if RSUs have not yet been granted, subject to certain conditions, Mr. Lutz will receive cash payments (which will reduce the value of any RSUs to be granted) of $525,000 on July 1, 2006, $525,000 on June 30, 2007 and $175,000 on December 31 in each of 2007 through 2010.
 
(4) Mr. Roberts was granted the following awards: (a) 77,343 RSUs, all of which vested on September 25, 2006, and (b) 93,177 RSUs that vest 25% on January 1 in each of 2007 through 2010.


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Outstanding Equity Awards at Fiscal Year-End (December 31, 2006)
 
The following table provides information regarding the value of all unexercised options and unvested restricted stock units previously awarded to our named executives as of December 31, 2006.
 
                                                                         
    Option Awards     Stock Awards  
                                                    Equity
 		 
                                                    Incentive
 		 
                                                    Plan Awards:
 		 
                Equity
 		                            Equity
 		    Market
 		 
                Incentive
 		                            Incentive
 		    or Payout
 		 
                Plan Awards:
 		                      Market
 		    Plan Awards:
 		    Value of
 		 
    Number of
 		    Number of
 		    Number of
 		                Number of
 		    Value of
 		    Number of
 		    Unearned
 		 
    Securities
 		    Securities
 		    Securities
 		                Shares or
 		    Shares or
 		    Unearned Shares,
 		    Shares,
 		 
    Underlying
 		    Underlying
 		    Underlying
 		                Units of
 		    Units of
 		    Units or
 		    Units or
 		 
    Unexercised
 		    Unexercised
 		    Unexercised
 		    Option
 		    Option
 		    Stock That
 		    Stock That
 		    Other Rights
 		    Other Rights
 		 
    Options (#)
 		    Options (#)
 		    Unearned
 		    Exercise
 		    Expiration
 		    Have not
 		    Have not
 		    That Have
 		    That Have
 		 
Name
  Exercisable     Unexercisable     Options (#)     Price ($)     Date     Vested (#)     Vested ($)     not Vested (#)     not Vested (#)  
 
Harry L. You
    500,000 (1)     1,500,000 (1)     —     $ 7.55       3/18/2015       750,000 (2)   $ 5,902,500       —       —  
Roderick C. McGeary
    7,928       —       —       55.50       6/30/2010       29,411 (3)     231,465       —       —  
      15,000       —       —       16.38       4/24/2011       —       —       —       —  
      450,000       —       —       9.00       11/19/2014       —       —       —       —  
Judy A. Ethell
    150,000 (4)     450,000 (4)     —       8.70       9/19/2016       87,600 (4)     689,412       —       —  
                                              70,500 (4)     554,835       —       —  
Laurent C. Lutz (5)
    —       —       —       —       —       —       —       —       —  
Richard J. Roberts
    11,892       —       —       18.00       7/31/2010       93,177 (6)     733,303       —       —  
      53,205       —       —       18.00       2/8/2011       —       —       —       —  
      50,000       —       —       13.30       7/24/2011       —       —       —       —  
      11,611       —       —       11.01       9/3/2012       —       —       —       —  
      70,000       —       —       10.01       9/3/2012       —       —       —       —  
      125,000       —       —       8.19       8/28/2013       —       —       —       —  
      40,000 (7)     20,000 (7)     —       9.15       10/4/2014       —       —       —       —  
 
 
(1) Mr. You was granted stock options to purchase up to 2,000,000 shares of our common stock, which options vest 25% on March 18 in each of 2006 through 2009.
 
(2) Mr. You was granted 750,000 RSUs, of which 62,500 RSUs vested on March 21, 2007, 125,000 RSUs vest on March 21, 2008, 187,500 RSUs vest on March 21 in each of 2009 and 2010, 125,000 RSUs vest on March 21, 2011 and 62,500 RSUs vest on March 21, 2012.
 
(3) Mr. McGeary was granted 29,411 RSUs that vest 25% on January 1 in each of 2007 through 2010.
 
(4) Ms. Ethell was granted stock options to purchase up to 600,000 shares of our common stock, of which 25% vested upon grant (September 19, 2006), and, subject to achievement of certain performance criteria, 25% will vest on July 1 in each of 2007 through 2009. In addition, Ms. Ethell was granted (i) 292,000 RSUs, of which 204,400 vested on date of grant (September 19, 2006), and, subject to achievement of certain performance criteria, an additional 29,200 will vest on July 1 in each of 2007 through 2009; and (ii) 94,000 RSUs, of which 25% vested on date of grant (September 19, 2006), and subject to achievement of certain performance criteria, 25% will vest on July 1 in each of 2007 through 2009. These grants were made in connection with the rescission and replacement of the 2005 Awards. For additional information, see footnote 4 of the “Summary Compensation Table” on page 91.
 
(5) From April 20, 2005 through September 14, 2006, pursuant to Regulation BTR, we announced there would be a blackout period under our 401(k) plan. Due to existence of the blackout period, we were unable to make issuances of equity awards to its executive officers. In connection with his employment, Mr. Lutz was granted the following: on the earlier of (i) the date an effective registration statement on Form S-8 is filed or is on file and (ii) the date, if any, we cease to be a reporting company under the Exchange Act, a grant of RSUs having an aggregate value of $1.75 million; provided, however, if RSUs have not yet been granted, subject to certain conditions, Mr. Lutz will receive cash payments (which will reduce the value of any RSUs to be granted) of $525,000 on July 1, 2006, $525,000 on June 30, 2007 and $175,000 on December 31 in each of 2007 through 2010.
 
(6) Mr. Roberts was granted 93,177 RSUs that vest 25% on January 1 in each of 2007 through 2010.
 
(7) Mr. Roberts was granted stock options to purchase up to 60,000 shares of our common stock. The stock options vest as follows: 1/3 on October 4 in each of 2005, 2006, and 2007.


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Option Exercises and Stock Vested
 
The following table provides information with respect to restricted stock units and restricted stock that vested during 2006 with respect to our named executive officers. No options were exercised in 2006.
 
                                 
    Option Awards     Stock Awards  
    Number of Shares
 		          Number of Shares
 		       
    Acquired on
 		    Value Realized on
 		    Acquired on
 		    Value Realized on
 		 
Name
  Exercise (#)     Exercise ($)     Vesting (#)     Vesting ($)  
 
Harry L. You
    —       —       —       —  
Roderick C. McGeary
    —       —       —       —  
Judy A. Ethell
    —       —       227,900     $ 1,982,730  
Laurent C. Lutz
    —       —       —       —  
Richard J. Roberts
    —       —       149,782       1,226,787  
 
Pension Benefits
 
Our only retirement plan for our U.S.-based associates, including our named executive officers, is our 401(k) plan. We do not have a pension plan in which our named executive officers are eligible to participate.
 
Nonqualified Deferred Compensation Plans
 
We have a “Deferred Compensation Plan” and a “Managing Directors Deferred Compensation Plan,” which are designed to permit a select group of management and highly compensated employees who contribute materially to our continued growth, development and future business success to accumulate additional income for retirement and other personal financial goals through plans that enable the participants to make elective deferrals of compensation to which they will become entitled to in the future. Our deferred compensation plans are nonqualified and unfunded, and participants are unsecured general creditors of the Company as to their accounts. Our managing directors, including our Named Executive Officers, and other highly compensated executives selected by the plans’ administrative committee are eligible to participate in the plans. To date, none of our Named Executive Officers have participated in any of our deferred compensation plans.
 
Employment Agreements
 
Managing Director Agreements. We have entered into a Managing Director Agreement (a “Managing Director Agreement”) with each of our approximately 650 managing directors, including our named executive officers. Pursuant to the Managing Director Agreement, we provide up to six months’ pay for certain terminations of employment by us. In addition, the Managing Director Agreement contains non-competition and non-solicitation provisions for a period of up to two years after such executive’s termination of employment or resignation.
 
Effective as of January 31, 2005, we and certain executive officers of the Company, including Richard J. Roberts, entered into an amendment to their Managing Director Agreements (the “Amendment”). Each Amendment provides that if within 18 months after the date of the Amendment we hire a new Chief Executive Officer other than Roderick C. McGeary and terminate, or constructively terminate, such Officer’s employment under certain circumstances (the “Triggering Event”), we will pay to such Officer a lump sum cash amount equal to the sum of such Officer’s current annual salary, earned and unused personal days and target incentive compensation pursuant to the terms of the incentive compensation plan then in effect. In addition, any unvested stock options that would have vested from the date of such Triggering Event through the next following anniversary date of the grant of such options will automatically vest. As of July 31, 2006, each of the Amendments had expired.


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Employment Agreement for Harry L. You. Effective March 21, 2005, we entered into the following arrangements with Harry L. You, our Chief Executive Officer:
 
  •     Compensation. Information regarding Mr. You’s annual base and bonus compensation can be found in the “Summary Compensation Table” above. Information regarding equity awards issued to Mr. You pursuant to his employment arrangements are included under “Outstanding Equity Awards at Fiscal Year-End (December 31, 2006),” above.
 
  •     Benefits/Long-Term Incentives. Mr. You is entitled to participate in all employee benefit (including long-term incentives), fringe and perquisite plans, practices, programs, policies and arrangements generally provided to senior executives of the Company at a level commensurate with his position.
 
  •     Relocation. Mr. You was reimbursed for reasonable relocation and transitional housing and travel expenses, including a tax gross-up payment to cover all applicable taxes, and the Company provided assistance in connection with the sale of his residences.
 
  •     Indemnification. We agreed to indemnify Mr. You with respect to his activities on behalf of the Company, for any failure of the Company to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and for certain other matters.
 
  •     Termination Payments. Mr. You is entitled to certain termination payments under his employment agreement, which are described below under “—Potential Payments upon Termination or Change of Control.”
 
Employment Agreement for Judy A. Ethell. Effective as of July 1, 2005, we entered into the following arrangements with Judy A. Ethell, our Chief Financial Officer—Finance:
 
  •     Compensation. Information regarding Ms. Ethell’s annual base and bonus compensation can be found in the “Summary Compensation Table” above. Information regarding equity awards issued to Ms. Ethell pursuant to her employment arrangements are included under “Outstanding Equity Awards at Fiscal Year-End (December 31, 2006),” above.
 
  •     Benefits/Long-Term Incentives. Ms. Ethell is entitled to participate in all employee benefit (including long-term incentives), fringe and perquisite plans, practices, programs, policies and arrangements generally provided to senior executives of the Company at a level commensurate with her position.
 
  •     Relocation. Ms. Ethell was reimbursed for reasonable relocation and transitional housing and travel expenses, including a tax gross-up payment to cover all applicable taxes, and the Company provided assistance in connection with the sale of her principal residence.
 
  •     Indemnification. We agreed to indemnify Ms. Ethell with respect to her activities on behalf of the Company, for any failure of the Company to comply with Section 409A of the Internal Revenue Code of 1986, as amended, and for certain other matters.
 
  •     Termination Payments. Ms. Ethell is entitled to certain termination payments under her employment agreement, which are described below under “—Potential Payments upon Termination or Change of Control.”
 
Employment Agreement for Laurent C. Lutz. Effective as of October 17, 2006, the Board determined that Laurent C. Lutz, our General Counsel and Secretary, was an executive officer of the Company. Effective as of February 27, 2006, we had entered into the following arrangements with Mr. Lutz:
 
  •     Compensation. Information regarding Mr. Lutz’s annual base and bonus compensation can be found in the “Summary Compensation Table” above. Information regarding non-equity incentive plan compensation awarded to Mr. Lutz are included under “Grants of Plan-Based Awards, above.”
 
  •     Benefits/Long-Term Incentives. Mr. Lutz is entitled to participate in all employee benefit (including long-term incentives), fringe and perquisite plans, practices, programs, policies and arrangements generally provided to senior executives of the Company at a level commensurate with his position.


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  •     Legal Fees. Mr. Lutz was reimbursed for reasonable legal fees in connection with the negotiation and drafting of his employment arrangements.
 
  •     Indemnification. We agreed to indemnify Mr. Lutz in the event that any activity he undertakes on behalf of the Company is challenged as being in violation of any agreement he may have with a prior employer and for certain other matters. In addition, Mr. Lutz is entitled to receive a gross-up for any payment to him under any of his agreements that would be subject to a surtax imposed by Section 409A of the Internal Revenue Code or for any interest or penalties thereon.
 
  •     Termination Payments. Mr. Lutz is entitled to certain termination payments under his employment agreement, which are described below under “—Potential Payments upon Termination or Change of Control.”
 
Potential Payments upon Termination or Change of Control
 
Severance Payments under Managing Director Agreements. Under our Managing Director Agreements, we provide up to six months’ pay for terminations of employment by us other than for “cause,” as defined in the agreements. In addition, these agreements contain non-competition and non-solicitation provisions for a period of up to two years after such executive’s termination of employment or resignation.
 
Severance Payments under Employment Agreements. Under our employment agreements with Mr. You, Ms. Ethell and Mr. Lutz, we have that upon termination of the individual’s employment by us without “cause” or by the individual “for good reason,” (as defined in the agreements), within 30 days after our receipt of a fully executed release, we will make a severance payment to the individual.
 
Termination Payments under Special Termination Agreements. We have entered into special termination agreements (each, a “Special Termination Agreement”) with certain key personnel, including each of our Named Executive Officers (with the exception of Mr. McGeary), as set forth below. The purpose of the Special Termination Agreement is to ensure that these executives are properly protected in the event of a change in control of the Company, thereby enhancing our ability to hire and retain them. The terms of the Special Termination Agreements vary up to a maximum of three years, which terms automatically renew for additional one-year terms unless we give notice that the agreement will not be renewed, or, if later, two years after a change in control. The protective provisions of the Special Termination Agreement become operative only upon a change in control, as defined in the agreement.
 
All Special Termination Agreements signed on or after August 1, 2006 specify that if, after a change in control and during the term of the agreement, we terminate the executive’s employment other than for “cause” (as defined in the agreements) or the executive terminates his employment because his salary was reduced by at least 20%, the executive is entitled to certain benefits. Generally, Special Termination Agreements signed before August 1, 2006 specify that if, after a change of control and during the term of the agreement, we terminate the executive’s employment other than for “cause” or if the executive terminates his employment for specified reasons (including if his responsibilities have been materially reduced or adversely modified or his compensation has been reduced), the executive is entitled to certain benefits. Under the Special Termination Agreements, these benefits generally include the payment of approximately one year’s compensation, based on salary plus bonus as specified in the agreement, continued coverage under our welfare benefit plans (e.g., medical, life insurance and disability insurance) for up to two years at no cost, and outplacement counseling.


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Potential Payments
Upon Termination of Employment or Change-in-Control
as of December 31, 2006
 
The table below sets forth the potential payments that generally would have been payable to each of our named executive officers as of December 31, 2006 if:
 
  •  the named executive officer’s employment were terminated by us without “Cause” (as defined in such named executive officer’s employment agreement) or by the named executive officer for “Good Reason” (as defined in such named executive officer’s employment agreement); and
 
  •  the named executive officer’s employment (a) were terminated by us within two years after a Change in Control (as defined in such named executive officer’s Special Termination Agreement) for any reason other than “Cause” (as defined in such named executive officer’s Special Termination Agreement) or if the executive became permanently disabled or was unable to work for a period of 180 consecutive days, (b) (i) were involuntarily terminated by us (other than for Cause) or (ii) were terminated by the named executive officer following a reduction or adverse change in the named executive officer’s duties or compensation, in each case within six months prior to a Change in Control and in anticipation of a Change in Control or (c) were terminated by the named executive officer during the term of the Special Termination Agreement but after a Change in Control if one of the events specified in such named executive officer’s Special Termination Agreement has occurred.
 
                 
    Termination of
 		    Change in
 		 
Name
  Employment (1) (2)     Control (3)  
 
Harry L. You
  $      3,724,531 (4)   $ 29,477,602 (5)
Roderick C. McGeary
    162,500 (6)     —  
Judy A. Ethell
    1,488,731 (7)     11,627,168 (8)
Laurent C. Lutz
    4,633,709 (9)     12,218,534 (10)
Richard J. Roberts
    325,000 (11)     4,167,168 (12)
 
 
(1) Amounts set forth in the table for Mr. You, Ms. Ethell and Mr. Lutz reflect the severance payments payable under their respective employment agreements. If Mr. You, Ms. Ethell or Mr. Lutz’s employment is not terminated (i) by us without “Cause” (as defined in such named executive officer’s employment agreement) or (ii) by the named executive officer for “Good Reason” (as defined in such named executive officer’s employment agreement), then such named executive officer may still be eligible to receive payments representing earned but unpaid salary and bonuses amounts, any unpaid accrued personal days or unreimbursed business expenses and any other amounts due under the Company’s benefit plans. If Mr. You, Ms. Ethell or Mr. Lutz does not qualify for payment under any of the provisions of their respective employment agreements, they may be eligible to receive severance payments under their respective Managing Director Agreements if their employment is terminated for Cause (as defined in the respective Managing Director Agreement) or for no reason. Such payments would generally consist of all earned and unpaid base salary plus a payment equal to three months’ pay at such named executive officer’s current base salary. Amounts payable under the Managing Director Agreements for Mr. You, Ms. Ethell and Mr. Lutz as of December 31, 2006 would have been $187,500, $125,000 and $125,000, respectively. Amounts set forth in the table for Messrs. McGeary and Roberts reflect the severance payments payable under their respective Managing Director Agreements.
 
(2) The values of accelerated stock options and RSUs assume a $7.87 per share price for our common stock (the closing price on December 29, 2006).
 
(3) Amounts set forth in the table for Mr. You, Ms. Ethell, Mr. Lutz and Mr. Roberts reflect the termination payments payable governed under their respective Special Termination Agreements upon a Change of Control (as defined in such agreements). Mr. McGeary is not a party to a Special Termination Agreement. Even if Mr. You, Ms. Ethell or Mr. Lutz is not eligible to receive the payments set forth in the table above upon a change in control (as defined in the Special Termination Agreements), all unvested options and restricted stock held will immediately vest upon the occurrence of a Change of Control (as defined under the LTIP) pursuant to such named executive officer’s employment agreement. In addition, the Change of Control provisions under the LTIP generally provide that any unvested portion of stock option grants and RSUs will vest upon the occurrence of a Change of Control (as defined in the LTIP). See “Change of Control Provisions Under the LTIP” below. Furthermore, if such named executive


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officer is not eligible to receive the payments and other benefits specified in his or her Special Termination Agreement upon a change in control, such named executive officer may be eligible to receive the payments payable upon termination of employment under such individual’s employment agreement, as specified in this table and the related footnotes.
 
(4) Under Mr. You’s employment agreement, Mr. You would have been entitled to the following: (i) payment equal to two times the sum of his (A) annual base salary ($750,000) and (B) target bonus ($750,000), (ii) payment of accrued and unused personal days ($51,469), (iii) payment of premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended for a period of 18 months after termination ($13,906), and (iv) the vesting of an additional 500,000 options and 62,500 RSUs that would have vested within the first anniversary of the termination date ($651,875).
 
(5) Under Mr. You’s Special Termination Agreement, Mr. You would have been entitled to the following: (i) payment equal to 299% of the sum of his (A) annual base salary in 2006 ($750,000) and (B) bonus payment in 2005 ($1,000,000), (ii) for a period of 2 years after his termination, continuation of medical, dental, life insurance, disability, accidental death and dismemberment benefits and other welfare benefits, subject to certain exceptions ($15,307), (iii) if Mr. You’s employment is involuntarily terminated by us (other than for Cause) or there is a reduction or adverse change in Mr. You’s duties or compensation and Mr. You terminates his employment within six months prior to a Change of Control and in anticipation of a Change of Control, the vesting of all unvested options and RSUs (an additional 1,500,000 options and 750,000 RSUs valued at $6,382,500), (iv) reimbursement for outplacement services, (v) payment of any earned but unpaid salary, bonus or incentive compensation and (vi) an additional tax gross-up payment of $18,591,991.
 
(6) Under Mr. McGeary’s Managing Director Agreement, Mr. McGeary would have been entitled to payment equal to three months of his base salary ($650,000).
 
(7) Under Ms. Ethell’s employment agreement, Ms. Ethell would have been entitled to (i) payment equal to the sum of her (A) annual base salary ($500,000) and (B) target bonus ($500,000), (ii) payment of accrued and unused personal days ($59,389), (iii) payment of premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended for a period of 18 months after termination ($13,906), and (iv) the vesting of an additional 150,000 options and 52,700 RSUs that would have vested within the first anniversary of the termination date ($290,249).
 
(8) Under Ms. Ethell’s Special Termination Agreement, Ms. Ethell would have been entitled to the following: (i) payment equal to 299% of the sum of her (A) annual base salary in 2006 ($500,000) and (B) target bonus for 2006 ($500,000), (ii) for a period of 2 years after her termination, continuation of medical, dental, life insurance, disability, accidental death and dismemberment benefits and other welfare benefits, subject to certain exceptions ($15,307), (iii) if Ms. Ethell’s employment is involuntarily terminated by us (other than for Cause) or there is a reduction or adverse change in Ms. Ethell’s duties or compensation and Ms. Ethell terminates her employment within six months prior to a Change of Control and in anticipation of a Change of Control, the vesting of all unvested options and RSUs (an additional 450,000 options and 158,100 RSUs valued at $870,747), (iv) reimbursement for outplacement services, (v) payment of any earned but unpaid salary, bonus or incentive compensation and (vi) an additional tax gross-up payment of $7,379,986.
 
(9) Under Mr. Lutz’s employment agreement, Mr. Lutz would have been entitled to (i) payment equal to the sum of his (A) annual base salary ($500,000) (or, in the event of termination by Good Reason (as defined in his employment agreement), 11/2 times annual base salary) and (B) target bonus ($500,000), (ii) payment of accrued and unused personal days ($26,375), (iii) payment of premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended for a period of 18 months after termination ($14,401), (iv) vesting of the portion of his RSUs (or corresponding cash award payment) scheduled to vest on the next vesting date following the termination date (or, in the case of a cash award payment related to a termination occurring prior to July 1, 2007, the next 2 vesting dates) ($700,000) and (v) an additional tax gross-up payment of $2,886,147.
 
(10) Under Mr. Lutz’s Special Termination Agreement, Mr. Lutz would have been entitled to the following: (i) payment equal to 299% of the sum of his (A) annual base salary in 2006 ($500,000) and (B) target bonus for 2006 ($500,000), (ii) for a period of 2 years after his termination, continuation of medical, dental, life insurance, disability, accidental death and dismemberment benefits and other welfare benefits, subject to certain exceptions ($12,417), (iii) if Mr. Lutz’s employment is involuntarily terminated by us (other than for Cause) or there is a reduction or adverse change in Mr. Lutz’s duties or compensation and Mr. Lutz terminates his employment within six months prior to a Change of Control and in anticipation of a Change of Control, the vesting of all unvested RSUs (or corresponding cash award payment, in the amount of $1,225,000), (iv) reimbursement for outplacement services, (v) payment of any earned but unpaid salary, bonus or incentive compensation and (vi) an additional tax gross-up payment of $7,610,423. In addition, pursuant to his employment agreement, Mr. Lutz would have been entitled to acceleration of his unpaid retention bonus ($375,000) upon a Change in Control (as defined in his Special Termination Agreement).
 
(11) Under Mr. Roberts’ Managing Director Agreement, Mr. Roberts would have been entitled to payment equal to six months of his base salary ($650,000).


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(12) Under Mr. Roberts’ Special Termination Agreement, Mr. Roberts would have been entitled to the following: (i) payment equal to the sum of his (A) annual base salary in 2006 ($650,000) and (B) potential bonus or incentive compensation (20% of base salary or $130,000), (ii) for a period of 2 years after his termination, continuation of medical, dental, life insurance, disability, accidental death and dismemberment benefits and other welfare benefits, subject to certain exceptions ($12,759), (iii) if Mr. Roberts’ employment is involuntarily terminated by us (other than for Cause) or (ii) there is a reduction or adverse change in Mr. Roberts’ duties or compensation and Mr. Roberts terminates his employment within six months prior to a Change of Control and in anticipation of a Change of Control, the vesting of all unvested options and RSUs (an additional 20,000 options and 93,177 RSUs valued at $707,703), (iv) reimbursement for outplacement services, (v) payment of any earned but unpaid salary, bonus or incentive compensation and (vi) an additional gross-up payment of $2,640,791.
 
Change of Control Provisions Under the LTIP. In addition to the provisions in the agreements referred to above, in the event of certain “Changes of Control” of the Company, any non-vested portion of stock option grants and RSUs, and other awards made under the LTIP will generally vest, and any contractual transfer restrictions on restricted stock or other shares issued upon the settlement of RSUs will be released except under the PSU awards. If such a Change of Control were to occur, all stock options not yet exercisable, including those of our Named Executive Officers set forth in the table captioned “Outstanding Equity Awards at Fiscal Year-End (December 31, 2006)” would vest. In addition, all cash retention awards, including those granted to Mr. Lutz and set forth in the table captioned “Grants of Plan-Based Awards” would accelerate. Upon a change of control, for PSU awards, the growth target in consolidated business unit contribution will be waived and the acquiring company may (i) substitute the PSUs for the right to receive the acquiring company’s stock with the same vesting and settlement schedule, (ii) accelerate and settle in cash the ratable number of PSUs that would vest through the date of change in control and replace the remaining PSUs with a cash incentive bonus program that provides for an opportunity to earn up to the value of the remaining PSUs, or (iii) if neither of the above options is selected, then the PSUs will vest and settle and be payable within 10 days of the change of control.
 
Managing Director Compensation Plan
 
In January 2006, the Compensation Committee of the Board approved and authorized the development of our MD Compensation Plan. The MD Compensation Plan was designed to be a comprehensive cash and equity-based compensation program for the managing directors of the Company and was intended to replace the previous cash-based compensation program for such individuals. Generally, all managing directors, including our Named Executive Officers, are eligible to participate in the MD Compensation Plan. The primary goal of the MD Compensation Plan is to align the compensation of our managing directors with those of our stockholders, and the plan is designed to offer transparency into the Company’s executive compensation program, align company performance and individual performance, provide a fair and objective basis for assessing performance, link managing director roles and responsibilities to the Company’s business objectives, and enhance the accountability of the Company’s executives. Under the MD Compensation Plan, a managing director’s compensation may include the following components: (i) RSUs; (ii) target compensation (which may be cash or equity); (iii) performance compensation; and (iv) additional breakthrough awards.
 
To date, we have been unable to activate the MD Compensation Plan because we are not current with respect to our SEC periodic reports. We were unable to provide for bonuses under the MD Compensation Plan since the plan has not yet been fully activated and the target levels of profitability set forth under the MD Compensation Plan were not achieved due to our ongoing issues related to our financial accounting systems and internal controls and their related impact on our ability to become current in our SEC periodic reports and deliver shares of common stock under equity-based awards.
 
Director Compensation
 
Non-employee directors, those who are not employed by us on a full-time or other basis, receive compensation for their service on our Board of Directors. The goals for non-employee director compensation are to fairly pay directors for their service, to align directors’ interests with the long-term interests of our


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stockholders and to have a structure that is transparent. An employee director receives no additional compensation for their service on the Board.
 
In 2006, non-employee director compensation included the following elements:
 
  •     an annual fee of $40,000;
 
  •     a meeting fee of $2,000 for attendance in person at any meeting of the Board or a committee of the Board and $1,000 for attendance by telephone (members of the Audit Committee are paid $2,000 for attendance at any Audit Committee meeting, whether they attended in person or by telephone);
 
  •     a grant of stock options to purchase up to 15,000 shares of common stock upon initial election to the Board;
 
  •     a grant of stock options to purchase up to 5,000 shares of common stock upon initial election as the Chair of the Audit Committee; and
 
  •     a grant of 8,000 shares of restricted common stock immediately following each annual meeting of stockholders.
 
2006 Director Compensation Table
 
                                 
    Fees Earned
 		                   
    or Paid
 		                   
    in Cash
 		    Stock Awards
 		    Option Awards
 		    Total
 		 
Name
  ($)     ($)(2)     ($)(3)(4)     ($)  
 
Douglas C. Allred
    70,000       65,760               135,760  
Betsy J. Bernard
    66,000       65,760               131,760  
Spencer C. Fleischer
    75,000       65,760       32,376       173,136  
Wolfgang Kemna
    73,000       65,760               138,760  
Albert L. Lord
    98,000       65,760               163,760  
Alice M. Rivlin (1)
    47,000       65,760               112,760  
J. Terry Strange
    113,000       65,760       5,482       184,242  
 
 
(1) Ms. Rivlin did not stand for re-election at our annual meeting of stockholders held on December 14, 2006.
 
(2) Reflects the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2006, in accordance with SFAS 123(R) with respect to grants of restricted stock in 2006. During 2006, each director was granted 8,000 shares of restricted common stock, each with a fair value of $65,760. In accordance with SFAS 123(R), fair value is calculated using the closing price of our common stock on the date of grant.
 
(3) Reflects the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2006, in accordance with SFAS 123(R) with respect to stock option awards granted prior to 2006. No stock options were awarded to these individuals in 2006. In accordance with SFAS 123(R), fair value was estimated using the Black-Scholes option-pricing model.
 
(4) Outstanding equity awards for each non-employee director is as follows (for a description of the beneficial ownership by our directors, see “Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”):
 


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    Outstanding
 		    Outstanding
 		 
    Stock Awards at
 		    Option Awards at
 		 
    December 31,
 		    December 31,
 		 
Name
  2006     2006  
 
Douglas C. Allred
    28,000       15,000  
Betsy J. Bernard
    16,000       15,000  
Spencer C. Fleischer
    8,000       15,000  
Wolfgang Kemna
    28,000       15,000  
Albert L. Lord
    24,000       15,000  
Alice M. Rivlin (1)
    28,000       20,000  
J. Terry Strange
    24,000       20,000  
 
 
(1) Ms. Rivlin did not stand for re-election at our annual meeting of stockholders held on December 14, 2006.
 
We also reimburse directors for reasonable travel expenses related to attending a Board, Committee or other Company related business meetings, and provide liability insurance for our directors and officers.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
Beneficial Ownership of More Than Five Percent
 
The following table sets forth the only persons known by us, as of June 1, 2007, to be beneficial owners or more than five percent of our common stock.
 
                 
    Common Stock  
          Percentage of
 		 
Name and Address of 5% Holders of Common Stock
  Number of Shares     Shares Outstanding  
 
Ariel Capital Management, LLC (1)
    30,201,218       15.0 %
200 E. Randolph Drive, Suite 2900
               
Chicago, IL 60601
               
Glenview Capital Management, LLC (2)
    20,599,345       10.2  
767 Fifth Avenue, 44th Floor
               
New York, NY 10153
               
Thornburg Investment Management, Inc (3)
    18,003,408       8.9  
119 E. Marcy Street
               
Santa Fe, NM 87501
               
Goldman Sachs Asset Management, L.P. (4)
    13,914,809       6.9  
32 Old Slip
               
New York, NY 10005
               
 
(1) Represents shares beneficially held by Ariel Capital Management, LLC (“Ariel”), as reported on a Schedule 13G filed on February 14, 2007. Ariel has sole voting power with respect to 26,112,088 shares and sole dispositive power with respect to 30,181,188 shares. These shares are beneficially owned by investment advisory clients of Ariel.
 
(2) Represents shares beneficially held by Glenview Capital Management, LLC (“Glenview”), Glenview Capital GP, LLC (“Glenview GP”) and Lawrence M. Robbins, as reported on a Schedule 13G filed on February 14, 2007. Glenview serves as investment manager to various entities and as such may be deemed to have voting and dispositive power of such shares. Glenview GP is a general partner of, and serves as the sponsor of, various funds and as such, may be deemed to have voting and dispositive power over such shares. Mr. Robbins is the Chief Executive Officer of Glenview and Glenview GP.
 
(3) Represents shares beneficially held by Thornburg Investment Management, Inc (“Thornburg”), as reported on a Schedule 13G filed on April 19, 2007. Thornburg has sole voting power with respect to 11,008,109 shares and sole dispositive power with respect to 18,003,408 shares.
 
(4) Represents shares beneficially held by Goldman Sachs Asset Management, L.P. (“Goldman Sachs”), as reported on a Schedule 13G filed on February 12, 2007. Goldman Sachs has sole voting power with respect to 13,766,568 shares and sole dispositive power with respect to 13,914,809 shares.


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Security Ownership of Directors and Executive Officers
 
The following table sets forth, as of June 1, 2007, information regarding the beneficial ownership of our common stock held by (i) each of our directors and Named Executive Officers and (2) all of our directors and executive officers as a group. To our knowledge, except as otherwise indicated, each of the persons or entities listed below has sole voting and investment power with respect to the shares beneficially owned by him or her. “Beneficial ownership” is determined in accordance with Rule 13d-3 under the Exchange Act, pursuant to which a person or group of persons is deemed to have “beneficial ownership” of any shares that he or she has the right to acquire within 60 days of June 1, 2007. Any shares that a person has the right to acquire within 60 days of June 1, 2007 are deemed to be outstanding but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
 
                 
    Common Stock  
          Percentage of
 		 
Name and Address (1)
  Number of Shares     Shares Outstanding  
 
Harry L. You (2)
    1,072,500       *  
Roderick C. McGeary (3)
    621,828       *  
Douglas C. Allred (4)
    51,000       *  
Betsy J. Bernard (5)
    39,000       *  
Judy A. Ethell (6)
    790,600       *  
Spencer Fleischer (7)
    31,000       *  
Jill S. Kanin-Lovers
    —       *  
Wolfgang Kemna (8)
    51,000       *  
Albert L. Lord (9)
    58,600       *  
Laurent C. Lutz
    —       *  
Richard J. Roberts (10)(11)
    600,468       *  
J. Terry Strange (12)
    57,000       *  
All executive officers and directors as a group (12 persons)
    3,372,996       1.6 %
 
*  Less than 1% of our common stock outstanding.
 
(1) The address for all persons listed is c/o BearingPoint, Inc., 1676 International Drive, McLean, Virginia 22102 USA.
 
(2) Includes 62,500 vested RSUs and 1,000,000 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007. All 62,500 vested RSUs were scheduled for settlement but have not yet settled.
 
(3) Includes 7,352 vested RSUs and 472,928 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007. All 7,352 vested RSUs were scheduled for settlement but have not yet settled.
 
(4) Includes 15,000 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007.
 
(5) Includes 15,000 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007.
 
(6) Includes 280,600 vested RSUs, and 300,000 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007 (assumes vesting of 150,000 RSUs and 52,700 options on July 1, 2007 that are subject to Ms. Ethell achieving certain performance criteria). Also includes 210,000 vested RSUs held by Robert R. Glatz, Ms. Ethell’s spouse. All 430,600 vested RSUs were scheduled for settlement but have not yet settled.
 
(7) Includes 15,000 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007. Mr. Fleischer is a senior managing member of Friedman Fleischer & Lowe GP II, LLC, a Delaware limited liability company (“FFL GP”). FFL GP is the general partner of Friedman Fleischer & Lowe GP II, L.P., which is the general partner of each of Friedman Fleischer & Lowe Capital Partners II, L.P. (“FFL Capital Partners”), FFL Parallel Fund II, L.P. (“FFL Parallel Fund”) and FFL Executive Partners II, L.P. (“FFL Executive Partners,” and together with FFL Capital Partners and FFL Parallel Fund, the “FFL Funds”). The FFL Funds are the owners of record of $40 million of initial principal amount of 0.50% Convertible Senior Subordinated Debentures due July 2010


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and warrants to purchase up to 3.5 million shares of common stock. Mr. Fleischer disclaims any beneficial ownership of the securities owned by the FFL Funds, except to the extent of his pecuniary interest therein, if any.
 
(8) Includes 15,000 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007.
 
(9) Includes 15,000 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007.
 
(10) Includes 4,301 shares held through a family trust, 173,076 vested RSUs and 361,708 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007. Of the 361,708 vested RSUs, 111,110 RSUs were scheduled for settlement but have not yet settled.
 
(11) Effective as of January 8, 2007, Mr. Roberts no longer serves as our Chief Operating Officer in connection with the appointment of F. Edwin Harbach as our President and Chief Operating Officer.
 
(12) Includes 20,000 shares of common stock that may be acquired through the exercise of stock options within 60 days of June 1, 2007.


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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Friedman Fleischer & Lowe, LLC /Spencer C. Fleischer
 
On July 15, 2005, we issued $40,000,000 aggregate principal amount of our July 2005 Senior Debentures and common stock warrants to purchase up to 3,500,000 shares of our common stock pursuant to a securities purchase agreement, dated July 15, 2005 (the “FF&L Purchase Agreement”), among the Company and certain affiliates of Friedman Fleischer & Lowe, LLC (the “FF&L Purchasers”). In accordance with the terms of the FF&L Purchase Agreement, Mr. Spencer C. Fleischer was appointed to our Board as a Class I Director, effective July 15, 2005. Mr. Fleischer is a senior managing member and Vice Chairman of Friedman Fleischer & Lowe GP II, LLC, the general partner of Friedman Fleischer & Lowe GP II, LP, which is the general partner of several investment funds that make investments in private and public companies in the United States and Bermuda; he has served in this capacity since 1998. If Mr. Fleischer ceases to be affiliated with the FF&L Purchasers or ceases to serve on the Board, so long as the FF&L Purchasers together hold at least 40% of the original principal amount of the July 2005 Senior Debentures, the FF&L Purchasers or their designees have the right to designate a replacement director to our Board.
 
Judy Ethell/Robert Glatz
 
Effective as of August 22, 2005, Robert Glatz was appointed Executive Vice President—Corporate Development, a managing director and a member of our executive team. Robert Glatz is the spouse of Judy Ethell, our Chief Financial Officer. In connection with his employment, Mr. Glatz is entitled to the following: (a) base salary of $500,000; (b) 300,000 RSUs, with vesting as follows: 180,000 RSUs on December 31, 2005 and 30,000 RSUs on each of August 22, 2006, 2007, 2008 and 2009; (c) eligible to receive an annual bonus with a target amount equal to 100% of his base salary; and (d) sign-on bonus of $500,000. In addition, we have provided or will provide to Mr. Glatz relocation assistance, indemnification to the fullest extent permitted by law with respect to his activities on behalf of the Company and for other tax related issues, and employee benefit plans generally provided to senior executives of the Company. In addition, as a managing director, Mr. Glatz is a party to the Managing Director Agreement (with certain changes to the defined terms “Good Reason” and “Change of Control”) and the Special Termination Agreement. Pursuant to these agreements, upon termination of Mr. Glatz’s employment, we will pay to Mr. Glatz: (i) any earned but unpaid base salary through the date of termination; (ii) any earned but unpaid annual bonus for the preceding year, provided that his employment terminates after the payment date for the annual bonus; (iii) any unpaid accrued personal days; (iv) if we terminate his employment without Cause or he terminates for Good Reason, we will pay to him a lump sum cash amount equal to his annual base salary within 30 days after receipt of an executed release and pay his premiums under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, for up to 18 months; and (v) any other amounts due under any of our benefit plans.
 
Director Independence
 
The Board has reviewed each director’s independence. As a result of this review, the Board affirmatively determined that each of Messrs. Allred, Fleischer, Kemna, Lord and Strange, and Msses. Bernard and Kanin-Lovers has no material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). Furthermore, each of these directors is independent of the Company and its management under the listing standards of the NYSE currently in effect and, with respect to members of the Audit Committee, the applicable regulations of the SEC. Messrs. McGeary and You are employees of the Company.
 
In connection with the Board’s determination of Mr. Fleischer’s independence, the Board examined Mr. Fleischer’s status as a senior managing member of one of the Company’s convertible debt holders. After considering all relevant facts and circumstances, the Board determined Mr. Fleischer’s relationship was not material and does not impair the independence of Mr. Fleischer. Although Mr. Fleischer attends committee meetings from time to time, he is not a member of our Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee. For more information about Mr. Fleischer’s appointment to the Board and his relationship to one of our convertible debt holders, please see “Certain Relationships and Related Transactions, and Director Independence—Friedman Fleischer & Lowe, LLC /Spencer C. Fleischer.”


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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Audit Committee Pre-Approval Policies
 
The Audit Committee has adopted policies and procedures for approving all audit and permissible non-audit services performed by our independent auditors. Consistent with these policies, all engagements of the independent auditor to perform any audit services and non-audit services have been pre-approved by the Audit Committee. No services provided by our independent auditor were approved by the Audit Committee pursuant to the “de minimis” exception to the pre-approval requirement set forth in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
 
Independent Registered Public Accountant’s Fees
 
During fiscal years 2006 and 2005, our independent registered public accountants, PricewaterhouseCoopers LLP, billed us the fees set forth below in connection with services rendered:
 
                 
    Fiscal Year Ended,  
Type of Fee
  December 31, 2006     December 31, 2005  
 
Audit Fees (1)
  $ 30,979,000     $ 33,900,000  
Audit Related Fees (2)
    275,000       159,300  
Tax Fees (3)
    960,000       1,956,800  
All Other Fees (4)
    15,000       33,000  
                 
Total
  $ 32,229,000     $ 36,049,100  
                 
 
 
(1) Audit fees include audits of consolidated financial statements, reviews of unaudited quarterly financial statements and services that are normally provided by independent auditors in connection with statutory and regulatory filings.
 
(2) Audit related fees include assurance and related services provided by our independent auditors that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not included above under “Audit Fees.” These services principally include audits of employee benefit plans, accounting consultations, and other services in connection with regulatory reporting requirements.
 
(3) Tax services principally include consultation in connection with tax compliance, tax consultations and tax planning.
 
(4) All other fees include licenses to technical accounting research software.


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PART IV
 
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
(a)(1) The financial statements of the Company required in response to this Item are incorporated by reference from Item 8 of this Report.
 
(a)(3) See the exhibits listed below under Item 15(b).
 
(b) Exhibit Index
 
         
Exhibit No.
 
Description
 
  3 .1   Amended and Restated Certificate of Incorporation, dated as of February 7, 2001, which is incorporated herein by reference to Exhibit 3.1 from the Company’s Form 10-Q for the quarter ended March 31, 2001.
         
  3 .2   Amended and Restated Bylaws, amended and restated as of May 5, 2004, which is incorporated herein by reference to Exhibit 3.1 from the Company’s Form 10-Q for the quarter ended March 31, 2004.
         
  3 .3   Certificate of Ownership and Merger merging Bones Holding into the Company, dated October 2, 2002, which is incorporated herein by reference to Exhibit 3.3 from the Company’s Form 10-Q for the quarter ended September 30, 2002.
         
  4 .1   Rights Agreement, dated as of October 2, 2001, between the Company and EquiServe Trust Company, N.A., which is incorporated herein by reference to Exhibit 1.1 from the Company’s Registration Statement on Form 8-A dated October 3, 2001.
         
  4 .2   Certificate of Designation of Series A Junior Participating Preferred Stock, which is incorporated herein by reference to Exhibit 1.2 from the Company’s Registration Statement on Form 8-A dated October 3, 2001.
         
  4 .3   Amendment No. 1 to the Rights Agreement between the Company and EquiServe Trust Company, N.A., which is incorporated herein by reference to Exhibit 99.1 from the Company’s Form 8-K filed on September 6, 2002.
         
  10 .1   Amended and Restated Separation Agreement, dated as of February 13, 2001, among KPMG LLP, KPMG Consulting, LLC and the Company, which is incorporated herein by reference to Exhibit 10.1 from the Company’s Form 10-Q for the quarter ended March 31, 2001.
         
  10 .2   Transition Services Agreement, dated as of February 13, 2001, among KPMG LLP, KPMG Consulting, LLC and the Company, which is incorporated herein by reference to Exhibit 10.3 from the Company’s Form 10-Q for the quarter ended March 31, 2001.
         
  10 .3   Stock Purchase Agreement dated as of December 29, 1999, between Cisco Systems, Inc. and the Company, which is incorporated herein by reference to Exhibit 10.11 from the Company’s Form S-1. (Registration No. 333-36328) (referred to below as “the Company’s Form S-1”)
         
  10 .4   Investor Rights Agreement dated as of January 31, 2000, among KPMG LLP, Cisco Systems, Inc. and the Company, which is incorporated herein by reference to Exhibit 10.12 from the Company’s Form S-1.
         
  10 .5   Irrevocable Waiver, dated May 17, 2004, by Cisco Systems, Inc. with respect to the Investor Rights Agreement, dated January 31, 2000 and the Stock Purchase Agreement, dated December 29, 1999, which is incorporated herein by reference to Exhibit 10.49 of the Company’s Form S-1/A (Registration No. 333-100199).


106

 

         
Exhibit No.
 
Description
 
         
  10 .6   Credit Agreement dated as of May 18, 2007, as amended and restated on June 1, 2007, among the Company, BearingPoint, LLC, the guarantors party thereto, the lenders party thereto, UBS Securities LLC, Morgan Stanley Senior Funding, Inc., UBS AG, Stamford Branch and Wells Fargo Foothill, LLC.
         
  10 .7   Security Agreement dated as of May 18, 2007, among the Company, BearingPoint, LLC, the guarantors party thereto and UBS AG, Stamford Branch, as Collateral Agent.
         
  10 .8   Form of Term Note under the Credit Agreement dated as of May 18, 2007.
         
  10 .9   Form of 2.50% Series A Convertible Subordinated Debentures due 2024, which is incorporated by reference to Exhibit 10.66 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .10   Form of 2.75% Series B Convertible Subordinated Debentures due 2024, which is incorporated by reference to Exhibit 10.67 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .11   Purchase Agreement, dated as of December 16, 2004, among the Company and the Initial Purchasers named therein, which is incorporated by reference to Exhibit 10.68 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .12   Indenture, dated as of December 22, 2004, by and between the Company and The Bank of New York, as trustee, which is incorporated by reference to Exhibit 99.1 from the Company’s Form 8-K filed on March 10, 2006.
         
  10 .13   First Supplemental Indenture, dated as of November 7, 2006, between BearingPoint, Inc. and The Bank of New York, as trustee under the Indenture, dated as of December 22, 2004, which is incorporated by reference to Exhibit 99.1 from the Company’s Form 8-K filed on November 8, 2006.
         
  10 .14   Resale Registration Rights Agreement, dated December 22, 2004, between the Company and the Initial Purchasers, which is incorporated by reference to Exhibit 10.70 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .15   Form of 5.00% Convertible Senior Subordinated Debentures due 2025, which is incorporated by reference to Exhibit 10.71 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .16   Form of Securities Purchase Agreement, dated April 21, 2005, among the Company and the purchasers named therein, which is incorporated by reference to Exhibit 10.72 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .17   Indenture, dated as of April 27, 2005, by and between the Company and the Bank of New York, as trustee, which is incorporated by reference to Exhibit 99.1 from the Company’s Form 8-K filed on March 10, 2006.
         
  10 .18   First Supplemental Indenture, dated as of November 2, 2006, between BearingPoint, Inc. and The Bank of New York, as trustee under the Indenture, dated as of April 27, 2005, providing for the issuance of an aggregate principal amount of $200,000,000 of 5.00% Convertible Senior Subordinated Debentures Due 2025, which is incorporated by reference to Exhibit 99.2 from the Company’s Form 8-K filed on November 3, 2006.
         
  10 .19   Registration Rights Agreement, dated April 27, 2005, between the Company and the placement agents, which is incorporated by reference to Exhibit 10.74 from the Company’s Form 10-K for the year ended December 31, 2004.

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Exhibit No.
 
Description
 
         
  10 .20   Securities Purchase Agreement, dated July 15, 2005, among the Company and certain affiliates of Friedman Fleischer & Lowe, LLC, which is incorporated by reference to Exhibit 10.75 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .21   Form of 0.50% Convertible Senior Subordinated Debentures due July 2010, which is incorporated by reference to Exhibit 10.76 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .22   Form of Warrant Certificate, dated July 15, 2005, which is incorporated by reference to Exhibit 10.77 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .23   Registration Rights Agreement, dated July 15, 2005, between the Company and Friedman Fleischer & Lowe, LLC, which is incorporated by reference to Exhibit 10.78 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .24   Amended and Restated 2000 Long-Term Incentive Plan, effective as of February 2, 2007.
         
  10 .25   Employee Stock Purchase Plan, as amended and restated as of February 1, 2007.
         
  10 .26   Amended and Restated 401(k) Plan dated August 21, 2003, which is incorporated herein by reference to Exhibit 10.19 from the Company’s Form 10-K for the year ended June 30, 2003.
         
  10 .27   Amendment No. 1 to Amended and Restated 401(k) Plan dated April 29, 2004, which is incorporated herein by reference to Exhibit 10.20 from the Company’s Form S-1/A (Registration No. 333-100199).
         
  10 .28   Amendment No. 2 to Amended and Restated 401(k) Plan dated June 24, 2005, which is incorporated by reference to Exhibit 10.24 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .29   Amendment No. 3 to Amended and Restated 401(k) Plan dated August 22, 2005, which is incorporated by reference to Exhibit 10.25 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .30   Amendment No. 4 to Amended and Restated 401(k) Plan dated November 1, 2005, which is incorporated by reference to Exhibit 10.26 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .31   Amendment No. 5 to Amended and Restated 401(k) Plan, effective as of September 14, 2006.
         
  10 .32   Amendment No. 6 to Amended and Restated 401(k) Plan, effective as of January 1, 2006.
         
  10 .33   Amendment No. 7 to Amended and Restated 401(k) Plan, effective as of May 1, 2007.
         
  10 .34   Deferred Compensation Plan, as amended and restated as of August 1, 2003, which is incorporated herein by reference to Exhibit 10.20 from the Company’s Form 10-K for the year ended June 30, 2003.
         
  10 .35   Amendment to Deferred Compensation Plan effective as of December 31, 2004, which is incorporated by reference to Exhibit 10.28 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .36   Amended and Restated BearingPoint, Inc. Managing Directors Deferred Compensation Plan dated January 1, 2006, which is incorporated by reference to Exhibit 10.30 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .37   Form of Member Distribution Agreement for KPMG Consulting Qualified Employees, which is incorporated herein by reference to Exhibit 10.6 from the Company’s Form S-1 (including for Richard Roberts).

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Exhibit No.
 
Description
 
         
  10 .38   Form of Amendment to the Managing Director Agreement, dated as of January 31, 2005, between the Company and certain executive officers (including for Richard Roberts), which is incorporated by reference to Exhibit 10.8 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .39   Form of Managing Director Agreement (including for Roderick C. McGeary).
         
  10 .40   Form of Managing Director Agreement.
         
  10 .41   Form of Special Termination Agreement (including for Richard Roberts), which is incorporated by reference to Exhibit 10.93 from the Company’s Form 10-K for the year ended December 31, 2005.
         
  10 .42   Form of Restricted Stock Agreement with certain officers of the Company pursuant to the 2000 Long-Term Incentive Plan, which is incorporated herein by reference to Exhibit 10.5 from the Company’s Form 10-Q for the quarter ended September 30, 2002.
         
  10 .43   Form of Restricted Stock Agreement with non-employee directors of the Company pursuant to the Amended and Restated Long-Term Incentive Plan, which is incorporated herein by reference to Exhibit 10.5 from the Company’s Form 10-Q for the quarter ended December 31, 2002.
         
  10 .44   Form of Restricted Stock Unit agreement under the Company’s 2000 Long-Term Incentive Plan for managing directors and employees, which is incorporated by reference to Exhibit 10.81 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .45   Form of Performance Share Award Unit Agreement, which is incorporated by reference to Exhibit 99.1 from the Company’s Form 8-K filed with the SEC on February 8, 2007.
         
  10 .46   Form of Performance Cash Award Agreement, which is incorporated by reference to Exhibit 99.2 from the Company’s Form 8-K filed with the SEC on February 8, 2007.
         
  10 .47   Employment Letter, effective as of March 21, 2005, between the Company and Harry L. You, which is incorporated by reference to Exhibit 10.86 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .48   Managing Director Agreement, dated as of March 21, 2005, between the Company and Harry L. You, which is incorporated by reference to Exhibit 10.87 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .49   Restricted Stock Unit Agreement, dated March 21, 2005, between the Company and Harry L. You, which is incorporated by reference to Exhibit 10.88 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .50   Special Termination Agreement, dated as of March 21, 2005, between the Company and Harry L. You, which is incorporated by reference to Exhibit 10.89 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .51   Stock Option Agreement, between the Company and Harry L. You, which is incorporated by reference to Exhibit 10.90 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .52   Form of Restricted Stock Unit Agreement awarded to Harry You and Roderick C. McGeary, which is incorporated by reference to Exhibit 99.2 from the Company’s Form 8-K field with the SEC on February 13, 2007.
         
  10 .53   Employment Letter, effective as of July 1, 2005, between the Company and Judy A. Ethell, which is incorporated by reference to Exhibit 10.91 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .54   Managing Director Agreement, dated as of July 1, 2005, between the Company and Judy A. Ethell.

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Exhibit No.
 
Description
 
         
  10 .55   Special Termination Agreement, dated as of July 1, 2005, between the Company and Judy A. Ethell, which is incorporated by reference to Exhibit 10.93 from the Company’s Form 10-K for the year ended December 31, 2004.
         
  10 .56   Letter Agreement dated October 3, 2006, between the Company and Judy A. Ethell, which is incorporated by reference to Exhibit 10.95 from the Company’s Form 10-K for the year ended December 31, 2005.
         
  10 .57   Restricted Stock Unit Agreement for 292,000 restricted stock units, dated September 19, 2006, between the Company and Judy A. Ethell, which is incorporated by reference to Exhibit 10.96 from the Company’s Form 10-K for the year ended December 31, 2005.
         
  10 .58   Restricted Stock Unit Agreement for 94,000 restricted stock units, dated September 19, 2006, between the Company and Judy A. Ethell, which is incorporated by reference to Exhibit 10.97 from the Company’s Form 10-K for the year ended December 31, 2005.
         
  10 .59   Employment Letter, effective as of February 24, 2006, between the Company and Laurent C. Lutz, which is incorporated by reference to Exhibit 10.91 from the Company’s Form 10-K for the year ended December 31, 2005.
         
  10 .60   Managing Director Agreement, dated as of February 24, 2006, between the Company and Laurent C. Lutz, which is incorporated by reference to Exhibit 10.92 from the Company’s Form 10-K for the year ended December 31, 2005.
         
  10 .61   Special Termination Agreement, dated as of February 24, 2006, between the Company and Laurent C. Lutz, which is incorporated by reference to Exhibit 10.94 from the Company’s Form 10-K for the year ended December 31, 2005.
         
  10 .62   Employment Letter, effective as of January 8, 2007, between the Company and F. Edwin Harbach, which is incorporated by reference to Exhibit 99.2 from the Company’s Form 8-K filed with the SEC on January 12, 2007.
         
  10 .63   Managing Director Agreement, dated as of January 8, 2007, between the Company and F. Edwin Harbach, which is incorporated by reference to Exhibit 99.3 from the Company’s Form 8-K filed with the SEC on January 12, 2007.
         
  10 .64   Special Termination Agreement, dated as of January 8, 2007, between the Company and F. Edwin Harbach, which is incorporated by reference to Exhibit 99.4 from the Company’s Form 8-K filed with the SEC on January 12, 2007.
         
  10 .65   Restricted Stock Unit Agreement, dated January 8, 2007, between the Company and F. Edwin Harbach, which is incorporated by reference to Exhibit 99.5 from the Company’s Form 8-K filed with the SEC on January 12, 2007.
         
  14 .1   Standards of Business Conduct.
         
  16 .1   Letter dated June 28, 2007, from PricewaterhouseCoopers LLP to the Securities and Exchange Commission.
         
  21 .1   List of subsidiaries of the Registrant.
         
  31 .1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a).
         
  31 .2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a).
         
  32 .1   Certification of Chief Executive Officer pursuant to Section 1350.
         
  32 .2   Certification of Chief Financial Officer pursuant to Section 1350.

110

 

 
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 on June 28, 2007 by the undersigned, thereunto duly authorized.
 
BEARINGPOINT, INC.
 
  By: 
/s/  Harry L. You
Name: Harry L. You
Title: Chief Executive Officer
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on June 28, 2007 by the following persons on behalf of the Registrant and in the capacities indicated.
 
         
Signature
 
Title
 
/s/  Harry L. You

Harry L. You 		 
Director, and Chief Executive Officer (principal executive officer)
     
/s/  Judy A. Ethell

Judy A. Ethell 		 
Chief Financial Officer (principal financial and accounting officer)
     
/s/  Roderick C. McGeary

Roderick C. McGeary 		 
Chairman of the Board of Directors
     
/s/  Douglas C. Allred

Douglas C. Allred 		 
Director
     
/s/  Betsy J. Bernard

Betsy J. Bernard 		 
Director
     
/s/  Spencer C. Fleischer

Spencer C. Fleischer 		 
Director
     
/s/  Jill S. Kanin-Lovers

Jill S. Kanin-Lovers 		 
Director
     
/s/  Wolfgang Kemna

Wolfgang Kemna 		 
Director
     
/s/  Albert L. Lord

Albert L. Lord 		 
Director
     
/s/  J. Terry Strange

J. Terry Strange 		 
Director


111

 

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
BEARINGPOINT, INC.
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
         
    Page
 
Report of Independent Registered Public Accounting Firm
  F-2
       
Consolidated Balance Sheets at December 31, 2006 and 2005
  F-7
       
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004
  F-8
       
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2006, 2005 and 2004
  F-9
       
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
  F-11
       
Notes to Consolidated Financial Statements
  F-12


F-1

 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of BearingPoint, Inc.:
 
We have completed integrated audits of BearingPoint, Inc.’s consolidated financial statements and of its internal control over financial reporting as of December 31, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.
 
Consolidated financial statements
 
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of BearingPoint, Inc. and its subsidiaries (the “Company”) at December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006 and the manner in which it accounts for defined benefit pension and other postretirement plans effective December 31, 2006.
 
Internal control over financial reporting
 
Also, we have audited management’s assessment, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A, that BearingPoint, Inc. did not maintain effective internal control over financial reporting as of December 31, 2006, because (1) the Company did not maintain an effective control environment over financial reporting, (2) the Company did not maintain effective controls, including monitoring, over the financial close and reporting process, (3) the Company did not design and maintain effective controls over the completeness, accuracy, existence, valuation and disclosure of revenue, costs of service, accounts receivable, unbilled revenue, deferred contract costs, and deferred revenue, (4) the Company did not design and maintain effective controls over the completeness, accuracy, existence, valuation, and disclosure of the accounts payable, other current liabilities, other long-term liabilities and related expense accounts, (5) the Company did not design and maintain effective controls over the completeness and accuracy of costs related to expatriate compensation expense and related tax liabilities, (6) the Company did not design and maintain effective controls over the completeness, accuracy, valuation, and disclosure of payroll, employee benefit and other compensation liabilities and related expense accounts, (7) the Company did not design and maintain effective controls over the completeness, accuracy, existence, valuation and disclosure of property and equipment and related depreciation and amortization expense, (8) the Company did not design and maintain effective controls over the completeness, accuracy, valuation, and disclosure of prepaid lease and long-term lease obligation accounts and related amortization and lease rental expenses, and (9) the Company did not design and maintain effective controls over the completeness, accuracy, existence, valuation and presentation and disclosure of income tax payable, deferred income tax assets and liabilities, the related valuation allowance and income tax expense, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and


F-2

 

for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.
 
We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment as of December 31, 2006:
 
1. The Company did not maintain an effective control environment over financial reporting. Specifically, the Company identified the following material weaknesses:
 
  •     The Company did not maintain a sufficient complement of personnel in foreign locations with an appropriate level of knowledge, experience and training in the application of generally accepted accounting principles in the United States of America (“GAAP”) and in internal control over financial reporting commensurate with financial reporting requirements.
 
  •     The Company did not maintain and communicate sufficient formalized and consistent finance and accounting policies and procedures. The Company also did not maintain effective controls designed to prevent or detect instances of non-compliance with established policies and procedures specifically with respect to the application of accounting policies at foreign locations.
 
  •     The Company did not enforce the consistent performance of manual controls designed to complement system controls over the North American financial accounting system. As a result, transactions and data were not completely and accurately recorded, processed and reported in the financial statements.
 
  •     The Company did not maintain adequate controls to ensure that employees could report actual or perceived violations of policies and procedures. In addition, the Company did not have sufficient


F-3

 

  procedures to ensure the appropriate notification, investigation, resolution and remediation procedures were applied to reported violations.
 
The material weaknesses in the Company’s control environment described above contributed to the existence of the material weaknesses discussed in items 2 through 9 below. Additionally, these material weaknesses could result in a misstatement to substantially all of the Company’s financial statement accounts and disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
 
2. The Company did not maintain effective controls, including monitoring, over the financial close and reporting process. Specifically, the Company identified the following material weaknesses in the financial close and reporting process:
 
  •     The Company did not maintain formal, written policies and procedures governing the financial close and reporting process.
 
  •     The Company did not maintain effective controls to ensure that management oversight and review procedures were properly performed over the accounts and disclosures in the financial statements. In addition, the Company did not maintain effective controls to ensure adequate management reporting information was available to monitor financial statement accounts and disclosures.
 
  •     The Company did not maintain effective controls over the recording of recurring and non-recurring journal entries. Specifically, effective controls were not designed and in place to provide reasonable assurance that journal entries were prepared with sufficient supporting documentation and reviewed and approved to ensure the completeness and accuracy of the entries recorded.
 
  •     The Company did not maintain effective controls to provide reasonable assurance that accounts were complete and accurate and agreed to detailed support and that reconciliations of accounts were properly performed, reviewed and approved.
 
  •     The Company did not maintain effective controls to provide reasonable assurance that foreign currency translation amounts resulting from intercompany loans were accurately recorded and reported in the consolidated financial statements.
 
These material weaknesses contributed to the material weaknesses identified in items 3 through 9 below and resulted in adjustments to the Company’s consolidated financial statements for the year ended December 31, 2006. Additionally, these material weaknesses could result in a misstatement to substantially all of the Company’s financial statement accounts and disclosures that would result in a material misstatement of the Company’s annual or interim consolidated financial statements that would not be prevented or detected.
 
3. The Company did not design and maintain effective controls over the completeness, accuracy, existence, valuation and disclosure of revenue, costs of service, accounts receivable, unbilled revenue, deferred contract costs, and deferred revenue. Specifically, the Company identified the following material weaknesses:
 
  •     The Company did not design and maintain effective controls to provide reasonable assurance over the initiation, recording, processing, and reporting of customer contracts, including the existence of and adherence to policies and procedures, adequate segregation of duties and adequate monitoring by management.
 
  •     The Company did not design and maintain effective controls to provide reasonable assurance that contract costs, such as engagement subcontractor costs, were completely and accurately accumulated.
 
  •     The Company did not design and maintain effective controls to provide reasonable assurance that the Company adequately evaluated customer contracts to identify and provide reasonable assurance regarding the proper application of the appropriate method of revenue recognition in accordance with GAAP.


F-4

 

 
  •     The Company did not design and maintain effective controls to provide reasonable assurance regarding the completeness of information recorded in the financial accounting system. Specifically, the Company did not design and have in place effective controls to provide reasonable assurance that invoices issued outside of the financial accounting system were appropriately recorded in the general ledger. As a result, the Company did not ensure that cash received was applied to the correct accounts in the appropriate accounting period.
 
4. The Company did not design and maintain effective controls over the completeness, accuracy, existence, valuation, and disclosure of accounts payable, other current liabilities, other long-term liabilities and related expense accounts. Specifically, the Company did not design and maintain effective controls over the initiation, authorization, processing, recording, and reporting of purchase orders and invoices as well as authorizations for cash disbursement to provide reasonable assurance that liability balances and operating expenses were accurately recorded in the appropriate accounting period and to prevent or detect misappropriation of assets. In addition, the Company did not have effective controls to: i) provide reasonable assurance regarding the complete identification of subcontractors used in performing services to customers; or ii) monitor subcontractor activities and accumulation of subcontractor invoices to provide reasonable assurance regarding the complete and accurate recording of contract-related subcontractor costs.
 
5. The Company did not design and maintain effective controls over the completeness and accuracy of costs related to expatriate compensation expense and related tax liabilities. Specifically, the Company did not maintain effective controls to identify and monitor employees working away from their home country for extended periods of time. In addition, the Company did not maintain effective controls to completely and properly calculate the related compensation expense and employee income tax liability attributable to each tax jurisdiction.
 
6. The Company did not design and maintain effective controls over the completeness, accuracy, valuation, and disclosure of payroll, employee benefit and other compensation liabilities and related expense accounts. Specifically, the Company did not have effective controls designed and in place to provide reasonable assurance of the authorization, initiation, recording, processing, and reporting of employee-related costs including bonus, health and welfare, severance, compensation expense, and stock-based compensation amounts in the accounting records. Additionally, the Company did not design and maintain effective controls over the administration of employee data or controls to provide reasonable assurance regarding the proper authorization of non-recurring payroll changes.
 
7. The Company did not design and maintain effective controls over the completeness, accuracy, existence, valuation and disclosure of property and equipment and related depreciation and amortization expense. Specifically, the Company did not design and maintain effective controls to provide reasonable assurance that asset additions and disposals were completely and accurately recorded; depreciation and amortization expense was accurately recorded based on appropriate useful lives assigned to the related assets; existence of assets was confirmed through periodic inventories; and the identification and determination of impairment losses was performed in accordance with GAAP. In addition, the Company did not design and maintain effective controls to provide reasonable assurance of the adherence to the capitalization policy, and the Company did not design and maintain effective controls to provide reasonable assurance that expenses for internally developed software were completely and accurately capitalized, amortized, and adjusted for impairment in accordance with GAAP.
 
8. The Company did not design and maintain effective controls over the completeness, accuracy, valuation, and disclosure of prepaid lease and long-term lease obligation accounts and related amortization and lease rental expenses. Specifically, the Company did not design and maintain effective controls to provide reasonable assurance that new, amended, and terminated leases, and the related assets, liabilities and expenses, including those associated with rent holidays, escalation clauses, landlord/tenant incentives and asset retirement obligations, were reviewed, approved, and accounted for in accordance with GAAP.


F-5

 

9. The Company did not design and maintain effective controls over the completeness, accuracy, existence, valuation and presentation and disclosure of income tax payable, deferred income tax assets and liabilities, the related valuation allowance and income tax expense. Specifically, the Company identified the following material weaknesses:
 
  •     The Company did not design and maintain effective controls over the accuracy and completeness of the components of income tax provision calculations and related reconciliation of income tax payable and of differences between the tax and financial reporting basis of assets and liabilities with deferred income tax assets and liabilities. The Company also did not maintain effective controls to identify and determine permanent differences between income for tax and financial reporting income purposes.
 
  •     The Company did not maintain effective controls, including monitoring, over the calculation and recording of foreign income taxes, including tax reserves, acquired tax contingencies associated with business combinations and the income tax impact of foreign debt recapitalization. In addition, the Company did not maintain effective controls over determining the correct foreign jurisdictions or tax treatment of certain foreign subsidiaries for United States tax purposes.
 
  •     The Company did not design and maintain effective controls over withholding taxes associated with interest payable on intercompany loans and intercompany trade payables between various tax jurisdictions.
 
Each of the control deficiencies discussed in items 3 through 9 above resulted in adjustments to the Company’s consolidated financial statements for the year ended December 31, 2006. Additionally, these control deficiencies could result in misstatements of the aforementioned financial statement accounts and disclosures that would result in a material misstatement of the Company’s annual or interim consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that each of the control deficiencies in items 3 through 9 above constitutes a material weakness. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2006 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.
 
In our opinion, management’s assessment that BearingPoint, Inc. did not maintain effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the COSO. Also, in our opinion, because of the effects of the material weaknesses described above on the achievement of the objectives of the control criteria, BearingPoint, Inc. has not maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the COSO.
 
PricewaterhouseCoopers LLP
Boston, Massachusetts
June 27, 2007


F-6

 

BEARINGPOINT, INC.
 
 
                 
    December 31,  
    2006     2005  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 389,571     $ 255,340  
Restricted cash (note 2)
    3,097       121,247  
Accounts receivable, net of allowance for doubtful accounts of $5,927 at December 31, 2006 and $9,326 at December 31, 2005
    361,638       432,415  
Unbilled revenue
    341,357       355,137  
Income tax receivable
    1,414       10,867  
Deferred income taxes
    7,621       18,991  
Prepaid expenses
    33,677       35,875  
Other current assets
    65,611       40,345  
                 
Total current assets
    1,203,986       1,270,217  
Property and equipment, net
    146,392       170,133  
Goodwill
    463,446       427,688  
Other intangible assets, net
    —       1,545  
Deferred income taxes, less current portion
    41,663       20,915  
Other assets
    83,753       81,928  
                 
Total assets
  $ 1,939,240     $ 1,972,426  
                 
 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
               
Current portion of notes payable
  $ 360     $ 6,393  
Accounts payable
    295,109       286,273  
Accrued payroll and employee benefits
    344,715       309,510  
Deferred revenue
    131,313       166,647  
Income tax payable
    33,324       41,839  
Current portion of accrued lease and facilities charges
    17,126       12,515  
Deferred income taxes
    20,109       10,095  
Accrued legal settlements
    59,718       38,601  
Other current liabilities
    135,837       169,624  
                 
Total current liabilities
    1,037,611       1,041,497  
Notes payable, less current portion
    671,490       668,367  
Accrued employee benefits
    116,087       92,338  
Accrued lease and facilities charges, less current portion
    49,792       38,082  
Deferred income taxes, less current portion
    7,984       22,876  
Income tax reserve
    108,499       89,530  
Other liabilities
    125,078       65,308  
                 
Total liabilities
    2,116,541       2,017,998  
                 
Commitments and contingencies (notes 9, 10, 11) 
               
Stockholders’ deficit:
               
Preferred stock, $.01 par value 10,000,000 shares authorized
    —       —  
Common stock, $.01 par value 1,000,000,000 shares authorized, 205,406,249 shares issued and 201,593,999 shares outstanding on December 31, 2006 and 205,350,249 shares issued and 201,537,999 shares outstanding on December 31, 2005
    2,044       2,044  
Additional paid-in capital
    1,315,190       1,261,797  
Accumulated deficit
    (1,697,639 )     (1,484,199 )
Notes receivable from stockholders
    (7,466 )     (7,578 )
Accumulated other comprehensive income
    246,297       218,091  
Treasury stock, at cost (3,812,250 shares)
    (35,727 )     (35,727 )
                 
Total stockholders’ deficit
    (177,301 )     (45,572 )
                 
Total liabilities and stockholders’ deficit
  $ 1,939,240     $ 1,972,426  
                 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.


F-7

 

 
BEARINGPOINT, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
 
                                 
    Year Ended December 31,        
    2006     2005     2004        
 
Revenue
  $ 3,444,003     $ 3,388,900     $ 3,375,782          
                                 
Costs of service:
                               
Professional compensation
    1,716,632       1,770,405       1,532,423          
Other direct contract expenses
    896,999       972,787       991,493          
Lease and facilities restructuring charges
    29,621       29,581       11,699          
Other costs of service
    250,225       258,135       292,643          
                                 
Total costs of service
    2,893,477       3,030,908       2,828,258          
                                 
Gross profit
    550,526       357,992       547,524          
Amortization of purchased intangible assets
    1,545       2,266       3,457          
Goodwill impairment charge
    —       166,415       397,065          
Selling, general and administrative expenses
    748,250       750,867       641,176          
                                 
Operating loss
    (199,269 )     (561,556 )     (494,174 )        
Interest income
    8,749       9,049       1,441          
Interest expense
    (37,182 )     (33,385 )     (18,710 )        
Loss on early extinguishment of debt
    —       —       (22,617 )        
Insurance settlement
    38,000       —       —          
Other income (expense), net
    8,659       (13,630 )     (375 )        
                                 
Loss before taxes
    (181,043 )     (599,522 )     (534,435 )        
Income tax expense
    32,397       122,121       11,791          
                                 
Net loss
  $ (213,440 )   $ (721,643 )   $ (546,226 )        
                                 
Loss per share—basic and diluted:
                               
Net loss
  $ (1.01 )   $ (3.59 )   $ (2.77 )        
                                 
Weighted average shares—basic and diluted
    212,154,618       201,020,274       197,039,303          
                                 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.


F-8

 

 
BEARINGPOINT, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
 
                                                                                 
                            Notes
 		    Accumulated
 		                         
    Common Stock     Additional
 		          receivable
 		    other
 		                         
    Shares
 		          paid-in
 		    Accumulated
 		    from
 		    comprehensive
 		    Treasury Stock     Comprehensive
 		       
    issued     Amount     capital     deficit     stockholders     income (loss)     Shares     Amount     loss     Total  
 
Balance at December 31, 2003
    198,295     $ 1,973     $ 1,105,631     $ (216,330 )   $ (9,114 )   $ 223,562       (3,812 )   $ (35,727 )           $ 1,069,995  
Exercise of stock options under Long-Term Incentive Plan, including tax benefit of $210
    284       3       2,416       —       —       —       —       —               2,419  
Sale of common stock under Employee Stock Purchase Plan, including tax benefit of $1,649
    3,642       36       26,309       —       —       —       —       —               26,345  
Notes receivable from stockholders, including $58 in interest and repayment of loan
    —       —       —       —       1,059       —       —       —               1,059  
Restricted stock awards to Board of Directors
    56       1       452       —       —       —       —       —               453  
Compensation recognized for restricted stock, net of tax benefit of $135
    —       —       563       —       —       —       —       —               563  
Compensation recognized for stock awards related to transactions involving Andersen Business Consulting, net of tax of $1,026
    861       9       7,688       —       —       —       —       —               7,697  
Forfeiture of Founders’ shares
    (5 )     —       —       —       —       —       —       —               —  
Comprehensive income (loss):
                                                                               
Net loss
    —       —       —       (546,226 )     —       —       —       —     $ (546,226 )     (546,226 )
Derivative instruments, net of tax
    —       —       —       —       —       (616 )     —       —       (616 )     (616 )
Foreign currency translation adjustment
    —       —       —       —       —       63,009       —       —       63,009       63,009  
                                                                                 
Total comprehensive loss
                                                                  $ (483,833 )        
                                                                                 
Balance at December 31, 2004
    203,133       2,022       1,143,059       (762,556 )     (8,055 )     285,955       (3,812 )     (35,727 )             624,698  
Exercise of stock options under Long-Term Incentive Plan, including tax benefit of $75
    164       1       1,200       —       —       —       —       —               1,201  
Sale of common stock under Employee Stock Purchase Plan, including tax benefit of $520
    2,053       21       14,269       —       —       —       —       —               14,290  
Notes receivable from stockholders, including $6 in interest and forgiveness of loan
    —       —       —       —       477       —       —       —               477  
Compensation recognized for stock options, restricted stock awards and restricted stock units
    —       —       82,346       —       —       —       —       —               82,346  
Payments in lieu of stock issuance related to transactions involving Andersen Business Consulting
    —       —       (4,929 )     —       —       —       —       —               (4,929 )
Compensation recognized for stock awards related to transactions involving Andersen Business Consulting
    —       —       3,491       —       —       —       —       —               3,491  
Beneficial conversion feature relating to the July 2005 Senior Debentures
    —       —       14,288       —       —       —       —       —               14,288  
Fair value of the July 2005 Warrants
    —       —       8,073       —       —       —       —       —               8,073  
Comprehensive loss:
                                                                               
Net loss
    —       —       —       (721,643 )     —       —       —       —     $ (721,643 )     (721,643 )
Minimum pension liability
    —       —       —       —       —       (13,321 )     —       —       (13,321 )     (13,321 )
Foreign currency translation adjustment
    —       —       —       —       —       (54,543 )     —       —       (54,543 )     (54,543 )
                                                                                 
Total comprehensive loss
                                                                  $ (789,507 )        
                                                                                 
Balance at December 31, 2005
    205,350       2,044       1,261,797       (1,484,199 )     (7,578 )     218,091       (3,812 )     (35,727 )             (45,572 )
 
The accompanying notes are an integral part of these Consolidated Financial Statements.


F-9

 

 
BEARINGPOINT, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)
(in thousands)
 
                                                                                 
                            Notes
 		    Accumulated
 		                         
    Common Stock     Additional
 		          receivable
 		    other
 		                         
    Shares
 		          paid-in
 		    Accumulated
 		    from
 		    comprehensive
 		    Treasury Stock     Comprehensive
 		       
    issued     Amount     capital     deficit     stockholders     income (loss)     Shares     Amount     loss     Total  
 
Balance at December 31, 2005
    205,350     $ 2,044     $ 1,261,797     $ (1,484,199 )   $ (7,578 )   $ 218,091       (3,812 )   $ (35,727 )           $ (45,572 )
Notes receivable from stockholders,
                                                                               
including $3 in interest and forgiveness of loan
    —       —       —       —       112       —       —       —               112  
Restricted stock awards to Board of Directors
    56       —       460       —       —       —       —       —               460  
Compensation recognized for stock options and restricted stock units
    —       —       52,933       —       —       —       —       —               52,933  
SFAS 158 adjustment, net of tax of $3,756
    —       —       —       —       —       (11,417 )     —       —               (11,417 )
Comprehensive income (loss):
                                                                               
Net loss
    —       —       —       (213,440 )     —       —       —       —     $ (213,440 )     (213,440 )
Minimum pension liability, net of tax of $2,961
    —       —       —       —       —       8,880       —       —       8,880       8,880  
Foreign currency translation adjustment
    —       —       —       —       —       30,743       —       —       30,743       30,743  
                                                                                 
Total comprehensive loss
                                                                  $ (173,817 )        
                                                                                 
Balance at December 31, 2006
    205,406     $ 2,044     $ 1,315,190     $ (1,697,639 )   $ (7,466 )   $ 246,297       (3,812 )   $ (35,727 )           $ (177,301 )
                                                                                 
 
The accompanying notes are an integral part of these Consolidated Financial Statements.


F-10

 

BEARINGPOINT, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
                         
    Year Ended December 31,  
    2006     2005     2004  
 
Cash flows from operating activities:
                       
Net loss
  $ (213,440 )   $ (721,643 )   $ (546,226 )
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                       
Deferred income taxes
    (13,406 )     49,211       39,332  
Provision (benefit) for doubtful accounts
    (464 )     5,334       (1,057 )
Stock-based compensation
    53,393       85,837       9,874  
Impairment of goodwill
    —       166,415       397,065  
Depreciation and amortization of property and equipment
    74,023       70,544       78,690  
Amortization of purchased intangible assets
    1,545       2,266       3,457  
Lease and facilities restructuring charges
    29,621       29,581       11,699  
Amortization of debt issuance costs and debt accretion
    8,936       12,396       2,106  
Other
    (4,780 )     11,597       5,389  
Changes in assets and liabilities:
                       
Accounts receivable
    84,124       (52,196 )     (33,180 )
Unbilled revenue
    19,814       20,492       (62,323 )
Income tax receivable, prepaid expenses and other current assets
    (23,702 )     26,318       (38,581 )
Other assets
    (5,710 )     (10,025 )     (51,975 )
Accounts payable, accrued legal settlements and other current liabilities
    (14,249 )     58,127       20,006  
Accrued payroll and employee benefits
    23,311       47,018       47,574  
Deferred revenue
    (38,605 )     62,788       101,403  
Income tax reserve and other liabilities
    78,269       22,869       65,012  
                         
Net cash provided by (used in) operating activities
    58,680       (113,071 )     48,265  
                         
Cash flows from investing activities:
                       
Purchases of property and equipment
    (50,581 )     (40,849 )     (88,334 )
Decrease (increase) in restricted cash
    118,151       (100,194 )     (21,053 )
                         
Net cash provided by (used in) investing activities
    67,570       (141,043 )     (109,387 )
                         
Cash flows from financing activities:
                       
Proceeds from issuance of common stock
    —       14,896       26,904  
Proceeds from issuance of notes payable
    —       282,156       1,531,849  
Repayments of notes payable
    (6,506 )     (16,985 )     (1,360,288 )
Decrease in book overdrafts
    (810 )     (980 )     (22,986 )
Payments made in lieu of stock issuance
    —       (4,929 )     —  
(Increase) decrease in notes receivable from stockholders
    —       (6 )     1,059  
                         
Net cash provided by (used in) financing activities
    (7,316 )     274,152       176,538  
                         
Effect of exchange rate changes on cash and cash equivalents
    15,297       (9,508 )     6,919  
                         
Net increase in cash and cash equivalents
    134,231       10,530       122,335  
Cash and cash equivalents—beginning of period
    255,340       244,810       122,475  
                         
Cash and cash equivalents—end of period
  $ 389,571     $ 255,340     $ 244,810  
                         
Supplementary cash flow information:
                       
Interest paid
  $ 27,582     $ 17,547     $ 20,480  
                         
Taxes paid, net of refunds
  $ 21,333     $ (41,741 )   $ 21,397  
                         
Supplemental non-cash investing and financing activities:
                       
Beneficial conversion feature related to the July 2005 Debentures
  $          —     $      14,288     $ —  
Fair value of July 2005 Warrants
  $ —     $ 8,073     $ —  
 
The accompanying notes are an integral part of these Consolidated Financial Statements.


F-11

 

BEARINGPOINT, INC.
 
(in thousands, except share and per share amounts)
 
1. Description of the Business, Liquidity and Basis of Presentation
   The Company
 
BearingPoint, Inc. (the “Company”) is one of the world’s largest management and technology consulting companies, with approximately 17,500 employees at December 31, 2006. The Company provides strategic consulting applications services, technology solutions and managed services to government organizations, Global 2000 companies and medium-sized businesses in the United States and internationally. The Company’s services and focused solutions include implementing enterprise systems and business processes, improving supply chain efficiency, performing systems integration due to mergers and acquisitions, and designing and implementing customer management solutions. The Company’s service offerings, which involve assisting its clients to capitalize on alternative business and systems strategies in the management and support of key information technology (“IT”) functions, are designed to help its clients generate revenue, increase cost-effectiveness, implement mergers and acquisitions strategies, manage regulatory compliance, and integrate information and transition clients to “next-generation” technology.
 
In North America, the Company provides consulting services through its Public Services, Commercial Services and Financial Services industry groups in which it focuses significant industry-specific knowledge and service offerings to its clients. Outside of North America, the Company is organized on a geographic basis, with operations in Europe, the Middle East and Africa (“EMEA”), Asia Pacific and Latin America.
   Liquidity
The Consolidated Financial Statements of the Company are prepared on a going concern basis, which assumes that the Company will continue its operations for the foreseeable future and will realize its assets and discharge its liabilities in the ordinary course of business. The Company has recently experienced a number of factors that have negatively impacted its liquidity, including the following:
 
  •  The Company has experienced significant recurring net losses. At December 31, 2006, the Company had an accumulated deficit of $1,697,639 and a total stockholders’ deficit of $177,301.
 
  •  The Company’s business has not generated positive cash from operating activities in certain quarters during 2006, 2005 and 2004.
 
  •  Due to the material weaknesses in its internal controls, the Company continues to experience significant delays in completing its consolidated financial statements and filing periodic reports with the U.S. Securities and Exchange Commission (the “SEC”) on a timely basis. Accordingly, the Company continues to devote substantial additional internal and external resources, and experience higher than expected fees for audit services.
 
  •  Through December 31, 2006, the Company incurred cumulative losses of $139,882 under a significant contract and a final settlement in 2007 with Hawaiian Telcom Communications, Inc. (“HT”), which consequently resulted in significantly less cash from operating activities in 2006 and, management believes, 2007.
 
  •  The Company currently is a party to a number of disputes that involve or may involve litigation or other legal or regulatory proceedings. See Note 11, “Commitments and Contingencies.”
 
During 2006 and into 2007, the Company engaged in a number of activities intended to further improve its cash balances and their accessibility. The Company’s continued focus during 2006 on reducing DSOs and


F-12

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

improving profitability has improved cash flows from operations. In addition, as discussed in Note 6, “Notes Payable,” during May 2007, the Company entered into the 2007 Credit Facility, which includes term loans in the aggregate principal amount of $250,000. In June 2007, the 2007 Credit Facility was amended to, among other things, increase the aggregate principal amount under the term loans by $50,000. All term loans have been drawn down. Management believes the terms of these term loans have been structured to eliminate the risk of any event of default occurring with respect to the production of financial statements or SEC periodic reports prior to October 2008.
 
Based on the foregoing and its current state of knowledge of the outlook for its business, the Company currently believes that cash provided from operations, existing cash balances and borrowings under its 2007 Credit Facility will be sufficient to meet its working capital needs through the end of 2007. The Company’s management may seek alternative strategies, intended to further improve the Company’s cash balances and their accessibility, if current estimates for cash uses for 2007 prove incorrect. These activities include: initiating further cost reduction efforts, seeking improvements in working capital management, reducing or delaying capital expenditures, seeking additional debt or equity capital and selling assets. However, actual results may differ from current expectations for many reasons, including losses of business that could result from the Company’s continuing failure to timely file periodic reports with the SEC, the occurrence of any event of default that could provide the Company’s lenders with a right of acceleration (e.g., non-payment), possible delisting from the New York Stock Exchange, further downgrades of its credit ratings or unexpected demands on its current cash resources (e.g., to settle lawsuits).
2.  Summary of Significant Accounting Policies
   Principles of Consolidation
 
The Consolidated Financial Statements reflect the operations of the Company and all of its majority-owned subsidiaries. Upon consolidation, all significant intercompany accounts and transactions are eliminated. Certain of the Company’s consolidated foreign subsidiaries reported their results on a one-month reporting lag, which allowed additional time to compile results. During 2004, the Company recorded a change in accounting principle resulting from certain Asia Pacific and EMEA regions which changed to reporting on a current period basis. The purpose of the change is to have certain foreign subsidiaries report on a basis that is consistent with the Company’s fiscal reporting period. As a result, net loss for the year ended December 31, 2004 includes a cumulative effect of a change in accounting principle of $529, which represents the December 2003 loss for these entities. This amount is included in other income (expense), net, in the Consolidated Statement of Operations for the year ended December 31, 2004 due to the immateriality of the effect of the change in accounting principle to consolidated net loss. In addition, during the fourth quarter of 2006, the one-month reporting lag in the remaining EMEA entities was eliminated. The elimination of one month of activity increased the Company’s 2006 consolidated net loss for the year ended December 31, 2006 by $1,164.
   Use of Estimates
The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires that management make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reporting period. Management’s estimates, assumptions and judgments are derived and continually evaluated based on available information, historical experience and various other assumptions that are believed to be reasonable


F-13

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

under the circumstances. Because the use of estimates is inherent in the financial reporting process, actual results could differ from those estimates.
   Reclassifications
Certain amounts reported in previous years have been reclassified to conform to the current period presentation.
   Revenue Recognition
The Company earns revenue from three primary sources: (1) technology integration services where it designs, builds and implements new or enhanced system applications and related processes, (2) services to provide general business consulting, such as system selection or assessment, feasibility studies, business valuations and corporate strategy services, and (3) managed services in which it manages, staffs, maintains, hosts or otherwise runs solutions and systems provided to its customers. Contracts for these services have different terms based on the scope, deliverables and complexity of the engagement, which require management to make judgments and estimates in recognizing revenue. Fees for these contracts may be in the form of time-and-materials, cost-plus or fixed price.
 
Technology integration services represent a significant portion of the Company’s business and are generally accounted for under the percentage-of-completion method in accordance with Statement of Position (“SOP”) 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts” (“SOP 81-1”). Under the percentage-of-completion method, management estimates the percentage of completion based upon costs to the client incurred as a percentage of the total estimated costs to the client. When total cost estimates exceed revenue, the Company accrues for the estimated losses immediately. The use of the percentage-of-completion method requires significant judgment relative to estimating total contract revenue and costs, including assumptions relative to the length of time to complete the project, the nature and complexity of the work to be performed, and anticipated changes in estimated salaries and other costs. Incentives and award payments are included in estimated revenue using the percentage-of-completion method when the realization of such amounts are deemed probable upon achievement of certain defined goals. Estimates of total contract revenue and costs are continuously monitored during the term of the contract and are subject to revision as the contract progresses. When revisions in estimated contract revenue and costs are determined, such adjustments are recorded in the period in which they are first identified.
 
Revenue for general business consulting services is recognized as work is performed and amounts are earned in accordance with Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements,” as amended by SAB No. 104, “Revenue Recognition” (“SAB 104”). The Company considers amounts to be earned once evidence of an arrangement has been obtained, services are delivered, fees are fixed or determinable, and collectibility is reasonably assured. For contracts with fees based on time-and-materials or cost-plus, the Company recognizes revenue over the period of performance. Depending on the specific contractual provisions and nature of the deliverable, revenue may be recognized on a proportional performance model based on level of effort, as milestones are achieved or when final deliverables have been provided.
 
For managed service arrangements, the Company typically implements or builds system applications for customers that it then manages or runs for periods that may span several years. Such arrangements include the delivery of a combination of one or more of the Company’s service offerings and are governed by Emerging


F-14

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

Issues Task Force Issue (“EITF”) 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”. In managed service arrangements in which the system application implementation or build has standalone value to the customer, and management has evidence of fair value for the managed or run services, the Company bifurcates the total arrangement into two units of accounting: (i) the system application implementation or build which is recognized as technology integration services using the percentage-of-completion method under SOP 81-1, and (ii) the managed or run services, which are recognized under SAB 104 ratably over the estimated life of the customer relationship. In instances where the Company is unable to bifurcate a managed service arrangement into separate units of accounting, the total contract is recognized as one unit of accounting under SAB 104. In such instances, total fees and costs related to the system application implementation or build are deferred and recognized together with managed or run services upon completion of the software application implementation or build ratably over the estimated life of the customer relationship. Certain managed service arrangements may also include transaction-based services in addition to the system application implementation or build and managed services. Fees from transaction-based services are recognized as earned if the Company has evidence of fair value for such transactions; otherwise, transaction fees are spread ratably over the remaining life of the customer relationship period as received. The determination of fair value requires the Company to use significant judgment. Management determines the fair value of service revenue based upon the Company’s recent pricing for those services when sold separately and/or prevailing market rates for similar services.
 
Revenue includes reimbursements of travel and out-of-pocket expenses with equivalent amounts of expense recorded in other direct contract expenses. In addition, the Company generally enters into relationships with subcontractors where it maintains a principal relationship with the customer. In such instances, subcontractor costs are included in revenue with offsetting expenses recorded in other direct contract expenses.
 
Unbilled revenue consists of recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients as of the balance sheet date. Management anticipates that the collection of these amounts will occur within one year of the balance sheet date. Billings in excess of revenue recognized for which payments have been received are recorded as deferred revenue until the applicable revenue recognition criteria have been met.
   Costs of Service
Costs of service include professional compensation and other direct contract expenses, as well as costs attributable to the support of client service professional staff, depreciation and amortization costs related to assets used in revenue-generating activities, bad debt expense relating to accounts receivable, and other costs attributable to serving the Company’s client base. Professional compensation consists of payroll costs and related benefits associated with client service professional staff including, stock compensation, tax equalization for employees on foreign and long-term domestic assignments and reductions in workforce. Other direct contract expenses include costs directly attributable to client engagements, such as out-of-pocket costs including travel and subsistence for client service professional staff, costs of hardware and software and costs of subcontractors. Lease and facilities restructuring charges represent the fair value of future lease obligations (net of estimated sublease income), the unamortized cost of fixed assets and other incurred costs associated with the Company’s office space reduction efforts. Recurring lease and facilities charges for occupied offices are included in other costs of service.


F-15

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

   Selling, General and Administrative Expenses

Selling, general and administrative expenses include expenses related to marketing, information systems, depreciation and amortization, finance and accounting, human resources, sales force and other functions related to managing and growing the Company’s business. Advertising costs are expensed when advertisements are first placed or run. Advertising expense was $21,304, $20,681 and $18,709 for the years ended December 31, 2006, 2005 and 2004, respectively.
   Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of all cash balances, demand deposits and highly liquid investments with insignificant interest rate risks and original maturity of three months or less. The Company’s cash equivalents consisted of money market investments of $190,409 and $62,745 at December 31, 2006 and 2005, respectively. Book overdrafts representing outstanding checks in excess of funds on deposit are classified as short-term borrowings and included in other current liabilities on the Consolidated Balance Sheets. As of December 31, 2006 and 2005, cash and cash equivalents included approximately $21,240 and $18,000, respectively, of employee contributions to the Employee Stock Purchase Plan (the “ESPP”) held by the Company, which are payable on demand. As of December 31, 2006 and 2005, the Company classified as restricted cash approximately $3,097 and $121,247, respectively, of cash collateral posted to secure reimbursement obligations under letters of credit and surety bonds predominantly related to the Company’s previously existing 2005 revolving credit facility.
   Concentrations of Credit Risk and Fair Value of Financial Instruments
The amounts reflected in the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to their short-term maturities. At December 31, 2006 and 2005, the fair value of the Company’s notes payable, including the current portion, was $776,241 and $738,092, respectively, compared to their respective carrying values of $671,850 and $674,760. Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of notes payable, trade receivables, and unbilled revenue. The Company’s cash and cash equivalents are placed with financial institutions with high credit standings. The Company’s customer base consists of large numbers of geographically diverse customers dispersed across many countries. Concentration of credit risk with respect to trade accounts receivables is not significant.
 
U.S. Federal government revenue, inclusive of government sponsored enterprises, accounted for 28.5%, 28.9%, and 29.7%, of the Company’s revenue for the years ended December 31, 2006, 2005 and 2004, respectively. At December 31, 2006 and 2005, receivables due from the U.S. Federal government were $64,605 and $107,314, respectively. Unbilled revenue due from the U.S. Federal government was $123,791 and $129,480 at December 31, 2006 and 2005, respectively. While most of the Company’s government agency clients have the ability to unilaterally terminate their contracts, the Company’s relationships are generally not with political appointees, and the Company has not historically experienced a loss of Federal government projects with a change in administration.
   Valuation of Accounts Receivable
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Assessing the collectibility of customer receivables requires management judgment. The Company determines its allowance for doubtful accounts by specifically analyzing


F-16

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

individual accounts receivable, historical bad debts, customer concentrations, customer credit-worthiness, current economic and accounts receivable aging trends, and changes in customer payment terms. Valuation reserves are periodically re-evaluated and adjusted as more information about the ultimate collectibility of accounts receivable becomes available.
   Property and Equipment
Property and equipment are recorded at cost, less allowances for depreciation and amortization. The cost of software purchased or developed for internal use is capitalized in accordance with SOP 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” Depreciation is provided for all classes of assets for financial statement purposes using the straight-line method over the estimated useful lives of the assets. Equipment is depreciated over three to five years, software purchased or developed for internal use is depreciated over one to five years, and furniture is depreciated over three to ten years. Leasehold improvements are amortized over the shorter of their useful lives or the remaining term of the respective lease. Maintenance and repairs are charged to expense as incurred. When assets are sold or retired, the asset cost and related accumulated depreciation are relieved from the Consolidated Balance Sheets, and any associated gain or loss is recognized in income from operations.
   Accounting for Leases
The Company leases all of its office facilities under non-cancelable operating leases that expire at various dates through 2017, along with options that permit renewals for additional periods. Rent abatements and escalations are considered in the determination of straight-line rent expense for operating leases. The Company receives incentives to lease office facilities in certain areas. These incentives are recorded as a deferred credit and recognized as a reduction to rent expense on a straight-line basis over the lease term.
   Asset Retirement Obligations
The Company leases all of its office facilities under various operating leases, some of which contain clauses that require the Company to restore the leased facility to its original state at the end of the lease term. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 143, “Accounting for Asset Retirement Obligations”, these asset retirement obligations are initially measured at fair value and recorded as a liability, and a corresponding increase is recorded in the carrying amount of the underlying property. At December 31, 2006 and 2005, asset retirement obligations were $2,636 and $3,674, respectively.
   Goodwill and Other Intangible Assets
Goodwill is the amount by which the cost of acquired net assets in a business acquisition exceeded the fair value of net identifiable assets on the date of purchase. The Company assesses goodwill for impairment on at least an annual basis on April 1 and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable.
 
An impairment review of the carrying amount of goodwill is also conducted if events or changes in circumstances indicate that goodwill might be impaired. The Company considers the following to be important factors that could trigger an impairment review: significant underperformance relative to historical or projected future operating results; identification of other impaired assets within a reporting unit; the more-likely-than not expectation that a reporting unit or a significant portion of a reporting unit will be sold;


F-17

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

significant adverse changes in business climate or regulations; significant changes in senior management; significant changes in the manner of use of the acquired assets or the strategy for the Company’s overall business; significant negative industry or economic trends; a significant decline in the Company’s stock price for a sustained period or a significant unforeseen decline in the Company’s credit rating. In testing goodwill for impairment, the Company aggregates its reporting units with similar economic characteristics as one reporting unit. The resulting reporting units are consistent with the Company’s reportable segments as identified in Note 18, “Segment Information.” To conduct a goodwill impairment test, the fair value of the reporting unit is first compared to its carrying value. If the reporting unit’s allocated carrying value exceeds its fair value, the Company undertakes a second evaluation to assess the required impairment loss to the extent that the carrying value of goodwill exceeds its implied fair value. Management estimates the fair value of its reporting units using a combination of the discounted cash flow valuation model and comparable market transaction models.
 
Other identifiable intangible assets include finite-lived purchased intangible assets, which primarily consist of market rights, order backlog, customer contracts and related customer relationships and trade names. Finite-lived purchased intangible assets are amortized using the straight-line method over their expected period of benefit, which generally ranges from one to five years.
   Valuation of Long-Lived Assets
Long-lived assets primarily include property and equipment and intangible assets with finite lives (purchased software, capitalized software, and customer lists). In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company periodically reviews long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value based on a discounted cash flow analysis. Determining the fair value of long-lived assets includes significant judgment by management, and different judgments could yield different results.
   Foreign Currency
Assets and liabilities of consolidated foreign subsidiaries, whose functional currency is the local currency, are translated to U.S. dollars at period end exchange rates. Revenue and expense items are translated to U.S. dollars at the average rates of exchange prevailing during the period. The adjustment resulting from translating the financial statements of such foreign subsidiaries to U.S. dollars is reflected as a cumulative translation adjustment and reported as a component of accumulated other comprehensive income in Consolidated Statements of Changes in Stockholders’ Equity (Deficit). Foreign currency transaction gains and losses related to short-term intercompany loans are recorded in the Consolidated Statements of Operations as incurred. Intercompany loans that are of a long-term nature are accounted for in accordance with SFAS No. 52, “Foreign Currency Translation,” whereby foreign currency transaction gains and losses are reported in the same manner as translation adjustments.
 
Cash flows of consolidated foreign subsidiaries, whose functional currency is the local currency, are translated to U.S. dollars using weighted average exchange rates for the period. The Company reports the effect of exchange rate changes on cash balances held in foreign currencies as a separate item in the reconciliation of the changes in cash and cash equivalents during the period.


F-18

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
Foreign currency gains (losses) are reported as a component of other income (expense) in the Consolidated Statements of Operations. For the years ended December 31, 2006, 2005 and 2004, net foreign currency gains (losses) were $8,855, $(13,454), and $3,135, respectively.
   Accounting for Income Taxes
In accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”), the Company recognizes deferred income taxes based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using enacted tax rates in effect for the year in which the differences are expected to be reflected in the tax return.
 
The carrying value of the Company’s net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the value of these assets. If the Company is unable to generate sufficient future taxable income in these jurisdictions, a valuation allowance is recorded when it is more likely than not that the value of the deferred tax assets is not realizable. Management evaluates the realizability of the deferred tax assets and assesses the need for any valuation allowance adjustment. Management periodically evaluates the need of tax reserves for uncertain tax positions. To the extent that the probable tax outcome of these uncertain tax positions changes, such changes in estimate will impact the income tax provision in the period in which such determination is made.
   Pension and Postretirement Benefits
The Company’s pension expense and obligations are developed from actuarial valuations required by the provisions of SFAS No. 87, “Employers’ Accounting for Pensions,”(“SFAS 87”), SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,”(“SFAS 106”) and SFAS No. 158, “Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). SFAS 158 requires recognition of the overfunded or underfunded status of pension and other postretirement benefit plans on the balance sheet. Under SFAS 158, gains and losses, prior service costs and credits and any remaining transition amounts under SFAS 87 and SFAS 106 that have not yet been recognized through net periodic benefit cost will be recognized in accumulated other comprehensive income, net of tax effects, until they are amortized as a component of net periodic cost. The measurement date, the date at which the benefit obligation and plan assets are measured, is now required to be the same as the company’s fiscal year-end. As required by SFAS 158, the Company adopted the balance sheet recognition provisions at December 31, 2006. The measurement date of the benefit obligation and plan assets is the same as the Company’s fiscal year end. In addition, SFAS 87 required the recognition of an additional minimum liability (AML) if the market value of plan assets was less than the accumulated benefit obligation at the end of the measurement date. The AML was eliminated upon the adoption of SFAS 158. See Note 16, “Employee Benefit Plans,” for additional information.
   Accounting for Employee Global Mobility and Tax Equalization
The Company has a tax equalization policy designed to ensure that its employees on domestic long-term and foreign assignments will be subject to the same level of personal tax, regardless of the tax jurisdiction in which the employee works. The Company records tax equalization expenses in the period incurred. If the estimated tax equalization liability, including related interest and penalties, is determined to be greater or less than amounts due upon final settlement, the difference is recorded in the current period. As of December 31,


F-19

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

2006 and 2005, the Company’s liabilities associated with tax equalization expenses and related interest and penalties associated with failure to timely file and withhold payroll and other taxes were $87,621 and $82,482, respectively.
   Stock-Based Compensation
On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), to record compensation expense for its employee stock options, restricted stock awards, restricted stock units (“RSUs”) and employee stock purchase plans. This Statement is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and its related implementation guidance. Prior to the adoption of SFAS 123(R), the Company followed the intrinsic value method in accordance with APB 25, in accounting for its stock options and other equity instruments.
 
SFAS 123(R) requires that all share-based payments to employees be recognized in the Consolidated Statements of Operations based on their grant date fair values with the expense being recognized over the requisite service period. The Company uses the Black-Scholes model to determine the fair value of its awards at the time of grant. See Note 13, “Stock-Based Compensation” for additional information.
   Derivative Financial Instruments
The Company accounts for derivative instruments and debt instruments in accordance with the interpretative guidance of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” APB No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” (“EITF 98-5”), and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” (“EITF 00-27”), and associated pronouncements related to the classification and measurement of warrants and instruments with conversion features. The Company makes certain assumptions and estimates to value its derivatives and debt instruments.
 
The Company is exposed to changes in foreign currency exchange rates and interest rates that may affect its results of operations and financial position. The Company manages its exposure to changes in foreign currency exchange rates and interest rates through its normal operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company accounts for its derivative instruments in accordance with SFAS 133, which requires that all derivative instruments be reported on the balance sheet at fair value. If the derivative instrument is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative instrument are either recognized in net income or in other comprehensive income (loss) until the hedged item is recognized in net income. For derivatives that do not qualify as hedges under SFAS 133, the change in fair value is recorded in other income (expense) in the Consolidated Statements of Operations.
 
The Company may enter into foreign currency forward contracts to offset currency-related changes in its foreign currency denominated assets and liabilities. The fair value of these foreign currency forward contracts is reported in other current assets or other current liabilities in the Consolidated Balance Sheets. The Company did not designate any of its derivatives used to offset currency-related changes in the fair value of foreign currency denominated assets and liabilities as hedges as defined by SFAS 133. Accordingly, changes


F-20

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

in the fair value of these derivatives were recognized in other income (expense) in the Consolidated Statements of Operations in the period of change. As of December 31, 2006 or 2005, the Company did not have any outstanding foreign currency forward contracts.
   Accumulated Other Comprehensive Income
Accumulated other comprehensive income consists of the following:
 
                         
    Foreign currency
 		    Pension and
 		       
    translation
 		    post-retirement
 		       
    adjustment     benefit     Total  
 
Balance at December 31, 2004
  $ 285,955     $ —     $ 285,955  
Change in foreign currency translation
    (54,543 )     —       (54,543 )
Change in minimum pension liabilities
    —       (13,321 )     (13,321 )
                         
Balance at December 31, 2005
    231,412       (13,321 )     218,091  
                         
Change in foreign currency translation
    30,743               30,743  
Change in minimum pension liabilities, net of tax
    —       8,880       8,880  
Adoption of SFAS 158, net of tax
    —       (11,417 )     (11,417 )
                         
Balance at December 31, 2006
  $ 262,155     $ (15,858 )   $ 246,297  
                         
   Recently Issued Accounting Pronouncements
 
In June 2006, the FASB issued Financial Interpretation (“FIN”) 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS 109. It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken. This interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will be required to adopt this interpretation in the first quarter of fiscal year 2007. Management is currently evaluating the requirements of FIN 48 and has not yet determined the impact on its Consolidated Financial Statements.
 
In September 2006, the SEC staff issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements” (“SAB 108”). SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. SAB 108 requires registrants to quantify the impact of correcting all misstatements using both the “rollover” method, which focuses primarily on the impact of a misstatement on the income statement and is the method the Company currently uses, and the “iron curtain” method, which focuses primarily on the effect of correcting the period-end balance sheet. The use of both of these methods is referred to as the “dual approach” and should be combined with the evaluation of qualitative elements surrounding the errors in accordance with SAB No. 99, “Materiality”. The adoption of SAB 108 during 2006 did not have a material impact on the Consolidated Financial Statements.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective for the fiscal year beginning January 1, 2008. The Company is currently evaluating the impact of the provisions of SFAS 157.


F-21

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

In December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2, “Accounting for Registration Payment Arrangements” (“FSP No. EITF 00-19-2”). FSP No. EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with SFAS No. 5, “Accounting for Contingencies.” FSP No. EITF 00-19-2 also requires additional disclosure regarding the nature of any registration payment arrangements, alternative settlement methods, the maximum potential amount of consideration and the current carrying amount of the liability, if any. FSP No. EITF 00-19-2 shall be effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of issuance of FSP No. EITF 00-19-2. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of FSP No. EITF 00-19-2, this guidance shall be effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. The Company is currently evaluating the impact FSP No EITF 00-19-2 could have on its financial position, results of operations or cash flows.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FAS 115” (“SFAS 159”). This new statement allows entities to choose, at specific election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. SFAS 159 is effective for the fiscal year beginning January 1, 2008. The Company is currently evaluating the impact of the provisions of SFAS 159.
 
3.  Earnings (Loss) per Share
 
Basic earnings (loss) per share is computed based on the weighted average number of common shares outstanding and vested RSUs during the period. Diluted earnings (loss) per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of potential future issues of common stock relating to the Company’s stock option program, RSUs, convertible debt and other potentially dilutive securities. In calculating diluted earnings (loss) per share, the dilutive effect of stock options is computed using the average market price for the period in accordance with the treasury stock method. The effect of convertible securities on the calculation of diluted net loss per share is calculated using the “if converted” method.


F-22

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

The following table sets forth the potentially dilutive securities that were not included in the computation of diluted EPS because to do so would have been anti-dilutive (shares on weighted-average basis):
 
                         
    Year Ended December 31,  
    2006     2005     2004  
 
Employee stock options
    39,869,914       44,920,037       38,416,819  
Employee stock purchase plan
    4,831,754       4,605,505       3,405,662  
Restricted stock awards and restricted stock units
    4,333,270       4,275,980       758,551  
Series A Convertible Subordinated Debentures
    23,810,200       23,810,200       892,883  
Series B Convertible Subordinated Debentures
    19,048,160       19,048,160       694,464  
April 2005 Convertible Senior Subordinated Debentures
    30,303,020       18,939,388       —  
July 2005 Convertible Senior Subordinated Debentures
    5,925,926       2,716,049       —  
Warrants issued in connection with the July 2005 Debentures
    3,500,000       1,604,167       —  
Softline acquisition obligation (Note 9)
    735,759       713,163       691,079  
                         
      132,358,003       120,632,649       44,859,458  
                         
 
4.  Property and Equipment
 
Property and equipment, net, consists of the following:
 
                 
    December 31,  
    2006     2005  
 
Property and equipment:
               
Internal-use software
  $ 161,005     $ 167,621  
Equipment
    101,026       84,182  
Leasehold improvements
    72,517       54,706  
Furniture
    38,063       31,710  
                 
Total property and equipment
    372,611       338,219  
                 
Accumulated depreciation and amortization:
               
Internal-use software
    (96,798 )     (81,815 )
Equipment
    (72,809 )     (49,778 )
Leasehold improvements
    (37,859 )     (24,240 )
Furniture
    (18,753 )     (12,253 )
                 
Total accumulated depreciation and amortization
    (226,219 )     (168,086 )
                 
Property and equipment, net
  $ 146,392     $ 170,133  
                 


F-23

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

Depreciation and amortization expense related to property and equipment consists of the following:
 
                         
    Year Ended December 31,  
    2006     2005     2004  
 
Amounts included in:
                       
Other costs of service
  $ 40,502     $ 39,205     $ 43,485  
Selling, general and administrative expenses
    33,521       31,339       35,205  
                         
    $ 74,023     $ 70,544     $ 78,690  
                         
 
5. Business Acquisitions, Goodwill and Other Intangible Assets
 
Goodwill balances at December 31, 2006 and 2005 are associated with the acquisition of KPMG Consulting AG (subsequently renamed BearingPoint GmbH) in August 2002 and a series of acquisitions of Andersen Business Consulting practices during 2002.
 
The changes in the carrying amount of goodwill, at the reporting unit level, for the years ended December 31, 2006 and 2005 are as follows:
 
                                 
                Foreign
 		       
    Balance
 		          Currency
 		    Balance
 		 
    December 31,
 		    Impairment
 		    Translation
 		    December 31,
 		 
    2005     Charge     Adjustment     2006  
 
Public Services
  $ 23,581     $ —     $ —     $ 23,581  
Financial Services
    9,210       —       —       9,210  
EMEA
    325,262       —       33,871       359,133  
Asia Pacific
    68,562       —       1,840       70,402  
Latin America
    871       —       47       918  
Corporate/Other
    202       —       —       202  
                                 
Total
  $ 427,688     $ —     $ 35,758     $ 463,446  
                                 
 
                                 
                Foreign
 		       
    Balance
 		          Currency
 		    Balance
 		 
    December 31,
 		    Impairment
 		    Translation
 		    December 31,
 		 
    2004     Charge     Adjustment     2005  
 
Public Services
  $ 23,581     $ —     $ —     $ 23,581  
Commercial Services
    64,188       (64,188 )     —       —  
Financial Services
    9,210       —       —       9,210  
EMEA
    485,401       (102,227 )     (57,912 )     325,262  
Asia Pacific
    73,459       —       (4,897 )     68,562  
Latin America
    836       —       35       871  
Corporate/Other
    202       —       —       202  
                                 
Total
  $ 656,877     $ (166,415 )   $ (62,774 )   $ 427,688  
                                 
 
The Company completed its required annual impairment test in April 2006 and determined that the carrying value of goodwill was not impaired.


F-24

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
In the fourth quarter of 2005, the Company determined that a triggering event had occurred, causing the Company to perform a goodwill impairment test on all of its reporting units. The triggering event resulted from a combination of various factors, including lower than previously expected results in the fourth quarter ended December 31, 2005 and a change in management’s expectation of future results. As required by SFAS 142, the Company performed a two-step impairment test to identify the potential impairments and, if necessary, to measure the amount of the impairment. Under step one of the impairment test, the Company determined there were potential impairments in its Commercial Services and EMEA reporting units. In determining the fair value of its Commercial Services and EMEA reporting units, the Company revised certain assumptions relative to each reporting unit, which significantly decreased their fair value as compared to the fair value determined during the Company’s most recent goodwill impairment test, which had been performed as of April 20, 2005. For the Commercial Services reporting unit, these revisions included the negative impact on future periods from operating losses associated with the Company’s contract with Hawaiian Telcom Communications, Inc. For the EMEA reporting unit, these revisions included lowering operating margin growth expectations. In order to quantify the impairment, under step two of the impairment test, the Company completed a hypothetical purchase price allocation of the fair value determined in step one to all of the respective assets and liabilities of its Commercial Services and EMEA reporting units. As a result, goodwill impairment losses of $64,188 and $102,227 were recognized in the Commercial Services and the EMEA reporting units, respectively, as the carrying amount of each reporting unit was greater than the revised fair value of that reporting unit (as determined using the expected present value of future cash flows), and the carrying amount of each reporting unit’s goodwill exceeded the implied fair value of that goodwill. The goodwill impairment loss of $64,188 for the Commercial Services reporting unit represented a full impairment of the remaining goodwill in that reporting unit.
 
On April 20, 2005, the Company determined that a triggering event had occurred, causing the Company to perform a goodwill impairment test on all reporting units. The triggering event resulted from the Company’s public announcement of likely restatements of prior period financial statements along with significant delays in filing 2004 annual results and anticipated delays in filing 2005 quarterly results. The Company determined this triggering event may have a significant adverse effect on its business climate and regulatory environment. As required by SFAS 142, the Company applied a two-step impairment test to identify the potential impairment and, if necessary, to measure the amount of the impairment. The Company performed step one of the impairment test to identify the potential impairment and determined there were no impairments to any reporting units. As a result, the step two impairment test was not considered necessary.
 
During the fourth quarter of the year ended December 31, 2004, the Company determined that a triggering event had occurred, causing the Company to perform a goodwill impairment test on all reporting units. The triggering event resulted from downgrades in the Company’s credit rating in December 2004, significant changes in senior management and underperforming foreign legal entities. The Company performed a two-step impairment test to identify the potential impairment and, if necessary, to measure the amount of the impairment. Under step one of the impairment test, the Company determined there was a potential impairment in the EMEA reporting unit. In determining the fair value of its EMEA reporting unit at December 31, 2004, the Company revised certain assumptions relative to EMEA which significantly decreased the fair value of this reporting unit relative to the fair value determined during the Company’s annual goodwill impairment test, which was as of April 1, 2004. These revisions included lowering its EMEA segment revenue growth expectations, increasing selling, general and administrative cost projections and factoring in a less than anticipated decline in compensation expense. These changes reflected lower than expected results for the year ended December 31, 2004 and management’s current expectations of future results. In order to quantify the


F-25

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

impairment, under step two of the impairment test, the Company completed a hypothetical purchase price allocation of fair value determined in step one to all assets and liabilities of its EMEA reporting unit. As a result, a goodwill impairment loss of $397,065 was recognized in the EMEA reporting unit as the carrying amount of the reporting unit was greater than the revised fair value of the reporting unit (as determined using the expected present value of future cash flows) and the carrying amount of the reporting unit goodwill exceeded the implied fair value of that goodwill.
 
Identifiable intangible assets include finite-lived intangible assets, which primarily consist of market rights, order backlog, customer contracts and related customer relationships. Identifiable intangible assets are amortized using the straight-line method over their expected period of benefit, which generally ranges from one to five years. Identifiable intangible assets consist of the following:
 
                 
    December 31,  
    2006     2005  
 
Other intangible assets:
               
Backlog, customer contracts and related customer relationships
  $ 1,309     $ 1,309  
Market rights
    10,297       10,297  
                 
Total other intangibles
    11,606       11,606  
Accumulated amortization:
               
Backlog, customer contracts and related customer relationships
    (1,309 )     (1,309 )
Market rights
    (10,297 )     (8,752 )
                 
Total accumulated amortization
    (11,606 )     (10,061 )
                 
Other intangible assets, net
  $ —     $ 1,545  
                 
 
For the years ended December 31, 2006, 2005 and 2004, amortization expense related to identifiable intangible assets was $1,545, $2,266, and $3,457, respectively. Identifiable intangible assets were fully amortized during 2006.


F-26

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

6.  Notes Payable

 
Notes payable consist of the following:
 
                 
    December 31,  
    2006     2005  
 
Current portion (a):
               
Yen-denominated term loan (January 31, 2003)
  $ —     $ 2,803  
Yen-denominated term loan (June 30, 2003)
    —       1,402  
Other
    360       2,188  
                 
Total current portion
    360       6,393  
                 
Long-term portion:
               
Series A and Series B Convertible Debentures
    450,000       450,000  
April 2005 Convertible Debentures
    200,000       200,000  
July 2005 Convertible Debentures (net of discount of $18,510 and $21,946, respectively)
    21,490       18,054  
Other
    —       313  
                 
Total long-term portion
    671,490       668,367  
                 
Total notes payable
  $ 671,850     $ 674,760  
                 
 
The following is a schedule of annual maturities on notes payable, net of discounts, as of December 31, 2006 for each of the next five calendar years and thereafter:
 
         
Year
  Amount  
 
2007
  $ 360  
2008
    —  
2009
    —  
2010
    21,490 (b)
2011
    —  
Thereafter
    650,000 (b)
         
Total
  $ 671,850  
         
(a) The weighted average interest rate on the current portion of notes payable as of December 31, 2006 and 2005 was 5.6% and 2.4%, respectively.
 
(b) As described below, the holders of the Series A and B Convertible Debentures have the right to convert the Debentures into shares of Company common stock only upon occurrence of certain triggering events. The April 2005 Convertible Debentures were convertible upon issuance on April 27, 2005 and the July 2005 Convertible Debentures were convertible starting on July 15, 2006. Upon conversion of these debentures, the Company will have the right to deliver, in lieu of shares of common stock, cash or a combination of cash and shares of common stock. In addition, the holders of the April 2005 Convertible Debentures have the right, at their option, to require the Company to repurchase all or some of their debentures on April 15, 2009, 2013, 2015 and 2020.


F-27

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

   2007 Credit Facility

On May 18, 2007, the Company entered into a $400,000 senior secured credit facility and on June 1, 2007, the Company amended and restated the credit facility to increase the aggregate commitments under the facility from $400,000 to $500,000 (the “2007 Credit Facility”). The 2007 Credit Facility consists of (1) term loans in an aggregate principal amount of $300,000 (“the Term Loans”) and (2) a letter of credit facility in an aggregate face amount at any time outstanding not to exceed $200,000 (the “LC Facility”). Interest on the Term Loans under the 2007 Credit Facility is calculated, at the Company’s option, (1) at a rate equal to 3.5% plus the London Interbank Offered Rate, or LIBOR, or (2) at a rate equal to 2.5% plus the higher of (a) the federal funds rate plus 0.5% and (b) UBS AG, Stamford Branch’s prime commercial lending rate. As of June 1, 2007, the Company has borrowed $300,000 under the Term Loans, and an aggregate of approximately $89,300 of letters of credit previously outstanding under the 2005 Credit Facility has been assumed under the LC Facility.
 
The Company’s obligations under the 2007 Credit Facility are secured by liens and security interests in substantially all of the Company’s assets and most of its material domestic subsidiaries, as guarantors of such obligations (including a pledge of 65% of the stock of certain of its foreign subsidiaries), subject to certain exceptions.
 
The 2007 Credit Facility requires the Company to make prepayments of outstanding Term Loans and cash collateralize outstanding Letters of Credit in an amount equal to (i) 100% of the net proceeds received from property or asset sales (subject to exceptions), (ii) 100% of the net proceeds received from the issuance or incurrence of additional debt (subject to exceptions), (iii) 100% of all casualty and condemnation proceeds (subject to exceptions), (iv) 50% of the net proceeds received from the issuance of equity (subject to exceptions) and (v) for each fiscal year ending on or after December 31, 2008 (and, at the Company’s election for the second half of the 2007 fiscal year), the difference between (a) 50% of the Excess Cash Flow (as defined in the 2007 Credit Facility) and (b) any voluntary prepayment of the Term Loan or the LC Facility (as defined in the 2007 Credit Facility) (subject to exceptions). If the Term Loan is prepaid or the LC Facility is reduced prior to May 18, 2008 with other indebtedness or another letter of credit facility, the Company may be required to pay a prepayment premium of 1% of the principal amount of the Term Loan so prepaid or LC Facility so reduced if the cost of such replacement indebtedness of letter of credit facility is lower than the cost of the 2007 Credit Facility. In addition, the Company is required to pay $750 in principal plus any accrued and unpaid interest at the end of each quarter, commencing on June 29, 2007 and ending on March 31, 2012.
 
The 2007 Credit Facility contains affirmative and negative covenants:
 
  •     The affirmative covenants include, among other things: the delivery of unaudited quarterly and audited annual financial statements, all in accordance with generally accepted accounting principles, certain monthly operating metrics and budgets; compliance with applicable laws and regulations (excluding, prior to October 31, 2008, compliance with certain filing requirements under the securities laws); maintenance of existence and insurance; after October 31, 2008, as requested by the Administrative Agent, maintenance of credit ratings; and maintenance of books and records (subject to the material weaknesses previously disclosed in the Company’s 2005 Form 10-K).
 
  •     The negative covenants, which (subject to exceptions) restrict certain of the Company’s corporate activities, include, among other things, limitations on: disposition of assets; mergers and acquisitions; payment of dividends; stock repurchases and redemptions; incurrence of additional indebtedness; making of loans and investments; creation of liens; prepayment of other indebtedness; and engaging in certain transactions with affiliates.


F-28

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
Events of default under the 2007 Credit Facility include, among other things: defaults based on nonpayment, breach of representations, warranties and covenants, cross-defaults to other debt above $10,000, loss of lien on collateral, invalidity of certain guarantees, certain bankruptcy and insolvency events, certain ERISA events, judgments against the Company in an aggregate amount in excess of $20,000, and change of control events.
 
Under the terms of the 2007 Credit Facility, the Company is not required to become current with its SEC periodic filings until October 31, 2008. Until October 31, 2008, the Company’s failure to provide annual audited or quarterly unaudited financial statements, to keep its books and records in accordance with GAAP or to timely file its SEC periodic reports will not be considered an event of default under the 2007 Credit Facility.
 
The 2007 Credit Facility replaced the Company’s 2005 Credit Facility, which was terminated on May 18, 2007. For information about the 2005 Credit Facility, see below.
 
  Series A and Series B Convertible Subordinated Debentures
 
On December 22, 2004, the Company completed a $400,000 offering of Convertible Subordinated Debentures. The offering consisted of $225,000 aggregate principal amount of 2.50% Series A Convertible Subordinated Debentures due December 15, 2024 (the “Series A Debentures”) and $175,000 aggregate principal amount of 2.75% Series B Convertible Subordinated Debentures due December 15, 2024 (the “Series B Debentures” and together with the Series A Debentures, the “Subordinated Debentures”). On January 5, 2005, the Company issued an additional $25,000 aggregate principal amount of its Series A Debentures and an additional $25,000 aggregate principal amount of its Series B Debentures upon the exercise in full of an option granted to the initial purchasers. Interest is payable on the Subordinated Debentures on June 15 and December 15 of each year, beginning June 15, 2005. The Subordinated Debentures are unsecured and are subordinated to the Company’s existing and future senior debt. Due to the delay in the completion of the Company’s audited financial statements for the year ended December 31, 2004, the Company was unable to file a timely registration statement with the SEC to register for resale its Subordinated Debentures and underlying common stock. Accordingly, pursuant to the terms of these securities, the applicable interest rate on each series of Subordinated Debentures increased by 0.25% beginning on March 23, 2005 and increased another 0.25% beginning on June 22, 2005. These changes together increased the interest rate on the Series A Debentures and the Series B Debentures to 3.00% and 3.25%, respectively.
 
On November 2, 2006, the Company entered into the First Supplemental Indenture (the “First Supplemental Indenture”) with The Bank of New York, as trustee, which amends the subordinated indenture governing the Subordinated Debentures. The First Supplemental Indenture includes: (i) a waiver of the Company’s SEC reporting requirements under the Subordinated Indentures through October 31, 2008, (ii) the interest rate payable on all Series A Debentures increased from 3.00% per annum to 3.10% per annum until December 23, 2011, and (iii) adjustment of the interest rate payable on all Series B Debentures from 3.25% per annum to 4.10% per annum until December 23, 2014. In accordance with EITF 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“EITF 96-19”), since the change in the terms of the Subordinated Debentures did not result in substantially different cash flows, this change in terms is accounted for as a modification, and therefore additional interest payments will be expensed over the period from November 2, 2006 through December 23, 2011 for Series A, and December 23, 2014 for Series B.


F-29

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

During the period of November 2, 2006 through December 23, 2011, for Series A and December 23, 2014, for Series B, the new effective interest rate on this debt will be 3.60% and 4.50%, respectively. In addition, the Company paid approximately $1,800 in fees and expenses to third-parties for work performed in connection with all of the modifications to the Company’s outstanding debentures, which were expensed as incurred.
 
The net proceeds from the sale of the Subordinated Debentures were approximately $435,600, after deducting offering expenses and the initial purchasers’ commissions of $11,400 and other fees and expenses of approximately $3,000. The Company used approximately $240,590 of the net proceeds from the sale of the Subordinated Debentures to repay its outstanding $220,000 Senior Notes and approximately $135,000 to repay amounts outstanding under its then existing revolving credit facility. The Company also used the proceeds to pay fees and expenses in connection with entering into the $400,000 Interim Senior Secured Credit Facility, as defined below.
 
The Subordinated Debentures are initially convertible, under certain circumstances, into shares of the Company’s common stock at a conversion rate of 95.2408 shares for each $1 principal amount of the Subordinated Debentures, subject to anti-dilution and adjustments but not to exceed 129.0 shares, equal to an initial conversion price of approximately $10.50 per share. Holders of the Subordinated Debentures may exercise the right to convert the Subordinated Debentures prior to their maturity only under certain circumstances, including when the Company’s stock price reaches a specified level for a specified period of time, upon notice of redemption, and upon specified corporate transactions. Upon conversion of the Subordinated Debentures, the Company will have the right to deliver, in lieu of shares of common stock, cash or a combination of cash and shares of common stock. The Subordinated Debentures will be entitled to an increase in the conversion rate upon the occurrence of certain change of control transactions or, in lieu of the increase, at the Company’s election, in certain circumstances, to an adjustment in the conversion rate and related conversion obligation so that the Subordinated Debentures are convertible into shares of the acquiring or surviving company. The Company will also increase the conversion rate upon occurrence of certain transactions. As of December 31, 2006, none of the circumstances under which the Subordinated Debentures are convertible existed.
 
On December 15, 2011, December 15, 2014 and December 15, 2019, holders of Series A Debentures, at their option, have the right to require the Company to repurchase any outstanding Series A Debentures. On December 15, 2014 and December 15, 2019, holders of Series B Debentures, at their option, have the right to require the Company to repurchase any outstanding Series B Debentures. In each case, the Company will pay a repurchase price in cash equal to 100% of the principal amount of the Subordinated Debentures, plus accrued and unpaid interest, including liquidated damages, if any, to the repurchase date. In addition, holders of the Subordinated Debentures may require the Company to repurchase all or a portion of the Subordinated Debentures on the occurrence of a designated event, at a repurchase price equal to 100% of the principal amount of the Subordinated Debentures, plus any accrued but unpaid interest and liquidated damages, if any, to, but not including, the repurchase date. A designated event includes certain change of control transactions and a termination of trading, occurring if the Company’s common stock is no longer listed for trading on a U.S. national securities exchange.
 
The Company may redeem some or all of the Series A Debentures beginning on December 23, 2011 and, beginning on December 23, 2014, may redeem the Series B Debentures, in each case at a redemption price in cash equal to 100% of the principal amount of the Subordinated Debentures plus accrued and unpaid interest and liquidated damages, if any, on the Subordinated Debentures to, but not including, the redemption date.


F-30

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
Upon a continuing event of default, the trustee or the holders of at least 25% in aggregate principal amount of the Subordinated Debentures may declare the applicable series of Debentures immediately due and payable, which could lead to cross-defaults and possible acceleration of unpaid principal and accrued interest of the April 2005 Convertible Debentures, July 2005 Convertible Debentures (defined below) and the 2007 Credit Facility.
   April 2005 Convertible Senior Subordinated Debentures
On April 27, 2005, the Company issued $200,000 aggregate principal amount of its 5.00% Convertible Senior Subordinated Debentures due April 15, 2025 (the “April 2005 Convertible Debentures”). Interest is payable on the April 2005 Convertible Debentures on April 15 and October 15 of each year, beginning October 15, 2005. The April 2005 Convertible Debentures are unsecured and are subordinated to the Company’s existing and future senior debt. The April 2005 Convertible Debentures are senior to the Subordinated Debentures. Since the Company failed to file a registration statement with the SEC to register for resale of its April 2005 Convertible Debentures and the underlying common stock by December 31, 2005, the interest rate on the April 2005 Convertible Debentures increased by 0.25% to 5.25% beginning on January 1, 2006 and will continue to be the applicable interest rate through the date the registration statement is filed. On November 9, 2006, the Company paid to certain consenting holders of April 2005 Convertible Debentures, who provided their consents prior to the expiration of the consent solicitation, a consent fee equal to 1.00% of the outstanding principal amount of the April 2005 Convertible Debentures. The supplemental indenture includes a waiver of the Company’s SEC reporting requirements through October 31, 2007, and provides for further extension through October 31, 2008 upon the Company’s payment of an additional fee of 0.25% of the principal amount of the debentures. In accordance with EITF 96-19, since the change in the terms of the April 2005 Convertible Debentures did not result in substantially different cash flows, this change in terms is accounted for as a modification, and therefore the consent fees of $2,000 will be recognized over future periods.
 
The net proceeds from the sale of the April 2005 Convertible Debentures, after deducting offering expenses and the placement agents’ commissions and other fees and expenses, were approximately $192,800. The Company used the net proceeds from the offering to replace the working capital that was at the time used to cash collateralize letters of credit under the 2004 Interim Credit Facility (see below).
 
The April 2005 Convertible Debentures are initially convertible into shares of the Company’s common stock at a conversion rate of 151.5151 shares for each $1 principal amount of the April 2005 Convertible Debentures, subject to anti-dilution and adjustments, equal to an initial conversion price of $6.60 per share at any time prior to the stated maturity. Upon conversion of the April 2005 Convertible Debentures, the Company will have the right to deliver, in lieu of shares of common stock, cash or a combination of cash and shares of common stock. The April 2005 Convertible Debentures will be entitled to an increase in the conversion rate upon the occurrence of certain change of control transactions or, in lieu of the increase, at the Company’s election, in certain circumstances, to an adjustment in the conversion rate and related conversion obligation so that the April 2005 Convertible Debentures are convertible into shares of the acquiring or surviving company.
 
The holders of the April 2005 Convertible Debentures have the right, at their option, to require the Company to repurchase all or some of their debentures on April 15, 2009, 2013, 2015 and 2020. In each case, the Company will pay a repurchase price in cash equal to 100% of the principal amount of the April 2005


F-31

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

Convertible Debentures, plus any accrued but unpaid interest, including additional interest, if any, to the repurchase date. In addition, holders of the April 2005 Convertible Debentures may require the Company to repurchase all or a portion of the April 2005 Convertible Debentures on the occurrence of a designated event, at a repurchase price equal to 100% of the principal amount of the April 2005 Convertible Debentures, plus any accrued but unpaid interest and additional interest, if any, to, but not including, the repurchase date. A designated event includes certain change of control transactions and a termination of trading, occurring if the Company’s common stock is no longer listed for trading on a U.S. national securities exchange.
 
The April 2005 Convertible Debentures will be redeemable at the Company’s option on or after April 15, 2009 at a redemption price in cash equal to 100% of the principal amount of the April 2005 Convertible Debentures plus accrued and unpaid interest and additional interest, if any, on the April 2005 Convertible Debentures to, but not including, the redemption date.
 
Upon a continuing event of default, the trustee or the holders of at least 25% in aggregate principal amount of the April 2005 Convertible Debentures may declare the debentures immediately due and payable, which could lead to cross-defaults and possible acceleration of unpaid principal and accrued interest of the Subordinated Debentures, July 2005 Convertible Debentures (defined below) and the 2007 Credit Facility.
   July 2005 Convertible Senior Debentures
 
 
 
On July 15, 2005, the Company issued $40,000 aggregate principal amount of its 0.50% Convertible Senior Subordinated Debentures due July 2010 (the “July 2005 Convertible Debentures”) and common stock warrants (the “July 2005 Warrants”) to purchase up to 3,500,000 shares of the Company’s common stock. The July 2005 Convertible Debentures bear interest at a rate of 0.50% per year and will mature on July 15, 2010. Interest is payable on the July 2005 Convertible Debentures on January 15 and July 15 of each year, beginning January 15, 2006. The July 2005 Convertible Debentures are pari passu to the April 2005 Convertible Debentures and senior to the Subordinated Debentures. Since the Company failed to file a registration statement with the SEC to register for resale its July 2005 Convertible Debentures and the underlying common stock by December 31, 2005, the interest rate on the July 2005 Convertible Debentures increased by 0.25% to 0.75% beginning on January 1, 2006 and will continue to be the applicable interest rate through the date the registration statement is filed. On November 9, 2006, the Company entered into an agreement with the holders of the July 2005 Debentures, pursuant to which the Company paid a consent fee equal to 1.00% of the outstanding principal amount of the July 2005 Debentures, in accordance with the terms of the purchase agreement governing the issuance of the July 2005 Debentures. The agreement includes a waiver of the Company’s SEC reporting requirements through October 31, 2007. In accordance with EITF 96-19, since the change in the terms of the July 2005 Convertible Senior Debentures did not result in substantially different cash flows, this change in terms is accounted for as a modification, and therefore the consent fees of $400 will be recognized over future periods.
 
The net proceeds from the sale of the July 2005 Convertible Debentures and July 2005 Warrants, after deducting offering expenses and other fees and expenses, were approximately $38,900.
 
In accordance with the terms of the purchase agreement, the holders of the July 2005 Convertible Debentures appointed a designated director to the Company’s Board of Directors effective July 15, 2005. If the designated director ceases to be affiliated with the holders of the July 2005 Convertible Debentures or ceases to serve on the Company’s Board of Directors, so long as the holders together hold at least 40% of the


F-32

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

original principal amount of the July 2005 Convertible Debentures, the holders or their designees have the right to designate a replacement director to the Company’s Board of Directors.
 
The July 2005 Convertible Debentures are initially convertible on or after July 15, 2006 into shares of the Company’s common stock at a conversion price of $6.75 per share, subject to anti-dilution and other adjustments. Upon conversion of the July 2005 Convertible Debentures, the Company will have the right to deliver, in lieu of shares of common stock, cash or a combination of both. The July 2005 Convertible Debentures will be entitled, in certain change of control transactions, to an adjustment in the conversion obligation so that the July 2005 Convertible Debentures are convertible into shares of stock, other securities or other property or assets receivable upon the occurrence of such transaction by a holder of shares of the Company’s common stock in such transaction.
 
The holders of the July 2005 Convertible Debentures may require the Company to repurchase all or a portion of the July 2005 Convertible Debentures on the occurrence of a designated event, at a repurchase price equal to 100% of the principal amount of the July 2005 Convertible Debentures, plus any accrued but unpaid interest and additional interest, if any, to, but not including, the repurchase date. The list of designated events includes certain change of control transactions and a termination of trading occurring if the Company’s common stock is no longer listed for trading on a U.S. national securities exchange.
 
The July 2005 Warrants may be exercised on or after July 15, 2006 and have a five-year term. The initial number of shares issuable upon exercise of the July 2005 Warrants is 3,500,000 shares of common stock, and the initial exercise price per share of common stock is $8.00. The number of shares and exercise price are subject to certain customary anti-dilution protections and other customary terms. These terms include, in certain change of control transactions, an adjustment in the conversion obligation so that the July 2005 Warrants, upon exercise, will entitle the July 2005 Warrant holders to receive shares of stock, other securities or other property or assets receivable upon the occurrence of such transaction by a holder of shares of the Company’s common stock in such transaction.
 
Upon a continuing event of default, the holders of at least 25% in aggregate principal amount of the July 2005 Convertible Debentures may declare the July 2005 Convertible Debentures immediately due and payable, which could lead to cross-defaults and possible acceleration of unpaid principal and accrued interest of the Subordinated Debentures, April 2005 Convertible Debentures and the 2005 Credit Facility (defined below).
 
In accordance with the provisions of EITF 98-5 and EITF 00-27, the Company allocated the proceeds received from the July 2005 Convertible Debentures to the elements of the debt instrument based on their relative fair values. The Company allocated fair value to the July 2005 Warrants and conversion option utilizing the Black-Scholes option pricing model, which was consistent with the Company’s historical valuation methods. The following assumptions and estimates were used in the Black-Scholes model: volatility of 48.5%; an average risk-free interest rate of 3.98%; dividend yield of 0%; and an expected life of 5 years. The fair value of debt component of the July 2005 Debentures was based on the net present value of the underlying cash flows discounted at a rate derived from the Company’s then publicly traded debt, which was 11.4%. Once the relative fair values were established, the Company allocated the proceeds to each component of the contract. Because the conversion price was lower than the then current fair market value of the Company’s common stock, the Company determined that a beneficial conversion feature (“BCF”) existed which required separate accounting.


F-33

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
The accounting conversion value of the BCF calculated was $14,288 and the fair value allocated to the July 2005 Warrants was $8,073. The fair value allocated to the warrants and the accounting conversion value of the BCF amounting to $22,361 were recorded as credits to additional paid in capital. In addition, $1,000 paid to the holders in connection with this transaction was recorded as a reduction of the net proceeds. The offsetting $23,361 was treated as a discount to the $40,000 principal amount of the July 2005 Convertible Debentures. Using the effective interest method with an imputed interest rate of 17.9%, the discount will be accreted as interest expense over the term of the debt contract to bring the value of the debt to its face amount at the time the principal payment is due in July 2010. As of December 31, 2006 and 2005 the Company has amortized $4,851 and $1,415, respectively, of the discount as interest expense.
   Discontinued Credit Facilities
   Credit Facilities prior to 2005
 
 
On May 29, 2002, the Company entered into a credit agreement with a commercial lender, for a revolving credit facility with a maximum aggregate principal balance of $250,000. The revolving credit facility expired on May 29, 2005.
 
On December 17, 2004, the Company entered into a $400,000 Interim Senior Secured Credit Agreement (the “2004 Interim Credit Facility”), which provided for up to $400,000 in revolving credit, all of which was to be available for issuance of letters of credit (subject to restrictions), and included up to $20,000 in a swingline subfacility. The 2004 Interim Credit Facility was terminated by the Company on April 26, 2005.
 
The 2004 Interim Credit Facility was replaced by the 2005 Credit Facility on July 19, 2005, as described below. Immediately prior to termination of the 2004 Interim Credit Facility, there were no outstanding loans under the 2004 Interim Credit Facility; however, there were outstanding letters of credit of approximately $87,700, which were issued primarily to meet the Company’s obligations to collateralize certain surety bonds issued to support client engagements, mainly in its state and local government business. The $87,700 in letters of credit remained outstanding after the termination of the 2004 Interim Credit Facility. In order to support the letters of credit that remained outstanding, the Company provided the lenders of the 2004 Interim Credit Facility with the following collateral: (i) $94,300 of cash which was sourced from cash on hand; and (ii) a security interest in the Company’s domestic accounts receivable. Upon entering into the 2005 Credit Facility, the lenders under the 2004 Interim Credit Facility: (i) released all but $5,000 of the cash collateral (remaining $5,000, net of expenses, was returned to the Company on April 4, 2006); (ii) released its security interest in the domestic accounts receivable; and (iii) received an $85,400 letter of credit issued by the lenders under the 2005 Credit Facility.
   2005 Credit Facility
 
On July 19, 2005, the Company entered into a $150,000 Senior Secured Credit Facility (the “2005 Credit Facility”). The 2005 Credit Facility, as amended, provided for up to $150,000 in revolving credit and advances, all of which was available for issuance of letters of credit. Advances under the revolving credit line were limited by the available borrowing base, which was based upon a percentage of eligible accounts receivable and unbilled receivables. The 2005 Credit Facility was terminated on May 18, 2007. On that date, all outstanding obligations under the 2005 Credit Facility were assumed by the 2007 Credit Facility and liens and security interests were released.


F-34

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
The entire $150,000 under the 2005 Credit Facility was not always available to the Company because, among other things: (i) certain accounts receivable for government contracts could not be included in the calculation of the borrowing base without obtaining certain consents (this restriction was removed by amendment on March 30, 2006); and (ii) delays in the Company’s ability to provide month-end account receivables reports negatively impacted the Company’s ability to include such account receivables as part of the borrowing base, which determined the amount the Company could borrow under the 2005 Credit Facility. Borrowings available under the 2005 Credit Facility are used for general corporate purposes. As of December 31, 2006, the Company had approximately $23,700 available under the borrowing base.
 
In addition, prior to the March 30, 2006 amendment, the Company was required to cash collateralize 105% of its borrowings, including any outstanding letters of credit, under the 2005 Credit Facility and any accrued and unpaid interest and fees thereon. As of December 31, 2006, the Company had no borrowings under the 2005 Credit Facility but had letters of credit outstanding of approximately $89,300. The Company was charged an annual rate of 2.75% for the credit spread and other fees for its outstanding letters of credit. The Company fulfilled its obligation to cash collateralize using cash on hand. The requirement to deposit and maintain cash collateral terminated as part of the March 30, 2006 amendment to the 2005 Credit Facility, and such cash collateral was released to the Company.
 
Interest on loans (other than swingline loans) under the 2005 Credit Facility was calculated, at the Company’s option, at a rate equal to LIBOR, or, for dollar-denominated loans, at a rate equal to the higher of the bank’s corporate base rate or the Federal funds rate plus 50 basis points (“Base Rate Loans”). No matter which rate the Company chose, an applicable margin was added that varied depending upon availability under the revolver and the status of the Company’s SEC periodic filings. For Base Rate Loans and LIBOR loans, the applicable margins were 1.00% and 2.00%, respectively, as the Company was not current in its SEC periodic filings during the term of the facility. As of December 31, 2006, the interest rate under the 2005 Credit Facility was 7.36%.
 
The 2005 Credit Facility contained financial, affirmative, and negative covenants.
 
  •  The financial covenants included: (i) a minimum U.S. cash collections requirement, (ii) a minimum trailing twelve-month EBITDA covenant, (iii) a maximum leverage ratio and (iv) a maximum trailing twelve-month capital expenditures covenant. The EBITDA and maximum leverage ratio was not tested for a quarterly test period if (i) at all times during the test period that the borrowing base was less than $120,000, borrowing availability was greater than $15,000, (ii) at all times during the test period that the borrowing base was greater than or equal to $120,000 and less than $130,000, borrowing availability was greater than $20,000, or (iii) at all times during the test period that the borrowing base was greater than or equal to $130,000, borrowing availability was greater than $25,000. These ratios were never tested, since the Company at all times maintained the minimum borrowing base.
 
  •  The affirmative covenants included the Company becoming current in its SEC periodic filings in accordance to a predetermined schedule, repatriation of a $65,000 of cash from foreign subsidiaries and the submission to its lender certain weekly and monthly reports providing various financial information.
 
  •  The negative covenants significantly restricted the Company’s corporate activities and ability to dispose of assets without the lenders’ consent.


F-35

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
  •  Standard events of default for a senior secured facility were included, as well as default for payments in respect of judgments against the Company in excess of $18,000; termination of trading of Company stock; certain indictments, convictions or the commencement of criminal proceedings of or against the Company or any subsidiary.
 
Upon an event of default under the 2005 Credit Facility, the lenders could require the Company to post cash collateral in an amount equal to 105% of the principal amount of the outstanding letters of credit or declare all borrowings outstanding under the 2005 Credit Facility, together with accrued interest and other fees, immediately due and payable. Any default agreements governing the Company’s other significant indebtedness could lead to an acceleration of debt under the 2005 Credit Facility.
 
The Company’s obligations under the 2005 Credit Facility were secured by liens and security interests in substantially all of its present and future tangible and intangible assets and those of certain of its domestic subsidiaries, as guarantors of such obligations (including 65.0% of the stock of its foreign subsidiaries), subject to certain exceptions.
 
The lenders of the 2005 Credit Facility granted the Company waivers for any default under the 2005 Credit Facility resulting from the Series B debenture lawsuit and the defaults alleged therein, and also consented to the Company’s payment of consent fees to the holders of each series of debentures as well as increases in the interest rates payable on all of the debentures.
   Terminated Yen-Denominated Term Loans and Line of Credit
 
On January 31, 2003, the Company’s Japanese subsidiary entered into a 2.0 billion yen-denominated unsecured term loan. Scheduled principal payments were every six months through July 31, 2005 in the amount of 334.0 million yen and included a final payment of 330.0 million yen on January 31, 2006.
 
On June 30, 2003, the Company’s Japanese subsidiary entered into a 1.0 billion yen-denominated unsecured term loan. Scheduled principal payments were every six months through December 31, 2005 in the amount of 167.0 million yen and included a final payment of 165.0 million yen on June 30, 2006.
 
On August 30, 2004, the Company’s Japanese subsidiary extended its yen-denominated revolving line of credit facility and overdraft line of credit facility dated December 16, 2002. The renewed agreement included a yen-denominated revolving line of credit facility with an aggregate principal balance not to exceed 1.85 billion yen (approximately $18,026 as of December 31, 2004) and an overdraft line of credit facility with an aggregate principal balance not to exceed 0.5 billion yen (approximately $4,872 as of December 31, 2004). These facilities, which were scheduled to mature on August 31, 2005 were unsecured, did not contain financial covenants, and were not guaranteed by the Company. These facilities were extended to, and paid in full on, December 16, 2005.
   Early Extinguishment of Senior Notes
 
On November 26, 2002, the Company completed a private placement of $220,000 in aggregate principal of Senior Notes. The offering consisted of $29,000 of 5.95% Series A Notes due November 2005, $46,000 of 6.43% Series B Senior Notes due November 2006 and $145,000 of 6.71% Series C Senior Notes due November 2007. The Senior Notes restricted the Company’s ability to incur additional indebtedness and required the Company to maintain certain levels of fixed charge coverage and net worth, while limiting its


F-36

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

leverage ratio to certain levels. The proceeds from the sale of these Senior Notes were used to repay a $220,000 short-term revolving credit facility entered into for the purpose of funding a portion of the acquisition cost of BE Germany. In December 2004, the entire $220,000 of Senior Notes was prepaid, using proceeds from the Company’s sale of its Subordinated Debentures (see above). Due to the prepayment, the Company recorded in 2004 a loss on the early extinguishment of debt of $22,617, which represented the make whole premium, unamortized debt issuance costs and fees.
7.  Accrued Payroll and Employee Benefits
 
Accrued payroll and employee benefits consist of the following:
 
                 
    December 31,  
    2006     2005  
 
Accrued compensated absences
  $ 97,123     $ 91,587  
Payroll related taxes
    30,482       38,089  
Employee mobility and tax equalization
    87,621       82,482  
Accrued bonus
    52,501       32,782  
Other
    76,988       64,570  
                 
Total
  $ 344,715     $ 309,510  
                 
8.  Other Current Liabilities
 
Other current liabilities consist of the following:
 
                 
    December 31,  
    2006     2005  
 
Acquisition obligation (see Note 9)
  $ 16,564     $ 16,133  
Book overdrafts
    —       810  
Accrual for loss contracts
    24,828       77,920  
Other
    94,445       74,761  
                 
Total
  $ 135,837     $ 169,624  
                 
9.  Acquisition Obligation
 
On May 27, 1999, KPMG LLP (the Company’s former parent) acquired all of the voting common stock of Softline Consulting & Integrators, Inc. (“Softline”), a systems integration company, and entered into an agreement to acquire all of the Softline nonvoting common stock for not less than $65,000. The $65,000 acquisition obligation for the non-voting common stock of Softline accrued interest at 6% per annum, and was due by its terms at the earlier of a demand by a majority vote of the nonvoting shareholders, or May 8, 2000. The obligation became due on May 8, 2000 but was not retired at such time. In August 2000, the Company and the counterparties to this agreement entered into an agreement, pursuant to which $33,980 of this obligation was repaid in cash, $7,020 was retired through the cancellation of short-term notes due from the counterparties and $9,000 was settled in November 2000 ($3,000 in cash and 326,024 shares of the Company’s common stock). The remaining obligation of $15,000 plus interest at 6% per annum, included in other current liabilities, is payable upon the ultimate resolution of specific contingencies relating to the Softline acquisition and will be paid through the issuance of shares of the Company’s common stock, valued


F-37

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

for such settlement purposes at the IPO price less the underwriting discount or, at the election of the counterparties, through the issuance of cash equal to the current market price of the Company’s common stock for up to 30% of the shares otherwise issuable, with the remainder payable in shares valued at the IPO price. The 30% portion of the liability that, at the election of the counterparties, can be settled in either cash or in shares of the Company’s common stock represents a derivative feature. Accordingly, the 30% portion of the liability is marked to market each reporting period based on the changes in the intrinsic value of the underlying equity shares. Any change in the value of the underlying shares is recorded as a component of interest expense, amounting to $430, $354, and $909 for the years ended December 31, 2006, 2005 and 2004, respectively.
10.  Collaboration Agreement
 
In August 1997, KPMG LLP entered into a collaboration agreement with Microsoft Corporation. Under this agreement, the Company developed a broad portfolio of services and solutions to enable the rapid deployment of Microsoft products. Microsoft paid the Company $15,000. The agreement requires the Company to train a specified number of consultants to be proficient in Microsoft products, and to participate in joint marketing efforts with Microsoft. Revenue of $5,000 was recognized as training and other costs associated with the agreement were incurred. Revenue was not recognized for the remaining $10,000 due to a minimum royalty liability of $10,000 associated with the agreement. The agreement requires the Company to pay Microsoft royalties on certain net revenue for business relating to Microsoft products. The royalty period ends on the earlier of the date on which the Company makes the minimum aggregate royalty payment of $10,000 or June 30, 2006. Since the aggregate payments on June 30, 2006 were less than $10,000, the Company was obligated to make final payment for the difference, of which $4,689 was paid in July 2006 and the remaining $4,689 is due on June 30, 2007. No royalty payments were made during the years ended December 31, 2005 and 2004.
11.  Commitments and Contingencies
 
The Company currently is a party to a number of disputes which involve or may involve litigation or other legal or regulatory proceedings. Generally, there are three types of legal proceedings to which the Company has been made a party:
 
  •  Claims and investigations arising from its continuing inability to timely file periodic reports under the Exchange Act (the “Exchange Act”), and the restatement of its financial statements for certain prior periods to correct accounting errors and departures from generally accepted accounting principles for those years (“SEC Reporting Matters”);
 
  •  Claims and investigations being conducted by agencies or officers of the U.S. Federal government and arising in connection with its provision of services under contracts with agencies of the U.S. Federal government (“Government Contracting Matters”); and
 
  •  Claims made in the ordinary course of business by clients seeking damages for alleged breaches of contract or failure of performance, by current or former employees seeking damages for alleged acts of wrongful termination or discrimination, and by creditors or other vendors alleging defaults in payment or performance (“Other Matters”).
 
The Company currently maintains insurance in types and amounts customary in its industry, including coverage for professional liability, general liability and management and director liability. Based on management’s current assessment and insurance coverages believed to be available, the Company believes that


F-38

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

its financial statements include adequate provision for estimated losses that are likely to be incurred with regard to all matters of the types described above.
SEC Reporting Matters
 
   2005 Class Action Suits
 
 
In and after April 2005, various separate complaints were filed in the U.S. District Court for the Eastern District of Virginia alleging that the Company and certain of its current and former officers and directors violated Section 10(b) of the Exchange Act, Rule 10b-5 promulgated thereunder and Section 20(a) of the Exchange Act by, among other things, making materially misleading statements between August 14, 2003 and April 20, 2005 with respect to its financial results in the Company’s SEC filings and press releases. On January 17, 2006, the court certified a class, appointed class counsel and appointed a class representative. The plaintiffs filed an amended complaint on March 10, 2006 and the defendants, including the Company, subsequently filed a motion to dismiss that complaint, which was fully briefed and heard on May 5, 2006. The Company was awaiting a ruling when, on March 23, 2007, the court stayed the case, pending the U.S. Supreme Court’s decision in the case of Makor Issues & Rights, Ltd v. Tellabs, argued before the Supreme Court on March 28, 2007. On June 21, 2007, the Supreme Court issued its opinion in the Tellabs case, holding that to plead a strong inference of a defendant’s fraudulent intent under the applicable federal securities laws, a plaintiff must demonstrate that such an inference is not merely reasonable, but cogent and at least as compelling as any opposing inference of non-fraudulent intent. The Supreme Court decision is expected to significantly inform the court’s decision regarding the complaint and the Company’s motion to dismiss the complaint. It is not possible to predict with certainty whether or not the Company will ultimately be successful in this matter or, if not, what the impact might be. Accordingly, no liability has been recorded.
   2005 Shareholders’ Derivative Demand
 
On May 21, 2005, the Company received a letter from counsel representing one of its shareholders requesting that the Company initiate a lawsuit against its Board of Directors and certain present and former officers of the Company, alleging breaches of the officers’ and directors’ duties of care and loyalty to the Company relating to the events disclosed in its report filed on Form 8-K, dated April 20, 2005. On January 21, 2006, the shareholder filed a derivative complaint in the Circuit Court of Fairfax County, Virginia, that was not served on the Company until March 2006. The shareholder’s complaint alleged that his demand was not acted upon and alleged the breach of fiduciary duty claims previously stated in his demand. The complaint also included a non-derivative claim seeking the scheduling of an annual meeting in 2006. On May 18, 2006, following an extensive audit committee investigation, the Company’s Board of Directors responded to the shareholder’s demand by declining at that time to file a suit alleging the claims asserted in the shareholder’s demand. The shareholder did not amend the complaint to reflect the refusal of his demand. The Company filed demurrers on August 11, 2006, which effectively sought to dismiss the matter related to the fiduciary duty claims. On November 3, 2006, the court granted the demurrers and dismissed the fiduciary claims, with leave to file amended claims. As a result of the Company’s annual meeting of stockholders held on December 14, 2006, the claim seeking the scheduling of an annual meeting became moot. On January 3, 2007, the plaintiff filed an amended derivative complaint re-asserting the previously dismissed derivative claims and alleging that the Board’s refusal of his demand was not in good faith. The Company’s renewed motion to dismiss all remaining claims was heard on March 23, 2007 and no ruling has yet been entered.


F-39

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

   Series B Debenture Suit

On September 8, 2005, certain holders of the 2.75% Series B Debentures provided a purported Notice of Default to the Company based upon its failure to timely file certain of its SEC periodic reports due in 2005. Thereafter, these holders asserted that as a result, the principal amount of the Series B Debentures, accrued and unpaid interest and unpaid damages were due and payable immediately.
 
The indenture trustee for the Series B Debentures then brought suit against the Company and, on September 19, 2006, the Supreme Court of New York ruled on a motion that the Company was in default under the indenture for the Series B Debentures and ordered that the amount of damages be determined subsequently at trial. The Company believed the ruling to be in error and on September 25, 2006, appealed the court’s ruling and moved for summary judgment on the matter of determination of damages.
 
After further negotiations, the Company and the relevant holders of its Series B Debentures entered into a First Supplemental Indenture (the “First Supplemental Indenture”) with The Bank of New York, as trustee, which amends the subordinated indenture governing the 2.50% Series A Debentures due in 2024 and the Series B Debentures. Concurrently, the Company and the relevant holders of the Series B Debentures lawsuit also agreed to discontinue the lawsuit.
 
The First Supplemental Indenture modifies the debentures to include: (i) a waiver of the Company’s SEC reporting requirements under the subordinated indenture through October 31, 2008, (ii) the interest rate payable on all Series A Debentures increased from 3.00% per annum to 3.10% per annum until December 23, 2011, and (iii) adjustment of the interest rate payable on all Series B Debentures from 3.25% per annum to 4.10% per annum until December 23, 2014.
 
In order to address any possibility of a claim of cross-default, on November 2, 2006, the Company entered into a First Supplemental Indenture with The Bank of New York, as trustee, which amends the indenture governing the 5.0% Convertible Senior Subordinated Debentures due 2025. The supplemental indenture includes a waiver of the Company’s SEC reporting requirements through October 31, 2007 and provides for further extension through October 31, 2008 upon the payment of an additional fee of 0.25% of the principal amount of the debentures. The Company paid to certain consenting holders of these debentures a consent fee equal to 1.00% of the outstanding principal amount of the debentures. In addition, on November 9, 2006, the Company entered into an agreement with the holders of the 0.50% Convertible Senior Subordinated Debentures due July 2010, pursuant to which the Company paid a consent fee equal to 1.00% of the outstanding principal amount of the debentures, in accordance with the terms of the purchase agreement governing the issuance of these debentures.
   SEC Investigation
 
On April 13, 2005, pursuant to the same matter number as its inquiry concerning the Company’s restatement of certain financial statements issued in 2003, the staff of the SEC’s Division of Enforcement requested information and documents relating to the Company’s March 18, 2005 Form 8-K. On September 7, 2005, the Company announced that the staff had issued a formal order of investigation in this matter. The Company subsequently has received subpoenas from the staff seeking production of documents and information including certain information and documents related to an investigation conducted by its Audit Committee. The Company continues to provide information and documents to the SEC as requested. The investigation is ongoing and the SEC is in the process of taking the testimony of a number of its current and former employees, including one of its former directors.


F-40

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
In connection with the investigation by its Audit Committee, the Company became aware of incidents of possible non-compliance with the Foreign Corrupt Practices Act and its internal controls in connection with certain of its operations in China and voluntarily reported these matters to the SEC and U.S. Department of Justice in November 2005. Both the SEC and the Department of Justice are investigating these matters in connection with the formal investigation described above. On March 27, 2006, the Company received a subpoena from the SEC regarding information related to these matters. The Company has a reasonable possibility of loss in this matter, although no estimate of such loss can be determined at this time. Accordingly, no liability has been recorded.
Government Contracting Matters
 
   Government Contracts
 
A significant portion of the Company’s business relates to providing services under contracts with the U.S. Federal government or state and local governments, inclusive of government-sponsored enterprises. During the year ended December 31, 2006, 36.0% of the Company’s revenue was earned from contracts with the U.S. Government or state and local governments. These contracts are subject to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. Federal government or state and local governments investigate whether the Company’s operations are being conducted in accordance with these requirements and the terms of the relevant contracts. In the ordinary course of business, various government investigations are ongoing. U.S. Federal government investigations of the Company, whether relating to these contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon the Company, or could lead to suspension or debarment from future U.S. Federal government contracting. The Company believes that it has adequately reserved for any losses it may experience from these investigations. Whether such amounts could have a material effect on the results of operations in a particular quarter or fiscal year cannot be determined at this time.
   California Subpoena
 
In December 2004, the Company was served with a subpoena by the Grand Jury for the United States District Court for the Central District of California. The subpoena sought records relating to twelve contracts between the Company and the U.S. Federal government, including two General Service Administration (“GSA”) schedules, as well as other documents and records relating to its U.S. Federal government work. The Company has produced documents in accordance with an agreement with the Assistant U.S. Attorney. The focus of the review is upon its billing and time/expense practices, as well as alliance agreements where referral or commission payments were permitted. In July 2005, the Company received a subpoena by the U.S. Army related to Department of Defense contracts. The Company subsequently was served with subpoenas issued by the inspectors general of the GSA and the Department of Defense. The subpoenas were largely duplicative of the grand jury subpoena. In December 2006, the Company’s counsel was informally informed by the Assistant U.S. Attorney involved in this matter that the government has declined to pursue any criminal proceedings arising out of this matter. The government continues to pursue the investigation on the civil side. The Company does not believe that it is either probable that the subpoena will result in a liability to the Company or that the amount or range of a future liability, if any, can be determined. Accordingly, no liability has been recorded.


F-41

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

   Travel Rebate Investigation

 
In December 2005, the Company executed a settlement agreement with the Civil Division of the U.S. Department of Justice to settle allegations of potential understatement of travel credits to government contracts. Pursuant to the settlement agreement, in December 2005, the Company paid $15,500 in the aggregate, including related fees. The settlement payment is included as part of selling, general and administrative expenses in the Consolidated Statement of Operations for the year ended December 31, 2004.
 
   Department of Interior
 
On September 29, 2005, the Company received a Termination for Cause notice (the “Notice”) directing it to cease work on a task order (“Task Order 3”) being completed for the Department of Interior (“DOI”). The Company complied and has properly reserved any outstanding amounts owed to it by the DOI as of December 31, 2004. The underlying Basic Purchase Agreement was subsequently terminated for cause as well, though the only task order that was potentially affected was Task Order 3. In the Notice, the DOI also stated that it may seek to recover excess reprocurement costs or pursue other legal remedies, but it has taken no action in this regard. The Company believes that it has a strong defense of excusable delay, and believes that where there is a meritorious case of excusable delay, terminations for cause have been overturned. The Company also believes that if the termination for cause is removed, any potential reprocurement cost liability is also removed. On July 28, 2006, the Company submitted a claim in the amount of approximately $20,000 to the Government for amounts it believes are owed to it by the DOI. In January 2007, the DOI’s contracting officer denied the Company’s administrative claim for the payment of its unpaid fees. In addition, in September 2006, the Company filed a lawsuit against the DOI in the U.S. Court of Federal Claims, seeking to overturn the termination for cause. On April 30, 2007, the U.S. Court of Federal Claims granted the Company’s motion to dismiss the lawsuit, holding that the DOI’s termination for default was procedurally invalid. The DOI may appeal this decision. The only remaining claim in this matter is the Company’s claim against the DOI for unpaid project fees, in part for wrongful termination. The Company intends to appeal the contracting officer’s denial of its claim for the payment of unpaid fees.
 
   United States Agency for International Development Contract
 
On October 25, 2005, the Company received a letter from United States Agency for International Development in which the Contracting Officer stated that she had determined to disallow approximately $10,746 in subcontractor costs for Kroll, the Company’s security subcontractor in Iraq. The Company also received a final decision from the Contracting Officer, dated January 7, 2006, disallowing the Kroll costs. However, on July 10, 2006, based on review and analysis of additional documentation, the Contracting Officer issued a revised final decision that allowed $10,320 of the costs, while disallowing the remainder, which the Company substantially recovered from Kroll.
 
   Core Financial Logistics System
 
There is an ongoing investigation of the Core Financial Logistics System (“CoreFLS”) project by the Inspector General’s Office of the Department of Veterans Affairs and by the Assistant U.S. Attorney for the Central District of Florida. To date, the Company has been issued three subpoenas, in June 2004, December 2004 and May 2006, seeking the production of documents relating to the CoreFLS project. The Company is cooperating with the investigation and has produced documents in response to the subpoenas. To date, there have been no specific allegations of criminal or fraudulent conduct on the Company’s part or any contractual claims filed against it by the Veterans Administration in connection with the project. The Company continues


F-42

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

to believe it has complied with all of its obligations under the CoreFLS contract. It cannot, however, predict the outcome of the inquiry. It is not possible to predict with certainty whether or not the Company will ultimately be successful in this matter or, if not, what the impact might be. As such, no liability has been recorded.
   General Services Administration Audit
 
The Office of the Inspector General of the GSA of the United States Government conducted an audit of the Company’s GSA Management, Organizational, and Business Improvement Services (“MOBIS”) contract for the period beginning January 1, 2001 through December 31, 2002. The findings from this audit report allege non-compliance, which may have resulted in overcharges to Government customers. Specifically, the report alleges that the Company failed to report and pass on to GSA customers, the reduction it made to its commercial labor rate (Standard Bill Rate) for Administrative Support effective July 1, 2000. On March 6, 2007, the Contracting Officer specified a demand of $2,318 against the Company, along with certain demand for price reductions.
 
While the Company continues to believe that it has not overcharged the Government, the Company has entered into settlement discussions with the Government in order to mutually resolve this matter. As part of these discussions, the Company is discussing revisions to the contract with the Contracting Officer to better align its terms, including pricing, to the expectations of both parties. Given the current stage of discussions, the outcome cannot yet be determined and management estimates the probable amount of loss is $1,200 (accrued as a liability as of December 31, 2006 and 2005).
Other Matters
 
   Peregrine Litigation
 
 
The Company was named as a defendant in several civil lawsuits regarding certain software resale transactions with Peregrine Systems, Inc. during 1999 and 2001, in which purchasers and other individuals who acquired Peregrine stock alleged that the Company participated in or aided and abetted a fraudulent scheme by Peregrine to inflate Peregrine’s stock price. The Company was also sued by a trustee succeeding the interests of Peregrine for the same conduct. In December 2005, the Company executed conditional settlement agreements whereby it was released from liability in these matters and in all claims for indemnity by KPMG in each of these cases. The Company issued settlement payments of approximately $36,900 with respect to these matters in September 2006. In addition, on January 5, 2006, the Company finalized an agreement with KPMG, providing conditional mutual releases to each other from fee advancement and indemnification claims with respect to these matters, with no settlement payment or other exchange of monies between the parties.
 
The Company did not settle the In re Peregrine Systems, Inc. Securities Litigation, and on January 19, 2005, the matter was dismissed by the trial court as it relates to the Company. The plaintiffs have appealed the dismissal and briefing of the appeal has been completed. To the extent that any judgment is entered in favor of the plaintiffs against KPMG, KPMG has notified the Company that it will seek indemnification for any such sums. The Company disputes KPMG’s entitlement to any such indemnification.
 
On November 16, 2004, Larry Rodda, a former employee, pled guilty to one count of criminal conspiracy in connection with the Peregrine software resale transactions that continue to be the subject of the government inquiries. Mr. Rodda also was named in a civil suit brought by the SEC. The Company was not named in the indictment or civil suit, and are cooperating with the government investigations.


F-43

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

   Hawaiian Telcom Communications, Inc.

 
The Company had a significant contract (the “HT Contract”) with Hawaiian Telcom Communications, Inc., a telecommunications industry client, under which the Company was engaged to design, build and operate various information technology systems for the client. The Company incurred losses of approximately $28,191 and $111,690 under this contract in 2006 and 2005, respectively. The HT Contract experienced delays in its build and deployment phases and contractual milestones were missed. The client alleged that the Company was responsible to compensate it for certain costs and other damages incurred as a result of these delays and other alleged failures. The Company believed the client’s nonperformance of its responsibilities under the HT Contract caused delays in the project and impacted its ability to perform, thereby causing it to incur significant damages. On February 8, 2007, the Company entered into a Settlement Agreement, and Transition Agreement with the client. Pursuant to the Settlement Agreement, the Company paid $52,000, $38,000 of which was paid by certain of its insurers. In addition, the Company waived approximately $29,600 of invoices and other amounts otherwise payable by the client to the Company. The Transition Agreement governed its transitioning of the remaining work under the HT Contract to a successor provider, which has been completed and accepted by the client.
   Telecommunications Company
 
A telecommunications industry client initiated an “audit” of certain of the Company’s time and expense charges, alleging that the Company inappropriately billed the client for days claimed to be “non-work days,” such as days before and after travel days, travel days, overtime, and other alleged errors. A preliminary audit by the Company of the time and expense records for the project did not reveal the improprieties as alleged. On June 18, 2007, the Company and the client entered into a settlement resolving the client’s claims. In connection with the settlement, the Company will make six equal annual payments to the client in an aggregate amount of $24,000, with the first payment made on the signing date in return for a full release of the client’s claims.
   Michael Donahue
 
In March 2005, Mr. Donahue filed suit against the Company in connection with the termination of his employment in February 2005. Mr. Donahue alleges he is owed $3,000 under the terms and conditions of a Special Termination Agreement he executed in November 2001, between $1,700 and $2,400 as compensation for the value of stock options he was required to forfeit as the result of his discharge, and an additional $200 for an unpaid bonus. Mr. Donahue has also argued that a 25% penalty pursuant to Pennsylvania law should be added to each of these sums. In May 2005, the Company removed the matter to Federal court. On October 5, 2005, Mr. Donahue filed his Complaint in Federal Court, under seal. In this Complaint, in response to the Company’s motion to compel arbitration, Mr. Donahue dropped his claims for his stock options and performance bonus, although he is free to bring those claims again at a later time. On January 31, 2006, Mr. Donahue filed his Demand for Arbitration, asserting all the claims he originally asserted, including his claims under the Special Termination Agreement, his claims for his stock options, and his claim for his annual bonus payment for 2004, in addition to the statutory penalties sought for these unpaid amounts. The parties have selected arbitrators for the panel, and discovery has commenced. It is reasonably possible that the Company will incur a loss ranging from $0 to $7,000, with no amount within this range a better estimate than any other amount. Accordingly, no liability has been recorded.
 
   Canon Australia
 
On June 16, 2006, employees of the Australian subsidiary of Canon presented objections to the


F-44

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

Company’s Australian Country Director related to deficiencies in the Company’s work and alleged misrepresentations by the Company in connection with an implementation of an enterprise resource planning and customer relationship management system, which went live in January of 2005. Canon representatives presented arguments supporting their belief that Canon has suffered damages, including damages for lost profits and other consequential damages, as a result of the implementation. Canon has indicated that it may proceed with a claim, although the Company has not received any formal notice of any such claim. This matter is in its very preliminary stages. The contract limits the damages that may be claimed against the Company to no more than approximately $22,800. It is reasonably possible the Company will incur a loss. Due to the early stage of this matter and the nature of the potential claims, a range of loss cannot be determined at this time. Accordingly, no liability has been recorded.
 
   Transition Services Provided By KPMG LLP
 
 
KPMG LLP contended that the Company owes approximately $26,214 in termination costs and unrecovered capital for the termination of information technology services provided under the transition services agreement (see Note 15, “Transactions with KPMG LLP”). However, in accordance with the terms of the agreement, the Company did not believe that it was liable for termination costs arising upon the expiration of the agreement. In addition, KPMG LLP contended the Company owed an additional $5,347 in connection with the expiration of the transition services agreement relating to its share of occupancy related assets in subleased offices from KPMG LLP.
 
In May 2007, the Company and KPMG LLP settled its disputes under the transition services agreement. KPMG LLP released all claims against the Company. In connection with the settlement, the Company amended certain real estate documents relating to a number of properties that it currently sublets from KPMG LLP to either allow it to further sublease these properties to third parties, or to return certain properties the Company no longer utilizes to KPMG LLP, in return for a reduction of the amount of the Company’s sublease obligations to KPMG LLP for those properties. The Company also agreed to pay $5,000 over three years to KPMG LLP as part of the settlement.
 
Operating Leases
 
 
The Company leases all of its office facilities under various operating leases, some of which contain escalation clauses. In addition, the Company leases certain of its office facilities under subleases with KPMG LLP. Subleases with KPMG LLP are for periods that coincide with the KPMG LLP lease periods, which run through 2014. The rental cost is based on square footage utilized by the Company.
 
The following is a schedule of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2006. Total minimum rental payments are exclusive of future minimum sublease income of $19,811.
 
         
Year ending December 31:
     
 
2007
  $ 75,472  
2008
    70,789  
2009
    62,617  
2010
    44,135  
2011
    31,694  
Thereafter
    65,038  
         
Total minimum payments required
  $ 349,745  
         
 
Total rental expense for all operating leases was $61,490, $64,734 and $66,186 for the years ended December 31, 2006, 2005 and 2004, respectively.


F-45

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

Other Commitments
 
 
In the normal course of business, the Company has indemnified third parties and has commitments and guarantees under which it may be required to make payments in certain circumstances. The Company accounts for these indemnities, commitments and guarantees in accordance with FIN No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” These indemnities, commitments and guarantees include: indemnities to third parties in connection with surety bonds; indemnities to various lessors in connection with facility leases; indemnities to customers related to intellectual property and performance of services subcontracted to other providers; and indemnities to directors and officers under the organizational documents and agreements of the Company. The duration of these indemnities, commitments and guarantees varies, and in certain cases, is indefinite. Certain of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential future payments the Company could be obligated to make. The Company estimates that the fair value of these agreements was minimal. Accordingly, no liabilities have been recorded for these agreements as of December 31, 2006.
 
Some clients, largely in the state and local market, require the Company to obtain surety bonds, letters of credit or bank guarantees for client engagements. As of December 31, 2006, the Company had approximately $101,912 of outstanding surety bonds and $89,300 of outstanding letters of credit for which the Company may be required to make future payment.
 
12.  Stockholders’ Equity
 
   Notes Receivable from Stockholders
 
On February 16, 2000, the Company issued stock awards aggregating 297,324 shares to certain employees as part of the separation of KPMG LLP’s consulting businesses. In connection with these awards, the Company also provided loans of $7,433 to the grantees for personal income taxes attributed to the awards. The loans are secured by the shares of common stock issued to the employees and, prior to August 7, 2003, bore interest at 6.2% per annum with respect to $5,845 of the principal amount and at 4.63% per annum with respect to $1,588 of the principal amount. Principal and accrued interest on the loans are due no later than August 9, 2007. In the event the value of the Company’s common stock is less than the aggregate principal and interest of the loans upon maturity in August 2007, the employees may elect to surrender their shares relating to the stock award. At December 31, 2006, the estimated fair market value of the stock awards was approximately $2,340.
 
In October 2001, the Company provided non-recourse loans to individuals who were executive officers at that time of $1,672, at an interest rate of 4.5%. During 2005, one loan totaling $483, which included $62 of accrued interest, was forgiven by the Company. During 2006, the Company forgave the remaining loan that had been fully reserved as of December 31, 2005 and had a balance of $116, including $21 of accrued interest.
 
   Common Stock Repurchase
In July 2001, the Board of Directors authorized the Company to repurchase up to $100,000 of its common stock, and in April 2005, the Board of Directors authorized a stock repurchase program for an additional $100,000 for common stock repurchases to be made over a twelve-month period beginning on April 11, 2005. The Company did not repurchase shares during this twelve-month period and the April 2005


F-46

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

authorization has now expired. As of December 31, 2006, the Company has repurchased 3,812,250 shares of its common stock at an aggregate purchase price of $35,727 and is authorized to repurchase an additional $64,273 of its common stock. The Company did not repurchase any of its common stock during the years ended December 31, 2006, 2005 and 2004. The repurchased shares are held in treasury. In addition, the 2007 Credit Facility contains limitations on the Company’s ability to repurchase shares of its common stock.
 
   Preferred Stock
The Company has 10,000,000 authorized shares of $0.01 par value preferred stock. An aggregate of 1,000,000 shares of preferred stock have been designated as Series A Junior Participating Preferred Stock for issuance in connection with the Company’s shareholder rights plan. As of December 31, 2006, none of the Company’s preferred stock was issued or outstanding.
 
   Shareholder Rights Plan
On August 29, 2001, the Board of Directors of the Company adopted a shareholder rights plan. Under the plan, a dividend of one preferred share purchase right (a “Right”) was declared for each share of common stock of the Company that was outstanding on October 2, 2001. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of a new series of Series A Junior Participating Preferred Stock at a purchase price of $90, subject to adjustment.
 
The Rights will trade automatically with the common stock and will not be exercisable until a person or group has become an “acquiring person” by acquiring 15% or more of the Company’s outstanding common stock, or a person or group commences a tender offer that will result in such a person or group owning 15% or more of the Company’s outstanding common stock. Upon announcement that any person or group has become an acquiring person, each Right will entitle all rightholders (other than the acquiring person) to purchase, for the exercise price of $90, a number of shares of the Company’s common stock having a market value equal to twice the exercise price. Rightholders would also be entitled to purchase common stock of the acquiring person having a value of twice the exercise price if, after a person had become an acquiring person, the Company were to enter into certain mergers or other transactions. If any person becomes an acquiring person, the Board of Directors may, at its option and subject to certain limitations, exchange one share of common stock for each Right.
 
The Rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors. In the event that the Board of Directors determines a transaction to be in the best interests of the Company and its stockholders, the Board of Directors may redeem the Rights for $0.01 per share at any time prior to a person or group becoming an acquiring person. The Rights will expire on October 2, 2011.
 
13.  Stock-Based Compensation
 
   Long-Term Incentive Plan
 
On January 31, 2000, the Company adopted the 2000 Long-Term Incentive Plan (“LTIP”) pursuant to which the Company is authorized to grant stock options and other awards to its employees and directors.
 
On December 14, 2006, the plan was amended for certain changes and clarifications. These changes included a 25.0 million share increase in the number of shares authorized for equity awards made under the


F-47

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

plan; the elimination of an “evergreen” formula used to determine the number of shares available under the plan by reference to a certain percentage of the Company’s total shares outstanding; revisions that allow awards made to the most senior executives under the plan to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code (the “Code”); and revisions to comply with Section 409A of the Code that will minimize the risk of excise taxes being levied on plan participants in connection with changes to the vesting, settlement, or delivery of shares under the awards.
 
As of December 31, 2006, the LTIP had 92,179,333 shares of common stock that were authorized for grants or awards in the form of stock options, restricted stock awards, RSUs or performance share units (“PSUs”) (collectively “stock units”).
 
Stock options are granted with an exercise price equal to the common stock’s fair market value at the date of grant. Generally, stock options granted have 10-year contractual terms and vest over three to four years from the date of grant. Stock-based awards may be issued under the LTIP for consideration as determined by the Compensation Committee of the Board of Directors. As of December 31, 2006, the Company had stock options, restricted stock awards, and RSUs outstanding.
 
Activity for stock awards and options granted under the LTIP during the year ended December 31, 2006 was as follows:
 
                         
    Options/Shares
 		    Options Outstanding  
    Available
 		          Weighted Average
 		 
    for Grant     Number     Price per Share  
 
Balance at December 31, 2005 (1)
    7,609,567       45,676,141     $ 11.33  
Additional shares authorized
    25,000,000       —       —  
Options granted
    (600,400 )     600,400       8.70  
Options exercised
    —       —       —  
Options forfeited
    10,239,263       (10,239,263 )     11.99  
Restricted stock and stock unit awards, net of forfeitures
    (7,228,956 )     n/a       8.56  
                         
Balance at December 31, 2006
    35,019,474       36,037,278     $ 11.10  
                         
(1) Options granted during the year ended December 31, 2005 include 2,000,000 non-statutory options issued outside of the LTIP.
 
The Company adopted the modified prospective transition method permitted under SFAS 123(R) and consequently has not adjusted results from prior years. Under the modified prospective transition method, compensation costs associated with awards for the year ended December 31, 2006 now include the expense relating to the remaining unvested awards granted prior to December 31, 2005 and the expense relating to any awards issued subsequent to December 31, 2005. For grants which vest based on certain specified performance criteria, the grant date fair value of the shares is recognized over the requisite period of performance once achievement of criteria is deemed probable. For grants that vest through the passage of time, the grant date fair value of the award is recognized over the vesting period. The amount of stock-based compensation recognized during the period is based on the value of the portion of the award that is ultimately expected to vest. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The pre-tax effect of the change in accounting associated with the adoption of SFAS 123(R) was $26,653 and the application of a forfeiture rate to compensation expense recognized in prior years was not considered significant for disclosure. The Consolidated Statement of Operations for the year ended December 31, 2006 includes stock-


F-48

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

based compensation expense of $53,393 related to stock option awards, restricted stock awards, RSUs, ESPP and BE an Owner programs.
 
The Company elected the alternative transition method as outlined in FASB Staff Position 123(R)-3, “Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards,” to calculate the pool of excess tax benefits available to absorb tax deficiencies recognized subsequent to the adoption of SFAS 123(R). There was no impact to the windfall tax benefit in 2006, as the Company was in a net operating loss carryforward position.
 
The after-tax stock-based compensation impact of adopting SFAS 123(R) for the year ended December 31, 2006 was $25,709 and a $0.12 per share reduction to earnings per share. Prior to the adoption of SFAS 123(R), the Company used the intrinsic value method of accounting prescribed by APB 25 and related interpretations, including FIN 44, “Accounting for Certain Transactions Involving Stock Compensation,” for its plans. Under this accounting method, stock option awards that are granted with the exercise price at the current fair value of the Company’s common stock as of the date of the award generally did not require compensation expense to be recognized in the Consolidated Statements of Operations.
 
As of December 31, 2006, unrecognized compensation costs and related weighted-average lives over which the costs will be amortized were as follows:
 
                 
    Unrecognized
 		       
    Compensation
 		    Weighted-Average
 		 
    Costs     Life in Years  
 
Stock options
  $ 11,052       1.7  
Restricted stock and stock unit awards
    41,153       3.1  
ESPP
    4,713       1.0  
                 
Total
  $ 56,918       2.6  
                 
 
The following table illustrates the proforma effect on net loss and loss per share had the Company applied the fair value recognition provisions of SFAS 123 for the Company’s stock-based compensation plans for all of the periods shown:
 
                 
    Year Ended
 		 
    December 31,  
    2005     2004  
 
Net loss
  $ (721,643 )   $ (546,226 )
Add back:
               
Total stock based compensation expense recorded under intrinsic value method for all stock awards, net of tax effects
    85,837       5,840  
Deduct:
               
Total stock based compensation expense recorded under fair value method for all stock awards, net of tax effects
    (173,134 )     (88,690 )
                 
Pro forma net loss
  $ (808,940 )   $ (629,076 )
                 
Loss per share:
               
Basic and diluted—as reported
  $ (3.59 )   $ (2.77 )
                 
Basic and diluted—pro forma
  $ (4.02 )   $ (3.19 )
                 


F-49

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
Certain of the Company’s stock-based compensation awards continue to vest and do not accelerate vesting upon retirement or at the attainment of retirement eligibility, therefore, the requisite service period subsequent to attaining such eligibility is considered non-substantive. With the adoption of SFAS 123(R), the Company recognizes compensation expense related to stock-based awards granted on or after January 1, 2006 over the shorter of the requisite service period or the period to attainment of retirement eligibility. Certain awards granted to retirement-eligible employees prior to January 1, 2006 have not been accelerated and will continue to be amortized over their original vesting periods, until employment with the Company has terminated, at which point the compensation expense associated with any remaining unvested awards will be recognized. Had the Company adopted the retirement eligibility provisions of SFAS 123(R) to awards granted prior to January 1, 2006, the cumulative impact of the change in accounting would have been a reduction to expense of $2,222 and $2,716 in 2006 and 2005 (pro forma), respectively, and an increase to expense of $2,703 in 2004 (pro forma).
 
The fair value of each option award was estimated on the date of grant using the Black-Scholes option pricing model. The expected volatility assumption of all grants issued prior to 2005 was primarily derived from the Company’s historical volatility on its publicly traded common stock. Beginning in 2005, the Company determined the expected volatility of the options based on a blended average of the Company’s historical volatility and the volatility from its peer group, due to on the limited trading experience of the Company and its current filing status. For 2006 awards, the expected life was approximated by averaging the vesting term and the contractual term in accordance with the “simplified method” described in SAB No. 107, “Share-Based Payment.” The risk-free interest rate is the yield currently available on U.S. Treasury zero-coupon issues with a remaining term approximating the expected life used as the input to the Black-Scholes model. The relevant data used to determine the value of the stock option grants, in the respective years, is as follows:
 
                                                 
                                  Weighted
 		 
                            Weighted
 		    Average
 		 
    Stock Price
 		    Risk-Free
 		          Expected
 		    Average
 		    Grant Date
 		 
    Expected
 		    Interest
 		    Expected
 		    Dividend
 		    Exercise
 		    Fair
 		 
    Volatility     Rate     Life     Yield     Price     Value  
 
Year ended December 31, 2006
    50.80 %     4.69 %     6       —     $ 8.70     $ 4.70  
Year ended December 31, 2005
    51.08 %     4.10 %     6       —     $ 7.71     $ 4.57  
Year ended December 31, 2004
    63.47 %     3.65 %     6       —     $ 8.85     $ 5.38  
 
The grant date fair value of the Company’s common stock purchased or expected to be purchased under the ESPP was estimated for the years ended December 31, 2006, 2005 and 2004 using the Black-Scholes option pricing model with an expected volatility ranging between 30% to 70%, risk free interest rates ranging from 1.03% to 3.29%, an expected life ranging from 6 to 24 months, and an expected dividend yield of zero. For the years ended December 31, 2006, 2005 and 2004, the weighted average grant date fair value of shares purchased under the ESPP was $0, $3.21, and $3.43, respectively.
 
   Blackout Period
 
On April 20, 2005, the Company sent notices to its directors and executive officers notifying them that in connection with the determination that investors should not rely upon certain previously-issued financial statements, and until the Company is current in its SEC periodic filings, the registration statements on Form S-8 covering the issuances of the Company’s common stock under its LTIP and ESPP will not be available. ESPP participants would not be permitted to purchase the Company’s common stock normally


F-50

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

offered pursuant to the ESPP; and stock-based awards under the LTIP would not be settled, as the Company could not provide valid registration of shares delivered for resale. When these restrictions are lifted, the Company will settle the awards from the existing authorized share base.
 
Furthermore, on April 20, 2005, pursuant to Regulation BTR, the Company announced there would be a blackout period under the Company’s 401(k) Plan with respect to purchases of Company stock. Effective as of September 14, 2006, the Company notified its directors, executive officers and employees, that it had amended the 401(k) Plan to permanently prohibit participant purchases and Company contributions of Company stock under the 401(k) Plan. As a result of this action, the blackout period under the 401(k) Plan ended effective as of September 14, 2006.
 
   Stock Option Plans
The following table details the weighted-average remaining contractual life of options outstanding at December 31, 2006 by range of exercise prices:
 
                                         
    Outstanding Options     Options Exercisable  
          Weighted
 		                   
    Number
 		    Average
 		    Weighted
 		    Number
 		       
    Outstanding
 		    Remaining
 		    Average
 		    Exercisable
 		       
    December 31,
 		    Contractual
 		    Exercise
 		    December 31,
 		    Weighted Average
 		 
Range of Exercise Price
  2006     Life (Years)     Price     2006     Exercise Price  
 
$ 0.00-$ 5.54
    300       5.7     $ 5.46       300     $ 5.46  
$ 5.55-$11.10
    25,201,799       6.7     $ 8.85       21,125,913     $ 9.02  
$11.11-$16.64
    5,043,219       4.8     $ 13.26       5,043,219     $ 13.26  
$16.65-$27.75
    5,647,196       4.0     $ 18.03       5,647,196     $ 18.03  
$49.95-$55.50
    144,764       3.0     $ 55.50       144,764     $ 55.00  
                                         
      36,037,278 (1)     6.0     $ 11.10       31,961,392 (1)(2)   $ 11.49  
                                         
Vested or expected to vest at December 31, 2006
    35,718,395 (1)     6.0     $ 11.12                  
                                         
(1) The aggregate intrinsic values for stock options outstanding, exercisable, and vested or expected to vest as of December 31, 2006 of $1,885, $1,333, and $1,874, respectively, represent the total pre-tax intrinsic values based upon the Company’s closing stock price of $7.87 as of December 31, 2006 which would have been received by the option holders had all the in-the-money options been exercised as of that date.
 
(2) The weighted average remaining contractual life of stock options exercisable as of December 31, 2006 was 5.7 years.
 
Options exercisable at December 31, 2005 and 2004 were 34,900,361 and 32,169,971, respectively, with a weighted average exercise price of $12.33 and $14.12, respectively.
 
The aggregate intrinsic value for stock options exercised during 2006, 2005 and 2004 was $0, $185, and $515, respectively. The cash received in association with these exercises was $0, $1,127, and $2,209, respectively. No stock options were exercised in 2006.
 
During 2005, 2.0 million stock options were granted with a measurement date market price that was above the grant date exercise price. As a result the Company recognized expense of $466 for the year ended December 31, 2005.


F-51

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
On December 13, 2005, the Company accelerated the vesting of certain unvested and “out-of-the-money” stock options with exercise prices equal to or greater than $9.57 per share previously awarded to its employees (excluding executive officers and directors) under the LTIP. The acceleration of vesting was effective for stock options outstanding as of December 13, 2005. Options to purchase approximately 2.9 million shares of common stock, or approximately 21% of the Company’s outstanding unvested options, were subject to the acceleration. The weighted average exercise price of the options subject to the acceleration is $10.39, and the exercise price of these options ranges from $9.58 to $21.17 per share, with approximately 93.7% and 99.9% of such options scheduled to vest in 2006 and 2007, respectively. The purpose of the acceleration was to enable the Company to avoid recognizing compensation expense associated with these options in future periods in its Consolidated Statements of Operations, upon adoption of SFAS 123(R). The Company believes that because the accelerated options had exercise prices in excess of the current market value of the Company’s common stock, the options had limited economic value and were not achieving their original objective of incentive compensation and employee retention.
 
Total compensation expense recorded in 2006 for stock options was $21,097.
 
   Restricted Stock Units
On March 25, 2005, the Compensation Committee of the Company’s Board of Directors approved the issuance of up to an aggregate of $165,000 in RSUs under the LTIP to the Company’s current managing directors (MDs) and a limited number of key employees, and delegated to the Company’s officers the authority to grant these awards. The following table summarizes the RSU activity under this authorization in 2006 and 2005:
 
                 
          Weighted
 		 
          Average
 		 
    Number
 		    Grant Date
 		 
    of RSUs     Fair Value  
 
Outstanding at December 31, 2004
    —     $ —  
Granted
    13,764,793       7.61  
Settled
    —          
Forfeited
    (496,528 )     7.50  
                 
Outstanding at December 31, 2005
    13,268,265       7.61  
Granted
    8,048,672       8.48  
Settled
    —       —  
Forfeited
    (900,417 )     7.80  
                 
Outstanding at December 31, 2006
    20,416,520     $ 7.93  
                 
 
The total fair value of RSUs that vested, net of forfeitures, in 2006 and 2005 was approximately $26,280 and $81,800, respectively. The vesting and settlement terms for the RSUs granted during 2006 are described below:
 
  •  5,629,048 RSUs generally vest 25% on each January 1 of calendar years 2007 through 2010 and settle 25% per year starting January 1, 2009;


F-52

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
  •  1,615,830 RSUs generally either cliff vest and settle three years from the grant date or vest and settle over two to four years from the grant date; and
 
  •  803,794 RSUs vest immediately on the grant date, and generally settle on the grant date or settle over one to six years from the grant date.
 
Certain of these RSU awards have performance vesting criteria, for which the Company has determined achievement to be probable. None of the common stock equivalents underlying these RSUs are considered to be issued or outstanding common stock, as issuance is dependant on various vesting and settlement terms as noted above. In addition, settlement and issuance of any shares underlying these RSUs is delayed until the Company is current with its SEC periodic filings.
 
As of December 31, 2006, the Company had 20,416,520 RSUs outstanding (excluding approximately 140,934 RSUs awarded to recipients in China where local laws require a cash settlement) with a grant date weighted average fair value of $7.93.
 
During the first quarter of 2007, the Company granted approximately 1.4 million (net of forfeitures) RSU awards. These RSUs had a grant date weighted average fair value of $7.81 and generally either cliff vest and settle three years from the grant date or vest and settle over three to four years from the date of grant. The total compensation expense, net of forfeitures, associated with these RSUs that will be recorded over the vesting period is approximately $10,957.
 
Also during the first quarter of 2007, the Compensation Committee of the Board of Directors of the Company, approved a program for the issuance of up to 25.0 million PSUs under the Company’s amended and restated LTIP. Under the program, PSU awards were granted to certain managing directors and other high-performing senior-level employees. The PSU awards, each of which initially represents the right to receive at the time of settlement one share of the Company’s common stock, will vest on December 31, 2009, subject to the achievement of performance-based metrics. Generally, for any PSU award to vest, two performance-based metrics must be achieved for the performance period beginning on (and including) February 2, 2007 and ending on (and including) December 31, 2009 (the “Performance Period”):
 
(i) the Company must first achieve a compounded average annual growth target in consolidated business unit contribution; and
 
(ii) total shareholder return (“TSR”) for shares of the Company’s common stock must be at least equal to the 25th percentile of TSR of the Standard & Poor’s 500 (the “S&P 500”) in order for any portion of the award to vest. Depending on the Company’s TSR performance relative to those companies that comprise the S&P 500, the PSU awards will vest on December 31, 2009 at percentages varying from 0% to 250% of the number of PSU awards originally awarded.
 
An employee’s continuous employment with the Company (except in cases of death, disability or retirement, or certain changes of control as defined in the agreements governing the PSU awards) is also required for vesting of a particular employee’s PSU award. The PSU awards will be settled at various dates from 2010 through 2012. As of June 15, 2007, the Company granted 22.4 million PSUs.
 
   Restricted Stock Awards
During fiscal 2002, the Company granted 420,000 shares (unaudited) of restricted common stock, of


F-53

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

which 60,000 shares have been forfeited as of December 31, 2006. Holders of restricted stock have all the rights of other stockholders, subject to certain restrictions and forfeiture provisions; such restricted stock is considered to be issued and outstanding. The restrictions on these shares generally expire after three years. The market value of these shares was $5,586 (unaudited), and was recorded as unearned compensation. These awards were fully vested prior to January 1, 2006. The compensation expense was $0, $0 and $563 during the years ended December 31, 2006, 2005, and 2004, respectively.
 
Under the LTIP, the Company has the discretion to grant restricted stock to certain of its officers and employees. In connection with the various Andersen Business Consulting acquisitions, the Company committed to the issuance of approximately 3,000,000 shares of common stock (net of forfeitures) to former partners of those practices as a retentive measure. The stock awards have no purchase price and were issued as to one-third of the shares on the first three anniversaries of the acquisition of the relevant consulting practice, so long as the recipient remained employed by the Company. Compensation expense was recorded ratably over the three-year service period beginning in July 2002. Compensation expense was $3,491 and $8,723 for the years ended December 31, 2005 and 2004, respectively. In July 2005, the Company settled the third and final settlement of the stock award by paying the recipients $4,929 in cash. This payment was recorded as a reduction to additional paid in capital. As of December 31, 2006 and 2005, 2,100,998 shares of common stock have been issued.
 
The Company grants restricted stock to non-employee members of the Board of Directors as annual grants under the LTIP, in connection with the Company’s annual meeting of stockholders. The awards are fully vested upon grant, but are subject to transfer restrictions defined in the LTIP until the recipient is no longer a member of the Board of Directors. During each of the years ended December 31, 2006 and 2004, the Company granted 56,000 shares of restricted stock to non-employee directors. Since the Company did not hold its 2005 annual meeting of stockholders, no restricted stock awards were made to the Board of Directors in 2005. Total compensation expense recorded in 2006 and 2004 for these awards was $460 and $452, respectively.
 
In May 2007, the Board of Directors approved grants of an aggregate of 48,000 shares of restricted stock to its non-employee directors. The purpose of these grants was to provide additional compensation to non-employee directors for their service on the Board of Directors during 2005.
 
   Employee Stock Purchase Plan
The Company’s ESPP was adopted on October 12, 2000 and allows eligible employees to purchase shares of the Company’s common stock at a discount, up to a maximum of $25 at fair value, through accumulated payroll deductions of 1% to 15% of their compensation. Under the ESPP, shares of the Company’s common stock were purchased at 85% of the lesser of the fair market value at the beginning of the 24 month offering period (the “Look-Back Purchase Price”), and the fair market value at the end of each six-month purchase period ending on July 31 and January 31, respectively. In 2005, the Board of Directors amended the ESPP to remove the 24-month Look-Back Purchase Price for all future offering periods under the ESPP. As amended, future offering periods will be a 6-month offering period and the purchase price for the Company’s common stock will be calculated at a 15% discount from the closing price on the last day of the 6-month offering period. The purchase price of the Company’s common stock for the purchase period in effect at the time of such amendment was grandfathered from this change (i.e., the purchase price was the lower of the Look-Back Purchase Price and the fair market value at the end of the purchase period) (the “Grandfathered Offering Period”). On April 18, 2007, the Board of Directors amended the ESPP to eliminate the Look-Back Purchase


F-54

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

Price for the Grandfathered Offering Period. As amended, the purchase price for the Grandfathered Offering Period will be 85% of the fair market value of the Company’s common stock at the end of the Grandfathered Offering Period. During the years ended December 31, 2006, 2005 and 2004, employees purchased a total of 0, 2,053,154 and 3,644,002 shares for $0, $13,769 and $24,707, respectively. As of December 31, 2006, 23,749,276 shares of common stock remained available for issuance under the ESPP. Employee contributions to the ESPP held by the Company were approximately $21,240 at December 31, 2006. These amounts are included in cash and cash equivalents and are repayable on demand.
 
In June 2005, the Company announced that certain employees below the managing director level were eligible to participate in its BE an Owner Program. Under this program, as amended, the Company made a cash payment in January 2006 to each eligible employee in an amount equal to 1.5% of that employee’s annual salary as of October 3, 2005 (which payment was approximately $18,456 in the aggregate). The Company intends to make, when it has become current in its SEC periodic filings, a special contribution under the ESPP to each eligible employee in an amount equal to 1.5% of that employee’s annual salary as of October 3, 2005 into his or her ESPP account, which contribution will be used to purchase shares of the Company’s common stock at a 15% discount.
 
The 15% discount offered to employees under these plans represents a cost to the Company that must be recognized in the Consolidated Condensed Statements of Operations in accordance with SFAS 123(R). As a result, compensation expense of $5,557 was recognized for the year ended December 31, 2006. For the years ended December 31, 2005 and 2004, approximately $11,857 and $15,976 was included in the pro forma disclosure for compensation expense under SFAS 123.
 
14.  Income Taxes
The Company reported a loss before taxes of $181,043, including net foreign income of $13,495, for the year ended December 31, 2006. The Company reported a loss before taxes of $599,522, including net foreign losses of $173,046, for the year ended December 31, 2005. The Company reported a loss before taxes of $534,435, including net foreign losses of $430,180, for the year ended December 31, 2004.


F-55

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
The components of income tax expense (benefit) are as follows:
 
                         
    Year Ended
 		    Year Ended
 		    Year Ended
 		 
    December 31,
 		    December 31,
 		    December 31,
 		 
    2006     2005     2004  
 
Current:
                       
Federal
  $ 4,855     $ 7,437     $ (33,988 )
State and local
    1,199       1,400       (11,669 )
Foreign
    27,648       58,335       14,062  
                         
Total current
    33,702       67,172       (31,595 )
                         
Deferred:
                       
Federal
    —       40,242       8,930  
State and local
    —       15,045       267  
Foreign
    (1,305 )     (338 )     34,189  
                         
Total deferred
    (1,305 )     54,949       43,386  
                         
Total
  $ 32,397     $ 122,121     $ 11,791  
                         
 
The following table presents the principal reasons for the difference between the effective income tax rate on income from continuing operations and the U.S. Federal statutory income tax rate:
 
                         
    Year Ended December 31,  
    2006     2005     2004  
 
U.S. federal statutory income tax rate
    35.0 %     35.0 %     35.0 %
Nondeductible goodwill impairment
    0.0 %     (6.9 %)     (25.3 %)
Change in valuation allowance
    (40.2 %)     (37.2 %)     (4.6 %)
Foreign taxes
    2.1 %     (2.3 %)     0.2 %
Nondeductible meals and entertainment expense
    (4.3 %)     (1.1 %)     (1.3 %)
State taxes, net of federal benefit
    3.7 %     2.1 %     1.0 %
Impact of foreign recapitalization
    (3.0 %)     (5.5 %)     (3.6 %)
Income tax reserve
    (4.6 %)     (3.1 %)     (1.5 %)
Non-deductible interest
    (2.1 %)     (0.5 %)     (0.5 %)
Foreign dividends
    (2.6 %)     (0.5 %)     0.0 %
Other, net
    (1.9 %)     (0.4 %)     (1.6 %)
                         
Effective income tax rate
    (17.9 %)     (20.4 %)     (2.2 %)
                         


F-56

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
The temporary differences that give rise to a significant portion of deferred income tax assets and liabilities are as follows:
 
                 
    December 31,
 		    December 31,
 		 
    2006     2005  
 
Deferred income tax assets:
               
Net operating loss carryforwards
  $ 263,531     $ 196,996  
Accrued compensation
    33,329       32,297  
Reserve for claims
    23,323       15,141  
Revenue recognition
    35,977       37,140  
Restricted stock units
    41,954       26,821  
Other
    57,899       68,788  
                 
Total gross deferred income taxes
    456,013       377,183  
Less valuation allowance
    (408,149 )     (338,792 )
                 
Total net deferred income tax assets
    47,864       38,391  
                 
Deferred income tax liabilities:
               
Property and equipment
    13,416       23,642  
Other
    245       313  
Foreign currency translation
    10,184       5,088  
Stock-based compensation
    2,828       2,413  
                 
Total deferred income tax liabilities
    26,673       31,456  
                 
Net deferred income tax asset
  $ 21,191     $ 6,935  
                 
 
These deferred tax assets and liabilities are presented on the Consolidated Balance Sheets as follows:
 
                 
    December 31,
 		    December 31,
 		 
    2006     2005  
 
Current deferred tax assets
  $ 7,621     $ 18,991  
Non-current deferred tax assets
    41,663       20,915  
Current deferred tax liabilities
    (20,109 )     (10,095 )
Non-current deferred tax liabilities
    (7,984 )     (22,876 )
                 
    $ 21,191     $ 6,935  
                 
 
The Company has U.S. net operating loss carryforwards at December 31, 2006 of approximately $341,209, which expire at various dates beginning in 2010 through 2026. The utilization of these net operating loss carryforwards are subject to limitations. The Company believes that it is more likely than not these net operating loss carryforwards will not be utilized. The Company had U.S. capital loss carryforwards of approximately $15,296, which expired in 2006. The Company also has foreign net operating loss carryforwards at December 31, 2006 of approximately $437,981, which expire at various dates between 2007 and 2026 and $216,106 that carryforward indefinitely as provided by the applicable foreign law. A valuation allowance has been recorded due to the uncertainty of the recognition of certain deferred tax assets, primarily


F-57

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

the net operating loss carryforwards of U.S., state, and certain foreign subsidiaries, and the capital loss carryforwards of certain U.S. entities. The net changes in the valuation allowance for the years ended December 31, 2006, 2005 and 2004 were $69,357, $224,017, and $26,738, respectively.
 
A valuation allowance is provided to offset any deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company’s valuation allowance of $408,149 and $338,792 as of December 31, 2006 and 2005, respectively, on its deferred tax asset primarily relates to the uncertainty surrounding the realization of U.S., state and certain foreign net operating loss carryforwards, foreign tax credit carryforwards and domestic capital loss carryforwards on certain investments. Of these amounts, $2,100 related to amounts recorded in purchase accounting which, if realized, would reduce goodwill in the future.
 
The Company has not provided for U.S. income taxes on the unremitted earnings of certain foreign subsidiaries as these earnings are considered to be permanently reinvested. These earnings amounted to approximately $300,315, $226,030 and $174,113 for the years ended December 31, 2006, 2005 and 2004, respectively. It is not practicable to compute the estimated deferred tax liability on these earnings.
 
The Company has also provided reserves for certain tax matters, both domestic and foreign, which could result in additional tax being due. As of December 31, 2006 and 2005, the Company had income tax reserves accrued in the financial statements in the amounts of $108,499 and $89,530, respectively. The Company assessed its uncertain foreign, federal and state tax filing positions. This resulted in an increase to its reserve for tax exposures of $18,969 and $51,565, in each of the above periods, respectively. The Company believes that the reserves are required as of December 31, 2006 for potential cross-jurisdictional claims, a foreign recapitalization, the characterization of intercompany payments and the timing and the characterization of certain deductions. Interest and penalties have been recorded for these reserve items. The Company also maintains tax reserves related to acquisition contingencies.
 
In 2006, the Company filed a federal income tax refund claim related to the tax year ended December 31, 2005 in the amount of $6,300 regarding a net operating loss carryback. The Company received the federal income tax refund before December 31, 2006. In 2005, the Company filed federal refund claims related to December 31, 2004 and prior years in the amount of $20,400 regarding net operating loss carrybacks, foreign tax credit carrybacks, and corrections of previous amounts reported and other miscellaneous items. In December 2005, the Company received from the Internal Revenue Service tentative refunds amounting to $15,500 related to the December 31, 2004 net operating loss carryback. The remaining refund claims are under review by the Internal Revenue Service. These refunds are subject to review by the U.S. Congress Joint Committee on Taxation.
 
During 2005, the Internal Revenue Service commenced a federal income tax examination for the tax years ended June 30, 2001, June 30, 2003, December 31, 2003, December 31, 2004 and December 31, 2005. It is not known at this time whether there will be any adjustments to the refund claims already filed or to taxes paid in any other years as a result of the examination by the Internal Revenue Service. The Company believes that it has adequate reserves for any items that may result in an adjustment as a result of the Internal Revenue Service’s income tax examination.
 
On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “Act”). The Act includes a deduction of 85% for certain foreign earnings that are repatriated, as defined in the Act, resulting in an effective tax cost of 5.25% on any such repatriated foreign earnings. The Company initially elected to


F-58

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

apply this provision to $9,000 of earnings repatriation during the fourth quarter of 2005. After further analysis the earnings repatriated do not qualify under the Act.
 
15.  Transactions with KPMG LLP
During 2004, KPMG LLP, the Company’s former parent, reduced its holdings in Company common stock to less than 5%, and in February 2005, the transaction services agreement (described below) between the Company and KPMG LLP expired. For these reasons, along with certain other factors, as of 2005, KPMG LLP is no longer considered a related party to the Company. There were various arrangements that remained in place during 2005 between the Company and KPMG LLP for infrastructure services (discussed below) and indemnification agreements (see Note 11, “Commitments and Contingencies”).
 
Infrastructure Services. Effective January 31, 2000, the Company and KPMG LLP entered into an outsourcing agreement whereby the Company received and was charged for services performed by KPMG LLP, which was amended and restated effective July 1, 2000 to eliminate the service related costs that were not required. On February 13, 2001, the Company and KPMG LLP entered into a transition services agreement whereby the Company received and was charged for infrastructure services on substantially the same basis as the amended and restated outsourcing agreement. The allocation of costs to the Company for such services was based on actual costs incurred by KPMG LLP and were allocated among KPMG LLP’s assurance and tax businesses and the Company primarily on the basis of full-time equivalent personnel and actual usage (specific identification). With regard to facilities costs, the Company and KPMG LLP have entered into arrangements pursuant to which the Company subleases from KPMG LLP office space that was formally allocated to the Company under the outsourcing agreement. The terms of the arrangements are substantially equivalent to those under the original outsourcing agreement, and will extend over the remaining period covered by the lease agreement between KPMG LLP and the lessor.
 
Effective October 1, 2002, the Company and KPMG LLP entered into an outsourcing services agreement under which KPMG LLP provides the Company certain services relating to office space. These services covered by the outsourcing services agreement had previously been provided under the transition services agreement. The services were provided for three years at a cost that is less than the cost for comparable services under the transition services agreement.
 
The transition services agreement and outsourcing services agreement expired on February 13, 2005 and October 1, 2005, respectively. The Company continues to sublease office space from KPMG LLP after the expiration of the transition services agreement under operating lease agreements. In connection with the expiration of the transition services agreement, the Company also agreed to settle a separate arrangement under which it pays KPMG LLP for the use of occupancy-related assets in the office facilities subleased by the Company from KPMG LLP. As such, during July 2005, the Company paid KPMG LLP $17,356 for its share of the cost of the occupancy-related assets that it believes relates to office locations that it subleased from KPMG LLP. Approximately $9,660 of the total $17,356 paid to KPMG LLP related to office locations that were previously abandoned in connection with the Company’s office space reduction effort. Accordingly, the Company has reserved for this amount as part of its lease and facilities restructuring charges recorded during the years ended December 31, 2005 and 2004. The Company classified the remaining $7,696 paid to KPMG LLP as a prepaid service cost, which the Company plans to amortize over the remaining term of its respective sublease agreements with KPMG LLP. As of December 31, 2006, the remaining amount to be expensed was $3,938. For a discussion regarding the settlement with KPMG LLP, see Note 11, “Commitments and Contingencies.”


F-59

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
Total expenses allocated to the Company under the transition services agreement and outsourcing services agreement with regard to occupancy costs and other infrastructure services are as follows:
 
                 
    Year Ended
 		 
    December 31,  
    2005(1)     2004  
 
Occupancy costs
  $ 2,760     $ 23,772  
Other infrastructure service costs
    3,236       52,391  
                 
Total
  $ 5,996     $ 76,163  
                 
Amounts included in:
               
Other costs of service
  $ 2,760     $ 23,772  
Selling, general and administrative expenses
    3,236       52,391  
                 
    $ 5,996     $ 76,163  
                 
(1) Decline in charges under the KPMG LLP infrastructure agreements from the year ended December 31, 2004 to the year ended December 31, 2005 is due to the expiration of these agreements during 2005.
 
There were no expenses allocated to the Company relating to the transition services agreement or outsourcing services agreement during the year ended December 31, 2006 as KPMG LLP was not considered a related party during 2006.
 
2004 and Prior Periods Related Party Revenue and Costs of Service. As described above, prior to 2005, KPMG LLP was a related party to the Company and during that time period, the Company periodically provided consulting services directly to KPMG LLP and other affiliates. Additionally, KPMG LLP’s assurance and tax businesses utilized the Company’s consultants from time to time in servicing their assurance and tax clients. The Company also utilized KPMG LLP’s assurance and tax professionals from time to time in servicing their consulting clients and to support internal finance and accounting needs. Management believes that the revenue earned and fees paid between KPMG LLP’s assurance and tax businesses, other affiliates and the Company were determined on a basis substantially equivalent to what would have been earned and paid in similar transactions with unrelated parties. For the year ended December 31, 2004 the company earned revenue in the amount of $1,368, and paid costs in the amount of $5,727, respectively as a result of these services.
 
16.  Employee Benefit Plans
 
   401(k) Plan
 
The Company sponsors a qualified 401(k) defined contribution plan (the “ 401 (k) Plan”) covering substantially all of its employees. Participants are permitted (subject to a maximum permissible contribution under the Internal Revenue Code for calendar year 2006 of $15) to contribute up to 50% of their pre-tax earnings to the 401(k) Plan. Employees who make salary reduction contributions during the plan year and who are employed on the last day of the 401 (k) Plan year receive a Company matching contribution of 25% of the first 6% of pre-tax eligible compensation contributed to the 401 (k) Plan, and, at the discretion of the Company, may receive an additional discretionary contribution of up to 25% of the first 6% of pre-tax eligible compensation contributed to the Plan. Matching contributions are calculated once a year on the last day of the plan year (April 30). Effective May 1, 2006, the Plan’s year end was changed to December 31. In addition, the


F-60

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

Plan does not restrict the ability of employees to dispose of any of the Company’s common stock that they hold in their retirement funds (see Note 13, “Stock-Based Compensation”). For the years ended December 31, 2006, 2005 and 2004, Company contributions made, net of forfeitures, were $7,464, $7,311, and $6,484, respectively.
 
   Pension and Postretirement Benefits
The Company has both funded and unfunded noncontributory defined benefit pension plans that provide benefits based on years of service and salary. Pension coverage, which is often governed by local statutory requirements, is provided under the various plans.
 
The Company also offers a postretirement medical plan to the majority of its full-time U.S. employees and managing directors who meet specific eligibility requirements.
 
For the years ended December 31, 2006, 2005 and 2004, the pension benefit plans and the postretirement medical plan had a measurement date of December 31.
 
The following schedules provide information concerning the pension and postretirement medical plans held by the Company:
 
                         
    Pension Plans  
    Year Ended December 31,  
    2006     2005     2004  
 
Components of net periodic pension cost
                       
Service cost
  $ 7,166     $ 6,362     $ 5,670  
Interest cost
    4,429       4,167       4,151  
Expected return on plan assets
    (1,075 )     (1,172 )     (1,055 )
Amortization of loss
    1,026       16       11  
Amortization of prior service cost
    635       774       776  
Curtailment
    120       (833 )     —  
Settlement
    (365 )     (232 )     —  
                         
Net periodic pension cost
  $ 11,936     $ 9,082     $ 9,553  
                         
 
                         
    Postretirement Medical Plan  
    Year Ended December 31,  
    2006     2005     2004  
 
Components of postretirement medical cost
                       
Service cost
  $ 1,922     $ 1,257     $ 1,082  
Interest cost
    735       572       414  
Amortization of losses
    156       73       —  
Amortization of prior service cost
    478       478       478  
                         
Net periodic postretirement medical cost
  $ 3,291     $ 2,380     $ 1,974  
                         


F-61

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

                                 
                Postretirement
 		 
    Pension
 		    medical
 		 
    Plans     Plan  
    Year Ended
 		    Year Ended
 		 
    December 31,     December 31,  
    2006     2005     2006     2005  
 
Change in projected benefit obligation
                               
Benefit obligation at beginning of year
  $ 112,542     $ 114,233     $ 13,204     $ 9,986  
Service cost
    7,166       6,362       1,922       1,257  
Interest cost
    4,428       4,167       736       572  
Plan participants’ contributions
    637       797       188       168  
Curtailment (1)
    (69 )     (1,851 )     —       —  
Benefits paid
    (1,609 )     (1,465 )     (151 )     (207 )
Administrative expense
    (128 )     (146 )     —       —  
Actuarial (gain) loss
    (8,372 )     10,381       (826 )     1,428  
Settlement (1)
    (6,986 )     (5,300 )     —       —  
Effect of exchange rate changes
    11,550       (14,636 )     —       —  
                                 
Projected benefit obligation at end of year
  $ 119,159     $ 112,542     $ 15,073     $ 13,204  
                                 
Change in plan assets
                               
Fair value of plan assets at beginning of year
  $ 24,332     $ 28,001     $ —     $ —  
Actual return on plan assets
    664       2,244       —       —  
Employer contributions
    3,440       3,888       (37 )     39  
Employee contributions
    637       798       188       168  
Benefits paid
    (1,609 )     (1,465 )     (151 )     (207 )
Administrative expense
    (128 )     (145 )     —       —  
Settlement (1)
    (6,986 )     (5,300 )     —       —  
Effect of exchange rate changes
    1,885       (3,689 )     —       —  
                                 
Fair value of plan assets at end of year
  $ 22,235     $ 24,332     $ —     $ —  
                                 
Reconciliation of funded status
                               
Funded status
  $ (96,924 )   $ (88,210 )   $ (15,073 )   $ (13,204 )
Unrecognized loss
    N/A       18,533       N/A       3,408  
Unamortized prior service cost
    N/A       6,683       N/A       2,504  
                                 
Net amount recognized
  $ (96,924 )   $ (62,994 )   $ (15,073 )   $ (7,292 )
                                 
Amounts recognized in Accumulated Other Comprehensive Income
                               
Prior service cost
  $ 4,896     $ —     $ 2,026     $ —  
Net actuarial loss
    6,510       —       2,426       —  
                                 
Total accumulated other comprehensive income
  $ 11,406     $ —     $ 4,452     $ —  
                                 
Amounts recognized in the Consolidated Balance Sheets
                               
Noncurrent assets
  $ 231     $ 3,632     $ —     $ —  
Current liabilities
    (1,821 )     —       (229 )     —  
Noncurrent liabilities
    (95,334 )     (66,626 )     (14,844 )     (7,292 )
                                 
Net amount recognized
  $ (96,924 )   $ (62,994 )   $ (15,073 )   $ (7,292 )
                                 
Accumulated benefit obligation
  $ 105,894     $ 98,087     $ 15,073     $ 13,204  
                                 

(1) The settlement and curtailment related to a decrease in participants in the Switzerland Plan due to a reduction in workforce.


F-62

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
As of December 31,2006, the Switzerland pension plan had a fair value of assets in excess of the projected benefit obligation of $231. The German pension plan had a projected benefit obligation in excess of the fair value of assets of $91,881.
 
                                 
    Pension
 		    Postretirement medical
 		 
    plans     plan  
    Year Ended
 		    Year Ended
 		 
    December 31,     December 31,  
    2006     2005     2006     2005  
 
Weighted-average assumptions used to determine benefit obligations
                               
Discount rate
    4.2 %     4.0 %     5.8 %     5.6 %
Rate of compensation increase
    3.0 %     3.0 %     —       —  
Weighted-average assumptions used to determine net periodic benefit cost
                               
Discount rate
    3.6 %     4.0 %     5.6 %     5.8 %
Expected long-term return on plan assets
    4.5 %     4.5 %     —       —  
Rate of compensation increase
    3.0 %     3.0 %     —       —  
 
The Company’s target allocation is 30% equities, 14% real estate and 56% bonds. This target allocation is used in conjunction with historical returns on these asset categories, current market conditions, and future expectations in order to determine an appropriate expected long-term return on plan assets. The investment strategy with respect to the pension assets is to achieve a long-term rate of return to satisfy current and future plan liabilities while minimizing risks. The weighted average asset allocations are as follows:
 
                 
    Pension Plan  
    December 31,
 		    December 31,
 		 
    2006     2005  
 
Asset category
               
Bonds
    49.0 %     47.0 %
Equities
    30.0       30.0  
Real estate
    14.0       13.0  
Other
    7.0       10.0  
                 
Total
    100.0 %     100.0 %
                 
 
The benefit payments are expected to be paid from the pension and postretirement medical plans in the following years:
 
                 
    Pension
 		    Postretirement
 		 
    plans     medical plan  
 
2007
  $ 3,579     $ 229  
2008
    3,667       267  
2009
    3,586       349  
2010
    3,651       445  
2011
    3,760       577  
Years 2012-2016
    21,694       5,754  
                 
    $ 39,937     $ 7,621  
                 


F-63

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
The assumed health care cost trends for the postretirement medical plan are as follows:
 
                 
    December 31,
 		    December 31,
 		 
    2006     2005  
 
Health care cost trend rate assumed for next year
    9.0 %     10.0 %
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
    5.0 %     5.0 %
Year that the rate reaches the ultimate trend rate
    2015       2011  
 
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:
 
                 
    1%-Point
 		    1%-Point
 		 
    Increase     Decrease  
 
Effect on total service and interest cost
  $ 633     $ (519 )
Effect on Postretirement Benefit Obligation
  $ 2,486     $ (2,071 )
 
The Company expects to contribute $3,808 to its pension plans and postretirement medical plan in the year ending December 31, 2007. The Company has other employee benefit pension plans outside the U.S. that are not included in the tables above for which the liability was $5,702 and $3,105 as of December 31, 2006 and 2005, respectively.
 
Effective December 31, 2006, the Company adopted the provisions of SFAS 158. SFAS 158 requires the recognition of the funded status of the pension plans and non-pension postretirement benefit plans as an asset or a liability in the Consolidated Balance Sheets. The funded status is measured as the difference between the projected benefit obligation and the fair value of plan assets.
 
The following table presents the incremental effects on the Company’s Consolidated Balance Sheets at December 31, 2006 as a result of adopting this recognition requirement from SFAS 158:
 
                         
    December 31, 2006  
    Prior to SFAS 158
 		    SFAS 158
 		    Post SFAS 158
 		 
    Adjustments     Adjustments     Adjustments  
 
Other assets
  $ 89,049     $ (5,296 )   $ 83,753  
Deferred income taxes
    37,907       3,756       41,663  
                         
Total assets
    1,940,780       (1,540 )     1,939,240  
Accrued payroll and employee benefits
    342,665       2,050       344,715  
                         
Total current liabilities
    1,035,561       2,050       1,037,611  
Accrued employee benefits
    108,260       7,827       116,087  
                         
Total liabilities
    2,106,664       9,877       2,116,541  
Accumulated other comprehensive income
    257,714       (11,417 )     246,297  
                         
Total liabilities and stockholders’ deficit
  $ 1,940,780     $ (1,540 )   $ 1,939,240  


F-64

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
The Company expects that $1,114 of unrecognized prior service cost and $414 of unrecognized net actuarial loss will be reclassified from accumulated other comprehensive loss and will be recognized as a component of net periodic benefit cost in 2007. The Company does not expect to receive any refunds from the Switzerland pension plan in 2007.
 
   Deferred Compensation Plan
The Company maintains a deferred compensation plan in the form of a Rabbi Trust. In accordance with EITF 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested,” the assets of this trust are consolidated within the Company’s financial statements. Under this plan, certain members of management and other highly compensated employees may elect to defer receipt of a portion of their annual compensation, subject to maximum and minimum percentage limitations. The amount of compensation deferred under the plan is credited to each participant’s deferral account and a deferred compensation liability established by the Company. An amount equaling each participant’s compensation deferral is transferred into a grantor trust and invested in various debt and equity securities. The assets of the grantor trust are held by the Company and accounted for under SFAS No. 115, “Accounting for Certain Investments and Equity Securities,” and are recorded as other current assets within the Consolidated Balance Sheets.
 
Deferred compensation plan investments are classified as trading securities and consist primarily of investments in mutual funds, money market funds and equity securities. In addition, as of December 31, 2006, the Rabbi Trust invested in 179 shares of the Company’s common stock. The values of these investments are based on published market quotes at the end of the period. Adjustments to the fair value of these investments are recorded in the Consolidated Statements of Operations. Gross realized and unrealized gains and losses from trading securities have not been material. These investments are specifically designated as available to the Company solely for the purpose of paying benefits under the Company’s deferred compensation plan. However, in the event the Company became insolvent, the investments would be available to all unsecured general creditors.
 
The deferred compensation liability relates to obligations due to participants under the plan. The deferred compensation liability balance represents accumulated participant deferrals, and earnings thereon, since the inception of the plan, net of withdrawals. The deferred compensation liability is recorded within other liabilities on the balance sheet. The Company’s liability under the plan is an unsecured general obligation of the Company. At December 31, 2006 and 2005, $7,352 and $8,321, respectively, had been deferred under the plan.
 
17.  Lease and Facilities Restructuring Activities
In connection with the Company’s previously announced office space reduction effort, the Company recorded a $29,621 restructuring charge during the year ended December 31, 2006 related to lease, facility and other exit activities. The $29,621 charge, recorded within the Corporate/Other operating segment, included $27,552 related to the fair value of future lease obligations (net of estimated sublease income) and $2,069 in other costs associated with exiting facilities. Since July 2003, the Company has incurred a total of $132,337 in lease and facilities related restructuring charges in connection with its office space reduction effort relating to the following regions: $31,330 in EMEA, $863 in Asia Pacific and $100,144 in North America. As of December 31, 2006, the Company has a remaining lease and facilities accrual of $17,126 and $49,792,


F-65

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

identified as current and non-current portions, respectively. The remaining lease and facilities accrual will be paid over the remaining lease terms which expire in 2014.
 
During the year ended December 31, 2005, the Company recorded a $29,581 restructuring charge related to lease, facility and other exit activities. The $29,581 charge, recorded within the Corporate/Other operating segment, included $24,837 related to the fair value of future lease obligations (net of estimated sublease income) and $4,744 in other costs associated with exiting facilities.
 
During the year ended December 31, 2004, the Company recorded an $11,699 restructuring charge related to lease, facility and other exit activities. The $11,699 charge, recorded within the Corporate/Other operating segment, included $8,173 related to the fair value of future lease obligations (net of estimated sublease income), $1,305 representing the unamortized cost of fixed assets and $2,221 in other costs associated with exiting facilities.
 
The following table summarizes the restructuring activities for the years ended December 31, 2006, 2005 and 2004:
 
         
    Lease and
 		 
    Facilities  
 
Balance at December 31, 2003
  $ 55,898  
Charges to operations
    11,699  
Payments
    (19,329 )
Other (a)
    2,074  
         
Balance at December 31, 2004
    50,342  
Charges to operations
    29,581  
Payments
    (28,315 )
Other (a)
    (1,011 )
         
Balance at December 31, 2005
    50,597  
Charges to operations
    29,621  
Payments
    (14,142 )
Other (a)
    842  
         
Balance at December 31, 2006
  $ 66,918  
         
(a) Other changes in restructuring accrual consist primarily of foreign currency translation adjustments.
 
18.  Segment Information
The Company’s segment information has been prepared in accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Operating segments are defined as components of an enterprise engaging in business activities about which separate financial information is available that is evaluated regularly by the Company’s chief operating decision-maker, the Chief Executive Officer, in deciding how to allocate resources and assess performance. The Company’s reportable segments consist of its three North America industry groups (Public Services, Financial Services and Commercial Services), its three international regions (EMEA, Asia Pacific and Latin America) and the Corporate/Other category (which


F-66

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

consists primarily of infrastructure costs). Accounting policies of the segments are the same as those described in Note 2, “Summary of Significant Accounting Policies.” Upon consolidation all intercompany accounts and transactions are eliminated. Inter-segment revenue is not included in the measure of profit or loss. Performance of the segments is evaluated on operating income excluding the costs of infrastructure and shared service costs (such as facilities, information systems, finance and accounting, human resources, legal and marketing). Beginning in 2005, the Company combined its Communications, Content and Utilities and Consumer, Industrial and Technology industry groups to form the Commercial Services industry group.
 
Financial data presented by reportable segments is provided below:
 
                                                                 
    Year ended December 31, 2006  
          Financial
 		    Commercial
 		                      Corporate/
 		       
    Public Services     Services     Services     EMEA     Asia Pacific     Latin America     Other (1)     Total  
Revenue
  $ 1,339,358     $ 399,331     $ 554,806     $ 703,083     $ 360,001     $ 82,319     $ 5,105     $ 3,444,003  
Operating income
    234,309       111,192       57,229       96,180       68,205       4,465       (770,849 )     (199,269 )
Depreciation and amortization
    10,080       852       1,089       10,573       2,795       712       49,467       75,568  
Interest expense (2)
    25,915       4,715       6,382       3,637       9,717       2,836       (16,020 )     37,182  
Total assets (3)
    418,999       63,342       113,948       573,489       124,068       24,714       620,680       1,939,240  
 
                                                                 
    Year ended December 31, 2005  
          Financial
 		    Commercial
 		                      Corporate/
 		       
   
Public Services
    Services     Services (4)     EMEA (5)     Asia Pacific     Latin America     Other (1)     Total  
Revenue
  $ 1,293,390     $ 379,592     $ 663,797     $ 662,020     $ 312,190     $ 75,664     $ 2,247     $ 3,388,900  
Operating income
    195,204       84,926       (117,376 )     (47,917 )     39,098       (213 )     (715,278 )     (561,556 )
Depreciation and amortization
    11,042       1,027       879       6,856       4,328       732       47,946       72,810  
Interest expense (2)
    27,443       5,610       9,430       1,208       8,107       2,807       (21,220 )     33,385  
Total assets (3)
    469,205       94,781       166,331       515,606       127,757       16,674       582,072       1,972,426  
 
                                                                 
    Year ended December 31, 2004  
          Financial
 		    Commercial
 		                      Corporate/
 		       
   
Public Services
    Services     Services     EMEA (5)     Asia Pacific     Latin America     Other (1)     Total  
Revenue
  $ 1,343,670     $ 326,452     $ 654,022     $ 642,686     $ 328,338     $ 79,302     $ 1,312     $ 3,375,782  
Operating income
    243,770       79,443       86,142       (317,864 )     12,767       10,264       (608,696 )     (494,174 )
Depreciation and amortization
    10,499       1,636       3,224       10,071       4,238       554       51,925       82,147  
Interest expense (2)
    29,779       4,839       9,927       233       5,698       1,520       (33,286 )     18,710  
Total assets (3)
    462,681       96,186       217,575       701,582       149,627       21,920       533,136       2,182,707  
(1) Corporate/Other operating loss is principally due to infrastructure and shared services costs, such as facilities, information systems, finance and accounting, human resources, legal and marketing.
(2) Interest expense is allocated to the industry segments based on accounts receivable and unbilled revenue.
(3) Industry segment assets include accounts receivable, unbilled revenue, certain software and property and equipment directly attributed to the industry segment, purchased intangible assets and goodwill. All other assets are not allocated to industry segments and are classified as corporate assets.
(4) Commercial Services includes a $64,188 goodwill impairment charge for the year ended December 31, 2005.
(5) EMEA includes a $102,227 and $397,065 goodwill impairment change for the years ended December 31, 2005 and 2004, respectively.


F-67

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

 
   Geographic Information
Financial data segmented by geographic area is provided below:
 
                                                 
    Year ended December 31,  
    2006     2005     2004  
          Property &
 		          Property &
 		          Property &
 		 
          Equipment,
 		          Equipment,
 		          Equipment,
 		 
    Revenue (2)     Net (3)     Revenue (2)     Net (3)     Revenue (2)     Net (3)  
 
North America (1)
  $ 2,293,495     $ 112,262     $ 2,336,779     $ 129,545     $ 2,324,144     $ 149,056  
                                                 
EMEA
    703,083       26,930       662,020       31,228       642,686       39,220  
Asia Pacific
    360,001       4,886       312,190       6,832       328,338       12,442  
Latin America (4)
    82,319       2,314       75,664       2,528       79,302       2,685  
                                                 
Total Outside of North America
    1,145,403       34,130       1,049,874       40,588       1,050,326       54,347  
                                                 
Corporate/Other
    5,105       —       2,247       —       1,312       —  
                                                 
Total
  $ 3,444,003     $ 146,392     $ 3,388,900     $ 170,133     $ 3,375,782     $ 203,403  
                                                 
(1) The North America region includes the Public Services, Commercial Services and Financial Services segments. The North America is comprised of operations in the United States and Canada. The Company reports financial information for these two countries as one region. Canadian operations do not contribute materially to the North America region.
(2) Revenue by geographic region is reported based on where client services are supervised.
(3) Property and equipment, net of depreciation, related to the geographic region in which the assets reside.
(4) The Latin America region includes Mexico.


F-68

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

19.  Results by Quarter

The following tables present unaudited quarterly financial information for each of the last eight quarters:
 
                                 
    Quarterly periods during the year ended
 		 
    December 31, 2006  
    December 31,
 		    September 30,
 		    June 30,
 		    March 31,
 		 
    2006     2006     2006     2006  
 
Revenue
  $ 874,331     $ 843,248     $ 892,680     $ 833,744  
                                 
Costs of service:
                               
Costs of service
    749,437       683,318       698,631       732,470  
Lease and facilities restructuring charge
    23,372       961       2,488       2,800  
                                 
Total costs of service
    772,809       684,279       701,119       735,270  
                                 
Gross profit
    101,522       158,969       191,561       98,474  
Amortization of purchased intangible assets
    —       515       515       515  
Selling, general and administrative expenses
    209,630       173,323       176,384       188,913  
                                 
Operating income (loss)
    (108,108 )     (14,869 )     14,662       (90,954 )
Insurance settlement, net of legal fees
    —       —       —       38,000  
Interest/other expense, net
    (2,180 )     (5,906 )     (5,351 )     (6,337 )
                                 
Income (loss) before taxes
    (110,288 )     (20,775 )     9,311       (59,291 )
Income tax expense (benefit)
    (2,047 )     8,858       12,164       13,422  
                                 
Net loss
  $ (108,241 )   $ (29,633 )   $ (2,853 )   $ (72,713 )
                                 
Loss per share—basic and diluted
  $ (0.51 )   $ (0.14 )   $ (0.01 )   $ (0.34 )
                                 
 
                                 
    Quarterly periods during the year ended
 		 
    December 31, 2005  
    December 31,
 		    September 30,
 		    June 30,
 		    March 31,
 		 
    2005     2005     2005     2005 (1)(2)  
 
Revenue
  $ 790,921     $ 831,401     $ 895,245     $ 871,333  
                                 
Costs of service:
                               
Costs of service
    762,149       694,458       717,942       826,778  
Lease and facilities restructuring charge
    9,094       882       —       19,605  
                                 
Total costs of service
    771,243       695,340       717,942       846,383  
                                 
Gross profit
    19,678       136,061       177,303       24,950  
Amortization of purchased intangible assets
    567       567       566       566  
Goodwill impairment charge
    166,415       —       —       —  
Selling, general and administrative expenses
    222,687       200,379       164,360       163,441  
                                 
Operating income (loss)
    (369,991 )     (64,885 )     12,377       (139,057 )
Interest/other expense, net
    (7,203 )     (6,553 )     (12,422 )     (11,788 )
                                 
Income (loss) before taxes
    (377,194 )     (71,438 )     (45 )     (150,845 )
Income tax expense (benefit)
    36,581       (1,014 )     4,841       81,713  
                                 
Net loss
  $ (413,775 )   $ (70,424 )   $ (4,886 )   $ (232,558 )
                                 
Loss per share—basic and diluted
  $ (2.06 )   $ (0.35 )   $ (0.02 )   $ (1.16 )
                                 
(1) During 2005, the Company identified certain errors in its previously reported financial statements. Because these changes are not material to the Company’s financial statements for the periods prior to 2005 or to 2005 taken as a whole, the Company corrected these errors in the first quarter of 2005. These adjustments included entries to correct errors in accounting for certain foreign tax withholdings, income taxes, revenue, and other miscellaneous items. Had


F-69

 

 
BEARINGPOINT, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands, except share and per share amounts)

these errors been recorded in the proper periods, the impact of the adjustments on the first quarter of 2005 would have been an increase to revenue and gross profit of $726 and $4,927, respectively, and a decrease to net loss of $15,445.
 
(2) In the first quarter of 2005, the Company recorded a valuation allowance of approximately $57,300 primarily against U.S. deferred tax assets to reflect its conclusion that it is more likely than not that these benefits would not be realized.

 
20.  Supplemental Financial Information
The following tables present a summary of additions and deductions related to the allowances for doubtful accounts receivable, allowances for income tax valuation and income tax reserve:
 
                                 
    Balance at
 		    Charge to
 		          Balance at
 		 
    Beginning
 		    Costs and
 		    Deductions-
 		    End
 		 
Allowance for Doubtful Accounts
  of Period     Expenses (a)     Write Offs     of Period  
 
Year Ended December 31, 2006
  $ 9,326     $ (464 )   $ (2,935 )   $ 5,927  
Year Ended December 31, 2005
    11,296       5,334       (7,304 )     9,326  
Year Ended December 31, 2004
    17,240       (1,057 )     (4,887 )     11,296  
(a) Expense reflected in other costs of service in the Consolidated Financial Statements
 
                                         
    Balance at
 		    Charged to
 		    Charged
 		    Credited to
 		    Balance at
 		 
    Beginning
 		    Income Tax
 		    to Other
 		    Income Tax
 		    End of
 		 
Income Tax Valuation Allowance
  of Period     Provision     Accounts (b)     Provision     Period  
 
Year Ended December 31, 2006
  $ 338,792     $ 76,775     $ (7,418 )   $ —     $ 408,149  
Year Ended December 31, 2005
    114,775       223,031       986       —       338,792  
Year Ended December 31, 2004
    88,037       24,757       1,981       —       114,775  
(b) Other accounts include deferred tax accounts.
 
                                         
          Tax
 		          Tax
 		       
          Reserve
 		          Reserve
 		       
    Balance at
 		    Charged to
 		    Charged
 		    Credited to
 		    Balance at
 		 
    Beginning
 		    Income Tax
 		    to Other
 		    Income Tax
 		    End of
 		 
Income Tax Reserve
  of Period     Provision     Accounts (c)     Provision     Period  
 
Year Ended December 31, 2006
  $ 89,530     $ 13,795     $ 5,174     $ —     $ 108,499  
Year Ended December 31, 2005
    37,965       51,417       148       —       89,530  
Year Ended December 31, 2004
    28,403       7,997       1,565       —       37,965  
(c) Other accounts include goodwill and currency translation accounts.


F-70

EX-10.6 2 c15652exv10w6.htm CREDIT AGREEMENT exv10w6
 

Exhibit 10.6
$500,000,000
CREDIT AGREEMENT
dated as of May 18, 2007,
AS AMENDED AND RESTATED ON JUNE 1, 2007,
among
BEARINGPOINT, INC.
and
BEARINGPOINT, LLC,
as Borrowers,
THE GUARANTORS PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO,
UBS SECURITIES LLC,
as Lead Arranger, Lead Bookmanager, Documentation Agent and Syndication Agent,
MORGAN STANLEY SENIOR FUNDING, INC.,
as Co-Bookmanager,
UBS AG, STAMFORD BRANCH,
as Administrative Agent and Collateral Agent,
and
WELLS FARGO FOOTHILL, LLC
and
UBS AG, STAMFORD BRANCH
as Issuing Banks
Cahill Gordon & Reindel llp
80 Pine Street
New York, NY 10005

 

 

TABLE OF CONTENTS
         
Section       Page
   
 
    

ARTICLE I

DEFINITIONS
   
 
    
SECTION 1.01  
Defined Terms
        1
SECTION 1.02  
Classification of Loans and Borrowings
      30
SECTION 1.03  
Terms Generally
      30
SECTION 1.04  
Accounting Terms; GAAP
      31
SECTION 1.05  
Resolution of Drafting Ambiguities
      31
SECTION 1.06  
Effect of This Agreement on the Original Credit Agreement and the Other Loan Documents
      31
   
 
       

ARTICLE II

THE CREDITS
   
 
       
SECTION 2.01  
Making of Term Loans
      31
SECTION 2.02  
Loans
      32
SECTION 2.03  
Borrowing Procedure
      33
SECTION 2.04  
Evidence of Debt; Repayment of Loans
      33
SECTION 2.05  
Fees
      34
SECTION 2.06  
Interest on Loans
      35
SECTION 2.07  
Termination of Loan and Reduction of Commitments and Credit Linked Deposits
      35
SECTION 2.08  
Interest Elections
      36
SECTION 2.09  
Amortization of Term Borrowings and Payment of all Loans on Maturity Date
      37
SECTION 2.10  
Optional and Mandatory Prepayments of Loans and Mandatory Cash Collateralization of Letters of Credit
      37
SECTION 2.11  
Alternate Rate of Interest
      40
SECTION 2.12  
Yield Protection
      41
SECTION 2.13  
Breakage Payments
      42
SECTION 2.14  
Payments Generally; Pro Rata Treatment; Sharing of Setoffs
      42
SECTION 2.15  
Taxes
      44
SECTION 2.16  
Mitigation Obligations; Replacement of Lenders
      46
SECTION 2.17  
Credit-Linked Deposits
      47
SECTION 2.18  
Letters of Credit
      48
   
 
       

ARTICLE III

REPRESENTATIONS AND WARRANTIES
   
 
       
SECTION 3.01  
Organization; Powers
      53
SECTION 3.02  
Authorization; Enforceability
      54
SECTION 3.03  
No Conflicts
      54

-ii-

 

         
Section       Page
SECTION 3.04  
Financial Statements; Projections
      54
SECTION 3.05  
Properties
      55
SECTION 3.06  
Intellectual Property
      55
SECTION 3.07  
Equity Interests and Subsidiaries
      56
SECTION 3.08  
Litigation; Compliance with Laws
      56
SECTION 3.09  
[Reserved]
      56
SECTION 3.10  
Federal Reserve Regulations
      56
SECTION 3.11  
Investment Company Act
      56
SECTION 3.12  
Taxes
      56
SECTION 3.13  
No Material Misstatements
      57
SECTION 3.14  
Solvency
      57
SECTION 3.15  
Employee Benefit Plans
      57
SECTION 3.16  
Environmental Matters
      58
SECTION 3.17  
Insurance
      59
SECTION 3.18  
Security Documents
      59
SECTION 3.19  
Anti-Terrorism Law
      59
SECTION 3.20  
Subordination of Debentures
      60
   
 
       

ARTICLE IV

CONDITIONS TO CREDIT EXTENSIONS
   
 
       
SECTION 4.01  
Conditions to Credit Extension on the Restatement Effective Date
      60
   
 
       

ARTICLE V

AFFIRMATIVE COVENANTS
   
 
       
SECTION 5.01  
Financial Statements, Reports, etc.
      62
SECTION 5.02  
Litigation and Other Notices
      64
SECTION 5.03  
Existence; Businesses and Properties
      64
SECTION 5.04  
Insurance
      65
SECTION 5.05  
Obligations and Taxes
      65
SECTION 5.06  
Employee Benefits
      65
SECTION 5.07  
Maintaining Records; Access to Properties and Inspections; Annual Meetings
      66
SECTION 5.08  
Use of Proceeds
      66
SECTION 5.09  
Compliance with Environmental Laws; Environmental Reports
      66
SECTION 5.10  
Additional Collateral; Additional Guarantors
      66
SECTION 5.11  
[Reserved]
      67
SECTION 5.12  
Information Regarding Collateral
      68
SECTION 5.13  
Maintenance of Ratings
      68
SECTION 5.14  
Post-Closing Collateral Matters
      68
   
 
       

ARTICLE VI

NEGATIVE COVENANTS
   
 
       
SECTION 6.01  
Indebtedness
      69
SECTION 6.02  
Liens
      70
SECTION 6.03  
Sale and Leaseback Transactions
      72
SECTION 6.04  
Investment, Loan and Advances
      72

-iii-

 

         
Section       Page
SECTION 6.05  
Mergers and Consolidations
      74
SECTION 6.06  
Asset Sales
      75
SECTION 6.07  
Acquisitions
      76
SECTION 6.08  
Dividends
      76
SECTION 6.09  
Transactions with Affiliates
      77
SECTION 6.10  
Prepayments of Other Indebtedness; Modifications of Organizational Documents and Other Documents, etc.
      78
SECTION 6.11  
Limitation on Certain Restrictions on Subsidiaries
      79
SECTION 6.12  
Limitation on Issuance of Capital Stock
      79
SECTION 6.13  
Limitation on Creation of Subsidiaries
      80
SECTION 6.14  
Business
      80
SECTION 6.15  
Limitation on Accounting Changes
      80
SECTION 6.16  
Fiscal Year
      80
SECTION 6.17  
No Further Negative Pledge
      80
   
 
       

ARTICLE VII

GUARANTEE
   
 
       
SECTION 7.01  
The Guarantee
      81
SECTION 7.02  
Obligations Unconditional
      81
SECTION 7.03  
Reinstatement
      82
SECTION 7.04  
Subrogation; Subordination
      82
SECTION 7.05  
Remedies
      82
SECTION 7.06  
[Reserved]
      82
SECTION 7.07  
Continuing Guarantee
      82
SECTION 7.08  
General Limitation on Guarantee Obligations
      83
SECTION 7.09  
Release of Guarantors
      83
SECTION 7.10  
Right of Contribution
      83
   
 
       

ARTICLE VIII

EVENTS OF DEFAULT
   
 
       
SECTION 8.01  
Events of Default
      83
SECTION 8.02  
Rescission
      86
SECTION 8.03  
Application of Proceeds
      86
   
 
       

ARTICLE IX

THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT
   
 
       
SECTION 9.01  
Appointment and Authority
      87
SECTION 9.02  
Rights as a Lender
      87
SECTION 9.03  
Exculpatory Provisions
      87
SECTION 9.04  
Reliance by Agent
      88
SECTION 9.05  
Delegation of Duties
      88
SECTION 9.06  
Resignation of Agent
      89
SECTION 9.07  
Non-Reliance on Agent and Other Lenders
      89
SECTION 9.08  
No Other Duties, etc
      89

-iv-

 

         
Section       Page
   
 
       

ARTICLE X

MISCELLANEOUS
   
 
       
SECTION 10.01  
Notices
       90
SECTION 10.02  
Waivers; Amendment
       92
SECTION 10.03  
Expenses; Indemnity; Damage Waiver
       95
SECTION 10.04  
Successors and Assigns
       97
SECTION 10.05  
Survival of Agreement
       99
SECTION 10.06  
Counterparts; Integration; Effectiveness
       99
SECTION 10.07  
Severability
      100
SECTION 10.08  
Right of Setoff
      100
SECTION 10.09  
Governing Law; Jurisdiction; Consent to Service of Process
      100
SECTION 10.10  
Waiver of Jury Trial
      101
SECTION 10.11  
Headings
      101
SECTION 10.12  
Treatment of Certain Information; Confidentiality
      101
SECTION 10.13  
USA PATRIOT Act Notice
      102
SECTION 10.14  
Interest Rate Limitation
      102
SECTION 10.15  
Lender Addendum
      102
SECTION 10.16  
Obligations Absolute
      102
SECTION 10.17  
Joint and Several Obligations
      103

-v-

 

ANNEX
     
Annex I
  Amortization Table
SCHEDULES
     
Schedule 1.01(a)
  Refinancing Indebtedness to Be Repaid
Schedule 1.01(b)
  Guarantors
Schedule 1.01(c)
  Existing Letters of Credit
Schedule 3.03
  Governmental Approvals; Compliance with Laws
Schedule 3.06(b)
  Violations or Proceedings
Schedule 3.15
  Employee Benefit Plans
Schedule 3.16
  Environmental Matters
Schedule 3.17
  Insurance
Schedule 6.01(b)
  Existing Indebtedness
Schedule 6.02(c)
  Existing Liens
Schedule 6.04(a)
  Existing Investments
EXHIBITS
     
Exhibit A
  Form of Administrative Questionnaire
Exhibit B
  Form of Assignment and Assumption
Exhibit C
  Form of Borrowing Request
Exhibit D
  Form of Compliance Certificate
Exhibit E
  Form of Interest Election Request
Exhibit F
  Form of Joinder Agreement
Exhibit G
  Form of LC Request
Exhibit H
  Form of Lender Addendum
Exhibit I
  Form of Note
Exhibit J-2
  Form of Perfection Certificate Supplement
Exhibit L
  Form of Opinion of Borrowers’ Counsel
Exhibit M
  Form of Non-Bank Certificate

-vi-

 

AMENDED AND RESTATED CREDIT AGREEMENT
          This AMENDED AND RESTATED CREDIT AGREEMENT (this “Agreement”) dated as of June 1, 2007, among BearingPoint, Inc., a Delaware corporation (“Parent”), BearingPoint LLC, a Delaware limited liability corporation (“BE LLC” and, together with Parent, the “Borrowers”), the Guarantors (such term and each other capitalized term used but not defined herein having the meaning given to it in Article I), the Lenders, UBS SECURITIES LLC, as lead arranger (in such capacity, “Arranger”), as documentation agent (in such capacity, “Documentation Agent”) and as syndication agent (in such capacity, “Syndication Agent”), WELLS FARGO FOOTHILL, LLC and UBS AG, STAMFORD BRANCH, each as an issuing bank, and UBS AG, STAMFORD BRANCH, as administrative agent (in such capacity, “Administrative Agent”) for the Lenders and as collateral agent (in such capacity, “Collateral Agent”) for the Secured Parties and the Issuing Banks.
WITNESSETH:
          WHEREAS, Borrowers, the Guarantors, the Lenders, Arranger, Documentation Agent, Syndication Agent and Administrative Agent have previously entered into a Credit Agreement dated as of May 18, 2007 (the “Original Credit Agreement”);
          WHEREAS, Term Loans were made pursuant to the Original Credit Agreement on the Closing Date in an aggregate principal amount equal to $250.0 million and Letters of Credit in an aggregate face amount at any time outstanding not in excess of $150.0 million (or such lesser amount as shall equal the Credit-Linked Deposits at such time) were made available on the Closing Date;
          WHEREAS, the Borrowers have requested additional Term Loans in an aggregate principal amount equal to $50.0 million and availability of additional Letters of Credit in an aggregate face amount at any time outstanding not in excess of $50.0 million (or such lesser amount that, together with all other Letters of Credit issued hereunder, shall equal the Credit-Linked Deposits at such time) to be made available on the Restatement Effective Date; and
          WHEREAS, the proceeds of the Loans are to be used in accordance with Section 5.08.
          NOW, THEREFORE, the Lenders are willing to extend such credit to Borrowers and the Issuing Banks are willing to issue letters of credit for the account of Borrowers on the terms and subject to the conditions set forth herein. Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
          SECTION 1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings specified below:
          “ABR”, when used in reference to any Loan or Borrowing, shall mean that such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.
          “ABR Borrowing” shall mean a Borrowing comprised of ABR Loans.

 

 

          “ABR Loan” shall mean any Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II.
          “Acquisition Consideration” shall mean the purchase consideration for any Permitted Acquisition and all other payments by Parent or any of its Subsidiaries in exchange for, or as part of, or in connection with, any Permitted Acquisition, whether paid in cash or by exchange of Equity Interests or of properties or otherwise and whether payable at or prior to the consummation of such Permitted Acquisition or deferred for payment at any future time, whether or not any such future payment is subject to the occurrence of any contingency, and includes any and all payments representing the purchase price and any assumptions of Indebtedness, “earn-outs” and other agreements to make any payment the amount of which is, or the terms of payment of which are, in any respect subject to or contingent upon the revenues, income, cash flow or profits (or the like) of any person or business; provided that (i) any such future payment that is subject to a contingency shall be considered Acquisition Consideration only to the extent of the reserve, if any, required under GAAP at the time of such sale to be established in respect thereof by Parent or any of its Subsidiaries and (ii) Acquisition Consideration shall exclude any Qualified Capital Stock of Parent.
          “Additional LC Commitment” shall mean, with respect to each Lender, the commitment, if any, of such Lender to make a Credit-Linked Deposit hereunder on the Restatement Effective Date in the amount set forth on Schedule I to the Lender Addendum executed and delivered by such Lender on the Restatement Effective Date. The initial aggregate amount of the Lenders’ Additional LC Commitments is $50.0 million.
          “Additional Term Loans” shall mean the Term Loans made by the Additional Term Loan Lenders to Borrowers pursuant to Section 2.01.
          “Additional Term Loan Commitment” shall mean, with respect to each Additional Term Loan Lender, the commitment, if any, of such Additional Term Loan Lender to make an Additional Term Loan hereunder on the Restatement Effective Date in the amount set forth on Schedule I to the Lender Addendum executed and delivered by such Additional Term Loan Lender on the Restatement Effective Date. The aggregate amount of the Lenders’ Additional Term Loan Commitments as of the Restatement Effective Date is $50.0 million.
          “Additional Term Loan Lender” shall mean each Lender that has an Additional Term Loan Commitment or is the holder of an Additional Term Loan.
          “Adjusted LIBOR Rate” shall mean, with respect to any Eurodollar Borrowing for any Interest Period, (a) an interest rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) determined by the Administrative Agent to be equal to the LIBOR Rate for such Eurodollar Borrowing in effect for such Interest Period divided by (b) 1 minus the Statutory Reserves (if any) for such Eurodollar Borrowing for such Interest Period.
          “Administrative Agent” shall have the meaning assigned to such term in the preamble hereto and includes each other person appointed as the successor pursuant to Article X.
          “Administrative Agent Fees” shall have the meaning assigned to such term in Section 2.05(a).
          “Administrative Questionnaire” shall mean an Administrative Questionnaire in substantially the form of Exhibit A.

-2-

 

          “Affiliate” shall mean, when used with respect to a specified person, another person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the person specified; provided, however, that, for purposes of Section 6.09, the term “Affiliate” shall also include (i) any person that directly or indirectly owns more than 10% of any class of Equity Interests of the person specified or (ii) any person that is an executive officer or director of the person specified.
          “Agents” shall mean the Administrative Agent and the Collateral Agent; and “Agent” shall mean either of them.
          “Agreement” shall have the meaning assigned to such term in the preamble hereto.
          “Alternate Base Rate” shall mean, for any day, a rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the greater of (a) the Base Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 0.50%. If the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Base Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Base Rate or the Federal Funds Effective Rate, respectively.
          “Anti-Terrorism Laws” shall have the meaning assigned to such term in Section 3.19.
          “Applicable Margin” shall mean, (a) with respect to any Term Loan, (i) prior to the Restatement Effective Date, 3.00% per annum in the case of an ABR Loan and 4.00% per annum in the case of a Eurodollar Loan and (ii) on and after the Restatement Effective Date, 2.50% per annum in the case of an ABR Loan and 3.50% per annum in the case of a Eurodollar Loan and (b) with respect to any LC Loan and the LC Facility Fee, 4.00% per annum.
          “Applicable Percentage” shall mean, with respect to any Lender, the percentage of the total Loans and Commitments represented by such Lender’s Loans and Commitments.
          “Approved Fund” shall mean any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
          “Arranger” shall have the meaning assigned to such term in the preamble hereto.
          “Asset Sale” shall mean (a) any conveyance, sale, lease, sublease, assignment, transfer or other disposition (including by way of merger or consolidation and including any Sale and Leaseback Transaction) of any property excluding sales of inventory and dispositions of cash and cash equivalents, in each case, in the ordinary course of business, by Parent or any of its Subsidiaries and (b) any issuance or sale of any Equity Interests of any Subsidiary of Parent, in each case, to any person other than (i) either Borrower, (ii) any Guarantor or (iii) any other Subsidiary (so long as, in the case of such a conveyance, sale, lease, sublease, assignment, transfer or other disposition or issuance within the meaning of this clause (iii) from a Loan Party to a Subsidiary that is not a Loan Party, to the extent that the consideration in respect thereof is less than the fair market value of the applicable property conveyed, sold, leased, subleased, accepted, transferred, disposed of or issued, such transaction shall constitute an Investment subject to Section 6.04 hereof); provided that a conversion of Structured Securities into, or an exchange of Struc-

-3-

 

tured Securities for, Equity Interests in a Subject Subsidiary shall not constitute an Asset Sale and (x) shall not give rise to any mandatory prepayment under Section 2.10(b) and (y) shall not be taken into account in determining compliance with Section 6.06.
          “Assignment and Assumption” shall mean an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.04(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit B, or any other form approved by the Administrative Agent.
          “Attributable Indebtedness” shall mean, when used with respect to any Sale and Leaseback Transaction, as at the time of determination, the present value (discounted at a rate equivalent to Parent’s then-current weighted average cost of funds for borrowed money as at the time of determination, compounded on a semi-annual basis) of the total obligations of the lessee for rental payments during the remaining term of the lease included in any such Sale and Leaseback Transaction.
          “Auto-Renewal Letter of Credit” shall have the meaning assigned to such term in Section 2.18(c)(ii).
          “Available Amount” shall mean, at any time, the Cumulative Retained Excess Cash Flow at such time plus (x) the aggregate Net Cash Proceeds of all Qualified Capital Stock Issuances (other than Structured Securities Issuances) on or after the Closing Date through such time minus (y) all prepayments and cash collateralizations that are or shall be required by Section 2.10(d) with respect to such Qualified Capital Stock Issuances minus (z) the sum of (i) the aggregate amount expended on all Dividends made on or after the Closing Date and prior to such time pursuant to Section 6.08(f) (ii) the aggregate amount expended on all Investments made on or after the Closing Date and prior to such time pursuant to Section 6.04(r), (iii) the aggregate amount expended on all Acquisitions made on or after the Closing Date and prior to such time pursuant to Section 6.07(e) and (iv) the aggregate amount expended on all redemptions, repurchases and repayments of Debentures made on or after the Closing Date and prior to such time pursuant to Section 6.10(a)(ii).
          “Barents Group Loans” shall mean loans aggregating $8,000,000 in principal amount plus accrued interest and relating to the issuance by Parent on February 16, 2000, of stock awards aggregating 297,317 shares of its common stock to certain employees as part of the separation of KPMG’s consulting business, which loans were made to the grantees of Parent stock for the payment of individual income taxes related to such stock awards and which loans are secured by such shares of Parent stock.
          “Base Rate” shall mean, for any day, a rate per annum that is equal to the corporate base rate of interest established by the Administrative Agent from time to time; each change in the Base Rate shall be effective on the date such change is effective. The corporate base rate is not necessarily the lowest rate charged by the Administrative Agent to its customers.
          “Board” shall mean the Board of Governors of the Federal Reserve System of the United States.
          “Borrowers” shall have the meaning assigned to such term in the preamble hereto, and a “Borrower” shall mean either of the Borrowers.
          “Borrowing” shall mean Loans of the same Class and Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect.

-4-

 

          “Borrowing Request” shall mean a request by Parent in accordance with the terms of Section 2.03 and substantially in the form of Exhibit C, or such other form as shall be approved by the Administrative Agent.
          “Business Day” shall mean any day other than a Saturday, Sunday or other day on which banks in New York City are authorized or required by law to close; provided, however, that when used in connection with a Eurodollar Loan, the term “Business Day” shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market.
          “Capital Assets” shall mean, with respect to any person, all equipment, fixed assets and Real Property or improvements of such person, or replacements or substitutions therefor or additions thereto, that, in accordance with GAAP, have been or should be reflected as additions to property, plant or equipment on the balance sheet of such person.
          “Capital Expenditures” shall mean, for any period, without duplication, all expenditures made directly or indirectly by Parent and its Subsidiaries during such period for Capital Assets (whether paid in cash or other consideration, financed by the incurrence of Indebtedness or accrued as a liability), but excluding (i) expenditures made in connection with the replacement, substitution or restoration of property pursuant to Section 2.10(e) and (ii) any portion of such expenditures attributable solely to acquisitions of property, plant and equipment in Permitted Acquisitions. For purposes of this definition, the purchase price of equipment or other fixed assets that are purchased simultaneously with the trade-in of existing assets or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount by which such purchase price exceeds the credit granted by the seller of such assets for the assets being traded in at such time or the amount of such insurance proceeds, as the case may be.
          “Capital Lease Obligations” of any person shall mean the obligations of such person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
          “Cash Equivalents” shall mean any of the following types of Investments:
     (a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof; provided that the full faith and credit of the United States is pledged in support thereof;
     (b) time deposits with, or certificates of deposit or bankers’ acceptances of, any commercial bank that (i) is a Lender that offers such deposits or certificates of deposit in the ordinary course of its business or (ii) (A) is a commercial banking institution (including US branches of foreign banking institutions) that is a member of the Federal Reserve System and (B) has combined capital and surplus of at least $500,000,000, in each case any commercial bank having, or which is the principal banking subsidiary of a bank holding company organized under the laws of the United States, any state thereof or the District of Columbia having, capital and surplus aggregating in excess of $500.0 million and a rating of “A” (or such other similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) with maturities of not more than one year from the date of acquisition thereof by such person; and

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     (c) commercial paper which is rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 270 days from the date of acquisition thereof;
     (d) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof, maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s;
     (e) repurchase agreements which (i) are entered into with any entity referred to in clause (b) above or any other financial institution whose unsecured long-term debt (or the unsecured long-term debt of whose bolding company) is rated at least A- or better by S&P or A3 or better by Moody’s and maturing not more than one year after such time and (ii) are secured by a fully perfected security interest in securities of the type referred to in clause (a) above that have a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such counterparty entity with whom such repurchase agreement has been entered into;
     (f) any money market or similar fund substantially all of the assets of which are comprised of any of the items specified in clauses (a) through (e) above and as to which withdrawals are permitted at least every 90 days; or
     (g) in the case of any Subsidiary organized or doing business outside the United States, investments denominated in dollars, euros, British pounds sterling or the currency of the jurisdiction in which such Subsidiary is organized or does business which are similar to the items specified in clauses (a) through (f) above.
          “Cash Interest Expense” shall mean, for any period, Consolidated Interest Expense for such period, less the sum of (a) interest on any debt paid by the increase in the principal amount of such debt including by issuance of additional debt of such kind, (b) items described in clause (c) or, other than to the extent paid in cash, clause (g) of the definition of “Consolidated Interest Expense” and (c) gross interest income of Parent and its Subsidiaries for such period.
          “Cash Transfer” shall have the meaning assigned to such term in Section 6.04(o).
          “Casualty Event” shall mean any involuntary loss of title, any involuntary loss of, damage to or any destruction of, or any condemnation or other taking (including by any Governmental Authority) of, any property of Parent or any of its Subsidiaries. “Casualty Event” shall include but not be limited to any taking of all or any part of any Real Property of any person or any part thereof, in or by condemnation or other eminent domain proceedings pursuant to any Requirement of Law, or by reason of the temporary requisition of the use or occupancy of all or any part of any Real Property of any person or any part thereof by any Governmental Authority, civil or military, or any settlement in lieu thereof.
          “CERCLA” shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq. and all implementing regulations.
          “CFC” shall mean a controlled foreign corporation as defined in Section 957(a) of the Code.

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          “CFC Holding Company” shall mean a Subsidiary (a) that owns Equity Interests in a CFC, (b) substantially all of whose assets consist of Equity interests in CFCs and (c) that was organized for the principal purposes of holding such Equity Interests.
          A “Change in Control” shall be deemed to have occurred if:
     (a) at any time a change of control occurs under any Material Indebtedness;
     (b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause such person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of Voting Stock of Parent representing more than 30% of the voting power of the total outstanding Voting Stock of Parent; or
     (c) during any period of two consecutive years, individuals who at the beginning of such period constituted the board of directors of Parent (together with any new directors whose election to such board of directors or whose nomination for election was approved by a vote of a majority of the members of the board of directors of Parent, which members comprising such majority are then still in office and were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors of Parent; or
     (d) Parent shall cease at any time to own 100% of the outstanding membership interests of BE LLC, other than through a merger of the two entities in which Parent is the surviving entity.
          For purposes of this definition, a person shall not be deemed to have beneficial ownership of Equity Interests subject to a stock purchase agreement, merger agreement or similar agreement until the consummation of the transactions contemplated by such agreement.
          “Change in Law” shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking into effect of any law, treaty, order, policy, rule or regulation, (b) any change in any law, treaty, order, policy, rule or regulation or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.
          “Charges” shall have the meaning assigned to such term in Section 10.14.
          “Class,” when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are LC Loans or Term Loans and, when used in reference to any Commitment, refers to whether such Commitment is an LC Commitment or Term Loan Commitment, in each case, under this Agreement, of which such Loan, Borrowing or Commitment shall be a part.
          “Closing Date” shall mean May 18, 2007.
          “Code” shall mean the Internal Revenue Code of 1986.

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          “Collateral” shall mean, collectively, all of the Security Agreement Collateral, the Mortgaged Property and all other property of whatever kind and nature subject or purported to be subject from time to time to a Lien under any Security Document.
          “Collateral Agent” shall have the meaning assigned to such term in the preamble hereto.
          “Commitment” shall mean, with respect to any Lender, such Lender’s LC Commitment or Term Loan Commitment.
          “Companies” shall mean Parent and its Subsidiaries; and “Company” shall mean any one of them.
          “Compliance Certificate” shall mean a certificate of a Financial Officer substantially in the form of Exhibit D.
          “Confidential Information Memorandum” shall mean that certain confidential information memorandum dated as of April 2007.
          “Consolidated Amortization Expense” shall mean, for any period, the amortization expense of Parent and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
          “Consolidated Current Assets” shall mean, as at any date of determination, the total assets of Parent and its Subsidiaries which may properly be classified as current assets on a consolidated balance sheet of Parent and its Subsidiaries in accordance with GAAP, excluding cash and Cash Equivalents.
          “Consolidated Current Liabilities” shall mean, as at any date of determination, the total liabilities of Parent and its Subsidiaries which may properly be classified as current liabilities (other than the current portion of any Indebtedness) on a consolidated balance sheet of Parent and its Subsidiaries in accordance with GAAP.
          “Consolidated Depreciation Expense” shall mean, for any period, the depreciation expense of Parent and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
          “Consolidated EBITDA” shall mean, for any period, Consolidated Net Income for such period, adjusted by (x) adding thereto, in each case only to the extent (and in the same proportion) deducted in determining such Consolidated Net Income and without duplication (and with respect to the portion of Consolidated Net Income attributable to any Subsidiary of Parent only if a corresponding amount would be permitted at the date of determination to be distributed to Parent by such Subsidiary without prior approval (that has not been obtained), pursuant to the terms of its Organizational Documents and all agreements, instruments and Requirements of Law applicable to such Subsidiary or its equityholders):
     (a) Consolidated Interest Expense for such period,
     (b) Consolidated Amortization Expense for such period,
     (c) Consolidated Depreciation Expense for such period,

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     (d) Consolidated Tax Expense for such period,
     (e) costs and expenses directly incurred in connection with the Transactions, and
     (f) the aggregate amount of all other non-cash charges reducing Consolidated Net Income (excluding any non-cash charge that results in an accrual of a reserve for cash charges in any future period) for such period, and
(y) subtracting therefrom the aggregate amount of all non-cash items increasing Consolidated Net Income (other than the accrual of revenue or recording of receivables in the ordinary course of business) for such period.
          “Consolidated Interest Expense” shall mean, for any period, the total consolidated interest expense of Borrower and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP plus, without duplication:
     (a) imputed interest on Capital Lease Obligations and Attributable Indebtedness of Parent and its Subsidiaries for such period;
     (b) commissions, discounts and other fees and charges owed by Parent or any of its Subsidiaries with respect to letters of credit securing financial obligations, bankers’ acceptance financing and receivables financings for such period;
     (c) amortization of debt issuance costs, debt discount or premium and other financing fees and expenses incurred by Parent or any of its Subsidiaries for such period;
     (d) cash contributions to any employee stock ownership plan or similar trust made by Parent or any of its Subsidiaries to the extent such contributions are used by such plan or trust to pay interest or fees to any person (other than Parent or a Wholly Owned Subsidiary) in connection with Indebtedness incurred by such plan or trust for such period;
     (e) all interest paid or payable with respect to discontinued operations of Parent or any of its Subsidiaries for such period;
     (f) the interest portion of any deferred payment obligations of Parent or any of its Subsidiaries for such period;
     (g) all interest on any Indebtedness of Parent or any of its Subsidiaries of the type described in clause (f) or (k) of the definition of “Indebtedness” for such period;
provided that (a) to the extent directly related to the Transactions, debt issuance costs, debt discount or premium and other financing fees and expenses shall be excluded from the calculation of Consolidated Interest Expense and (b) Consolidated Interest Expense shall be calculated after giving effect to Hedging Agreements related to interest rates (including associated costs), but excluding unrealized gains and losses with respect to Hedging Agreements related to interest rates.
          “Consolidated Net Income” shall mean, for any period, the consolidated net income (or loss) of Parent and its Subsidiaries determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from such net income (to the extent otherwise included therein), without duplication:

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     (a) the net income (or loss) of any person (other than a Subsidiary of Parent) in which any person other than Parent and its Subsidiaries has an ownership interest, except to the extent that cash in an amount equal to any such income has actually been received by Parent or (subject to clause (b) below) any of its Subsidiaries during such period;
     (b) the net income of any Subsidiary of either Borrower during such period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of that income is not permitted by operation of the terms of its Organizational Documents or any agreement, instrument or Requirement of Law applicable to that Subsidiary during such period, except Parent’s equity in net loss of any such Subsidiary for such period shall be included in determining Consolidated Net Income;
     (c) any gain (or loss), together with any related provisions for taxes on any such gain (or the tax effect of any such loss), realized during such period by Parent or any of its Subsidiaries upon any Asset Sale (other than any dispositions in the ordinary course of business) by Parent or any of its Subsidiaries;
     (d) gains and losses due solely to fluctuations in currency values and the related tax effects determined in accordance with GAAP for such period;
     (e) earnings resulting from any reappraisal, revaluation or write-up of assets;
     (f) unrealized gains and losses with respect to Hedging Obligations for such period; and
     (g) any extraordinary or nonrecurring gain (or extraordinary or nonrecurring loss), together with any related provision for taxes on any such gain (or the tax effect of any such loss), recorded or recognized by Parent or any of its Subsidiaries during such period.
     For purposes of this definition of “Consolidated Net Income,” “nonrecurring” means any gain or loss as of any date that is not reasonably likely to recur within the two years following such date; provided that if there was a gain or loss similar to such gain or loss within the two years preceding such date, such gain or loss shall not be deemed nonrecurring.
          “Consolidated Tax Expense” shall mean, for any period, the tax expense of Parent and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP.
          “Contingent Obligation” shall mean, as to any person, any obligation, agreement, understanding or arrangement of such person guaranteeing or intended to guarantee any Indebtedness, leases, dividends or other obligations (“primary obligations”) of any other person (the “primary obligor”) in any manner, whether directly or indirectly, including any obligation of such person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor; (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; (d) with respect to bankers’ acceptances, letters of credit and similar credit arrangements, until a reimbursement obligation arises (which reimbursement obligation shall constitute Indebtedness); or (e) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof; provided, however, that the term “Contingent Obligation” shall not include endorsements of instruments for deposit or collection in the ordinary course of business or any
          

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product warranties. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such person may be liable, whether singly or jointly, pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder) as determined by such person in good faith.
          “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, and the terms “Controlling” and “Controlled” shall have meanings correlative thereto.
          “Control Agreement” shall have the meaning assigned to such term in the Security Agreement.
          “Credit Extension” shall mean, as the context may require, (i) the making of a Loan by a Lender or (ii) the issuance of any Letter of Credit, or the amendment, extension or renewal of any existing Letter of Credit, by the Issuing Banks.
          “Credit-Linked Deposit” shall mean, in respect of each LC Lender, (i) the cash deposit made by such LC Lender on the Closing Date pursuant to Section 2.17(a) of the Original Credit Agreement in respect of its Existing LC Commitment plus (ii) the cash deposit made by such LC Lender on the Restatement Effective Date pursuant to Section 2.17(a) of this Agreement in respect of its Additional LC Commitment, as such amount may be (A) reduced from time to time pursuant to Section 2.07(b) or (B) reduced or increased from time to time pursuant to assignments by or to such LC Lender pursuant to Section 10.04. On the Restatement Effective Date, the amount of each LC Lender’s Credit-Linked Deposit shall be equal to the amount of its LC Commitment, subject to adjustment as set forth in the previous sentence.
          “Credit-Linked Deposit Account” shall mean the operating and/or investment account of, and established by, the Administrative Agent under its exclusive dominion and control that shall be used for the purposes set forth herein.
          “Credit-Linked Deposit Cost Amount” shall mean an amount equal to 12.5 basis points.
          “Cumulative Retained Excess Cash Flow” shall mean, at any time, (a) the aggregate amount of Excess Cash Flow generated in each Excess Cash Flow Period that shall have been completed at or prior to such time (provided that at any time that any deliveries required by Section 5.01(a) or 5.01(d)(i)(B) are not made when due (whether or not the failure to make any such deliveries then results in a Default or an Event of Default), the Excess Cash Flow generated in any portion of the fiscal year to which such deliveries under Section 5.01(a) relate shall not be included in Cumulative Retained Excess Cash Flow until such deliveries are made in accordance with such Sections) minus (b) all prepayments and cash collateralizations that are or shall be required by Section 2.10(f) with respect to such Excess Cash Flow generated in all such completed Excess Cash Flow Periods; provided that in no event shall the aggregate Cumulative Retained Excess Cash Flow exceed $35.0 million during the term of this Agreement.
          “Debentures” shall mean, collectively, Parent’s (a) $250.0 million of 2.50% Series A Convertible Subordinated Debentures, (b) $200.0 million of 2.75% Series B Convertible Subordinated
          

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Debentures, (c) $200.0 million of 5.0% Convertible Senior Subordinated Debentures and (d) $40.0 million of 0.50% Convertible Senior Subordinated Debentures.
          “Debenture Documents” shall mean (a) the Indenture dated as of December 22, 2004 by and between Parent and The Bank of New York, as trustee; (b) the First Supplemental Indenture dated as of November 7, 2006 between Parent and The Bank of New York, as trustee; (c) the Indenture dated as of April 27, 2005 by and between Parent and the Bank of New York, as trustee; (d) the First Supplemental Indenture, dated as of November 2, 2006, between Parent and The Bank of New York, as trustee; and (e) the Debentures and all other documents executed and delivered with respect to the Debentures.
          “Debt Issuance” shall mean the incurrence by Parent or any of its Subsidiaries of any Indebtedness after the Closing Date (other than as permitted by Section 6.01 (excluding Section 6.01(e)).
          “Default” shall mean any event, occurrence or condition which constitutes, or upon notice, lapse of time or both would constitute, an Event of Default; provided that no event referred to in Section 8.01(f) shall constitute a Default prior to October 31, 2008.
          “Default Rate” shall have the meaning assigned to such term in Section 2.06(c).
          “Disqualified Capital Stock” shall mean any Equity Interest which, by its terms, (a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the first anniversary of the Maturity Date, (b) is convertible into or exchangeable (unless at the sole option of the issuer thereof) for (i) debt securities or (ii) any Equity Interests referred to in (a) above, in each case at any time on or prior to the first anniversary of the Maturity Date, or (c) contains any repurchase obligation which may come into effect prior to payment in full of all Obligations; provided, however, that any Equity Interests that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof (or the holders of any security into or for which such Equity Interests is convertible, exchangeable or exercisable) the right to require the issuer thereof to redeem such Equity Interests upon the occurrence of a change in control or an asset sale occurring prior to the first anniversary of the Maturity Date shall not constitute Disqualified Capital Stock if such Equity Interests provide that the issuer thereof will not redeem any such Equity Interests pursuant to such provisions prior to the repayment in full of the Obligations.
          “Disqualified Capital Stock Issuance” shall mean the issuance by Parent or any of its Subsidiaries of Disqualified Capital Stock after the Closing Date.
          “Dividend” with respect to any person shall mean that such person has declared or paid a dividend or returned any equity capital to the holders of its Equity Interests or authorized or made any other distribution, payment or delivery of property (other than Qualified Capital Stock of such person) or cash to the holders of its Equity Interests as such, or redeemed, retired, purchased or otherwise acquired, directly or indirectly, for consideration any of its Equity Interests outstanding (or any options or warrants issued by such person with respect to its Equity Interests), or set aside any funds for any of the foregoing purposes, or shall have permitted any of its Subsidiaries to purchase or otherwise acquire for consideration any of the Equity Interests of such person outstanding (or any options or warrants issued by such person with respect to its Equity Interests).
          “Documentation Agent” shall have the meaning assigned to such term in the preamble hereto.
          “dollars” or “$” shall mean lawful money of the United States.

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          “Domestic Subsidiary” shall mean any Subsidiary that is organized or existing under the laws of the United States, any state thereof or the District of Columbia.
          “Eligible Assignee” shall mean (i) any Lender, (ii) an Affiliate of any Lender, (iii) an Approved Fund and (iv) any other person approved by the Administrative Agent and Parent (such approval not to be unreasonably withheld or delayed); provided that (x) no approval of Parent shall be required during the continuance of an Event of Default or prior to the completion of the Successful Syndication and (y) “Eligible Assignee” shall not include Parent or any of its Affiliates or Subsidiaries or any natural person.
          “Environment” shall mean ambient air, indoor air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata.
          “Environmental Claim” shall mean any claim, notice, demand, order, action, suit or proceeding alleging liability for or obligation with respect to any investigation, remediation, removal, cleanup, response, corrective action, damages to natural resources, personal injury, property damage, fines, penalties or other costs resulting from, related to or arising out of (i) the presence, Release or threatened Release in or into the Environment of Hazardous Material at any location or (ii) any violation or alleged violation of any Environmental Law, and shall include any claim seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from, related to or arising out of the presence, Release or threatened Release of Hazardous Material or alleged injury or threat of injury to health, safety or the Environment caused by such Release.
          “Environmental Law” shall mean any and all present and, for purposes of Section 5.09 only, future treaties, laws, statutes, ordinances, regulations, rules, decrees, orders, judgments, consent orders, consent decrees, code or other binding requirements of any Governmental Authority, and the common law, in each case, relating to protection of the Environment, the Release or threatened Release of hazardous material, natural resources or the effect of hazardous materials on occupational safety or health.
          “Environmental Permit” shall mean any permit, license, approval, registration, notification, consent or other authorization required by or from a Governmental Authority under Environmental Law.
          “Equipment” shall have the meaning assigned to such term in the Security Agreement.
          “Equity Interest” shall mean, with respect to any person, any and all shares, interests, participations or other equivalents, including membership interests (however designated, whether voting or nonvoting), of equity of such person, including, if such person is a partnership, partnership interests (whether general or limited) and any other interest or participation that confers on a person the right to receive a share of the profits and losses of, or distributions of property of, such partnership, whether outstanding on the Closing Date or issued thereafter, but excluding debt securities convertible or exchangeable into such equity.
          “Equity Issuance” shall mean, without duplication, (i) any issuance or sale by Parent after the Closing Date of any Equity Interests in Parent (including any Equity Interests issued upon exercise of any warrant or option) or any warrants or options to purchase Equity Interests or (ii) any contribution to the capital of Parent; provided, however, that an Equity Issuance shall not include (x) any Preferred Stock Issuance, Structured Securities Issuance or Debt Issuance, (y) any such sale or issuance by Parent of its Equity Interests (including its Equity Interests issued upon exercise of any warrant or option or warrants or options to purchase its Equity Interests but excluding Disqualified Capital Stock), in each case, to directors, officers or employees of any Company.

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          “ERISA” shall mean the Employee Retirement Income Security Act. of 1974.
          “ERISA Affiliate” shall mean, with respect to any person, any trade or business (whether or not incorporated) that, together with such person, is treated as a single employer under Section 414 of the Code.
          “ERISA Event” shall mean (a) any “reportable event,” as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30-day notice period is waived by regulation); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the failure to make by its due date a required installment under Section 412(m) of the Code with respect to any Plan or the failure to make any required contribution to a Multiemployer Plan; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence by any Company or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (f) the receipt by any Company or any of its ERISA Affiliates from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan, or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (g) the incurrence by any Company or any of its ERISA Affiliates of any liability with respect to the withdrawal from any Plan or Multiemployer Plan; (h) the receipt by any Company or its ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (i) the “substantial cessation of operations” within the meaning of Section 4062(e) of ERISA with respect to a Plan; (j) the making of any amendment to any Plan which could result in the imposition of a lien or the posting of a bond or other security; and (k) the occurrence of a nonexempt prohibited transaction (within the meaning of Section 4975 of the Code or Section 406 of ERISA) which could reasonably be expected to result in liability to any Company.
          “Eurodollar Borrowing” shall mean a Borrowing comprised of Eurodollar Loans.
          “Eurodollar Borrowing” shall mean a Borrowing comprised of Eurodollar Loans.
          “Eurodollar Loan” shall mean any Loan bearing interest at a rate determined by reference to the Adjusted LIBOR Rate in accordance with the provisions of Article II.
          “Event of Default” shall have the meaning assigned to such term in Section 8.01.
          “Excess Cash Flow” shall mean, for any Excess Cash Flow Period, Consolidated EBITDA for such Excess Cash Flow Period, minus, without duplication:
     (a) Cash Interest Expense for such Excess Cash Flow Period;
     (b) any repayment or prepayment of Indebtedness of Parent or any of its Subsidiaries (other than any prepayments or reductions referred to in Section 2.10(f)(B)) during such Excess Cash Flow Period other than to the extent such repayment or prepayment is funded with the proceeds of other Indebtedness;
     (c) Capital Expenditures during such Excess Cash Flow Period (excluding Capital Expenditures made in such Excess Cash Flow Period where a certificate in the form contemplated by the following clause (d) was previously delivered) that are paid in cash;

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     (d) Capital Expenditures that Parent or any of its Subsidiaries shall, during such Excess Cash Flow Period, become obligated to make but that are not made during such Excess Cash Flow Period; provided that Parent shall deliver a certificate to the Administrative Agent not later than 90 days after the end of such Excess Cash Flow Period, signed by a Responsible Officer of Parent and certifying that such Capital Expenditures will be made in the following Excess Cash Flow Period;
     (e) the aggregate amount of expenditures made in cash during such period pursuant to Sections 6.04(t) and 6.07(d);
     (f) taxes of Parent and its Subsidiaries that are payable in cash on a current basis in respect of such Excess Cash Flow Period;
     (g) the absolute value of the difference, if negative, of the amount of Net Working Capital at the end of the prior Excess Cash Flow Period (or the beginning of the Excess Cash Flow Period in the case of the first Excess Cash Flow Period) over the amount of Net Working Capital at the end of such Excess Cash Flow Period; and
     (h) to the extent added to determine Consolidated EBITDA, all items that did not result from a cash payment to Parent or any of its Subsidiaries on a consolidated basis during such Excess Cash Flow Period;
provided that any amount deducted pursuant to any of the foregoing clauses that will be paid after the close of such Excess Cash Flow Period shall not be deducted again in a subsequent Excess Cash Flow Period; plus, without duplication:
     (i) the difference, if positive, of the amount of Net Working Capital at the end of the prior Excess Cash Flow Period (or the beginning of the Excess Cash Flow Period in the case of the first Excess Cash Flow Period) over the amount of Net Working Capital at the end of such Excess Cash Flow Period;
     (ii) all proceeds received during such Excess Cash Flow Period of any Indebtedness to the extent used to finance any Capital Expenditure (other than Indebtedness under this Agreement to the extent there is no corresponding deduction to Excess Cash Flow above in respect of the use of such borrowings);
     (iii) to the extent any permitted Capital Expenditures referred to in clause (d) above do not occur in the Excess Cash Flow Period specified in the certificate of Parent provided pursuant to clause (d) above, such amounts of Capital Expenditures that were not so made in the Excess Cash Flow Period specified in such certificate; and
     (iv) to the extent subtracted in determining Consolidated EBITDA, all items that did not result from a cash payment by Parent or any of its Subsidiaries on a consolidated basis during such Excess Cash Flow Period.
          “Excess Cash Flow Period” shall mean (i) if, but only if, Parent so elects, in its sole discretion, on or prior to the date it delivers the audited financial statements for its 2007 fiscal year pursuant to Section 5.01(a), the period taken as one accounting period from July 1, 2007 and ending on December 31, 2007 and (ii) regardless of whether Parent has made the election described in clause (i) above, each fiscal year of Parent thereafter.

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          “Excess LC Loan Prepayment Amount” shall have the meaning assigned to such term in Section 2.10(g).
          “Excess Term Loan Prepayment Amount” shall have the meaning assigned to such term in Section 2.10(g).
          “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
          “Excluded Company” shall mean an Excluded Foreign Company, an Immaterial Subsidiary or a Special Purpose Subsidiary.
          “Excluded Foreign Company” shall mean (a) a CFC or (b) a CFC Holding Company.
          “Excluded Taxes” shall mean, with respect to the Administrative Agent, any Lender, any Issuing Bank or any other recipient of any payment to be made by or on account of any obligation of either Borrower hereunder, (a) taxes imposed on or measured by its net income (however denominated), franchise taxes imposed on it (in lieu of net income taxes) and branch profits taxes imposed on it, by a jurisdiction (or any political subdivision thereof) as a result of the recipient being organized or having its principal office or, in the case of any Lender, its applicable lending office in such jurisdiction and (b) in the case of a Foreign Lender, any U.S. federal withholding tax that (i) is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new lending office), except (x) to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from such Borrower with respect to such withholding tax pursuant to Section 2.15(a) or (y) if such Foreign Lender is an assignee pursuant to a request by Parent under Section 2.16; or (ii) is attributable to such Foreign Lender’s failure to comply with Section 2.15(e).
          “Executive Order” shall have the meaning assigned to such term in Section 3.19.
          “Existing LC Commitment” shall mean, with respect to each Lender, the commitment, if any, of such Lender to have made a Credit-Linked Deposit hereunder on the Closing Date in the amount set forth on Schedule I to the Lender Addendum executed and delivered by such Lender on the Closing Date. The initial aggregate amount of the Existing LC Commitments is $150.0 million.
          “Existing Letter of Credit” shall mean each letter of credit listed on Schedule 1.01(c).
          “Existing Lien” shall have the meaning assigned to such term in Section 6.02(c).
          “Existing Term Loan” shall mean the term loans made by the Lenders to Borrower on the Closing Date. Each Existing Term Loan shall be either an ABR Term Loan or a Eurodollar Term Loan.
          “Existing Term Loan Lender” shall mean each Lender that is the holder of an Existing Term Loan.
          “Federal Funds Effective Rate” shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System of the United States arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.

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          “Fee Letter” shall mean the Amended and Restated Credit Facilities Fee Letter, dated April 20, 2007, among Parent, UBS Loan Finance LLC, UBS Securities LLC and Morgan Stanley Senior Funding, Inc.
          “Fees” shall mean the Administrative Agent Fees, the LC Facility Fee and the Fronting Fees.
          “Financial Officer” of any person shall mean the chief financial officer, chief accounting officer, treasurer or controller of such person.
          “Foreign Lender” shall mean any Lender that is not, for U.S. federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation, partnership or other entity treated as a corporation or partnership created or organized in or under the laws of the United States, or any political subdivision thereof, (iii) an estate whose income is subject to U.S. federal income taxation regardless of its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more United States persons have the authority to control all substantial decisions of such trust.
          “Foreign Plan” shall mean any “defined benefit plan” as such term is defined in Section 3(35) of ERISA, whether or not such defined benefit plan is subject to ERISA or the Code, maintained or contributed to by any Company with respect to employees employed outside the United States
          “Foreign Subsidiary” shall mean a Subsidiary that is organized under the laws of a jurisdiction other than the United States or any state thereof or the District of Columbia.
          “Fronting Fee” shall have the meaning assigned to such term in Section 2.05(c).
          “Fund” shall mean any person that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
          “GAAP” shall mean generally accepted accounting principles in the United States applied on a consistent basis.
          “Governmental Authority” shall mean the government of the United States or any other nation, or of any political subdivision thereof, whether state, provincial or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
          “Governmental Real Property Disclosure Requirements” shall mean any Requirement of Law of any Governmental Authority requiring notification to the buyer, lessee, mortgagee, assignee or other transferee of any Real Property, facility, establishment or business, or notification, registration or filing to or with any Governmental Authority, in connection with the sale, lease, mortgage, assignment or other transfer (including any transfer of control) of any Real Property, facility, establishment or business, of the actual or threatened presence or Release of Hazardous Materials in or into the Environment, or the use, disposal or handling of Hazardous Material on, at or under the Real Property, facility, establishment or business to be sold, leased, mortgaged, assigned or transferred.
          “Guaranteed Obligations” shall have the meaning assigned to such term in Section 7.01.

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          “Guarantees” shall mean the guarantees issued pursuant to Article VII by the Guarantors.
          “Guarantors” shall mean each Subsidiary listed on Schedule 1.01(b), and each other Subsidiary that is or becomes a party to this Agreement pursuant to Section 5.10.
          “Hazardous Materials” shall mean the following: hazardous substances; hazardous wastes; polychlorinated biphenyls (“PCBs”) or any substance or compound containing PCBs; asbestos or any asbestos-containing materials in any form or condition; radon or any other radioactive materials including any source, special nuclear or by-product material; petroleum, crude oil or any fraction thereof; and any other pollutant or contaminant or chemicals, wastes, materials, compounds, constituents or substances, in each case which is subject to regulation or which can give rise to liability under any Environmental Laws.
          “Hedging Agreement” shall mean any swap, cap, collar, forward purchase or similar agreements or arrangements dealing with interest rates, currency exchange rates or commodity prices, either generally or under specific contingencies.
          “Hedging Obligations” shall mean obligations under or with respect to Hedging Agreements.
          “Immaterial Subsidiary” shall mean, at any time, any Subsidiary of Parent whose consolidated total assets shall be less than $2.0 million as of the date of the latest financial statements most recently delivered pursuant to Section 4.01(e) of the Original Credit Agreement or Section 5.01(a) or 5.01(b); provided that all Immaterial Subsidiaries taken together shall not have consolidated assets of more than $10.0 million in the aggregate as of the date of the latest financial statements most recently delivered pursuant to Section 4.01(e) of the Original Credit Agreement or Section 5.01(a) or 5.01(b), and all Subsidiaries that would otherwise be Immaterial Subsidiaries but for such $10.0 million limitation shall not be considered Immaterial Subsidiaries.
          “Indebtedness” of any person shall mean, without duplication, (a) all obligations of such person for borrowed money or advances; (b) all obligations of such person evidenced by bonds, debentures, notes or similar instruments; (c) all obligations of such person under conditional sale or other title retention agreements relating to property purchased by such person; (e) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding trade accounts payable, accrued obligations and deferred compensation of officers, directors and employees, in each case incurred in the ordinary course of business on normal trade terms); (f) all Indebtedness of others secured by any Lien on property owned or acquired by such person, whether or not the obligations secured thereby have been assumed, but limited to the fair market value of such property; (g) all Capital Lease Obligations of such person; (h) all Hedging Obligations to the extent required to be reflected on a balance sheet of such person; (i) all Attributable Indebtedness of such person; (j) all obligations of such person for the reimbursement of any obligor in respect of letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions; and (k) all Contingent Obligations of such person in respect of Indebtedness of others of the kinds referred to in clauses (a) through (j) above. The Indebtedness of any person shall include the Indebtedness of any other entity (including any partnership in which such person is a general partner) to the extent such person is liable therefor as a result of such person’s ownership interest in or other relationship with such entity, except to the extent that terms of such Indebtedness expressly provide that such person is not liable therefor.
          “Indemnified Taxes” shall mean all Taxes other than Excluded Taxes.

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          “Indemnitee” shall have the meaning assigned to such term in Section 10.03(b).
          “Information” shall have the meaning assigned to such term in Section 10.12.
          “Intellectual Property” shall have the meaning assigned to such term in Section 3.06(a).
          “Interest Election Request” shall mean a request by Parent to convert or continue a Term Borrowing in accordance with Section 2.08(b), substantially in the form of Exhibit E.
          “Interest Payment Date” shall mean (a) with respect to any ABR Loan, the last Business Day of each March, June, September and December to occur during any period in which such Loan is outstanding, (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part and, in the case of a Eurodollar Loan with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period, (c) with respect to any Loan, the Maturity Date and (d) as to any Credit-Linked Deposit, the last day of each Interest Period therefor or the date of any return thereof.
          “Interest Period” shall mean (i) with respect to any Eurodollar Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, two, three or six months thereafter, as Parent may elect and (ii) (x) (A) as to the Credit-Linked Deposits made on the Closing Date, for the first Interest Period hereunder, the period commencing on the Closing Date and ending on the next succeeding day thereafter that is the last Business Day of March, June, September or December and (B) as to the Credit-Linked Deposits made on the Restatement Effective Date, for the first Interest Period hereunder, the period commencing on the Restatement Effective Date and ending on the next succeeding day thereafter that is the last Business Day of March, June, September or December and (y) in each case thereafter, the period commencing on the last day of the preceding Interest Period and ending on the next succeeding day thereafter that is the last Business Day of March, June, September or December; provided that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period and (c) (x) the initial Interest Period in respect of the Eurodollar Term Borrowing made on the Closing Date shall commence on the Closing Date and (y) the initial Interest Period in respect of the Eurodollar Term Borrowing made on the Restatement Effective Date shall commence on the Restatement Effective Date, and in each case shall end on the last Business Day of June 2007. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
          “Investments” shall have the meaning assigned to such term in Section 6.04.
          “Issuing Bank” shall mean, as the context may require, (a) Wells Fargo Foothill, LLC, acting through and as the agent for its affiliate Wells Fargo Bank, N.A., in its capacity as an issuer of Letters of Credit issued (or deemed issued) by it on and after the Closing Date, and amendments, renewals and extensions thereof, UBS AG, Stamford Branch, in its capacity as issuer of Letters of Credit issued (or deemed issued) by it on and after the Closing Date, and amendments, renewals and extensions thereof; (b) any other Lender that may become an Issuing Bank pursuant to Sections 2.18(i) in its capacity as issuer of Letters of Credit issued by such Lender; or (c) collectively, all of the foregoing.

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          “Joinder Agreement” shall mean a joinder agreement substantially in the form of Exhibit F.
          “LC Availability Period” shall mean the period from and including the Closing Date to but excluding the fifteenth day prior to the Maturity Date.
          “LC Commitment” shall mean, with respect to each Lender, such Lender’s Existing LC Commitment plus such Lender’s Additional LC Commitment, and to (a) make LC Loans pursuant to Section 2.18(e)(ii) and (b) purchase participations in LC Obligations in respect of Letters of Credit, in an aggregate principal amount at any one time outstanding not to exceed the amount of its Credit-Linked Deposit, as each may be (i) reduced from time to time pursuant to Section 2.07(b) and (ii) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04.
          “LC Disbursement” shall mean a payment or disbursement made by an Issuing Bank pursuant to a drawing under a Letter of Credit.
          “LC Exposure” shall mean at any time the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate principal amount of all Reimbursement Obligations outstanding at such time. The LC Exposure of any LC Lender at any time shall mean its Pro Rata Percentage of the aggregate LC Exposure at such time.
          “LC Facility” shall mean, at any time, the aggregate amount of the LC Lenders’ LC Commitments at such time.
          “LC Facility Fee” has the meaning assigned to such term in Section 2.05(b).
          “LC Lender” shall mean a Lender with an LC Commitment or an outstanding Credit-Linked Deposit or an LC Loan.
          “LC Loans” has the meaning assigned to such term in Section 2.18(e)(ii). Each LC Loan shall be either an ABR Loan or a Eurodollar Loan.
          “LC Obligations” shall mean, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Reimbursement Obligations plus the aggregate principal amount of all outstanding LC Loans. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 2.18.
          “LC Request” shall mean a request by Parent in accordance with the terms of Section 2.18(b) and substantially in the form of Exhibit G, or such other form as shall be approved by the Administrative Agent.
          “Lender Addendum” shall mean (a) with respect to any Lender on the Closing Date, the lender addendum executed and delivered by such Lender on the Closing Date and (b) with respect to any Lender on the Restatement Effective Date, a lender addendum in the form of Exhibit H, to be executed and delivered by such Lender on the Restatement Effective Date as provided in Section 10.15.
          “Lenders” shall mean (a) the financial institutions that have become a party hereto pursuant to a Lender Addendum and (b) any financial institution that has become a party hereto pursuant to an Assignment and Assumption, other than, in each case, any such financial institution that has ceased to be a party hereto pursuant to an Assignment and Assumption.

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          “Letter of Credit” shall mean any letter of credit, issued, to be issued or deemed issued by an Issuing Bank for the account of Parent or any of its Subsidiaries pursuant to Section 2.18.
          “Letter of Credit Expiration Date” shall mean the date which is fifteen days prior to the Maturity Date.
          “LIBOR Rate” shall mean, with respect to any Eurodollar Borrowing for any Interest Period, the rate per annum determined by the Administrative Agent to be the arithmetic mean of the offered rates for deposits in dollars with a term comparable to such Interest Period (as set forth by any service selected by Administrative Agent which has been nominated by the British Bankers’ Association as an authorized information vendor for the purpose of displaying such rates) at approximately 11:00 a.m., London, England time, on the second full Business Day preceding the first day of such Interest Period; provided, however, that to the extent that an interest rate is not ascertainable pursuant to the foregoing provisions of this definition the “LIBOR Rate” shall be the interest rate per annum determined by Administrative Agent to be the average of the rates per annum at which deposits in Dollars are offered for such Interest Period to major banks in the London interbank market in London, England at approximately 11:00 a.m. (London time) on the date that is two Business Days prior to the beginning of such Interest Period. Each determination by Administrative Agent pursuant to this definition shall be conclusive absent manifest error.
          “Lien” shall mean, with respect to any property, (a) any mortgage, deed of trust, lien, pledge, charge, assignment, hypothecation, security interest or encumbrance of any kind, in each of the foregoing cases whether voluntary or imposed by law, and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such property.
          “Loan Documents” shall mean this Agreement, the Letters of Credit, the Notes (if any), and the Security Documents and, solely for purposes of Sections 8.01(e), 10.05 and 10.06, the Fee Letter.
          “Loan Parties” shall mean Borrowers and the Guarantors.
          “Loans” shall mean Term Loans and any LC Loans made by the Lenders to Borrowers pursuant to Section 2.18(e)(ii). Each Loan shall be either an ABR Loan or a Eurodollar Loan.
          “Margin Stock” shall have the meaning assigned to such term in Regulation U.
          “Material Adverse Effect” shall mean (a) a material adverse effect on the business, results of operations, condition, financial or otherwise, assets or liabilities of Parent and its Subsidiaries, taken as a whole; (b) material impairment of the ability of the Loan Parties to fully and timely perform any of their obligations under any Loan Document or (c) material impairment of the rights of or benefits or remedies available to the Lenders or the Collateral Agent under any Loan Document.
          “Material Indebtedness” shall mean (a) Indebtedness under any of the Debentures and (b) any other Indebtedness (other than the Loans and Letters of Credit) or Hedging Obligations of Parent or any of its Subsidiaries in an aggregate outstanding principal amount exceeding $20.0 million. For purposes of determining Material Indebtedness, the “principal amount” in respect of any Hedging Obligations of any Loan Party at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Loan Party would be required to pay if the related Hedging Agreement were terminated at such time.

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          “Maturity Date” shall mean the fifth anniversary of the Closing Date (or if such anniversary is not a Business Day, the next Business Day after such anniversary).
          “Maximum Rate” shall have the meaning assigned to such term in Section 10.14.
          “Mortgage” shall mean an agreement, including, but not limited to, a mortgage, deed of trust or any other document, creating and evidencing a Lien on a Mortgaged Property, which shall be in a form reasonably satisfactory to the Collateral Agent, in each case, with such schedules and including such provisions as shall be necessary to conform such document to applicable local or foreign law or as shall be customary under applicable local or foreign law.
          “Mortgaged Property” shall mean each Real Property, if any, which shall be subject to a Mortgage delivered after the Closing Date pursuant to Section 5.10(c).
          “Multiemployer Plan” shall mean a multiemployer plan within the meaning of Section 4001(a)(3) or Section 3(37) of ERISA (a) to which any Company or any ERISA Affiliate is then making or accruing an obligation to make contributions; (b) to which any Company or any ERISA Affiliate has within the preceding five plan years made contributions; or (c) with respect to which any Company could incur liability.
          “Net Cash Proceeds” shall mean:
     (a) with respect to any Asset Sale (other than any issuance or sale of Equity Interests), the cash proceeds received by Parent or any of its Subsidiaries (including cash proceeds subsequently received (as and when received by Parent or any of its Subsidiaries) in respect of non-cash consideration initially received) net of (i) selling expenses (including brokers’ fees or commissions, legal, accounting and other professional and transactional fees, transfer and similar taxes and Parent’s good faith estimate of income taxes paid or payable in connection with such sale); (ii) amounts provided as a reserve, in accordance with GAAP, against (x) any liabilities under any indemnification obligations associated with such Asset Sale or (y) any other liabilities retained by Parent or any of its Subsidiaries associated with the properties sold in such Asset Sale (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds); (iii) Parent’s good faith estimate of payments required to be made with respect to unassumed liabilities relating to the properties sold within one year of such Asset Sale (provided that, to the extent such cash proceeds are not used to make payments in respect of such unassumed liabilities within one year of such Asset Sale, such cash proceeds shall constitute Net Cash Proceeds); (iv) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money which is secured by a Lien on the properties sold in such Asset Sale (so long as such Lien was permitted to encumber such properties under the Loan Documents at the time of such sale) and which is repaid with such proceeds; (v) in the case of any such proceeds received by a Foreign Subsidiary, any taxes payable upon the repatriation of such proceeds to the United States; and (vi) in the case of any such proceeds received by any Subsidiary that is not a Wholly-Owned subsidiary, the portion of such proceeds attributable to the minority interests in such Subsidiary;
     (b) with respect to any Debt Issuance, any Structured Securities Issuance, any Equity Issuance or any other issuance or sale of Equity Interests by Parent or any of its Subsidiaries, the cash proceeds thereof, net of (i) fees, commissions, costs and other expenses incurred in connection therewith, (ii) in the case of any such proceeds received by a Foreign Subsidiary, any taxes payable upon the repatriation of such proceeds to the United States and (iii) in the case of any

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such proceeds received by any Subsidiary that is not a Wholly-Owned subsidiary, the portion of such proceeds attributable to the minority interests in such Subsidiary; and
     (c) with respect to any Casualty Event, the cash insurance proceeds, condemnation awards and other compensation received in respect thereof, net of (i) all reasonable costs and expenses incurred in connection with the collection of such proceeds, awards or other compensation in respect of such Casualty Event, (ii) in the case of any such proceeds received by a Foreign Subsidiary, any taxes payable upon the repatriation of such proceeds to the United States and (iii) in the case of any such proceeds received by any Subsidiary that is not a Wholly-Owned subsidiary, the portion of such proceeds attributable to the minority interests in such Subsidiary.
          “Net Working Capital” shall mean, at any time, Consolidated Current Assets at such time minus Consolidated Current Liabilities at such time.
          “Notes” shall mean any notes evidencing the Term Loans issued pursuant to this Agreement, if any, substantially in the form of Exhibit I.
          “Obligations” shall mean (a) obligations of Borrowers and the other Loan Parties from time to time arising under or in respect of the due and punctual payment of (i) the principal of and premium, if any, and interest (including interest accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding) on the Loans, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, (ii) each payment required to be made by Borrowers and the other Loan Parties under this Agreement in respect of any Letter of Credit, when and as due, including payments in respect of Reimbursement Obligations, interest thereon and obligations to provide cash collateral and (iii) all other monetary obligations, including fees, costs, expenses and indemnities, whether primary, secondary, direct, contingent, fixed or otherwise (including monetary obligations incurred during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), of Borrowers and the other Loan Parties under this Agreement and the other Loan Documents, and (b) the due and punctual performance of all covenants, agreements, obligations and liabilities of Borrowers and the other Loan Parties under or pursuant to this Agreement and the other Loan Documents. All Obligations of Borrowers hereunder and under each other Loan Document shall be the joint and several obligations of each Borrower.
          “OFAC” shall have the meaning assigned to such term in Section 3.19(b)(v).
          “Officers’ Certificate” shall mean a certificate executed by the chairman of the board of directors (if an officer), the chief executive officer, the president or one of the Financial Officers, each in his or her official (and not individual) capacity.
          “Organizational Documents” shall mean, with respect to any person, (i) in the case of any corporation, the articles or certificate of incorporation and by-laws (or similar documents) of such person, (ii) in the case of any limited liability company, the certificate of formation and operating agreement (or similar documents) of such person, (iii) in the case of any limited partnership, the certificate of formation and limited partnership agreement (or similar documents) of such person, (iv) in the case of any general partnership, the partnership agreement (or similar document) of such person and (v) in any other case, the functional equivalent of the foregoing.
          “Original Credit Agreement” shall have the meaning assigned to such term in the preamble hereto.

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          “Original Lender” shall mean each “Lender” (as defined in the Original Credit Agreement) party to the Original Credit Agreement immediately prior to the Restatement Effective Date.
          “Other Taxes” shall mean all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.
          “Parent” shall have the meaning assigned to such term in the preamble hereto.
          “Participant” shall have the meaning assigned to such term in Section 10.04(d).
          “Patriot Act” shall have the meaning assigned to such term in Section 4.01(h).
          “PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA.
          “Perfection Certificate” shall mean the perfection certificate dated the Closing Date, as the same shall be supplemented from time to time by a Perfection Certificate Supplement or otherwise.
          “Perfection Certificate Supplement” shall mean a certificate supplement in the form of Exhibit J-2 or any other form approved by the Collateral Agent.
          “Permitted Acquisition” shall mean any transaction for the (a) acquisition of all or substantially all of the property of any person, or of any business or division of any person; or (b) acquisition (including by merger or consolidation) of the Equity Interests of any person that becomes a Subsidiary after giving effect such transaction; provided that each of the following conditions shall be met:
     (i) no Default then exists or would result therefrom;
     (ii) unless expressly approved by the Administrative Agent, the person or business to be acquired shall have generated positive cash flow for the last four (or fewer quarters, if four are not available) quarter period for which financial statements are available most recently ended prior to the date of consummation of such acquisition;
     (iii) the person or business to be acquired shall be, or shall be engaged in, a business of the type that Borrowers and the Subsidiaries are permitted to be engaged in under Section 6.14;
     (iv) the board of directors or other governing body of the person to be acquired shall not have indicated publicly its opposition to the consummation of such acquisition (which opposition has not been publicly withdrawn);
     (v) all transactions in connection therewith shall be consummated in accordance with all applicable Requirements of Law;
     (vi) with respect to any transaction involving Acquisition Consideration of $5.0 million unless the Administrative Agent shall otherwise agree, Parent shall have provided the Administrative Agent and the Lenders with (A) historical financial statements for the last three fiscal years (or, if less, the number of years since formation) of the person or business to be acquired (audited if available without undue cost or delay) and unaudited financial statements thereof for the most recent interim period which are available, (B) reasonably detailed projections for the

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succeeding five years pertaining to the person or business to be acquired and updated projections for Parent after giving effect to such transaction, (C) a reasonably detailed description of all material information relating thereto and copies of all material documentation pertaining to such transaction, and (D) all such other information and data relating to such transaction or the person or business to be acquired as may be reasonably requested by the Administrative Agent or the Required Lenders; and
     (vii) the Acquisition Consideration for such acquisition shall not exceed $2.5 million and the aggregate amount of the Acquisition Consideration for all Permitted Acquisitions since the Closing Date shall not exceed $5.0 million.
          “Permitted Liens” shall have the meaning assigned to such term in Section 6.02.
          “Permitted Subordinated Debt” shall mean Subordinated Indebtedness of Parent that (i) by its terms is subordinated in right of payment to the Obligations to the same or a greater extent than the Debentures are subordinated to such Obligations and (ii) shall not mature, shall not require any cash payments of principal or interest, and shall not be subject to mandatory redemption or repurchase or redemption or repurchase of the option of the holder thereof, in each case prior to the first anniversary of the Maturity Date.
          “person” shall mean any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
          “Plan” shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA which is maintained or contributed to by any Company or its ERISA Affiliate or with respect to which any Company could incur liability (including under Section 4069 of ERISA).
          “Preferred Stock” shall mean, with respect to any person, any and all preferred or preference Equity Interests (however designated) of such person whether outstanding on the Closing Date or issued thereafter.
          “Preferred Stock Issuance” shall mean the issuance or sale by Parent or any of its Subsidiaries of any Preferred Stock after the Closing Date (other than as permitted by Section 6.01).
          “Pro Rata Percentage” of any LC Lender at any time shall mean the percentage of the total Credit-Linked Deposits and LC Loans of all LC Lenders represented by such LC Lender’s Credit-Linked Deposit and LC Loans.
          “property” shall mean any right, title or interest in or to property or assets of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible and including Equity Interests or other ownership interests of any person and whether now in existence or owned or hereafter entered into or acquired, including all Real Property.
          “Purchase Money Obligation” shall mean, for any person, the obligations of such person in respect of (a) Indebtedness (including Capital Lease Obligations) incurred for the purpose of financing all or any part of the purchase price of any property (including Equity Interests of any person) or the cost of installation, construction or improvement of any property; provided, however, that (i) such Indebtedness is incurred within one year after such acquisition, installation, construction or improvement of such property by such person and (ii) the amount of such Indebtedness (and any refinancing referred to in

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clause (b)) does not exceed 100% of the cost of such acquisition, installation, construction or improvement, as the case may be and (b) any refinancing thereof.
          “Qualified Capital Stock” of any person shall mean any Equity Interests of such person that are not Disqualified Capital Stock.
          “Qualified Capital Stock Issuance” shall mean the issuance by Parent of Qualified Capital Stock of Parent after the Closing Date.
          “Real Property” shall mean, collectively, all right, title and interest (including any leasehold, mineral or other estate) in and to any and all parcels of or interests in real property owned, leased or operated by any person, whether by lease, license or other means, together with, in each case, all easements, hereditaments and appurtenances relating thereto, all improvements and appurtenant fixtures and equipment, all general intangibles and contract rights and other property and rights incidental to the ownership, lease or operation thereof.
          “Refinancing” shall mean the repayment in full and the termination of any commitment to make extensions of credit under all of the outstanding Indebtedness listed on Schedule 1.01(a) of Parent or any of its Subsidiaries.
          “Register” shall have the meaning assigned to such term in Section 10.04(c).
          “Regulation D” shall mean Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
          “Regulation S-X” shall mean Regulation S-X promulgated under the Securities Act.
          “Regulation U” shall mean Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
          “Regulation X” shall mean Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
          “Reimbursement Obligations” shall mean Borrowers’ obligations under Section 2.18(e) to reimburse LC Disbursements.
          “Related Parties” shall mean, with respect to any person, such person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such person and of such person’s Affiliates.
          “Release” shall mean any spilling, leaking, seepage, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the Environment.
          “Requesting Lender” shall have the meaning assigned to such term in Section 2.16(b).
          “Required Class Lenders” shall mean (i) with respect to Term Loans, Lenders having more than 50% of all Term Loans outstanding and (ii) with respect to LC Loans or Credit-Linked Deposits, Required LC Lenders.

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          “Required Lenders” shall mean Lenders having more than 50% of the sum of all Loans and Credit-Linked Deposits outstanding.
          “Required LC Lenders” shall mean Lenders having more than 50% of the sum of all LC Loans and Credit-Linked Deposits outstanding.
          “Requirements of Law” shall mean, collectively, any and all requirements of any Governmental Authority including any and all laws, judgments, orders, decrees, ordinances, rules, regulations, statutes or case law.
          “Response” shall mean (a) “response” as such term is defined in CERCLA, 42 U.S.C. § 9601(24), and (b) all other actions required by any Governmental Authority or voluntarily undertaken to (i) clean up, remove, treat, abate or in any other way address any Hazardous Material in the Environment; (ii) prevent the Release or threat of Release, or minimize the further Release, of any Hazardous Material; or (iii) perform studies and investigations in connection with, or as a precondition to, or to determine the necessity of the activities described in, clause (i) or (ii) above.
          “Responsible Officer” of any person shall mean any executive officer or Financial Officer of such person and any other officer or similar official thereof with responsibility for the administration of the obligations of such person in respect of this Agreement.
          “Restatement Effective Date” shall mean the date on which this Agreement becomes effective pursuant to Section 4.01.
          “Sarbanes-Oxley Act” shall mean the United States Sarbanes-Oxley Act of 2002, as amended, and all rules and regulations promulgated thereunder.
          “Sale and Leaseback Transaction” has the meaning assigned to such term in Section 6.03.
          “Scheduled Repayment Date” shall have the meaning assigned to such term in Section 2.09.
          “Secured Obligations” shall mean (a) the Obligations and (b) the due and punctual payment and performance of all obligations of Borrowers and the other Loan Parties under each Hedging Agreement entered into with any counterparty that is a Secured Party and (c) the due and punctual payment and performance of all obligations of Borrower and the other Loan Parties (including overdrafts and related liabilities) under each Treasury Services Agreement entered into with any counterparty that is a Secured Party.
          “Secured Parties” shall mean, collectively, the Administrative Agent, the Collateral Agent, the Lenders and each counterparty to a Hedging Agreement or Treasury Services Agreement if at the date of entering into such Hedging Agreement or Treasury Services Agreement such person was an Agent or a Lender or an Affiliate of an Agent or a Lender and such person executes and delivers to the Administrative Agent a letter agreement in form and substance acceptable to the Administrative Agent pursuant to which such person (i) appoints the Collateral Agent as its agent under the applicable Loan Documents and (ii) agrees to be bound by the provisions of Sections 10.03 and 10.09 as if it were a Lender.
          “Securities Act” shall mean the Securities Act of 1933.

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          “Securities Collateral” shall have the meaning assigned to such term in the Security Agreement.
          “Security Agreement” shall mean the Security Agreement dated the Closing Date among the Loan Parties and Collateral Agent for the benefit of the Secured Parties.
          “Security Agreement Collateral” shall mean all property in which a security interest is granted pursuant to the Security Agreement (a) on the Closing Date or (b) thereafter pursuant to Section 5.10.
          “Security Documents” shall mean the Security Agreement, the Mortgages and each other security document or pledge agreement delivered in accordance with applicable local law to grant a security interest in any property as collateral for the Secured Obligations and any other document or instrument utilized to pledge or grant or purport to pledge or grant a security interest or lien on any property as collateral for the Secured Obligations.
          “Special Purpose Subsidiary” shall mean a Subsidiary of Parent with respect to which the board of directors of Parent determines that the principal business in which such Subsidiary engages, or reasonably expects to engage, prohibits such Subsidiary from being a Guarantor; provided that Investments shall only be permitted to be made in such Subsidiary to the extent permitted by Section 6.04.
          “Statutory Reserves” shall mean for any Interest Period for any Eurodollar Borrowing, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the United States Federal Reserve System in New York City with deposits exceeding one billion dollars against “Eurocurrency liabilities” (as such term is used in Regulation D). Eurodollar Borrowings shall be deemed to constitute Eurodollar liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets which may be available from time to time to any Lender under Regulation D.
          “Structured Securities” shall mean any Permitted Subordinated Indebtedness incurred by Parent or Preferred Stock issued by Parent that constitutes Qualified Capital Stock of Parent, in each case that is convertible into or exchangeable for Equity Interests of a Subsidiary of Parent (a “Subject Subsidiary”) in conjunction with a transaction in which such Subject Subsidiary ceases to be a Subsidiary; provided that (a) any such Preferred Stock shall not require that dividends be paid in cash prior to the first anniversary of the Maturity Date and (b) the conversion or exchange rate at which the principal amount or liquidation preference of, and accrued and unpaid interest or dividends, or accreted discount, on, such Indebtedness or Preferred Stock shall be converted into or exchanged for such Equity Interests shall be based on a value per share determined by the board of directors of Parent to reflect the fair market value of such Subject Subsidiary or by a method determined by such board of directors to be a reasonable basis for determining such fair market value; provided further that the aggregate principal or accreted amount or liquidation preference (without regard to any Structured Securities issued in respect of accrued and unpaid interest or dividends or any accretion of original issue discount) of Structured Securities outstanding at any time shall not exceed $150.0 million.
          “Structured Securities Issuance” shall mean the issuance of Structured Securities after the Closing Date.
          “Subject Subsidiary” shall have the meaning assigned to such term in the definition of Structured Securities.

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          “Subordinated Indebtedness” shall mean the Debentures and any other Indebtedness of any Loan Party that is by its terms subordinated in right of payment to the Obligations of such Loan Party.
          “Subsidiary” shall mean, with respect to any person (the “parent”) at any date, (i) any person the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, (ii) any other corporation, limited liability company, association or other business entity of which securities or other ownership interests representing more than 50% of the voting power of all Equity Interests entitled (without regard to the occurrence of any contingency) to vote in the election of the board of directors, managers or trustees thereof are, as of such date, owned, controlled or held by the parent and/or one or more subsidiaries of the parent, (iii) any partnership (a) the sole general partner or the managing general partner of which is the parent and/or one or more subsidiaries of the parent or (b) the only general partners of which are the parent and/or one or more subsidiaries of the parent and (iv) any other person that is otherwise Controlled by the parent and/or one or more subsidiaries of the parent.
          “Successful Syndication” has the meaning assigned to such term in the Fee Letter.
          “Syndication Agent” shall have the meaning assigned to such term in the preamble hereto.
          “Tax Return” shall mean all returns, statements, filings, attachments and other documents or certifications required to be filed in respect of Taxes.
          “Taxes” shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
          “Term Borrowing” shall mean a Borrowing comprised of Term Loans.
          “Term Loan Commitment” shall mean, (x) with respect to each Existing Term Loan Lender, the commitment, if any, of such Existing Term Loan Lender to have made an Existing Term Loan hereunder on the Closing Date in the amount set forth on Schedule I to the Lender Addendum executed and delivered by such Lender on the Closing Date or (y) with respect to each Additional Term Loan Lender on the Restatement Effective Date, the commitment, if any, of such Additional Term Loan Lender to make an Additional Term Loan hereunder on the Restatement Effective Date in the amount set forth on Schedule I to the Lender Addendum executed and delivered by such Lender on the Restatement Effective Date, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Term Loan Commitment, as applicable, as the same may be (a) reduced from time to time pursuant to Section 2.07 and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 10.04. Prior to the Restatement Effective Date, the initial aggregate amount of the Lenders’ Term Loan Commitments shall be $250.0 million and, on and after the Restatement Effective Date, the initial aggregate amount of the Lenders’ Term Loan Commitments shall be $300.0 million
          “Term Loan Lender” shall mean the Existing Term Loan Lenders and the Additional Term Loan Lenders.
          “Term Loans” shall mean the Existing Term Loans and the Additional Term Loans.
          “Transactions” shall have the meaning assigned to such term in the Original Credit Agreement.

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          “Transferred Guarantor” shall have the meaning assigned to such term in Section 7.09.
          “Treasury Services Agreement” shall mean any agreement relating to treasury, depositary and cash management services or automated clearinghouse transfer of funds.
          “Type,” when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBOR Rate or the Alternate Base Rate.
          “UCC” shall mean the Uniform Commercial Code as in effect from time to time (except as otherwise specified) in any applicable state or jurisdiction.
          “United States” shall mean the United States of America.
          “Voting Stock” shall mean, with respect to any person, any class or classes of Equity Interests pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the Board of Directors of such person.
          “Wholly Owned Subsidiary” shall mean, as to any person, (a) any corporation 100% of whose capital stock (other than directors’ qualifying shares) is at the time owned by such person and/or one or more Wholly Owned Subsidiaries of such person and (b) any partnership, association, joint venture, limited liability company or other entity in which such person and/or one or more Wholly Owned Subsidiaries of such person have a 100% equity interest at such time.
          “Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
          SECTION 1.02 Classification of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Class (e.g., a “Term Loan”) or by Type (e.g., a “Eurodollar Term Loan”) or by Class and Type (e.g., a “Eurodollar Term Loan”). Borrowings also may be classified and referred to by Class (e.g., a “Term Borrowing” “Borrowing of LC Loans”) or by Type (e.g., a “Eurodollar Borrowing”) or by Class and Type (e.g., a “Eurodollar Term Borrowing”).
          SECTION 1.03 Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a) any definition of or reference to any Loan Document, agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any person shall be construed to include such person’s successors and assigns, (c) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) unless stated otherwise or the context otherwise requires, all references herein to Exhibits and Schedules shall be construed to refer to Exhibits and Schedules to the Original Credit Agreement and all references herein to Articles and Sections shall be construed to refer to Articles and Sections of this Agreement, (e) any reference to any law or regulation herein shall refer to such law or regulation as amended, modified or supplemented from time to time, (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible

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assets and properties, including cash, securities, accounts and contract rights, and (g) references to agreements and other obligations of the Borrowers shall be construed as referring to the joint and several obligations of the Borrowers.
          SECTION 1.04 Accounting Terms; GAAP. Except as otherwise expressly provided herein, all financial statements to be delivered pursuant to this Agreement shall be prepared in accordance with GAAP as in effect from time to time and all terms of an accounting or financial nature shall be construed and interpreted in accordance with GAAP, as in effect from time to time.
          SECTION 1.05 Resolution of Drafting Ambiguities. Each Loan Party acknowledges and agrees that it was represented by counsel in connection with the execution and delivery of the Loan Documents to which it is a party, that it and its counsel reviewed and participated in the preparation and negotiation hereof and thereof and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation hereof or thereof.
          SECTION 1.06 Effect of This Agreement on the Original Credit Agreement and the Other Loan Documents. Upon satisfaction of the conditions precedent to the effectiveness of this Agreement set forth in Section 4.01, this Agreement shall be binding on Borrowers, the Agents, the Lenders and the other parties hereto and the provisions of the Original Credit Agreement shall be replaced by the provisions of this Agreement; provided that (i) all Loans, Letters of Credit, Credit-Linked Deposits or other Credit Extensions outstanding under the Original Credit Agreement shall continue as Loans, Letters of Credit, Credit-Linked Deposits or other Credit Extensions, as applicable, under this Agreement (and, in the case of Eurodollar Loans, with the same Interest Periods as were applicable to such Eurodollar Loans immediately prior to the Restatement Effective Date), (ii) all amounts owing by the Borrowers under the Original Credit Agreement to any person in respect of accrued and unpaid interest and fees on the Loans, Commitments, Credit-Linked Deposits and Letters of Credit shall continue to be due and owing on such Loans, Commitments, Credit-Linked Deposits and Letters of Credit under this Agreement and (iii) any person entitled to the benefits of Article III or Section 11.03 of the Original Credit Agreement shall continue to be entitled to the benefits of the corresponding provisions of this Agreement. Upon the effectiveness of this Agreement in accordance with Section 4.01, each Loan Document that was in effect immediately prior to the Restatement Effective Date and each certificate or other document that was delivered under the Original Credit Agreement on or prior to the Closing Date shall continue to be effective and, unless the context otherwise requires, any reference to the Original Credit Agreement contained therein shall be deemed to refer to this Agreement and any reference to the Term Loans shall be deemed to refer to the Existing Term Loans and the Additional Term Loans. By delivering a signature page to this Credit Agreement, the Original Lender consents to the amendment and restatement of the Original Credit Agreement as set forth herein.
ARTICLE II
THE CREDITS
          SECTION 2.01 Making of Additional Term Loans. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Additional Term Loan Lender agrees, severally and not jointly, to make an Additional Term Loan to Borrowers on the Restatement Effective Date in a principal amount not to exceed its Additional Term Loan Commitment.
          Amounts paid or prepaid in respect of Term Loans may not be reborrowed.

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          SECTION 2.02 Loans.
          (a) Each Term Loan shall be made as part of a Borrowing consisting of Term Loans made by the Lenders ratably in accordance with their applicable Term Loan Commitments, and each LC Loan required to be made pursuant to Section 2.18(e)(ii) shall be made by the LC Lenders from their Credit-Linked Deposit ratably in accordance with their LC Commitment; provided that the failure of any Lender to make its Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender).
          (b) Subject to Sections 2.11 and 2.12, each Term Borrowing shall be comprised entirely of ABR Term Loans or Eurodollar Term Loans as Parent may request pursuant to Section 2.03. Each Lender may at its option make any Eurodollar Term Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Term Loan; provided that any exercise of such option shall not affect the obligation of Borrowers to repay such Term Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time; provided that Parent shall not be entitled to request any Term Borrowing that, if made, would result in more than three Eurodollar Term Borrowings outstanding hereunder at any one time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings.
          (c) Each Lender shall make each Term Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to such account in New York City as the Administrative Agent may designate not later than 12:00 (noon), New York City time, and the Administrative Agent shall promptly credit the amounts so received to an account as directed by Parent in the applicable Borrowing Request or, if a Term Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders.
          (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date (in the case of any Eurodollar Term Borrowing), and at least 2 hours prior to the time (in the case of any ABR Term Borrowing), of any Term Borrowing that such Lender will not make available to the Administrative Agent such Lender’s portion of such Term Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent at the time of such Term Borrowing in accordance with paragraph (c) above, and the Administrative Agent may, in reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If the Administrative Agent shall have so made funds available, then, to the extent that such Lender shall not have made such portion available to the Administrative Agent, each of such Lender and Borrowers severally agrees to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrowers until the date such amount is repaid to the Administrative Agent at (i) in the case of Borrowers, the interest rate applicable at the time to the other Term Loans comprising such Borrowing and (ii) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender’s Term Loan as part of such Term Borrowing for purposes of this Agreement, and Borrowers’ obligation to repay the Administrative Agent such corresponding amount pursuant to this Section 2.02(d) shall cease.
          (e) Notwithstanding any other provision of this Agreement, Parent shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

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          SECTION 2.03 Borrowing Procedure. To request the Term Borrowing, Borrowers shall deliver, by hand delivery or telecopier, a duly completed and executed Borrowing Request to the Administrative Agent not later than 11:00 a.m., New York City time, on the date of the proposed Borrowing. Each Borrowing Request shall be irrevocable and shall specify the following information in compliance with Section 2.02:
          (a) the aggregate amount of such Term Borrowing;
          (b) the date of such Term Borrowing, which shall be a Business Day;
          (c) whether such Term Borrowing is to be an ABR Term Borrowing or a Eurodollar Term Borrowing;
          (d) in the case of a Eurodollar Term Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”;
          (e) the location and number of the account of the Borrowers to which funds are to be disbursed, which shall comply with the requirements of Section 2.02(c); and
          (f) that the conditions set forth in Sections 4.01(h), (i) and (j) have been satisfied as of the date of the notice.
          If no election as to the Type of Term Borrowing is specified, then the requested Term Borrowing shall be a Eurodollar Term Borrowing having an Interest Period as specified in clause (c) of the proviso to the definition of Interest Period. If no Interest Period is specified with respect to the requested Eurodollar Term Borrowing, then Borrowers shall be deemed to have selected an Interest Period as specified in clause (c) of the proviso to the definition of Interest Period. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Term Loan to be made as part of the requested Term Borrowing.
          SECTION 2.04 Evidence of Debt; Repayment of Loans.
          (a) Promise to Repay. Borrowers hereby unconditionally promise to pay to the Administrative Agent for the account of each Lender, the principal amount of each Loan of such Lender as provided in Section 2.09.
          (b) Lender and Administrative Agent Records. Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of Borrowers to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type and Class thereof and the Interest Period applicable thereto; (ii) the amount of any principal or interest due and payable or to become due and payable from Borrowers to each Lender hereunder; and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof. The entries made in the accounts maintained pursuant to this paragraph shall be prima facie evidence of the existence and amounts of the obligations therein recorded; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of Borrowers to repay the Loans in accordance with their terms.

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          (c) Promissory Notes. Any Lender by written notice to Borrowers (with a copy to the Administrative Agent) may request that Term Loans made by it be evidenced by a promissory note. In such event, Borrowers shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) in the form of Exhibit I. Thereafter, the Term Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).
          SECTION 2.05 Fees.
          (a) Administrative Agent Fees. Borrowers agree to pay to the Administrative Agent, for its own account, the administrative fees payable in the amounts and at the times separately agreed upon among Borrowers and the Administrative Agent (the “Administrative Agent Fees”).
          (b) LC Facility Fee. The Borrowers shall pay to the Administrative Agent for the account of each LC Lender a facility fee (the “LC Facility Fee”) equal to the product of (x) the sum of (A) the Applicable Margin with respect to LC Facility Fee and (B) the Credit-Linked Deposit Cost Amount and (y) the amount of such Lender’s Credit-Linked-Deposit. The LC Facility Fee relating to Credit Linked Deposits made on the Closing Date (I) as of the Closing Date shall accrue at all times from the Closing Date until the Maturity Date and (II) Credit Linked Deposits made on the Restatement Effective Date shall accrue at all times from the Restatement Effective Date until the Maturity Date and in each case shall be due and payable on each Interest Payment Date with respect to Credit-Linked Deposits, and on any date on which any Credit-Linked Deposit is terminated and the funds therein returned to such Lenders.
          (c) LC Fronting Fees. Borrowers agree to pay to each Issuing Bank a fronting fee (“Fronting Fee”), which shall accrue at the rate of 0.1875% per annum on the average daily aggregate outstanding face amount of all Letters of Credit issued (or deemed issued) by such Issuing Bank during the period from and including the Closing Date (in the case of Letters of Credit issued (or deemed issued) on the Closing Date) or the Restatement Effective Date (in the case of Letters of Credit issued (or deemed issued) on the Restatement Effective Date), in each case to but excluding the date on which there ceases to be any LC Exposure, as well as such Issuing Bank’s customary fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Accrued Fronting Fees shall be payable in arrears (i) on the last Business Day of March, June, September and December of each year, commencing on the first such date to occur after the Closing Date, and (ii) on the date on which the LC Commitments terminate. Any such fees accruing after the date on which there ceases to be any LC Exposure shall be payable on demand. Any other fees payable to an Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand therefor. All LC Facility Fees and Fronting Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
          (d) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders, except that Borrowers shall pay the Fronting Fees directly to the Issuing Banks. Once paid, none of the Fees shall be refundable under any circumstances.

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          SECTION 2.06 Interest on Loans.
          (a) ABR Loans. Subject to the provisions of Section 2.06(c), the Loans comprising each ABR Borrowing shall bear interest at a rate per annum equal to the Alternate Base Rate plus the Applicable Margin in effect from time to time.
          (b) Eurodollar Loans. Subject to the provisions of Section 2.06(c), the Loans comprising each Eurodollar Borrowing shall bear interest at a rate per annum equal to the Adjusted LIBOR Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin in effect from time to time.
          (c) Default Rate. Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by Borrowers hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount and all Loans shall, to the extent permitted by applicable law, bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of amounts constituting principal and premium, if any, of or interest on any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the preceding paragraphs of this Section or (ii) in the case of any other amount, 2% plus the rate applicable to the ABR Term Loans as provided in Section 2.06(a) (in either case, the “Default Rate”).
          (d) Interest Payment Dates. Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan; provided that (i) interest accrued pursuant to Section 2.06(c) shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
          (e) Interest Calculation. All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed (including the first day but excluding the last day). The applicable Alternate Base Rate or Adjusted LIBOR Rate shall be determined by the Administrative Agent in accordance with the provisions of this Agreement and such determination shall be conclusive absent manifest error.
          SECTION 2.07 Termination of Loan and Reduction of Commitments and Credit Linked Deposits.
          (a) Termination of Commitments. The Additional LC Commitments and the Additional Term Loan Commitments shall automatically terminate at 5:00 p.m., New York City time, on the Restatement Effective Date. Notwithstanding the foregoing, the Additional LC Commitments and the Additional Term Loan Commitments shall automatically terminate at 5:00 p.m., New York City time, on June 1, 2007, if the initial Credit Extension under this Agreement shall not have occurred by such time.
          (b) Optional Terminations and Reductions of Credit-Linked Deposits. At their option, Borrowers may at any time terminate, or from time to time permanently reduce, the Credit-Linked Deposits; provided that (i) each reduction of the Credit-Linked Deposits shall be in an amount that is (x) an integral multiple of $1.0 million and not less than $5.0 million or (y) the aggregate amount of the Credit-Linked Deposits then outstanding and (ii) the Credit-Linked Deposits shall not be terminated or reduced if, after giving effect thereto, the aggregate amount of LC Exposures would exceed the aggregate amount of Credit-Linked Deposits. In the case of a termination or reduction of the Credit-Linked Depos-

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its pursuant to the previous sentence and, so long as the LC Exposure (other than to the extent such LC Exposure is cash collateralized on terms satisfactory to the Issuing Banks and the Administrative Agent) as of the Maturity Date shall not exceed zero, at the Maturity Date, the Administrative Agent shall return to the LC Lenders, from the Credit-Linked Deposit Account in accordance with their respective Pro Rata Percentages.
          (c) Notice. Parent shall notify the Administrative Agent in writing of any election to terminate or reduce the Credit-Linked Deposits under Section 2.07(b) at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by Parent pursuant to this Section 2.07(c) shall be irrevocable; provided that a notice of termination of the Commitments delivered by Parent may state that such notice is conditioned upon the effectiveness of other credit facilities, debt or equity issuances, asset sales or other funding transactions, in which case such notice may be revoked by Parent (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Credit-Linked Deposits shall be permanent.
          SECTION 2.08 Interest Elections.
          (a) Generally. Each (x) Term Borrowing shall on the Closing Date or the Restatement Effective Date, as applicable, be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Borrowing, shall have an initial Interest Period as specified in such Borrowing Request and (y) LC Loan shall on the date such LC Loan is made have an Interest Period equal to the Interest Period then prevailing on the Credit-Linked Deposits. In the case of each Borrowing, Parent may thereafter elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest Periods therefor, all as provided in this Section. Parent may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. Notwithstanding anything to the contrary, Parent shall not be entitled to request any conversion or continuation that, if made, would result in more than three Eurodollar Borrowings outstanding hereunder at any one time.
          (b) Interest Election Notice. To make an election pursuant to this Section, Parent shall deliver, by hand delivery or telecopier, a duly completed and executed Interest Election Request to the Administrative Agent (i) in the case of the conversion of an ABR Borrowing to a Eurodollar Borrowing or the continuation of a Eurodollar Borrowing for an additional Interest Period, not later than 11:00 a.m., New York City time, three Business Days before the date of the proposed conversion or continuation and (ii) in the case of the conversion of a Eurodollar Borrowing to an ABR Borrowing, not later than 9:00 a.m., New York City time, on the date of the proposed conversion. Each Interest Election Request shall be irrevocable. Each Interest Election Request shall specify the following information in compliance with Section 2.02:
     (i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, or if outstanding Borrowings are being combined, allocation to each resulting
     (ii) Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

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     (iii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
     (iv) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and
     (v) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.
          If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then Parent shall be deemed to have selected an Interest Period of one month’s duration.
          Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
          (c) Automatic Continuation of Eurodollar Borrowing. If an Interest Election Request with respect to a Eurodollar Borrowing is not timely delivered prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be continued as a Eurodollar Borrowing with an Interest Period of one month’s duration. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing, the Administrative Agent or the Required Lenders may require, by notice to Borrowers, that (i) no outstanding Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.
          SECTION 2.09 Amortization of Term Borrowings and Payment of all Loans on Maturity Date. Borrowers shall pay to the Administrative Agent, for the account of the Lenders, on the dates set forth on Annex I, or if any such date is not a Business Day, on the immediately preceding Business Day (each such date, a “Scheduled Repayment Date”) a principal amount of the Term Loans equal to the amount set forth on Annex I for such date (as adjusted from time to time pursuant to Section 2.10(g)), together in each case with accrued and unpaid interest on the principal amount to be paid to but excluding the date of such payment. To the extent not previously paid, all Loans shall be due and payable on the Maturity Date.
          SECTION 2.10 Optional and Mandatory Prepayments of Loans and Mandatory Cash Collateralization of Letters of Credit.
          (a) Optional Prepayments. Borrowers shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, subject to the requirements of this Section; provided that each partial prepayment shall be in an amount that is an integral multiple of $1.0 million and not less than $5.0 million or the outstanding principal amount of such Borrowing.
          (b) Asset Sales. Not later than five Business Days following the receipt of any Net Cash Proceeds of any Asset Sale by Parent or any of its Subsidiaries (or (x) in the case of any Net Cash Proceeds received by any Subsidiary that is not a Loan Party pursuant to Section 6.06(b)(ii), within five Business Days of the date a Loan Party receives or is required to receive under Section 6.06(b)(ii) such Net Cash Proceeds and (y) in the case of any marketable securities received in consideration of such Asset Sale pursuant to Section 6.06(b)(iii)(y), within five Business Days of the date Parent or a Subsidiary receives or is required to receive pursuant to Section 6.06(b)(iii)(y) cash or Cash Equivalents upon the

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sale or other disposition of such marketable securities for, or other conversion thereof into, cash or Cash Equivalents), Borrowers shall make prepayments and cash collateralizations in accordance with Sections 2.10(g) and (h) in an aggregate amount equal to 100% of such Net Cash Proceeds; provided that:
     (i) no such prepayment or cash collateralization shall be required under this Section 2.10(b)(i) with respect to (A) any Asset Sale permitted by Section 6.06(a), (c), (d), (e), (f), (g), (h) or (i) (other than clause (v) of such clause (i)), (B) the disposition of property which constitutes a Casualty Event or (C) Asset Sales for fair market value resulting in no more than $2.0 million in Net Cash Proceeds per Asset Sale (or series of related Asset Sales) and less than $5.0 million in Net Cash Proceeds in any fiscal year of Parent; and
     (ii) so long as no Event of Default shall then exist or would arise therefrom, to the extent that the aggregate of such Net Cash Proceeds of Asset Sales does not exceed (x) $50.0 million for the fiscal year of Parent ending on December 31, 2007, (y) $37.5 million for the fiscal year of Parent ending on December 31, 2008 and (z) $25.0 million for each fiscal year of Parent ending on or after December 31, 2009, such Net Cash Proceeds shall not be required to be so applied on such date to the extent that Parent shall have delivered an Officers’ Certificate to the Administrative Agent on or prior to such date stating that such Net Cash Proceeds are expected to be used to make capital expenditures within 365 days following the date of such Asset Sale (which Officers’ Certificate shall set forth the estimates of the proceeds to be so expended); provided that if all or any portion of such Net Cash Proceeds is not so used within such 365-day period, such unused portion shall be applied on the last day of such period as a mandatory prepayment or cash collateralization as otherwise provided in this Section 2.10(b).
          (c) Debt Issuances; Disqualified Capital Stock Issuances; Structured Securities Issuances. Not later than five Business Days following the receipt of any Net Cash Proceeds of any Debt Issuance or Disqualified Capital Stock Issuance by Parent or any of its Subsidiaries or any Structured Securities Issuance, Borrowers shall make prepayments and cash collateralizations in accordance with Sections 2.10(g) and (h) in an aggregate amount equal to 100% of such Net Cash Proceeds.
          (d) Equity Issuance. Not later than five Business Days following the receipt of any Net Cash Proceeds of any Equity Issuance (other than any Structured Securities Issuance), Borrowers shall make prepayments and cash collateralizations in accordance with Sections 2.10(g) and (h) in an aggregate amount equal to 50% of such Net Cash Proceeds.
          (e) Casualty Events. Not later than five Business Days following the receipt of any Net Cash Proceeds from a Casualty Event by Parent or any of its Subsidiaries, Borrowers shall make prepayments and cash collateralizations in accordance with Sections 2.10(g) and (h) in an aggregate amount equal to 100% of such Net Cash Proceeds; provided that:
     (i) so long as no Default shall then exist or arise therefrom, such proceeds shall not be required to be so applied on such date to the extent that Borrower shall have delivered an Officers’ Certificate to the Administrative Agent on or prior to such date stating that such proceeds are expected to be used to repair, replace or restore any property in respect of which such Net Cash Proceeds were paid or to make other capital expenditures, no later than 365 days following the date of receipt of such proceeds; and
     (ii) if any portion of such Net Cash Proceeds shall not be so applied within such 365-day period, such unused portion shall be applied on the last day of such period as a mandatory prepayment or cash collateralization as otherwise provided in this Section 2.10(e).

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          (f) Excess Cash Flow. No later than ten Business Days after the date on which the financial statements with respect to any fiscal year of Parent in which an Excess Cash Flow Period occurs are or are required to be delivered pursuant to Section 5.01(a), Borrowers shall make prepayments and cash collateralizations in accordance with Sections 2.10(g) and (h) in an aggregate amount equal to (A) 50% of Excess Cash Flow for such Excess Cash Flow Period then ended minus (B) any voluntary prepayments of Loans and any voluntary reductions of the Credit-Linked Deposits under Section 2.07(b), in each case other than voluntary prepayments or reductions funded with the proceeds of Indebtedness or other Credit-Linked Deposits or similar deposits under a letter of credit facility; provided that if (x) Parent elects, in its sole discretion, to have the period described in clause (i) of the definition of Excess Cash Flow Period be an Excess Cash Flow Period and (y) the prepayment or cash collateralization required to be made under this Section 2.10(f) from Excess Cash Flow for such Excess Cash Flow Period is not made due to a failure to comply with Section 5.01(d)(iii) for such Excess Cash Flow Period, such prepayment or cash collateralization shall only be required to be made upon the earlier of (x) the date that such Section 5.01(d)(iii) is complied with for such Excess Cash Flow Period and (y) October 31, 2008.
          (g) Application of Prepayments. Prior to any optional or mandatory prepayment hereunder, Parent shall select the Borrowing or Borrowings to be prepaid and shall specify such selection in the notice of such prepayment pursuant to Section 2.10(h), subject to the provisions of this Section 2.10(g). Any prepayments of Term Loans pursuant to Section 2.10(a), (b), (c), (d), (e) or (f) shall be applied to reduce scheduled prepayments required under Section 2.09, on a pro rata basis among the prepayments remaining to be made on each other Scheduled Repayment Date. After application of mandatory prepayments of Term Loans described above in this Section 2.10(g) and to the extent there are Net Cash Proceeds or Excess Cash Flow remaining after such application, Borrowers shall (i) first, prepay outstanding LC Loans until all outstanding LC Loans have been paid in full and (ii) second, cash collateralize outstanding Letters of Credit, without notice or demand, by depositing on terms and in accounts satisfactory to the Collateral Agent, in the name of the Collateral Agent and for the benefit of the LC Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid LC Facility Fees as of such date.
          Amounts to be applied pursuant to this Section to the prepayment of Term Loans shall be applied to reduce outstanding ABR Term Loans. Any amounts remaining after each such application shall be applied to prepay Eurodollar Term Loans. Amounts to be applied pursuant to this Section to the prepayment of LC Loans shall be applied to reduce outstanding ABR LC Loans. Any amounts remaining after each such application shall be applied to prepay Eurodollar LC Loans. Notwithstanding the foregoing, if the amount of any prepayment of Term Loans required under this Section shall be in excess of the aggregate principal amount of the ABR Term Loans at the time outstanding (to the extent that such excess does not exceed the aggregate principal amount of the Eurodollar Term Loans at the time outstanding, an “Excess Term Loan Prepayment Amount”), only the portion of the amount of such prepayment as is equal to the amount of such outstanding ABR Term Loans shall be immediately prepaid and, at the election of Parent, the Excess Term Loan Prepayment Amount shall be either (A) deposited in an escrow account on terms satisfactory to the Collateral Agent and applied to the prepayment of Eurodollar Term Loans on the last day of the then next-expiring Interest Period for Eurodollar Term Loans; provided that (i) interest in respect of such Excess Term Loan Prepayment Amount shall continue to accrue thereon at the rate provided hereunder for the Loans which such Excess Term Loan Prepayment Amount is intended to repay until such Excess Term Loan Prepayment Amount shall have been used in full to repay such Loans and (ii) at any time while an Event of Default has occurred and is continuing, the Administrative Agent may, and upon written direction from the Required Lenders shall, apply any or all proceeds then on deposit to the payment of such Loans in an amount equal to such Excess Term Loan Prepayment Amount or (B) prepaid immediately, together with any amounts owing to the Lenders under Section 2.13. Notwithstanding the foregoing, if the amount of any prepayment of LC Loans required under this Section shall be in excess of the amount of the ABR LC Loans at the time outstanding (an “Excess LC Loan

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Prepayment Amount”), only the portion of the amount of such prepayment as is equal to the amount of such outstanding ABR LC Loans shall be immediately prepaid and, at the election of Parent, the Excess LC Loan Prepayment Amount shall be either (A) deposited in an escrow account on terms satisfactory to the Collateral Agent and applied to the prepayment of Eurodollar LC Loans on the last day of the then next-expiring Interest Period for Eurodollar LC Loans; provided that (i) interest in respect of such Excess Term Loan Prepayment Amount shall continue to accrue thereon at the rate provided hereunder for the Loans which such Excess LC Loan Prepayment Amount is intended to repay until such Excess LC Loan Prepayment Amount shall have been used in full to repay such Loans and (ii) at any time while an Event of Default has occurred and is continuing, the Administrative Agent may, and upon written direction from the Required Lenders shall, apply any or all proceeds then on deposit to the payment of such Loans in an amount equal to such Excess LC Loan Prepayment Amount or (B) prepaid immediately, together with any amounts owing to the Lenders under Section 2.13.
          (h) Notice of Prepayment. Parent shall notify the Administrative Agent by written notice of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m., New York City time, three Business Days before the date of prepayment and (ii) in the case of prepayment of an ABR Borrowing, not later than 11:00 a.m., New York City time, one Business Day before the date of prepayment. Each such notice shall be irrevocable. Each such notice shall specify the prepayment date, the principal amount of each Borrowing or portion thereof to be prepaid and, in the case of a mandatory prepayment, a reasonably detailed calculation of the amount of such prepayment. Promptly following receipt of any such notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing shall be (i) an integral multiple of $1.0 million and not less than $5.0 million or (ii) the aggregate principal amount of the Loans of the applicable Class then outstanding, in an amount that would be permitted in the case of a Credit Extension of the same Type as provided in Section 2.02, except as necessary to apply fully the required amount of a mandatory prepayment. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing and otherwise in accordance with this Section. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.06.
          (i) Prepayment Premium. If any prepayment of Loans under Section 2.10(a) or 2.10(c) (other than from the Net Cash Proceeds of Structured Securities) or reduction of Credit-Linked Deposits under Section 2.07(b) on or prior to the first anniversary of the Closing Date is made with Indebtedness or proceeds of credit-linked deposits having an effective interest rate or facility fees less than those applicable to the Loans or Credit-Linked Deposits at the time of such prepayment or reduction, or if any Lender is prepaid its Loans and returned its Credit Linked Deposits in connection with a replacement of such Lender pursuant to Section 10.02(d) solely because such Lender shall not have consented to an amendment to this Agreement that would lower such interest rate or fees, then such prepayment shall be accompanied by a premium payable by Borrowers equal to 1% of the principal amount of the Loans so prepaid or Credit-Linked Deposits so reduced or returned.
          SECTION 2.11 Alternate Rate of Interest. If prior to the commencement of any Interest Period for a Eurodollar Borrowing:
     (a) the Administrative Agent determines (which determination shall be final and conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBOR Rate for such Interest Period; or
     (b) the Administrative Agent is advised in writing by the Required Lenders that the Adjusted LIBOR Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period;

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then the Administrative Agent shall give written notice thereof to Borrowers and the Lenders as promptly as practicable thereafter and, until the Administrative Agent notifies Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (i) any Interest Election Request that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such Borrowing shall be made as an ABR Borrowing.
          SECTION 2.12 Yield Protection.
          (a) Increased Costs Generally. If any Change in Law shall:
     (i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in, by any Lender (except any reserve requirement reflected in the Adjusted LIBOR Rate) or any Issuing Bank; or
     (ii) impose on any Lender or any Issuing Bank or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender, such Issuing Bank or such Lender’s or such Issuing Bank’s holding company, if any, of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or such Issuing Bank hereunder (whether of principal, interest or any other amount), then, upon request of such Lender or such Issuing Bank, Borrowers will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank, as the case may be, for such additional costs incurred or reduction suffered.
          (b) Capital Requirements. If any Lender or any Issuing Bank determines (in good faith, but in its sole absolute discretion) that any Change in Law affecting such Lender or such Issuing Bank or any lending office of such Lender or such Lender’s or such Issuing Bank’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Bank’s capital or on the capital of such Lender’s or such Issuing Bank’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Bank, to a level below that which such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Bank’s policies and the policies of such Lender’s or such Issuing Bank’s holding company with respect to capital adequacy), then from time to time Borrowers will pay to such Lender or such Issuing Bank, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Bank or such Lender’s or such Issuing Bank’s holding company for any such reduction suffered.
          (c) Certificates for Reimbursement. A certificate of a Lender or an Issuing Bank setting forth the amount or amounts necessary to compensate such Lender or such Issuing Bank or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section and delivered to Parent shall be conclusive absent manifest error. Borrowers shall pay such Lender or such Issuing Bank, as the case may be, the amount shown as due on any such certificate within 10 Business Days after receipt thereof.

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          (d) Delay in Requests. Failure or delay on the part of any Lender or any Issuing Bank to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or such Issuing Bank’s right to demand such compensation; provided that Borrowers shall not be required to compensate a Lender or such Issuing Bank pursuant to this Section for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender or such Issuing Bank, as the case may be, notifies Parent of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or such Issuing Bank’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof).
          SECTION 2.13 Breakage Payments. In the event of (a) the payment or prepayment, whether optional or mandatory, of any principal of any Eurodollar Loan or reduction or termination of any Credit-Linked Deposits earlier than the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion of any Eurodollar Loan or reduction or termination of any Credit-Linked Deposits earlier than the last day of the Interest Period applicable thereto, (c) the failure to borrow, convert, continue or prepay any Eurodollar Loan or make, reduce or terminate any Credit-Linked Deposit on the date specified in any notice delivered pursuant hereto or (d) the assignment of any Eurodollar Loan or Credit-Linked Deposit earlier than the last day of the Interest Period applicable thereto as a result of a request by Parent pursuant to Section 2.16(b) (other than a request in respect of a Requesting Lender), then, in any such event, Borrowers shall compensate each Lender for the loss, cost and expense attributable to such event. In the case of a Eurodollar Loan or Credit-Linked Deposit, such loss, cost or expense to any Lender shall be deemed to include an amount determined by such Lender to be the excess, if any, of (i) the amount of interest which would have accrued on the principal amount of such Loan or Credit-Linked Deposit had such event not occurred, at the Adjusted LIBOR Rate that would have been applicable to such Loan or Credit-Linked Deposit, for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Loan or Credit-Linked Deposit), over (ii) the amount of interest which would accrue on such principal amount for such period at the interest rate which such Lender would bid were it to bid, at the commencement of such period, for dollar deposits of a comparable amount and period from other banks in the Eurodollar market. A certificate of any Lender setting forth in reasonable detail any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to Parent (with a copy to the Administrative Agent) and shall be conclusive and binding absent manifest error. Borrowers shall pay such Lender the amount shown as due on any such certificate within 5 Business Days after receipt thereof.
          SECTION 2.14 Payments Generally; Pro Rata Treatment; Sharing of Setoffs.
          (a) Payments Generally. Borrowers shall make each payment required to be made by them hereunder or under any other Loan Document (whether of principal, interest, fees or Reimbursement Obligations, or of amounts payable under Section 2.12, 2.13, 2.15 or 10.03, or otherwise) on or before the time expressly required hereunder or under such other Loan Document for such payment (or, if no such time is expressly required, prior to 2:00 p.m., New York City time), on the date when due, in immediately available funds, without setoff, deduction or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 677 Washington Boulevard, Stamford, Connecticut, except payments to be made directly to the Issuing Banks as expressly provided herein and except that payments pursuant to Sections 2.12, 2.13, 2.15 and 10.03 shall be made directly to the persons entitled thereto and payments pursuant to other Loan Documents shall be made to the persons specified therein. The Administrative Agent shall distribute any such payments received by it for the account of any other person to the appropriate recipient promptly following receipt thereof. If any payment under any Loan

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Document shall be due on a day that is not a Business Day, unless specified otherwise, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments under each Loan Document shall be made in dollars, except as expressly specified otherwise.
          (b) Pro Rata Treatment.
     (i) Each payment by Borrowers of interest, LC Facility Fees and premium in respect of the Loans or Credit-Linked Deposit shall be applied to the amounts of such obligations owing to the Lenders pro rata according to the respective amounts then due and owing to the Lenders.
     (ii) Each payment on account of principal of the Term Loans shall be allocated among the Term Loan Lenders pro rata based on the principal amount of the Term Loans held by the Term Loan Lenders and each payment on account of principal of LC Loans or return of Credit-Linked Deposits shall be allocated among the LC Lenders pro rata based on the principal amount of the LC Loans or the amount of Credit-Linked Deposits, respectively, held by the LC Lenders.
          (c) Insufficient Funds. If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, Reimbursement Obligations, interest and fees then due hereunder, such funds shall be applied (i) first, toward payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, toward payment of principal and Reimbursement Obligations then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and Reimbursement Obligations then due to such parties; provided that the Administrative Agent may, subject to any applicable federal, state or foreign bankruptcy, insolvency, receivership or similar orders, distribute any adequate protection payments it receives on behalf of the Lenders to the Lenders in its sole discretion (i.e., whether to pay the earliest accrued interest, all accrued interest on a pro rata basis or otherwise).
          (d) Sharing of Set-Off. If any Lender (and/or any Issuing Bank, which shall be deemed a “Lender” for purposes of this Section 2.14(d)) shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or other Obligations resulting in such Lender’s receiving payment of a proportion of the aggregate amount of its Loans and accrued interest thereon or other Obligations greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:
     (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
     (ii) the provisions of this paragraph shall not be construed to apply to (x) any payment made by Borrowers pursuant to and in accordance with the express terms of this Agreement or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans, participations in LC Disbursements or Credit Linked Deposits to any assignee or participant, other than to any Borrower or any Subsidiary (as to which the provisions of this paragraph shall apply).

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Each Loan Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable Requirements of Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Loan Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Loan Party in the amount of such participation. If under applicable bankruptcy, insolvency or any similar law any Secured Party receives a secured claim in lieu of a setoff or counterclaim to which this Section 2.14(d) applies, such Secured Party shall to the extent practicable, exercise its rights in respect of such secured claim in a manner consistent with the rights to which the Secured Party is entitled under this Section 2.14(d) to share in the benefits of the recovery of such secured claim.
          (e) Borrowers Default. Unless the Administrative Agent shall have received notice from Borrowers prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Banks hereunder that Borrowers will not make such payment, the Administrative Agent may assume that Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Banks, as the case may be, the amount due. In such event, if Borrowers have not in fact made such payment, then each of the Lenders or the Issuing Banks, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or such Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
          (f) Lender Default. If any Lender shall fail to make any payment required to be made by it pursuant to Section 2.02(c), 2.14(e), 2.18(d), 2.18(e) or 10.03(c), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations under such Sections until all such unsatisfied obligations are fully paid.
          SECTION 2.15 Taxes.
          (a) Payments Free of Taxes. Any and all payments by or on account of any obligation of the Loan Parties hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes; provided that if the Loan Parties shall be required by applicable Requirements of Law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, any Lender or any Issuing Bank, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the applicable Loan Party shall make such deductions and (iii) the applicable Loan Party shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable Requirements of Law.
          (b) Payment of Other Taxes by Borrowers. Without limiting the provisions of paragraph (a) above, Borrowers shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable Requirements of Law.
          (c) Indemnification by Borrowers. Borrowers shall indemnify the Administrative Agent, each Lender and each Issuing Bank, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender

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or such Issuing Bank, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrowers by a Lender or an Issuing Bank (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or an Issuing Bank, shall be conclusive absent manifest error.
          (d) Evidence of Payments. As soon as practicable after any payment of Indemnified Taxes or Other Taxes by Borrowers to a Governmental Authority, Borrowers shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment to the extent available, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
          (e) Status of Lenders. Any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to Borrowers and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of Borrowers or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable
     (i) duly completed original copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party which exempts such Foreign Lender from U.S. withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Foreign Lender,
     (ii) duly completed original copies of Internal Revenue Service Form W-8ECI certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of such Foreign Lender’s trade or business in the United States and exempt from U.S. withholding tax,
     (iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate, in substantially the form of Exhibit M, or any other form approved by the Administrative Agent, to the effect that such Foreign Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of Parent within the meaning of Section 881(c)(3)(B) of the Code, or (C) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue Service Form W-8BEN, or
     (iv) any other form prescribed by applicable Requirements of Law as a basis for claiming exemption from or a reduction in U.S. federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable Requirements of Law to permit Borrowers to determine the withholding or deduction required to be made.
          (f) Treatment of Certain Refunds. If the Administrative Agent, a Lender or an Issuing Bank determines, in its sole discretion, that it has received a refund of any Indemnified Taxes or Other Taxes as to which it has been indemnified by Borrowers or with respect to which either Borrower has paid additional amounts pursuant to this Section, it shall pay to Borrowers an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by Borrowers under this Section with respect to the Indemnified Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or such Issuing Bank, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided that Borrowers, upon the request of the Administrative Agent, such Lender or such Is-

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suing Bank, agree to repay the amount paid over to Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or such Issuing Bank in the event the Administrative Agent, such Lender or such Issuing Bank is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require the Administrative Agent, any Lender or any Issuing Bank to make available its tax returns (or any other information relating to its taxes that it deems confidential) to Borrowers or any other person. Notwithstanding anything to the contrary, in no event will any Lender be required to pay any amount to Borrowers the payment of which would place such Lender in a less favorable net after-tax position than such Lender would have been in if the additional amounts giving rise to such refund of any Indemnified Taxes or Other Taxes had never been paid.
          SECTION 2.16 Mitigation Obligations; Replacement of Lenders.
          (a) Designation of a Different Lending Office. If any Lender requests compensation under Section 2.12, or requires Borrowers to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or 2.15, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. A certificate setting forth such costs and expenses submitted by such Lender to Borrowers shall be conclusive absent manifest error.
          (b) Replacement of Lenders. If any Lender requests compensation under Section 2.12, or if Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, or if any Lender defaults in its obligation to fund Loans hereunder (any such Lender, a “Requesting Lender”), or if Parent exercises its replacement rights under Section 10.02(d), then Parent may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.04), all of its interests, rights and obligations under this Agreement and the other Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:
     (i) Borrowers shall have paid to the Administrative Agent the processing and recordation fee specified in Section 10.04(b);
     (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and Credit-Linked Deposits, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 2.13), assuming for this purpose (in the case of a Lender being replaced pursuant to Section 10.02(d)) that the Loans of such Lender were being prepaid) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or Borrowers (in the case of all other amounts including any amount pursuant to Section 2.10(i));
     (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments thereafter; and

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     (iv) such assignment does not conflict with applicable Requirements of Law.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling Parent to require such assignment and delegation cease to apply.
          SECTION 2.17 Credit-Linked Deposits.
          (a) To request the funding of the Credit-Linked Deposit Account, Borrowers shall deliver, by hand delivery or telecopier, a duly completed and executed and irrevocable funding request to the Administrative Agent by 11:00 a.m., New York City time, on the Business Day of the requested funding of the Credit-Linked Deposits containing substantially the same information as is required in clauses (a) and (b) of Section 2.03 in respect of the Borrowing Requests for Term Borrowings. Each LC Lender agrees, severally and not jointly, to remit to the Administrative Agent on the Restatement Effective Date, an amount equal to such LC Lender’s Additional LC Commitment as its Credit-Linked Deposit to be made on the Restatement Effective Date. The Administrative Agent shall deposit all such amounts received by it into the Credit-Linked Deposit Account promptly upon receipt thereof. Each LC Lender irrevocably and unconditionally agrees that its Credit-Linked Deposit shall be available (i) to pay to the Issuing Banks such Lender’s Pro Rata Percentage of any Reimbursement Obligations in respect of any Letter of Credit that is not reimbursed by Borrowers and (ii) to fund such Lender’s LC Loans, in each case, pursuant to Section 2.18(e)(ii).
          (b) No Person (other than the Administrative Agent) shall have the right to make any withdrawal from the Credit-Linked Deposit Account or to exercise any other right or power with respect thereto. Each LC Lender agrees that its right, title and interest in and to the Credit-Linked Deposit Account shall be limited to the right to require its Credit-Linked Deposit to be applied as provided in Section 2.18(e)(ii) and that it will have no right to require the return of its Credit-Linked Deposit other than as expressly provided herein. Each LC Lender hereby acknowledges that (i) its Credit-Linked Deposit constitutes payment for its participations in Letters of Credit issued, deemed issued or to be issued hereunder, (ii) its Credit-Linked Deposit and any investments made therewith shall secure its obligations to the Issuing Banks hereunder (each LC Lender hereby grants to the Administrative Agent, for the benefit of the Issuing Banks, a security interest in its Credit-Linked Deposit and all of its rights in the Credit-Linked Deposit Account to secure its obligations under this Section and agrees that the Administrative Agent, as holder of the Credit-Linked Deposits and any investments made therewith, will be acting as collateral agent for the Issuing Banks) and (iii) the Issuing Banks will be issuing (in the case of UBS AG, Stamford Branch, subject to the limitations set forth in the definition “Issuing Banks” set forth in Section 1.1), amending, renewing and extending Letters of Credit in reliance on the availability of such Lender’s Credit-Linked Deposit to discharge such Lender’s obligations in connection with any Reimbursement Obligations in respect thereof in accordance with Section 2.18(e). Each Issuing Bank hereby appoints the Administrative Agent as its collateral agent for the purpose of holding the Credit-Linked Deposits, any investments made therewith and the Credit-Linked Deposit Account. The Administrative Agent hereby grants a security interest to the Issuing Banks in all of its rights, title and interest to the Credit-Linked Deposit Account. The funding of the Credit-Linked Deposits and the agreements with respect thereto set forth in this Agreement constitute arrangements among the Administrative Agent, the Issuing Banks and the LC Lenders with respect to the funding obligations of such Lenders under this Agreement, and the Credit-Linked Deposits do not constitute assets of, or loans or extensions of credit to, any Loan Party. Without limiting the generality of the foregoing, (i) each party hereto acknowledges and agrees that the Credit-Linked Deposits are and at all times will continue to be property of the LC Lenders, and that no amount on deposit at any time in the Credit-Linked Deposit Account shall be the property of any Loan Party, constitute “Collateral” under the Credit Documents (except the Credit-Linked Deposits will serve as collateral to the extent contemplated in clause (ii) above) or otherwise be available in any

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manner to satisfy any Obligations of any Loan Party under the Credit Documents other than the LC Obligations that do not consist of LC Loans and (ii) the obligation to return the Credit-Linked Deposits to the LC Lenders is solely an obligation of the Administrative Agent, and none of Parent or any of its Subsidiaries shall have any liability or obligation in respect of the principal amount of the Credit-Linked Deposits.
          (c) Each of Borrowers, the Administrative Agent, the Issuing Banks and the LC Lenders hereby acknowledges and agrees that each LC Lender is making its payment on the Restatement Effective Date pursuant to Section 2.17(a) to be paid into the Credit-Linked Deposit Account for application in the manner contemplated by Section 2.18(e)(ii). The Administrative Agent agrees (except during periods when such Credit-Linked Deposits, or funds applied by or on behalf of an Issuing Bank against such Credit-Linked Deposits, are used to cover LC Disbursements under Letters of Credit) to direct the investment of the Credit-Linked Deposits as follows: (i) the Administrative Agent shall invest the Credit-Linked Deposits in such investments as the Administrative Agent shall from time to time determine and (ii) on the last Business Day of such Interest Period the Administrative Agent shall disburse to the LC Lenders in accordance with their Pro Rata Percentages the amount of the interest for such Interest Period on the Credit-Linked Deposits held by it at the rate equal to the Adjusted LIBOR Rate for such Interest Period minus the Credit-Linked Deposit Cost Amount.
          (d) With respect to any Interest Period during which an LC Loan is deemed made, the Administrative Agent shall determine the amount of interest payable by the Borrowers on such LC Loan for the portion of such Interest Period during which such LC Loan is outstanding and the amount of interest payable by the Administrative Agent on the Credit-Linked Deposits during such Interest Period pursuant to the applicable provisions of this Agreement, and such determination shall be conclusive absent manifest error.
          SECTION 2.18 Letters of Credit
          (a) General. Subject to the terms and conditions set forth herein, Borrowers may request an Issuing Bank, and such Issuing Bank agrees, to issue Letters of Credit for Parent’s own account or for the account of a Subsidiary of Parent in a form reasonably acceptable to the Administrative Agent and such Issuing Bank, at any time and from time to time during the LC Availability Period; provided that Borrowers shall be co-applicants, and be jointly and severally liable, with respect to each Letter of Credit issued for the account of a Subsidiary of Parent, provided further that the Borrowers only may request UBS AG, Stamford Branch, to issue Letters of Credit to replace Existing Letters of Credit issued by UBS AG, Stamford Branch that are outstanding on the Restatement Effective Date and or to amend, renew or extend such Letters of Credit. No Issuing Bank shall have an obligation to issue, and Borrowers shall not request the issuance of, any Letter of Credit at any time if after giving effect to such issuance, the LC Exposure would exceed the aggregate amount of the Credit-Linked Deposits. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by Borrowers to, or entered into by Borrowers with, an Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.
          (b) Request for Issuance, Amendment, Renewal, Extension; Certain Conditions and Notices. To request the issuance of a Letter of Credit or the amendment, renewal or extension of an outstanding Letter of Credit, Borrowers shall deliver, by hand or telecopier (or transmit by electronic communication, if arrangements for doing so have been approved by the applicable Issuing Bank), an LC Request to the applicable Issuing Bank and the Administrative Agent not later than 11:00 a.m. on the third Business Day preceding the requested date of issuance, amendment, renewal or extension (or such later date and time as is acceptable to the applicable Issuing Bank) and the Administrative Agent.

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          A request for an initial issuance of a Letter of Credit shall specify in form and detail satisfactory to the applicable Issuing Bank:
     (i) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day);
     (ii) the amount thereof;
     (iii) the expiry date thereof (which shall not be later than the close of business on the Letter of Credit Expiration Date);
     (iv) the name and address of the beneficiary thereof;
     (v) whether the Letter of Credit is to be issued for its own account or for the account of one of its Subsidiaries (provided that Borrowers shall be co-applicants, and therefore jointly and severally liable, with respect to each Letter of Credit issued for the account of a Subsidiary);
     (vi) the documents to be presented by such beneficiary in connection with any drawing thereunder;
     (vii) the full text of any certificate to be presented by such beneficiary in connection with any drawing thereunder;
     (viii) with respect to Letters of Credit issued for the account of a Subsidiary (other than BE LLC) only, all documentation and other information that may be required by the Lenders in order to enable compliance with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, including the information described in Section 10.13; and
     (ix) such other matters as the applicable Issuing Bank may require.
          A request for an amendment, renewal or extension of any outstanding Letter of Credit shall specify in form and detail satisfactory to the applicable Issuing Bank:
     (i) the Letter of Credit to be amended, renewed or extended;
     (ii) the proposed date of amendment, renewal or extension thereof (which shall be a Business Day);
     (iii) the nature of the proposed amendment, renewal or extension;
     (iv) with respect to Letters of Credit issued for the account of a Subsidiary (other than BE LLC) only, all documentation and other information that may be required by the Lenders in order to enable compliance with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, including the information described in Section 10.13; and
     (v) such other matters as the applicable Issuing Bank may require.
If requested by an Issuing Bank, the Borrowers also shall submit a letter of credit application on such Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and, upon issuance, amendment, renewal or extension

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of each Letter of Credit, the Borrowers shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, (i) the LC Exposure shall not exceed the aggregate amount of the Credit-Linked Deposits and (ii)(x) for Letters of Credit issued on the Closing Date, the conditions set forth in Article IV in respect of such issuance, amendment, renewal or extension shall have been satisfied and (y) for Letters of Credit issued after the Closing Date, no Event of Default under Section 8.01(a), (b), (h) or (i) shall have occurred and be continuing. Unless an Issuing Bank shall agree otherwise, no Letter of Credit issued by such Issuing Bank shall be in an initial amount less than $25,000.
          Upon the issuance of any Letter of Credit or amendment, renewal, extension or modification to a Letter of Credit, the applicable Issuing Bank shall promptly notify the Administrative Agent, who shall promptly notify each LC Lender, thereof, which notice shall be accompanied by a copy of such Letter of Credit or amendment, renewal, extension or modification to a Letter of Credit and the amount of such Lender’s respective participation in such Letter of Credit pursuant to Section 2.18(d). On the first Business Day of each calendar month, each Issuing Bank shall provide to the Administrative Agent a report listing all outstanding Letters of Credit issued by such Issuing Bank and the amounts and beneficiaries thereof and the Administrative Agent shall promptly provide such report to each LC Lender.
          On, and effective as of, the Closing Date, each Existing Letter of Credit shall be deemed to have been issued hereunder.
          (c) Expiration Date.
     (i) Each Letter of Credit shall expire at or prior to the close of business on the earlier of (x) the date which is one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (y) the Letter of Credit Expiration Date.
     (ii) If the applicable Borrower so requests in any Letter of Credit Request, the applicable Issuing Bank shall issue a Letter of Credit that has automatic renewal provisions (each, an “Auto-Renewal Letter of Credit”); provided that any such Auto-Renewal Letter of Credit must permit such Issuing Bank to prevent any such renewal at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the applicable Issuing Bank, the applicable Borrower shall not be required to make a specific request to such Issuing Bank for any such renewal. Once an Auto-Renewal Letter of Credit has been issued, the LC Lenders shall be deemed to have authorized (but may not require) the applicable Issuing Bank to permit the renewal of such Letter of Credit at any time to an expiry date not later than the earlier of (i) one year from the date of such renewal and (ii) the Letter of Credit Expiration Date; provided that such Issuing Bank shall not permit any such renewal if an Event of Default under Section 8.01(a), (b), (h) or (i) has occurred and is continuing at the time of such renewal.
          (d) Participations. By the issuance, or deemed issuance, of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the applicable Issuing Bank or the Lenders, such Issuing Bank hereby irrevocably grants to each LC Lender, and each LC Lender hereby acquires from such Issuing Bank, a participation in such Letter of Credit equal to such LC Lender’s Pro Rata Percentage of the aggregate amount available to be drawn under such Letter of Credit. Notwithstanding anything to the contrary in any Loan Document, the sole funding obligation of each LC Lender in respect of (i) the Existing LC Commitment has been satisfied in full on the Closing Date by the making on the Closing Date of such LC Lender’s Credit-Linked Deposit relating to such LC Lender’s Existing LC Commitment and (ii) the Additional LC Commitment be satisfied in

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full on the Restatement Effective Date by the making on the Restatement Effective Date of such LC Lender’s Credit-Linked Deposit relating to such LC Lender’s Additional LC Commitment.
          (e) Reimbursement.
     (i) If an Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit issued by it, Borrowers shall reimburse such LC Disbursement by paying to such Issuing Bank an amount equal to such LC Disbursement not later than 3:00 p.m., New York City time, on the date that such LC Disbursement is made if Borrowers shall have received notice of such LC Disbursement prior to 11:00 a.m., New York City time, on such date, or, if such notice has not been received by Borrowers prior to such time on such date, then not later than 3:00 p.m., New York City time, on the Business Day immediately following the day that Borrowers receive such notice; provided that if such reimbursement is not made and an LC Loan may be made as set forth below, Borrowers’ obligation to make such payment shall be discharged and replaced by the resulting LC Loan.
     (ii) In the event that an Issuing Bank makes any LC Disbursement and Borrowers shall not have repaid such amount in full to such Issuing Bank pursuant to Section 2.18(e)(i), such Issuing Bank shall notify the Administrative Agent and the Administrative Agent shall use its commercially reasonable efforts to notify each LC Lender of such failure, and the Administrative Agent shall apply from the Credit-Linked Deposits toward such LC Disbursement each LC Lender’s Pro Rata Percentage of such LC Disbursement from the Credit-Linked Deposit Account. In the event the Administrative Agent applies the Credit-Linked Deposits to LC Disbursements under a Letter of Credit pursuant to the preceding sentence, Borrowers shall have the right (provided no Event of Default under Section 8.01(a), (b), (h) or (i) shall have occurred and be continuing) to pay over to the Administrative Agent in reimbursement thereof an amount equal to the full amount of such LC Disbursements, and such payment shall be applied by the Administrative Agent in accordance with clause (ii) of the immediately following sentence. Promptly following receipt by the Administrative Agent of any payment by Borrowers in respect of any LC Disbursement under a Letter of Credit, the Administrative Agent shall distribute such payment (i) if no payments in respect of such LC Disbursement have been made from the Credit Linked Deposits, to such Issuing Bank or (ii) to the extent payments have been made from the Credit-Linked Deposits, to the Credit-Linked Deposit Account with respect to such Letter of Credit to be added to the Credit-Linked Deposits held by the Administrative Agent. Borrowers acknowledge that each payment made pursuant to this paragraph in respect of any unreimbursed payment is required to be made for the benefit of the applicable Issuing Bank indicated in the immediately preceding sentence; provided that, if no Event of Default under Section 8.01(a), (b), (h) or (i) shall have occurred and be continuing, then any payment made from the Credit-Linked Deposit Account pursuant to this paragraph to reimburse such Issuing Bank for any unreimbursed payment shall be deemed an extension of term loans made on such date by each LC Lender ratably in accordance with its Pro Rata Percentage of the Credit-Linked Deposits (such term loans, the “LC Loans”), and the amount so funded shall reduce the Credit-Linked Deposits.
          (f) Obligations Absolute. The Reimbursement Obligation of Borrowers as provided in Section 2.18(e) shall be absolute, unconditional and irrevocable, and shall be paid and performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein; (ii) any draft or other document presented under a Letter of Credit being proved to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iii) payment by an Issuing Bank under a Letter of Credit against presentation of a draft or other document that fails to comply with the terms of such Letter of Credit; (iv) any other event or

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circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the obligations of Borrowers hereunder; (v) the fact that a Default shall have occurred and be continuing; or (vi) any material adverse change in the business, property, results of operations, prospects or condition, financial or otherwise, of Parent and its Subsidiaries. None of the Agents, the Lenders, the Issuing Banks or any of their Affiliates shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the applicable Issuing Bank; provided that the foregoing shall not be construed to excuse such Issuing Bank from liability to Borrowers to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by Borrowers to the extent permitted by applicable Requirements of Law) suffered by Borrowers that are caused by such Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of an Issuing Bank (as finally determined by a court of competent jurisdiction), such Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, each Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
          (g) Disbursement Procedures. The applicable Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The applicable Issuing Bank shall promptly give written notice to the Administrative Agent and Borrowers of such demand for payment and whether such Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve Borrowers of their Reimbursement Obligation to such Issuing Bank and the LC Lenders with respect to any such LC Disbursement (other than with respect to the timing of such Reimbursement Obligation set forth in Section 2.18(e)).
          (h) Interim Interest. If the applicable Issuing Bank shall make any LC Disbursement, then, unless Borrowers shall reimburse such LC Disbursement in full on the date such LC Disbursement is made or the amount of such LC Disbursement is satisfied out of the Credit Linked Deposits, the unpaid amount thereof shall bear interest payable on demand, for each day from and including the date such LC Disbursement is made to but excluding the date that Borrowers reimburse such LC Disbursement or such LC Disbursement is repaid with a Credit-Linked Deposit, at the rate per annum determined pursuant to Section 2.06(c). Interest accrued pursuant to this paragraph shall be for the account of the applicable Issuing Bank, except that interest accrued on and after the date of payment by any LC Lender pursuant to Section 2.18(e)(ii) to reimburse such Issuing Bank shall be for the account of such LC Lender to the extent of such payment.
          (i) Resignation or Removal of an Issuing Bank. UBS AG, Stamford Branch, may resign as Issuing Bank at any time upon at least 30 days’ prior notice to the Lenders, the Administrative Agent and Borrowers. Any other Issuing Bank may, so long as there shall remain at least one Issuing Bank hereunder other than UBS AG, Stamford Branch, resign as Issuing Bank hereunder at any time upon at least 30 days’ prior notice to the Lenders, the Administrative Agent and Borrowers. An Issuing

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Bank may be replaced at any time by written agreement among Borrowers, each Agent, the replaced Issuing Bank and the successor Issuing Bank. An additional Issuing Bank may be designated at any time by written agreement among the Borrowers, each Agent and such additional Issuing Bank, and the Lenders hereby consent and authorize, notwithstanding any requirements of Section 10.02 to the contrary, Borrowers, the Administrative Agent, the Issuing Banks and any such additional or replacement the Issuing Bank, to enter into any amendment or supplement to the Loan Documents to effectuate the addition of or replacement of such Issuing Bank. At the time any such resignation or replacement shall become effective, Borrowers shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.05(c). The Administrative Agent shall notify the Lenders of any such replacement of an Issuing Bank or the designation of any additional Issuing Bank. From and after the effective date of any such resignation, replacement or addition, as applicable, (i) the successor or any additional Issuing Bank shall have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit to be issued by it thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor or additional Issuing Bank and all previous Issuing Banks, as the context shall require. After the resignation or replacement of an Issuing Bank hereunder, the resigned or replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such resignation or replacement, but shall not be required to issue additional Letters of Credit.
          (j) Other. No Issuing Bank shall be under any obligation to issue any Letter of Credit if any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain such Issuing Bank from issuing such Letter of Credit, or any Requirement of Law applicable to such Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over such Issuing Bank shall prohibit, or request that such Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon such Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which such Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon such Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which such Issuing Bank in good faith deems material to it.
          No Issuing Bank shall be under any obligation to amend any Letter of Credit if (A) such Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
          Each Loan Party represents and warrants to the Administrative Agent, the Collateral Agent, the Issuing Banks and each of the Lenders (with references to the Companies being references thereto after giving effect to the Transactions unless otherwise expressly stated) that:
          SECTION 3.01 Organization; Powers. Each Company (a) is duly organized and validly existing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to carry on its business as now conducted and to own and lease its property and (c) is qualified and in good standing (to the extent such concept is applicable in the applicable jurisdiction) to do business in every jurisdiction where such qualification is required, except in such jurisdictions where the failure to so

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qualify or be in good standing, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
          SECTION 3.02 Authorization; Enforceability. The Transactions to be entered into by each Loan Party are within such Loan Party’s powers and have been duly authorized by all necessary action on the part of such Loan Party. This Agreement has been duly executed and delivered by each Loan Party and constitutes, and each other Loan Document to which any Loan Party is to be a party, when executed and delivered by such Loan Party, will constitute, a valid and binding agreement of such Loan Party, and each Note, when executed and delivered by the Borrowers, will constitute a valid and binding obligation of each Borrower, in each case, enforceable against the loan Parties party thereto or the Borrowers, as the case may be, in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors’ rights generally, concepts or reasonableness and general principles of equity, regardless of whether considered in a proceeding in equity or at law.
          SECTION 3.03 No Conflicts. Except as set forth on Schedule 3.03, the Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except (i) such as have been obtained or made and are in full force and effect, (ii) filings necessary to perfect Liens created by the Loan Documents and (iii) consents, approvals, registrations, filings, permits or actions the failure to obtain or perform which could not reasonably be expected to result in a Material Adverse Effect, (b) will not violate the Organizational Documents of any Company, (c) will not violate any Requirement of Law, except for violations that would not reasonably be expected to result in a Material Adverse Effect, (d) will not violate, or result in a default or require any consent or approval under, any indenture, agreement or other instrument binding upon any Company or its property, or give rise to a right thereunder to require any payment to be made by any Company, except for violations, defaults or requirements that would not reasonably be expected to result in a Material Adverse Effect, and (e) will not result in the creation or imposition of any Lien on any property of any Company, except Liens created by the Loan Documents and Permitted Liens.
          SECTION 3.04 Financial Statements; Projections.
          (a) Historical Financial Statements. Parent has heretofore delivered to the Lenders the consolidated balance sheets and related statements of income, stockholders’ equity and cash flows of Parent (i) as of and for the fiscal years ended December 31, 2004 and 2005, audited by and accompanied by an opinion of PricewaterhouseCoopers LLP, independent public accountants, and (ii) as of and for each fiscal quarter of 2006 and for the fiscal year ended December 31, 2006, in each case, certified by the chief financial officer of Parent. To the best of the Company’s knowledge after due inquiry, subject to (in the case of financial statements for non-annual periods and for the fiscal year ended December 31, 2006) year-end audit adjustments, the effect of events subsequent to the Closing Date and lack of footnotes, such financial statements are presented in accordance with GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of Parent as of the dates, and for the periods to, which they relate.
          (b) No Liabilities. Except as set forth in the financial statements referred to in Section 3.04(a), to the best of the Company’s knowledge after due inquiry, there are no liabilities of any Company of any kind, whether accrued, contingent, absolute, determined, determinable or otherwise, which would reasonably be expected to result in a Material Adverse Effect. Since December 31, 2006, to the best of the Company’s knowledge after due inquiry, there has been no event, change, circumstance or occurrence that, individually or in the aggregate, has had a Material Adverse Effect.

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          (c) Operating Metrics and Cost Metrics. The operating metrics and cost metrics delivered pursuant to Section 4.01(e)(i) of the Original Credit Agreement were prepared in good faith by the Loan Parties.
          (d) Projections and Forecasts. The projections and forecasts of financial performance of Parent and its subsidiaries included in the Confidential Information Memorandum have been prepared in good faith by Borrowers and based on assumptions believed by Borrowers to be reasonable.
          SECTION 3.05 Properties.
          (a) Generally. Each Company has good title to, or valid leasehold interests in, all its property material to its business, free and clear of all Liens except for Permitted Liens and minor irregularities or deficiencies in title that, individually or in the aggregate, do not interfere with its ability to conduct its business as currently conducted or to utilize such property for its intended purpose and except for such Liens, irregularities, invalidities and deficiencies that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. The property of the Companies, taken as a whole, (i) is in good operating order, condition and repair (ordinary wear and tear excepted) and (ii) constitutes all the property which is required for the business and operations of the Companies as presently conducted, except in each case where failure to be in such order, condition or repair or lack of required property would not reasonably be expected to result in a Material Adverse Effect.
          (b) Real Property. Schedule 6 to the Perfection Certificate dated the Closing Date contains a true and complete list of each interest in Real Property owned by any Company as of the Closing Date.
          (c) Collateral. Except to the extent that the failure to do so would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, each Company owns or has rights to use all of the Collateral and all rights with respect to any of the foregoing used in, necessary for or material to each Company’s business as currently conducted. The use by each Company of such Collateral and all such rights with respect to the foregoing do not infringe on the rights of any person other than such infringement which would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. No claim has been made and remains outstanding that any Company’s use of any Collateral does or may violate the rights of any third party that would, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
          SECTION 3.06 Intellectual Property.
          (a) Ownership/No Claims. Each Loan Party owns, or is licensed to use, all patents, patent applications, trademarks, trade names, service marks, copyrights, technology, trade secrets, proprietary information, domain names, know-how and processes necessary for the conduct of its business as currently conducted (the “Intellectual Property”), except for those the failure to own or license which, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. No claim has been asserted and is pending by any person challenging or questioning the use of any such Intellectual Property or the validity or effectiveness of any such Intellectual Property, nor does any Loan Party know of any valid basis for any such claim, except for such claims that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. The use of such Intellectual Property by each Loan Party does not infringe the rights of any person, except for such infringements that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

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          (b) No Violations or Proceedings. To each Loan Party’s knowledge, on and as of the Closing Date, there is no material violation by others of any right of such Loan Party with respect to any copyright, patent or trademark listed in Schedule 10(a) or 10(b) to the Perfection Certificate, pledged by it under the name of such Loan Party except as may be set forth on Schedule 3.06(b) or except for such violations that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
          SECTION 3.07 Equity Interests and Subsidiaries.
          (a) Equity Interests. Schedules 1(a) and 8 to the Perfection Certificate dated the Closing Date set forth a list of (i) all the Loan Parties and their jurisdictions of organization as of the Closing Date and (ii) the number of each class of Equity Interests of any Subsidiary of Parent held by any Loan Party on the Closing Date. All Equity Interests of each Company are duly and validly issued and are fully paid and non-assessable. All Equity Interests of BE LLC are owned directly by Parent. Each Loan Party is the record and beneficial owner of, and has good and marketable title to, the Equity Interests pledged by it under the Security Agreement, free of any and all Liens, rights or claims of other persons, except Permitted Liens, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any such Equity Interests.
          (b) No Consent of Third Parties Required. No consent of any person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or reasonably desirable (from the perspective of a secured party) in connection with the creation, perfection or first priority status of the security interest of the Collateral Agent in any Equity Interests pledged to the Collateral Agent for the benefit of the Secured Parties under the Security Agreement or the exercise by the Collateral Agent of the voting or other rights provided for in the Security Agreement or the exercise of remedies in respect thereof.
          SECTION 3.08 Litigation; Compliance with Laws. Except as disclosed in Parent’s filings with the Securities and Exchange Commission prior to the Closing Date, there are no actions, suits or proceedings at law or in equity by or before any Governmental Authority now pending or, to the knowledge of any Company, threatened against or affecting any Company or any business, property or rights of any Company that would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
          SECTION 3.09 [Reserved].
          SECTION 3.10 Federal Reserve Regulations. No part of the proceeds of any Loan or any Letter of Credit will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, for any purpose that entails a violation of, or that is inconsistent with, the provisions of Regulation U or X. The pledge of the Securities Collateral pursuant to the Security Agreement does not violate such regulations.
          SECTION 3.11 Investment Company Act. No Company is required to register as an “investment company” under the Investment Company Act of 1940.
          SECTION 3.12 Taxes. Each Company has (a) timely filed or caused to be timely filed all U.S. federal Tax Returns and all state, local and foreign Tax Returns required to have been filed by it except where the failure to do so would not be reasonably expected to, individually or in the aggregate, result in a Material Adverse Effect (taking into consideration the accruals made in respect of taxes), and all Tax Returns that have been filed are true and correct in all material respects and (b) duly and timely

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paid, collected or remitted or caused to be duly and timely paid, collected or remitted all Taxes (whether or not shown on any Tax Return) due and payable, collectible or remittable by it and all assessments received by it, except Taxes (i) that are being contested in good faith by appropriate proceedings and for which such Company has set aside on its books adequate reserves in accordance with GAAP or (ii) the nonpayment of which would not, individually or in the aggregate, have a Material Adverse Effect (taking into consideration the accruals made in respect of taxes).
          SECTION 3.13 No Material Misstatements. The information furnished by or on behalf of any Company to the Administrative Agent or any Lender in connection with the negotiation of any Loan Document or contained in the Confidential Information Memorandum (other than general economic or general industry information), taken as a whole, does not contain any material misstatement of fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were or are made, not misleading as of the date such information is dated or certified; provided that to the extent any such information was based upon or constitutes a forecast or projection, each Company represents only that it acted in good faith and utilized reasonable assumptions and due care in the preparation of such information, report, financial statement, exhibit or schedule.
          SECTION 3.14 Solvency. Immediately after the consummation of the Transactions to occur on the Closing Date and immediately after the Restatement Effective Date, (a) the fair value of the properties of Parent and its Subsidiaries will exceed their debts and liabilities, subordinated, contingent or otherwise, in each case determined on a consolidated basis; (b) the present fair saleable value of the property of Parent and its Subsidiaries will be greater than the amount that will be required to pay the probable liability of their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured, in each case determined on a consolidated basis; (c) Parent and its Subsidiaries will be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, in each case determined on a consolidated basis; and (d) Parent and its Subsidiaries, on a consolidated basis, will not have unreasonably small capital with which to conduct the business in which they are engaged as such business was conducted on the Closing Date and is proposed to be conducted following the Restatement Effective Date.
          SECTION 3.15 Employee Benefit Plans. Each Company and its ERISA Affiliates is in compliance in all respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder, except where the failure to be in such compliance, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, would reasonably be expected to result in liability of any Company or any of its ERISA Affiliates or the imposition of a Lien on any of the property of any Company, except for such liabilities or Liens that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. Using actuarial assumptions and computation methods consistent with subpart I of subtitle E of Title IV of ERISA, the aggregate liabilities of each Company or its ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Multiemployer Plan, would not reasonably be expected to result in a Material Adverse Effect.
          To the extent applicable, each Foreign Plan has been maintained in compliance with its terms and with the requirements of any and all applicable Requirements of Law and has been maintained, where required, in good standing with applicable regulatory authorities, except for such failures to maintain or be in good standing that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. No Company has incurred any obligation in connection with the termination of or withdrawal from any Foreign Plan that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect. Except as set forth in Schedule 3.15, the present value of

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the accrued benefit liabilities (whether or not vested) under each Foreign Plan which is funded, determined as of the end of the most recently ended fiscal year of the respective Company on the basis of actuarial assumptions, each of which is reasonable, did not exceed the current value of the property of such Foreign Plan in an amount that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect, and for each Foreign Plan which is not funded, the obligations of such Foreign Plan are properly accrued, except where the failure to be so accrued, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
          SECTION 3.16 Environmental Matters.
          Except as set forth in Schedule 3.16 or except as, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect:
          (a) The Companies and their businesses and operations are in compliance with, and, to the knowledge of the Companies, the Companies have no liability under, any applicable Environmental Law;
          (b) The Companies have obtained all Environmental Permits required for the conduct of their businesses and operations, and the ownership, operation and use of their property, under Environmental Law, and all such Environmental Permits are valid and in good standing;
          (c) There has been no Release or threatened Release of Hazardous Material on, at, under or from any Real Property or facility presently or, to the knowledge of the Companies, formerly owned, leased or operated by the Companies or their predecessors in interest that could result in liability to the Companies under any applicable Environmental Law;
          (d) There is no Environmental Claim pending or, to the knowledge of the Companies, threatened against the Companies, or relating to the Real Property currently or to the knowledge of the Companies formerly owned, leased or operated by the Companies or their predecessors in interest or relating to the operations of the Companies, and, to the knowledge of the Companies, there are no actions, activities, circumstances, conditions, events or incidents that could form the basis of such an Environmental Claim;
          (e) No Company is obligated to perform any action or otherwise incur any expense under Environmental Law pursuant to any order, decree, judgment or agreement by which it is bound or has assumed by contract, agreement or operation of law, and no Company is conducting or financing any Response pursuant to any Environmental Law with respect to any Real Property or any other location;
          (f) No Real Property or facility owned, operated or leased by the Companies and, to the knowledge of the Companies, no Real Property or facility formerly owned, operated or leased by the Companies or any of their predecessors in interest is (i) listed or, to the knowledge of the Companies, proposed for listing on the National Priorities List promulgated pursuant to CERCLA or (ii) listed on the Comprehensive Environmental Response, Compensation and Liability Information System promulgated pursuant to CERCLA or (iii) included on any similar list maintained by any Governmental Authority including any such list relating to petroleum;
          (g) No Lien has been recorded or, to the knowledge of any Company, threatened under any Environmental Law with respect to any Real Property or other assets of the Companies; and
          (h) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not require any notification, registration, filing, report

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ing, disclosure, investigation, remediation or cleanup pursuant to any Governmental Real Property Disclosure Requirements or any other applicable Environmental Law.
          SECTION 3.17 Insurance. Schedule 3.17 sets forth a true, complete and correct description of all material policies of insurance maintained by each Company as of the Closing Date. All insurance maintained by the Companies is in full force and effect, all premiums have been duly paid, no Company has received notice of violation or cancellation thereof, except in each case for failures that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. Each Company has insurance in such amounts and covering such risks and liabilities as are customary for companies of a similar size engaged in similar businesses in similar locations, except where the failure to have such insurance, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
          SECTION 3.18 Security Documents.
          (a) Security Agreement. The Security Agreement is effective to create in favor of the Collateral Agent for the benefit of the Secured Parties, legal, valid and enforceable Liens on, and security interests in, the Security Agreement Collateral and, (i) when financing statements and other filings in appropriate form are filed in the offices specified on Schedule 5 to the Perfection Certificate and (ii) upon the delivery to or control by the Collateral Agent of the Security Agreement Collateral with respect to which a security interest may be perfected only by delivery or control (which delivery to or control by the Collateral Agent shall be provided to the extent delivery to or control by the Collateral Agent is required by the Security Agreement), the Liens created by the Security Agreement (other than Liens on Money, Excluded Accounts, Intellectual Property to the extent that the perfection of a security interest therein requires that a filing be made outside the United States or with the United States Patent and Trademark Office or the United States Copyright Office and Letters of Credit and Letter of Credit Rights not constituting Supporting Obligations in respect of other Collateral (each capitalized term used in this parenthetical phase having the meaning set forth in the Security Agreement)) shall be perfected (other than such Security Agreement Collateral in which a security interest cannot be perfected under the UCC as in effect at the relevant time in the relevant jurisdiction or any security interest the perfection of which requires filing in the real estate recording office of any jurisdiction), in each case subject to no Liens other than Permitted Liens.
          (b) PTO Filing; Copyright Office Filing. When the Security Agreement or a short form thereof is filed in the United States Patent and Trademark Office and the United States Copyright Office, the security interests created under the Security Agreement in all right, title and interest of the grantors thereunder in Patents issued by or applied for with, and Trademarks (each as defined in the Security Agreement) registered or applied for with, the United States Patent and Trademark Office or Copyrights (as defined in such Security Agreement) registered with the United States Copyright Office, as the case may be, in each case properly listed in such filing, will be perfected to the extent that a filing in such offices is sufficient to effect such perfection, in each case subject to no Liens other than Permitted Liens.
          SECTION 3.19 Anti-Terrorism Law. (a) No Loan Party is in violation of any Requirement of Law relating to terrorism or money laundering (“Anti-Terrorism Laws”), including Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001 (the “Executive Order”), and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56.
          (b) No Loan Party is any of the following:

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     (i) a person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
     (ii) a person owned or controlled by, or acting for or on behalf of, any person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order;
     (iii) a person with which any Lender is prohibited from dealing or otherwise engaging in any transaction by any Anti-Terrorism Law;
     (iv) a person that commits, threatens or conspires to commit or supports “terrorism” as defined in the Executive Order; or
     (v) a person that is named as a “specially designated national and blocked person” on the most current list published by the U.S. Treasury Department Office of Foreign Assets Control (“OFAC”) at its official website or any replacement website or other replacement official publication of such list.
          (c) Except to the extent that the same would not reasonably be expected to result in a Material Adverse Effect, no Loan Party and, to the knowledge of the Loan Parties, no broker or other agent of any Loan Party acting in any capacity in connection with the Loans (i) conducts any business or engages in making or receiving any contribution of funds, goods or services to or for the benefit of any person described in paragraph (b) above, (ii) deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order, or (iii) engages in or conspires to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law.
          SECTION 3.20 Subordination of Debentures. The Secured Obligations and Guaranteed Obligations are “Designated Senior Debt” within the meaning of each of the Debenture Documents.
ARTICLE IV
CONDITIONS TO CREDIT EXTENSIONS
          SECTION 4.01 Conditions to Credit Extension on the Restatement Effective Date. The obligation of each Lender and, if applicable, each Issuing Bank to fund the initial Credit Extension and any Credit Extension requested to be made by it on the Restatement Effective Date shall be subject to the prior or concurrent satisfaction of each of the conditions precedent set forth in this Section.
          (a) Loan Documents. There shall have been delivered to the Administrative Agent an executed counterpart of each of this Agreement and, for each Term Loan Lender that shall have requested a Note at least one Business Day prior to the Restatement Effective Date, each such Note.
          (b) Corporate Documents. The Administrative Agent shall have received:
     (i) a “bring-down” certificate as to the good standing of each Loan Party as of the Restatement Effective Date, from such Secretary of State (or other applicable Governmental Authority); and
     (ii) such other documents as the Lenders, the Issuing Banks or the Administrative Agent may reasonably request.

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          (c) Officers’ Certificate. The Administrative Agent shall have received a certificate, dated the Restatement Effective Date and signed by an executive officer of Parent, confirming compliance with the conditions precedent set forth in Sections 4.01(h), (i) and (j).
          (d) Opinion of Counsel. The Administrative Agent shall have received, on behalf of itself, the other Agents, the Arranger, the Lenders and the Issuing Banks, a written opinion of Davis Polk & Wardwell, special counsel for the Loan Parties (A) dated the Restatement Effective Date, (B) addressed to the Agents, the Issuing Banks and the Lenders and (C) covering the matters set forth in Exhibit L and such other matters relating to the Loan Documents as the Administrative Agent shall reasonably request.
          (e) Fees. The Arranger, Administrative Agent and Collateral Agent shall have received all Fees and other amounts due and payable on or prior to the Restatement Effective Date, including reimbursement or payment of all out-of-pocket expenses (including the legal fees and expenses of Cahill Gordon & Reindel llp, special counsel to the Administrative Agent) required to be reimbursed or paid by Borrowers hereunder or under any other Loan Document, in each case to the extent invoiced at least one Business Day before the Restatement Effective Date.
          (f) USA Patriot Act. The Lenders shall have received, all documentation and other information that may be required by the Lenders in order to enable compliance with applicable “know your customer” and anti-money laundering rules and regulations, including the United States PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”) including the information described in Section 10.13.
          (g) Notice. The Administrative Agent shall have received a Borrowing Request as required by Section 2.03 (or such notice shall have been deemed given in accordance with Section 2.03) if Loans are being requested or, in the case of the issuance, amendment, extension or renewal of a Letter of Credit (other than the deemed issuance of Existing Letters of Credit), the applicable Issuing Bank and the Administrative Agent shall have received an LC Request as required by Section 2.18(b).
          (h) No Default. At the time of and immediately after giving effect to the Credit Extensions to be made on the Restatement Effective Date, no Default shall have occurred and be continuing.
          (i) Representations and Warranties. Each of the representations and warranties made by any Loan Party set forth in Article III hereof or in any other Loan Document shall be true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of the date of the Credit Extensions to be made on the Restatement Effective Date with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date.
          (j) No Material Adverse Change. Since December 31, 2006, no change shall have occurred that has had or could reasonably be expected to have a material adverse effect on the business, results of operations, condition (financial or otherwise), assets or liabilities of Parent and its Subsidiaries, taken as a whole.
          Borrowers shall provide such information as the Administrative Agent may reasonably request to confirm that the conditions in this Section have been satisfied.

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ARTICLE V
AFFIRMATIVE COVENANTS
Each Loan Party warrants, covenants and agrees with each Lender that so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document (other than amounts in respect of indemnification, expense reimbursement, tax gross-up or yield protection, for which no claim has been made) shall have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, each Loan Party will, and will cause each of its Subsidiaries to:
          SECTION 5.01 Financial Statements, Reports, etc. Furnish to the Administrative Agent and each Lender:
          (a) Annual Reports. As soon as available and in any event (x) for the fiscal year of Parent ended December 31, 2006, by July 31, 2007, (y) for the fiscal year of Parent ending December 31, 2007, within 150 days after the end of such fiscal year, and (z) for each fiscal year of Parent ending on or after December 31, 2008, within 60 days after the end of such fiscal year, (i) the consolidated balance sheet of Parent as of the end of such fiscal year and related consolidated statements of income, cash flows and stockholders’ equity for such fiscal year, in comparative form with such financial statements as of the end of, and for, the preceding fiscal year, and notes thereto, all prepared in accordance with Regulation S-X and accompanied by an opinion of Ernst & Young LLP, other “big four” independent public accountants or other independent public accountants of recognized national standing reasonably satisfactory to the Administrative Agent (which opinion shall not be qualified as to scope or contain any going concern qualification), stating that such financial statements fairly present, in all material respects, the consolidated financial condition, results of operations and cash flows of Parent as of the dates and for the periods specified in accordance with GAAP and (ii) a narrative report and management’s discussion and analysis, of the financial condition and results of operations of Parent for such fiscal year, as compared to amounts for the previous fiscal year (it being understood that the information required by clauses (i) and (ii) may be furnished in the form of a Form 10-K);
          (b) Quarterly Reports. As soon as available and in any event (u) for each of the first three fiscal quarters of the fiscal year ended December 31, 2006, by July 31, 2007, (v) for the fiscal quarter ended March 31, 2007, 150 days after the end of the fiscal quarter, (w) for the fiscal quarter ending June 30, 2007, 120 days after the end of such fiscal quarter, (x) for the fiscal quarter ending September 30, 2007, 90 days after the end of such fiscal quarter, (y) for the fiscal quarters ending March 31, 2008 and June 30, 2008, 60 days after the end of such fiscal quarter and (z) for the fiscal quarter ending September 30, 2008 and for the first three fiscal quarters of each fiscal year thereafter, 40 days after the end of such fiscal quarter, (i) the consolidated balance sheet of Parent as of the end of such fiscal quarter and the related consolidated statement of income for such fiscal quarter and the related consolidated statement of income and cash flows for the then elapsed portion of the fiscal year, in comparative form with the consolidated statements of income and cash flows for the comparable periods in the previous fiscal year, all prepared in accordance with Regulation S-X under the Securities Act and accompanied by a certificate of a Financial Officer stating that such financial statements fairly present, in all material respects, the consolidated financial condition, results of operations and cash flows of Parent as of the date and for the periods specified in accordance with GAAP consistently applied, and on a basis consistent with audited financial statements referred to in clause (a) of this Section, subject to absence of footnotes, year-end audit adjustments, the effects of events subsequent to the end of such fiscal quarter and, for fiscal quarters ending prior to October 31, 2008, the existence and effect of those material weaknesses in internal controls disclosed in Parent’s annual report on Form 10-K for the fiscal year ended December 31, 2005 and (ii) a

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narrative report and management’s discussion and analysis, of the financial condition and results of operations for such fiscal quarter and the then elapsed portion of the fiscal year, as compared to the comparable periods in the previous fiscal year (it being understood that the information required by clauses (i) and (ii) may be furnished in the form of a Form 10-Q);
          (c) Monthly Operating Metrics and Cost Metrics. For each month ending on or prior to October 31, 2008, as soon as available and in any event within 45 days following the end of each such month, the following operating metrics: billable hours, bookings, utilization, employee turnover (with break-outs for managing director turnover) and the following cost metrics: operating, corporate and infrastructure expenses, with such operating metrics broken out by Securities and Exchange Commission reporting segments and such cost metrics broken out by geographical regions;
          (d) Financial Officer’s Certificate and Other Deliverables. (i) Concurrently with any delivery of financial statements under Section 5.01(a) or (b), (A) a Compliance Certificate certifying that no Default has occurred and is continuing or, if such a Default has occurred and is continuing, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto, and showing a reconciliation of Consolidated EBITDA to the net income set forth on the statement of income, and (B) a schedule of the aggregate amount of outstanding loans and advances permitted under Section 6.04(d); (ii) concurrently with any delivery of operating metrics and cost metrics under Section 5.01(c), a certificate of a Financial Officer stating that such metrics have been prepared in good faith by Parent and (iii) within 10 Business Days after the delivery of financial statements under Section 5.01(a) for any fiscal year ended on or after (x) December 31, 2008 and (y) if, but only if, Parent elects to make the period referred to in clause (i) of the definition of Excess Cash Flow Period an Excess Cash Flow Period, December 31, 2007, a calculation of Parent’s Excess Cash Flow for such fiscal year;
          (e) Financial Officer’s Certificate Regarding Collateral. Concurrently with any delivery of financial statements under Section 5.01(a), a certificate of a Financial Officer setting forth the information required pursuant to the Perfection Certificate Supplement or confirming that there has been no change in such information since the date of the Perfection Certificate or latest Perfection Certificate Supplement;
          (f) Public Reports. Promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials (other than registration statements on Form S-8 and any exhibits) filed by Parent with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed to its stockholders or holders of its Indebtedness pursuant to the terms of the documentation governing such Indebtedness (or any trustee, agent or other representative therefor), as the case may be;
          (g) Budgets. Within 60 days after the beginning of each fiscal year, a budget for Parent including balance sheets, statements of income and cash flow statements, for each fiscal quarter of such fiscal year, with appropriate presentation and discussion of the principal assumptions upon which such budget is based, accompanied by the statement of a Financial Officer of Parent to the effect that the budget of Parent is a reasonable estimate for the periods covered thereby; and
          (h) Other Information. Promptly, from time to time, such other information regarding the operations, business affairs and financial condition of any Company, or compliance with the terms of any Loan Document, as the Administrative Agent or any Lender may reasonably request.

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          SECTION 5.02 Litigation and Other Notices. Furnish to the Administrative Agent and each Lender written notice of the following promptly (and, in any event, within ten Business Days after any Responsible Officer becomes aware thereof):
          (a) any Default that has occurred and is continuing, specifying the nature and extent thereof and the corrective action (if any) taken or proposed to be taken with respect thereto; and
          (b) the filing or commencement of any material action, suit, litigation or proceeding, whether at law or in equity by or before any Governmental Authority (i) seeking damages in excess of $5.0 million against any Company or (ii) with respect to any Loan Document.
          SECTION 5.03 Existence; Businesses and Properties.
          (a) Do or cause to be done all things necessary to preserve, renew and maintain in full force and effect its legal existence, except as otherwise expressly permitted under Section 6.05 or Section 6.06 or, in the case of any Subsidiary, where the failure to perform such obligations, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.
          (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, privileges, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business, except where the failure to do or cause to be done such things, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; maintain and operate such business in substantially the manner in which it is presently conducted and operated, except where the failure to so maintain or operate, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; comply with all applicable Requirements of Law (including any and all zoning, building, Environmental Law, ordinance, code or approval or any building permits or any restrictions of record or agreements affecting the Real Property) and decrees and orders of any Governmental Authority, whether now in effect or hereafter enacted, except where the failure to comply, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect and except in the case of filings of periodic and other reports, proxy statements and other materials required to be made with the Securities and Exchange Commission under the Exchange Act and other applicable securities laws prior to October 31, 2008 (provided that, on October 31, 2008, each Loan Party shall have filed all such reports required to have been filed as of or prior to such date); and at all times maintain, preserve and protect all property material to the conduct of such business and keep such property in good repair, working order and condition (other than wear and tear occurring in the ordinary course of business) and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times, except where the failure to do such things, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect; provided that nothing in this Section 5.03(b) shall prevent (i) sales of property, consolidations or mergers by or involving any Company in accordance with Section 6.05 or Section 6.06; (ii) the withdrawal by any Company of its qualification as a foreign corporation in any jurisdiction where such withdrawal, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect; or (iii) the abandonment by any Company of any rights, franchises, licenses, trademarks, trade names, copyrights or patents that such person reasonably determines are not useful to its business or no longer commercially desirable.

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          SECTION 5.04 Insurance.
          (a) Generally. Maintain such insurance, to the extent and against such risks are customary for companies in the same or similar businesses operating in the same or similar locations as Parent and its Subsidiaries.
          (b) Requirements of Insurance. All such property and general liability insurance shall (i) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least 30 days after receipt by the Collateral Agent of written notice thereof and (ii) name the Collateral Agent as loss payee (in the case of property insurance) or additional insured on behalf of the Secured Parties (in the case of general liability insurance) or loss payee (in the case of property insurance), as applicable.
          (c) Flood Insurance. With respect to each Mortgaged Property, obtain flood insurance if at any time the area in which any improvements located on any Mortgaged Property is designated a “flood hazard area” in any Flood Insurance Rate Map published by the Federal Emergency Management Agency (or any successor agency), and otherwise comply with the National Flood Insurance Program as set forth in the Flood Disaster Protection Act of 1973, as amended from time to time.
          (d) Broker’s Report. Deliver to the Administrative Agent and the Collateral Agent and the Lenders a report of a reputable insurance broker with respect to such insurance and such supplemental reports with respect thereto as the Administrative Agent or the Collateral Agent may from time to time reasonably request.
          SECTION 5.05 Obligations and Taxes.
          (a) Payment of Obligations. Pay its Indebtedness and other material obligations promptly and in accordance with their terms and pay and discharge promptly when due all material Taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become more than 90 days delinquent or in default, as well as all lawful claims for labor, services, materials and supplies or otherwise that, if unpaid, might give rise to a Lien other than a Permitted Lien upon such properties or any part thereof; provided that such payment and discharge shall not be required with respect to any such Tax, assessment, charge, levy or claim so long as (x)(i) the validity or amount thereof shall be contested in good faith by appropriate proceedings and the applicable Company shall have set aside on its books reserves in accordance with GAAP and, (ii) such contest operates to suspend collection of the contested obligation, Tax, assessment or charge and enforcement of a Lien other than a Permitted Lien or (y) the failure to pay would not reasonably be expected to result in a Material Adverse Effect.
          (b) Filing of Returns. Timely and correctly file all material Tax Returns required to be filed by it, except where the failure to so file, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Withhold, collect and remit all Taxes that it is required to collect, withhold or remit, except where the failure to withhold, collect or remit, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect.
          SECTION 5.06 Employee Benefits. Except where failure, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, (a) comply in all material respects with the applicable provisions of ERISA and the Code and (b) furnish to the Administrative Agent (x) as soon as possible after, and in any event within 5 days after any Responsible Officer of any Company or any ERISA Affiliates of any Company knows or has reason to know that, any ERISA Event has occurred that, alone or together with any other ERISA Event could reasonably be expected to result in

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liability of the Companies or any of their ERISA Affiliates in an aggregate amount exceeding $20.0 million a statement of a Financial Officer of Parent setting forth details as to such ERISA Event and the action, if any, that the Companies propose to take with respect thereto, and (y) upon request by the Administrative Agent, copies of (i) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by any Company or any ERISA Affiliate with the Internal Revenue Service with respect to each Plan; (ii) the most recent actuarial valuation report for each Plan; (iii) all notices received by any Company or any ERISA Affiliate from a Multiemployer Plan sponsor or any Governmental Authority concerning an ERISA Event; and (iv) such other documents or governmental reports or filings relating to any Plan (or employee benefit plan sponsored or contributed to by any Company) as the Administrative Agent shall reasonably request.
          SECTION 5.07 Maintaining Records; Access to Properties and Inspections; Annual Meetings. Except, prior to October 31, 2008, as may be affected by the existence of those material weaknesses in internal controls disclosed in Parent’s annual report on Form 10-K for the fiscal year ended December 31, 2005, keep proper books of record and account in which full, true and correct entries in material conformity with GAAP and all Requirements of Law are made of all dealings and transactions in relation to its business and activities. Each Company will permit any representatives designated by the Administrative Agent to visit and inspect the financial records and the property of such Company at reasonable times and to make extracts from and copies of such financial records, and permit any representatives designated by the Administrative Agent to discuss the affairs, finances, accounts and condition of any Company with the officers and employees thereof and advisors therefor (including independent accountants); provided that, (i) unless an Event of Default shall have occurred and be continuing, the Borrowers shall only be required to reimburse the Lenders for the costs and expenses of one such visit per fiscal year of Parent and (ii) representatives of Parent shall be given reasonable prior notice of, and representatives of Parent shall be permitted to participate in, any such discussions with any such advisors as independent accountants.
          SECTION 5.08 Use of Proceeds. Use the proceeds of the Term Loans issued on the Closing Date for general corporate purposes (including, without limitation, to effect the Refinancing and in connection with the performance of any government contracts, subcontracts or proposals) and pay fees, commissions and expenses related to the Refinancing, use the proceeds of the Additional Term Loans for general corporate purposes (including, without limitation, in connection with the performance of any government contracts, subcontracts or proposals) and use Letters of Credit to support the general corporate purposes of Parent and its Subsidiaries.
          SECTION 5.09 Compliance with Environmental Laws; Environmental Reports. Except where such failure to comply, obtain, renew or conduct, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, comply and cause all lessees and other persons occupying Real Property owned, operated or leased by any Company to comply, in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and Real Property; obtain and renew all material Environmental Permits applicable to its operations and Real Property; and conduct all Responses required by, and in accordance with, Environmental Laws; provided that no Company shall be required to undertake any Response to the extent that its obligation to do so is being contested in good faith and by proper proceedings and reserves are being maintained with respect to such circumstances in accordance with GAAP.
          SECTION 5.10 Additional Collateral; Additional Guarantors.
          (a) Subject to this Section, with respect to any property acquired after the Closing Date by any Loan Party that is intended to be subject to the Lien created by any of the Security Documents but is not so subject, promptly (and in any event within 30 days after the acquisition thereof)

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(i) execute and deliver to the Administrative Agent and the Collateral Agent such amendments or supplements to the relevant Security Documents or such other documents as the Administrative Agent or the Collateral Agent shall deem necessary or advisable to grant to the Collateral Agent, for its benefit and for the benefit of the other Secured Parties, a Lien on such property subject to no Liens other than Permitted Liens, and (ii) take all actions necessary to cause such Lien to be duly perfected to the extent required by such Security Document in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent. Borrowers shall otherwise take such actions and execute and/or deliver to the Collateral Agent such documents as the Administrative Agent or the Collateral Agent shall require to confirm the validity, perfection and priority of the Lien of the Security Documents on such after-acquired properties.
          (b) With respect to any person that is or becomes a Subsidiary (other than a Foreign Subsidiary that is not a direct Subsidiary of a Loan Party or an Immaterial Subsidiary) after the Closing Date, promptly (and in any event within 30 days after such person becomes a Subsidiary) (i) deliver to the Collateral Agent the certificates, if any, representing all of the Equity Interests of such Subsidiary that constitute certificated securities and that are held by a Loan Party, together with undated stock powers or other appropriate instruments of transfer executed and delivered in blank by a duly authorized officer of the holder(s) of such Equity Interests, and all intercompany notes owing from such Subsidiary to any Loan Party together with instruments of transfer executed and delivered in blank by a duly authorized officer of such Loan Party and (ii) unless such Subsidiary is an Excluded Company, cause such new Subsidiary (A) to execute a Joinder Agreement or such comparable documentation to become a Guarantor and a joinder agreement to the applicable Security Agreement, substantially in the form annexed thereto and (B) to take all actions necessary or advisable in the opinion of the Administrative Agent or the Collateral Agent to cause the Lien created by the applicable Security Agreement to be duly perfected to the extent required by such agreement in accordance with all applicable Requirements of Law, including the filing of financing statements in such jurisdictions as may be reasonably requested by the Administrative Agent or the Collateral Agent. Notwithstanding the foregoing, the Equity Interests required to be delivered to the Collateral Agent pursuant to clause (i) of this Section 5.10(b) shall not include more than 65% of the Voting Stock of an Excluded Foreign Company.
          (c) Promptly grant to the Collateral Agent, within 30 days of the acquisition thereof, a security interest in and Mortgage on each Real Property owned in fee by such Loan Party as is acquired by such Loan Party after the Closing Date and that, together with any improvements thereon, individually has a fair market value of at least $10.0 million as additional security for the Secured Obligations (unless the subject property is already mortgaged to a third party to the extent permitted by Section 6.02). Such Mortgages shall be granted pursuant to documentation reasonably satisfactory in form and substance to the Administrative Agent and the Collateral Agent and shall constitute valid and enforceable perfected Liens subject only to Permitted Liens. The Mortgages or instruments related thereto shall be duly recorded or filed in such manner and in such places as are required by law to establish, perfect, preserve and protect the Liens in favor of the Collateral Agent required to be granted pursuant to the Mortgages and all taxes, fees and other charges payable in connection therewith shall be paid in full. Such Loan Party shall otherwise take such actions and execute and/or deliver to the Collateral Agent such documents as the Administrative Agent or the Collateral Agent shall require to confirm the validity, perfection and priority of the Lien of any new Mortgage against such after-acquired Real Property (including a title policy or local counsel opinion (in form and substance reasonably satisfactory to the Administrative Agent and the Collateral Agent) and, to the extent already existing, a survey in respect of such Real Property).
          SECTION 5.11 [Reserved].

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          SECTION 5.12 Information Regarding Collateral.
          (a) Not effect any change (i) in any Loan Party’s legal name, (ii) in any Loan Party’s identity or organizational structure, (iii) in any Loan Party’s Federal Taxpayer Identification Number or organizational identification number, if any, or (iv) in any Loan Party’s jurisdiction of organization (in each case, including by merging with or into any other entity, reorganizing, dissolving, liquidating, reorganizing or organizing in any other jurisdiction), until (A) it shall have given the Collateral Agent and the Administrative Agent not less than 30 days’ prior written notice (in the form of an Officers’ Certificate), or such lesser notice period agreed to by the Collateral Agent, of its intention so to do, clearly describing such change and providing such other information in connection therewith as the Collateral Agent or the Administrative Agent may reasonably request and (B) it shall have taken all action reasonably satisfactory to the Collateral Agent to maintain the perfection and priority of the security interest of the Collateral Agent for the benefit of the Secured Parties in the Collateral, if applicable. Each Loan Party agrees to promptly provide the Collateral Agent with certified Organizational Documents reflecting any of the changes described in the preceding sentence.
          (b) Concurrently with the delivery of financial statements pursuant to Section 5.01(a) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent and the Collateral Agent a Perfection Certificate Supplement and a certificate of a Financial Officer and the chief legal officer of Parent certifying that all UCC financing statements (including fixture filings, as applicable) or other appropriate filings, recordings or registrations, including all refilings, rerecordings and reregistrations, required to have been filed under the Security Documents have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction in which any such filing is so required.
          SECTION 5.13 Maintenance of Ratings. If requested by the Administrative Agent, on and after October 31, 2008, use commercially reasonable efforts to cause the Loans and Borrowers’ corporate credit to be rated by Standard & Poor’s Ratings Group and the Loans and Borrowers’ corporate family to be rated by Moody’s Investors Service Inc. (but not in any such case to maintain a specific such rating).
          SECTION 5.14 Post-Closing Collateral Matters. Within the 45 days after the Closing Date (which date may be extended by the Collateral Agent in its sole discretion):
          (a) the Loan Parties and the applicable banks, Securities Intermediaries and Commodity Intermediaries shall have executed and delivered Control Agreements in respect of (i) their Deposit Accounts (other than Excluded Accounts) and (ii) their Securities Accounts and Commodity Accounts with a value, in the case of any such Securities Account or Commodity Account, in excess of $500,000; and
          (b) the Loan Parties shall have executed and delivered Copyright Security Agreements, Patent Security Agreements and Trademark Security Agreements covering all Patents, Trademark and Copyrights registered with, or issued by, the United States Patent and Trademark Office or the Untied States Copyright Office and held by such Loan Parties on the Closing Date.
ARTICLE VI
NEGATIVE COVENANTS
          Each Loan Party warrants, covenants and agrees with each Lender that, so long as this Agreement shall remain in effect and until the Commitments have been terminated and the principal of and interest on each Loan, all Fees and all other expenses or amounts payable under any Loan Document

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(other than amounts in respect of indemnification, tax gross up, expense reimbursement or yield protection for which no claim has been made) have been paid in full and all Letters of Credit have been canceled or have expired and all amounts drawn thereunder have been reimbursed in full, unless the Required Lenders shall otherwise consent in writing, no Loan Party will, nor will they cause or permit any Subsidiaries to:
          SECTION 6.01 Indebtedness. Incur, create, assume or permit to exist, directly or indirectly, any Indebtedness or Disqualified Capital Stock, except
          (a) Indebtedness incurred under this Agreement and the other Loan Documents;
          (b) (i) Indebtedness outstanding on the Closing Date and, to the extent that the principal amount of any such Indebtedness exceeds $100,000, listed on Schedule 6.01(b) (including the Debentures) and (ii) refinancings or renewals thereof; provided that (A) any such refinancing Indebtedness is in an aggregate principal amount not greater than the aggregate principal amount of the Indebtedness being renewed or refinanced, plus the amount of any premiums required to be paid thereon and reasonable fees and expenses associated therewith, and (B) in the case of any such Indebtedness in respect of the Debentures or other Subordinated Indebtedness, (1) such refinancing Indebtedness has a later or equal final maturity and longer or equal weighted average life than the Indebtedness being renewed or refinanced and (2) the covenants, events of default, subordination, interest rates and other provisions thereof (including any guarantees thereof) shall be, in the aggregate, no less favorable to the Lenders than those contained in the Indebtedness being renewed or refinanced;
          (c) Indebtedness under Hedging Obligations entered into in the ordinary course of business and not for speculative purposes;
          (d) Indebtedness permitted by Section 6.04(e);
          (e) Indebtedness in respect of Purchase Money Obligations and Capital Lease Obligations, and refinancings or renewals thereof, in an aggregate amount not to exceed $15.0 million at any time outstanding;
          (f) Indebtedness incurred by Foreign Subsidiaries for ordinary course in an aggregate principal amount not to exceed $25.0 million at any time outstanding;
          (g) Indebtedness in respect of bid, performance or surety bonds, workers’ compensation claims, self-insurance obligations and bankers acceptances issued for the account of any Company in the ordinary course of business, including guarantees or obligations of any Company with respect to letters of credit supporting bids or, performance or bid, performance or surety bonds, workers’ compensation claims, self-insurance obligations and bankers acceptances (in each case other than for an obligation for money borrowed);
          (h) Contingent Obligations of any Company in respect of Indebtedness otherwise permitted under this Section of any Company (subject, in the case of Contingent Obligations of Loan Parties in respect of Indebtedness of Subsidiaries that are not Loan Parties, to the limitations set forth in Section 6.04(e)(iv));
          (i) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within five Business Days of incurrence;

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          (j) Indebtedness arising in connection with the endorsement of instruments for deposit in the ordinary course of business;
          (k) Indebtedness of Foreign Subsidiaries in respect of letters of credit in the ordinary course of business not supporting Indebtedness for borrowed money;
          (l) Permitted Subordinated Indebtedness;
          (m) unsecured Indebtedness of any Company in an aggregate amount not to exceed $20.0 million at any time outstanding; provided that no more than an aggregate of $5.0 million thereof may be incurred at Companies that are not Loan Parties; and
          (n) Subordinated Indebtedness of any Loan Party in an aggregate amount not exceed $20.0 million at any time outstanding.
          SECTION 6.02 Liens. Create, incur, assume or permit to exist, directly or indirectly, any Lien on any property now owned or hereafter acquired by it or on any income or revenues or rights in respect of any thereof, except the following (collectively, the “Permitted Liens”):
          (a) Liens for taxes, assessments or governmental charges or levies not yet due and payable or delinquent and Liens for taxes, assessments or governmental charges or levies, which are being contested in good faith by appropriate proceedings for which reserves have been established in accordance with GAAP;
          (b) Liens in respect of property of any Company imposed by Requirements of Law, which were incurred in the ordinary course of business and do not secure Indebtedness for borrowed money, such as carriers’, warehousemen’s, materialmen’s, landlords’, workmen’s, suppliers’, repairmen’s and mechanics’ Liens and other similar Liens arising in the ordinary course of business, and (i) which do not in the aggregate materially detract from the value of the property of the Companies, taken as a whole, and do not materially impair the use thereof in the operation of the business of the Companies, taken as a whole, and (ii) which, if they secure obligations that are then due and unpaid, are being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, which proceedings (or orders entered in connection with such proceedings) have the effect of preventing the forfeiture or sale of the property subject to any such Lien;
          (c) any Lien in existence on the Closing Date and set forth on Schedule 6.02(c) and any Lien granted as a replacement or substitute therefor; provided that any such replacement or substitute Lien (i) except as permitted by Section 6.01(b)(ii)(A), does not secure an aggregate amount of Indebtedness, if any, greater than that secured on the Closing Date and (ii) does not encumber any property other than the property subject thereto on the Closing Date (any such Lien, an “Existing Lien”);
          (d) easements, rights-of-way, restrictions (including zoning restrictions), covenants, licenses, encroachments, protrusions and other similar charges or encumbrances, and minor title deficiencies on or with respect to any Real Property, in each case whether now or hereafter in existence, not (i) securing Indebtedness, (ii) individually or in the aggregate materially impairing the value or marketability of such Real Property or (iii) individually or in the aggregate materially interfering with the ordinary conduct of the business of the Companies at such Real Property;
          (e) Liens arising out of judgments, attachments or awards not resulting in an Event of Default;

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          (f) Liens (x) imposed by Requirements of Law or deposits made in connection therewith in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security legislation, (y) incurred in the ordinary course of business to secure the performance of tenders, statutory obligations (other than excise taxes), surety, stay, customs and appeal bonds, statutory bonds, bids, leases, government contracts, trade contracts, performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) or (z) arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers; provided that (i) with respect to clauses (x), (y) and (z) of this paragraph (f), such Liens are for amounts not yet due and payable or delinquent or, to the extent such amounts are so due and payable, such amounts are being contested in good faith by appropriate proceedings for which adequate reserves have been established to the extent required by GAAP;
          (g) Leases of the properties of any Company granted by such Company to third parties, in each case entered into in the ordinary course of such Company’s business;
          (h) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by any Company in the ordinary course of business in accordance with the past practices of such Company;
          (i) Liens securing Indebtedness incurred pursuant to Section 6.01(e); provided that any such Liens attach only to the property being financed or improved pursuant to such Indebtedness and do not encumber any other property of any Company;
          (j) bankers’ Liens, rights of setoff and other similar Liens existing solely with respect to cash and Cash Equivalents on deposit in one or more accounts maintained by any Company, in each case granted in the ordinary course of business in favor of the bank or banks with which such accounts are maintained, securing amounts owing to such bank with respect to cash management and operating account arrangements, including those involving pooled accounts and netting arrangements; provided that, unless such Liens are non-consensual and arise by operation of law, in no case shall any such Liens secure (either directly or indirectly) the repayment of any Indebtedness;
          (k) Liens on property of a person existing at the time such person is acquired or merged with or into or consolidated with any Company to the extent permitted hereunder (and not created in anticipation or contemplation thereof); provided that such Liens do not extend to property not subject to such Liens at the time of acquisition (other than improvements thereon) and are no more favorable to the lienholders than such existing Lien;
          (l) Liens granted pursuant to the Security Documents to secure the Secured Obligations;
          (m) licenses of Intellectual Property granted by any Company in the ordinary course of business and not interfering in any material respect with the ordinary conduct of business of the Companies;
          (n) the filing of UCC financing statements solely as a precautionary measure in connection with operating leases or consignment of goods;
          (o) Liens on assets of Foreign Subsidiaries; provided that (i) such Liens do not extend to, or encumber, property which constitutes Collateral and (ii) such Liens do not secure the Debentures or any Indebtedness incurred pursuant to Section 6.01(e), (l), (m) or (n);

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          (p) Liens incurred in the ordinary course of business with respect to obligations that do not in the aggregate exceed $10.0 million at any time outstanding;
          (q) Liens attaching solely to cash earnest money deposits in connection with any letter of intent or purchase agreement in connection with a Permitted Acquisition;
          (r) Liens in favor of customs and revenues authorities which secure payment of customs duties in connection with the importation of goods to the extent required by law; and
          (s) Liens deemed to exist in connection with set-off rights in the ordinary course of Borrowers’ and their Subsidiaries’ business;
          provided, however, that no consensual Liens shall be permitted to exist, directly or indirectly, on any Securities Collateral, other than Liens granted pursuant to the Security Documents.
          SECTION 6.03 Sale and Leaseback Transactions. Enter into any arrangement, directly or indirectly, with any person whereby it shall sell or transfer any property, real or personal, used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property (a “Sale and Leaseback Transaction”) unless (i) the sale of such property is permitted by Section 6.06 and (ii) any Liens arising in connection with its use of such property are permitted by Section 6.02.
          SECTION 6.04 Investment, Loan and Advances. Directly or indirectly, lend money or credit (by way of guarantee or otherwise) or make advances to any person, or purchase or acquire any stock, bonds, notes, debentures or other obligations or securities of, or any other interest in, or make any capital contribution to, any other person, or purchase or own a futures contract or otherwise become liable for the purchase or sale of currency or other commodities at a future date in the nature of a futures contract (all of the foregoing, collectively, “Investments”), except that the following shall be permitted:
          (a) Investments outstanding on the Closing Date and, to the extent that any such Investment has a value in excess of $100,000, identified on Schedule 6.04(a);
          (b) the Companies may (i) acquire and hold accounts receivables owing to any of them if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary terms, (ii) invest in, acquire and hold cash and Cash Equivalents, (iii) endorse negotiable instruments held for collection in the ordinary course of business, (iv) make lease, utility and other similar deposits in the ordinary course of business and (v) make prepayments and deposits to suppliers in the ordinary course of business;
          (c) Hedging Obligations permitted under Section 6.01(c);
          (d) loans and advances to directors, employees and officers of Borrowers and their respective Subsidiaries in the ordinary course of business for bona fide business purposes in the furtherance of their duties in such capacities; provided that no loans in violation of Section 402 of the Sarbanes-Oxley Act shall be permitted hereunder;
          (e) Investments (i) by any Company in either Borrower or any Guarantor or other Person that will become a Guarantor upon the making of such Investments, (ii) by any Company in any Person that, in connection with an Investment that is a Permitted Acquisition, becomes a Guarantor, (iii) by a Subsidiary that is not a Guarantor in any other Subsidiary that is not a Guarantor or a Person that will become a Subsidiary that is not a Guarantor upon the making of such Investment, (iv) by a Loan Party in any Subsidiary of Parent that is not a Loan Party or any Person that will become a Subsidiary of

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Parent that is not a Loan Party upon the making of such Investment; provided that the aggregate amount of Investments made under this clause (iv) shall not exceed $25.0 million during any fiscal year of Parent and (v) Investments by Loan Parties in Foreign Subsidiaries in an amount not to exceed at any time the amount of cash previously or simultaneously repatriated from Foreign Subsidiaries after the Closing Date, which cash shall at all times be maintained in one or more separate segregated bank accounts of the Loan Parties which shall contain only such cash repatriated from Foreign Subsidiaries, provided that no Event of Default exists at the time any Investment is made pursuant to this clause (v) or would result therefrom;
          (f) Investments in securities of trade creditors or customers in the ordinary course of business received upon foreclosure or pursuant to any plan of reorganization or liquidation or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers;
          (g) Investments made by either Borrower or any Subsidiary as a result of consideration received in connection with an Asset Sale made in compliance with Section 6.06;
          (h) contributions by any Loan Party of Equity Interests in any Excluded Foreign Company or Foreign Subsidiary to any other Excluded Foreign Company or Foreign Subsidiary;
          (i) Borrower and the Subsidiaries may sell or transfer assets and acquire assets to the extent permitted by Sections 6.05, 6.06 and 6.07;
          (j) Permitted Acquisitions and earnest money required in connection with and to the extent permitted by Permitted Acquisitions;
          (k) Loan Parties may hold Investments to the extent such Investments reflect an increase in the value of Investments otherwise permitted under this Section 6.04;
          (l) Investments by the Borrowers in the form of the Barents Group Loans;
          (m) Investments held in the BearingPoint, Inc. Deferred Compensation Plan and other Investments as part of compensation arrangements not exceeding $10.0 million in the aggregate during the term of this Agreement;
          (n) Investments in deposit accounts or securities accounts opened in the ordinary course of business; provided such deposit accounts and securities accounts are subject to Control Agreements if required hereunder or under the Security Agreement;
          (o) any cash transfer by a Loan Party to an Excluded Foreign Company (each, a “Cash Transfer”); provided that:
     (i) the purpose of such Cash Transfer shall be to enable an Excluded Foreign Company to make payment to one or more of the Loan Parties, including payment of interest on an outstanding intercompany loan payable by an Excluded Foreign Company to one or more of the Loan Parties;
     (ii) within five Business Days following the date of such Cash Transfer an Excluded Foreign Company returns the cash in an amount equal to the amount of such Cash Transfer to one or more of the Loan Parties; and

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     (iii) the amount of Cash Transfers pursuant to this subsection (o) outstanding at any time shall not exceed $25.0 million (or in the case of the one-time Cash Transfers involving United Kingdom Subsidiary or Subsidiaries of Parent, $60.0 million);
          (p) Loan Parties may capitalize or forgive any Indebtedness owed to them by other Loan Parties;
          (q) Investments by the Loan Parties in deposit accounts in banks located outside the United States, in a total amount not to exceed $20.0 million in the aggregate at any time during the term of this Agreement;
          (r) at any time, so long as no Event of Default shall have occurred and be continuing or would result therefrom, Investments in an aggregate amount not to exceed the Available Amount at such time minus any amounts expended pursuant to Section 6.08(f), Section 6.07(e) or Section 6.10(a)(ii) at such time;
          (s) Investments to the extent that the consideration therefor consists of Qualified Capital Stock of Parent; and
          (t) other Investments in an aggregate amount not to exceed $15.0 million at any time outstanding.
An Investment shall be deemed to be outstanding to the extent not returned in the same form as the original Investment to either Borrower or any Guarantor.
          SECTION 6.05 Mergers and Consolidations. Wind up, liquidate or dissolve its affairs or enter into any transaction of merger or consolidation (or agree to do any of the foregoing at any future time), except that the following shall be permitted:
     (a) Asset Sales in compliance with Section 6.06;
     (b) acquisitions in compliance with Section 6.07;
     (c) any Company may merge or consolidate with or into any other Company; provided that (i) if Parent is a party thereto, Parent shall be the survivor of such merger or consolidation, (ii) if BE LLC is a party to any such merger or consolidation (other than a merger or consolidation referred to in clause (i) above), BE LLC shall be the survivor of such merger or consolidation and (iii) if any Guarantor is a party to any such merger or consolidation (other than a merger or consolidation referred to in clause (i) or (ii) above), the survivor of such merger or consolidation shall be a Guarantor; and
     (d) any Subsidiary may dissolve, liquidate or wind up its affairs at any time; provided that such dissolution, liquidation or winding up, as applicable, would not reasonably be expected to have a Material Adverse Effect.
          To the extent the Required Lenders or all the Lenders, as applicable, waive the provisions of this Section with respect to the sale of any Collateral, or any Collateral is sold or otherwise transferred as permitted by this Section, such Collateral (unless sold or otherwise transferred to a Loan Party) shall be sold free and clear of the Liens created by the Security Documents, and, so long as Borrowers shall have provided the Agents such certifications or documents as any Agent shall reasonably request in order to

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demonstrate compliance with this Section, the Agents shall take all actions reasonably requested by any Company in order to effect the foregoing.
          SECTION 6.06 Asset Sales. Effect any Asset Sale, or agree to effect any Asset Sale, except that the following shall be permitted:
     (a) disposition of used, worn out, obsolete or surplus property by any Company and the abandonment or other disposition of Intellectual Property that is, in the reasonable judgment of Parent, no longer economically practicable to maintain or useful in the conduct of the business of the Companies taken as a whole;
     (b) Any Asset Sale; provided that (i) the aggregate consideration received in respect of such Asset Sale is at least equal to the fair market value of the assets and/or Equity Interests sold in such Asset Sale, (ii) if such consideration is received by a Subsidiary that is not a Loan Party (so long as such consideration is permitted to held by such Subsidiary under Section 6.04), such consideration shall be transferred to a Loan Party within 30 days of receipt provided, however, that so long as the proceeds of such Asset Sale may be used to make capital expenditures pursuant to Section 2.10(b)(ii) hereof, no such transfer to a Loan Party shall be required, and (iii) at least 80% of the consideration received in such Asset Sale is in the form of cash or Cash Equivalents (with cash or Cash Equivalents including for such purpose (x) the amount (without duplication) of any Indebtedness (other than Subordinated Indebtedness) of Parent or any Subsidiary of Parent that is expressly assumed by the transferee in such Asset Sale and with respect to which Indebtedness Parent or such Subsidiary, as the case may be, is unconditionally released by the holder of such Indebtedness, (y) marketable securities that are sold or otherwise disposed of for, or otherwise converted to, cash or Cash Equivalents within 60 days of their receipt and (z) any Equity Interests redeemed or repurchased pursuant to Section 6.08(g));
     (c) leases and licenses of real or personal property in the ordinary course of business;
     (d) sales or other dispositions of Cash Equivalents;
     (e) mergers and consolidations in compliance with Section 6.05;
     (f) Investments in compliance with Section 6.04;
     (g) Liens permitted under Section 6.02;
     (h) discounts or forgiveness of accounts receivable in the ordinary course of business or in connection with collection or compromise thereof; and
     (i) (i) sales of equipment or software procured on behalf of a customer in the ordinary course of business, (ii) sales of equipment to the extent that such property is exchanged for credit against the purchase price of similar replacement property, (iii) sales by any Excluded Foreign Company to another Excluded Foreign Company, (iv) licenses of intellectual property rights by the Borrowers or any Subsidiary in the ordinary course of business, (v) dispositions by the Borrowers or any Subsidiary thereof of assets acquired in connection with any transaction permitted by Section 6.04 or 6.07 that the Borrowers or such Subsidiary intended to sell at the time of such transaction shall be permitted; provided that the aggregate fair market value of such assets does not exceed 15% of the aggregate purchase price paid in connection with such transaction (including, without limitation, all cash payments, Indebtedness and other obligations assumed, earn-out payments (valued at an amount to be agreed upon between Borrowers and the Adminis-

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trative Agent), seller financing, deferred payments or equity issued), (vi) sales by any Loan Party to any other Loan Party and (vii) sales by a Loan Party to an Excluded Foreign Company or Foreign Subsidiary of Equity Interests in another Excluded Foreign Company or Foreign Subsidiary for cash or other assets or in exchange for, or in retirement of, intercompany Indebtedness;
          To the extent the Required Lenders or all the Lenders, as applicable, waive the provisions of this Section with respect to the sale of any Collateral, or any Collateral is sold or otherwise transferred as permitted by this Section, such Collateral (unless sold or otherwise transferred to a Loan Party) shall be sold free and clear of the Liens created by the Security Documents, and, so long as Borrowers shall have provided the Agents such certifications or documents as any Agent shall reasonably request in order to demonstrate compliance with this Section, the Agents shall take all actions they deem appropriate in order to effect the foregoing.
          SECTION 6.07 Acquisitions. Purchase or otherwise acquire (in one or a series of related transactions) any part of the property (whether tangible or intangible) of any person (or agree to do any of the foregoing at any future time), except that the following shall be permitted:
     (a) purchases and other acquisitions of inventory, materials, equipment and intangible property in the ordinary course of business;
     (b) Investments in compliance with Section 6.04;
     (c) leases of real or personal property in the ordinary course of business;
     (d) Permitted Acquisitions;
     (e) at any time so long as no Event of Default shall have occurred and be continuing or would result therefrom, acquisitions the aggregate Acquisition Consideration for which does not exceed the Available Amount at such time minus any amounts expended pursuant to Section 6.04(r), 6.08(f) or 6.10(a)(ii) at such time; and
     (f) mergers and consolidations in compliance with Section 6.05.
          SECTION 6.08 Dividends. Authorize, declare or pay, directly or indirectly, any Dividends with respect to any Company, except that the following shall be permitted:
     (a) any Subsidiary of a Borrower (i) may pay Dividends to a Borrower or any Wholly Owned Subsidiary of a Borrower and (ii) if such Subsidiary is not a Wholly Owned Subsidiary of a Borrower, may pay Dividends to its shareholders generally so long as the Borrower or its Subsidiary which owns the equity interest or interests in the Subsidiary paying such Dividends receives at least its proportionate share thereof (based upon its relative holdings of equity interests in the Subsidiary paying such Dividends and taking into account the relative preferences, if any, of the various classes of equity interests in such Subsidiary);
     (b) payments to Parent to permit Parent, and the subsequent use of such payments by Parent, to repurchase or redeem Qualified Capital Stock of Parent held by officers, directors or employees or former officers, directors or employees (or their transferees, estates or beneficiaries under their estates) of any Company, upon their death, disability, retirement, severance or termination of employment or service; provided that the aggregate cash consideration paid for all such redemptions and payments shall not exceed, in any fiscal year, $1.0 million;

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     (c) so long as no Event of Default exists or would result therefrom, Parent may pay Dividends, in an amount not to exceed during any fiscal year, $5.0 million less any amounts paid during such fiscal year pursuant to Section 6.08(e), pursuant to and in accordance with stock option plans or other benefit plans or arrangements for directors, officers or employees of Parent or its Subsidiaries;
     (d) so long as no Event of Default exists or would result therefrom, Parent may repurchases its capital stock upon exercise of options or warrants solely to the extent that shares of such capital stock represent a portion of the exercise price of such options or warrants (or withholding taxes in connection therewith;
     (e) so long as no Event of Default exists or would result therefrom, Parent may make cash payments, in an amount not to exceed during any fiscal year, $5.0 million less any amounts paid during such fiscal year pursuant to Section 6.08(c), in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Equity Interests of Parent;
     (f) at any time, so long as no Event of Default shall have occurred and be continuing or would result therefrom, Parent may pay cash Dividends on its Equity Interests in an aggregate amount not to exceed the Available Amount at such time minus any amounts expended pursuant to Section 6.04(r), 6.07(e) or 6.10(a)(ii) at such time; and
     (g) in connection with the disposition of a Subsidiary in an Asset Sale permitted pursuant to Section 6.06, redemptions or repurchases of Equity Interests of Parent held by employees of Parent or one of its Subsidiaries that will be employed by such Subsidiary following such Asset Sale, so long as (x) the only consideration granted for such redemptions or repurchases is Equity Interests of such Subsidiary so disposed of in such Asset Sale and (y) the aggregate fair market value of all of the Equity Interests so redeemed or repurchased pursuant to this Section 6.08(g) shall not exceed $30.0 million.
          SECTION 6.09 Transactions with Affiliates. Enter into, directly or indirectly, any transaction or series of related transactions, whether or not in the ordinary course of business, with any Affiliate of any Company (other than between or among Borrowers and one or more Guarantors), other than on terms and conditions at least as favorable to such Company as would reasonably be obtained by such Company at that time in a comparable arm’s-length transaction with a person other than an Affiliate, except that the following shall be permitted:
     (a) Dividends permitted by Section 6.08;
     (b) Investments permitted by Sections 6.04(d), (e) and (h);
     (c) reasonable and customary director, officer and employee compensation (including bonuses) and other benefits (including retirement, health, stock option and other benefit plans) and indemnification arrangements, in each case approved by the Board of Directors of Parent;
     (d) transactions with customers, clients, suppliers, subcontractors, joint venture partners or purchasers or sellers of goods and services, in each case in the ordinary course of business and otherwise not prohibited by the Loan Documents;

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     (e) the existence of, and the performance by any Loan Party of its obligations under the terms of, any limited liability company, limited partnership or other Organizational Document or securityholders agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party on the Closing Date and similar agreements that it may enter into thereafter; provided, however, that the existence of, or the performance by any Loan Party of obligations under, any amendment to any such existing agreement or any such similar agreement entered into after the Closing Date shall only be permitted by this Section 6.09(e) to the extent not more adverse to the interest of the Lenders in any material respect, when taken as a whole, than any of such documents and agreements as in effect on the Closing Date;
     (f) sales of Qualified Capital Stock of Parent to Affiliates of Parent not otherwise prohibited by the Loan Documents and the granting of registration and other customary rights in connection therewith;
     (g) any transaction with an Affiliate where the only consideration paid by any Loan Party is Qualified Capital Stock of Parent;
     (h) the Transactions as contemplated by the Loan Documents; and
     (i) in connection with any Asset Sale permitted pursuant to Section 6.06(b), Parent and one or more of its Subsidiaries shall be permitted to enter into transition services, ongoing cooperation, joint marketing, project performance or other similar types of agreements with the purchaser or the business unit disposed of (so long as such purchaser is not an Affiliate of Parent due to its holdings of Equity Interests in Parent) in such Asset Sale, so long as any such agreements are on commercially reasonable terms (in the reasonable judgment of Parent) in light of the fact that they are entered into between a seller and a purchaser of a business.
          SECTION 6.10 Prepayments of Other Indebtedness; Modifications of Organizational Documents and Other Documents, etc. Directly or indirectly:
     (a) make (or give any notice in respect thereof) any voluntary or optional payment or prepayment on or redemption or acquisition for value of, or any prepayment or redemption as a result of any asset sale, change of control or similar event of, any Indebtedness outstanding under any of the Debentures or any other Subordinated Indebtedness (including any Structured Securities), except as (i) otherwise permitted by this Agreement or (ii) at any time, so long as no Event of Default shall have occurred and be continuing or would result therefrom, payments, prepayments, redemptions and acquisitions in an aggregate amount not to exceed the Available Amount at such time minus any amounts expended pursuant to Section 6.04(r), 6.07(e) or 6.08(f) at such time;
     (b) amend or modify, or permit the amendment or modification of, any provision of the Debentures any other Subordinated Indebtedness or any document governing any Debentures or any other Subordinated Indebtedness in any manner that is adverse in any material respect to the interests of the Lenders; or
     (c) terminate, amend or modify any of its Organizational Documents (including by the filing or modification of any certificate of designation or any agreement to which it is a party with respect to its Equity Interests (including any stockholders’ agreement), or enter into any new agreement with respect to its Equity Interests, other than any such amendments or modifications or such new agreements which are not adverse in any material respect to the interests of the Lenders; provided that (i) Parent may issue such Equity Interests, so long as such issuance is not

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prohibited by Section 6.12 or any other provision of this Agreement, and may amend or modify its Organizational Documents to authorize any such Equity Interests and (ii) the Organizational Documents of a Subsidiary of Parent may be terminated in connection with a merger or consolidation permitted under Section 6.05.
          SECTION 6.11 Limitation on Certain Restrictions on Subsidiaries. Directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary to (a) pay dividends or make any other distributions on its capital stock or any other interest or participation in its profits owned by either Borrower or any Subsidiary, or pay any Indebtedness owed to either Borrower or a Subsidiary, (b) make loans or advances to either Borrower or any Subsidiary or (c) transfer any of its properties to either Borrower or any Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) applicable Requirements of Law; (ii) this Agreement and the other Loan Documents; (iii) the Debenture Documents; (iv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of a Subsidiary; (v) customary provisions restricting assignment of any agreement entered into by a Subsidiary in the ordinary course of business; (vi) any holder of a Lien permitted by Section 6.02 restricting the transfer of the property subject thereto; (vii) customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 6.06 pending the consummation of such sale; (viii) any agreement in effect at the time such Subsidiary becomes a Subsidiary of either Borrower, so long as such agreement was not entered into in connection with or in contemplation of such person becoming either Subsidiary of either Borrower; (ix) without affecting the Loan Parties’ obligations under Section 5.10, customary provisions in partnership agreements, limited liability company organizational governance documents, asset sale and stock sale agreements and other similar agreements entered into in the ordinary course of business that restrict the transfer of ownership interests in such partnership, limited liability company or similar person; (x) restrictions on cash or other deposits or net worth imposed by suppliers or landlords under contracts entered into in the ordinary course of business; (xi) any instrument governing Indebtedness assumed in connection with any Permitted Acquisition, which encumbrance or restriction is not applicable to any person, or the properties or assets of any person, other than the person or the properties or assets of the person so acquired; (xii) in the case of any joint venture which is not a Loan Party in respect of any matters referred to in clauses (b) and (c) above, restrictions in such person’s Organizational Documents or pursuant to any joint venture agreement or stockholders agreements solely to the extent of the Equity Interests of or property held in the subject joint venture or other entity; (xiii) any encumbrances or restrictions imposed by any amendments or refinancings that are otherwise permitted by the Loan Documents of the contracts, instruments or obligations referred to in clauses (iii) or (viii) above; provided that such amendments or refinancings are no more materially restrictive with respect to such encumbrances and restrictions than those prior to such amendment or refinancing; (xiv) restrictions which are not more restrictive than those contained in this Agreement contained in any documents governing any Indebtedness incurred after the Closing Date in accordance with the provisions of this Agreement; or (xv) customary restrictions and conditions contained in purchase money Indebtedness or Capital Leases, to the extent such Indebtedness or Capital Lease is permitted to be incurred pursuant to Section 6.01.
          SECTION 6.12 Limitation on Issuance of Capital Stock. No Subsidiary of Parent shall issue any Equity Interest (including by way of sales of treasury stock) or any options or warrants to purchase, or securities convertible into, any Equity Interest, except (i) for stock splits, stock dividends and additional issuances of Equity Interests which do not decrease the percentage ownership of Borrowers or any Subsidiaries in any class of the Equity Interest of such Subsidiary; (ii) Subsidiaries of either Borrower formed after the Closing Date in accordance with Section 6.13 may issue Equity Interests to either Borrower or the Subsidiary which is to own such Equity Interests; (iii) Parent’s Subsidiaries may issue common stock that is Qualified Capital Stock to Parent or a Subsidiary of Parent; and (iv) any issuance of Equity Interests of a Subsidiary in connection with the conversion or exchange of Structured Securities. All

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Equity Interests issued in accordance with this Section 6.12 shall, to the extent required by Section 5.10 or any Security Agreement, be delivered to the Collateral Agent for pledge pursuant to the applicable Security Agreement.
          SECTION 6.13 Limitation on Creation of Subsidiaries. Establish, create or acquire any additional Subsidiaries without the prior written consent of the Required Lenders; provided that, without such consent, either Borrower may (i) establish or create one or more Wholly Owned Subsidiaries of such Borrower, (ii) establish, create or acquire one or more Subsidiaries in connection with an Investment made pursuant to Section 6.04 or (iii) acquire one or more Subsidiaries in connection with a Permitted Acquisition, so long as, in each case, Section 5.10(b) shall be complied with.
          SECTION 6.14 Business. Engage (directly or indirectly) in any business other than those businesses in which Parent and its Subsidiaries are engaged on the Closing Date as described in the Confidential Information Memorandum (or, in the good faith judgment of the Board of Directors, which are substantially related thereto or are reasonable extensions thereof).
          SECTION 6.15 Limitation on Accounting Changes. Make or permit any change in accounting policies or reporting practices, without the consent of the Required Lenders, which consent shall not be unreasonably withheld, except changes that are required by GAAP or any Requirement of Law or the rules or regulations of any Governmental Authority with whom the Companies engage in business or propose or bid to engage in business or that are agreed to by Parent’s independent certified public accountants; provided that nothing in this Section will affect or waive the requirement to deliver financial statements under Section 5.01 in accordance with GAAP to the extent required by Section 5.01.
          SECTION 6.16 Fiscal Year. Change its fiscal year-end to a date other than December 31.
          SECTION 6.17 No Further Negative Pledge . Enter into any agreement, instrument, deed or lease which prohibits or limits the ability of any Loan Party to create, incur, assume or suffer to exist any Lien upon any of their respective properties or revenues, whether now owned or hereafter acquired, or which requires the grant of any security for an obligation if security is granted for another obligation, except the following: (1) this Agreement and the other Loan Documents; (2) covenants in documents creating Liens permitted by Section 6.02 prohibiting further Liens on the properties encumbered thereby; (3) the Debenture Documents as in effect on the Closing Date; (4) any other agreement that does not restrict in any manner (directly or indirectly) Liens created pursuant to the Loan Documents on any Collateral securing the Secured Obligations and does not require the direct or indirect granting of any Lien securing any Indebtedness or other obligation by virtue of the granting of Liens on or pledge of property of any Loan Party to secure the Secured Obligations; and (5) any prohibition or limitation that (a) exists pursuant to applicable Requirements of Law, (b) consists of customary restrictions and conditions contained in any agreement relating to the sale of any property permitted under Section 6.06 pending the consummation of such sale, (c) restricts subletting or assignment of leasehold interests contained in any Lease governing a leasehold interest of either Borrower or a Subsidiary, (d) exists in any agreement in effect at the time such Subsidiary becomes a Subsidiary of a Borrower, so long as such agreement was not entered into in contemplation of such person becoming a Subsidiary or (e) is imposed by any amendments or refinancings that are otherwise permitted by the Loan Documents of the contracts, instruments or obligations referred to in clause (3) or (5)(d); provided that such amendments and refinancings are no more materially restrictive with respect to such prohibitions and limitations than those prior to such amendment or refinancing.

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ARTICLE VII
GUARANTEE
          SECTION 7.01 The Guarantee. The Guarantors hereby jointly and severally guarantee, as a primary obligor and not as a surety to each Secured Party and their respective successors and assigns, the prompt payment in full when due (whether at stated maturity, by required prepayment, declaration, demand, by acceleration or otherwise) of the principal of and interest (including any interest, fees, costs or charges that would accrue but for the provisions of the Title 11 of the United States Code after any bankruptcy or insolvency petition under Title 11 of the United States Code) on the Loans made by the Lenders to, and the Notes held by each Lender of, each Borrower, and all other Secured Obligations from time to time owing to the Secured Parties by any Loan Party under any Loan Document or any Hedging Agreement or Treasury Services Agreement entered into with a counterparty that is a Secured Party, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the “Guaranteed Obligations”). The Guarantors hereby jointly and severally agree that if Borrowers or other Guarantor(s) shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantors will promptly pay the same in cash, upon demand, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.
          SECTION 7.02 Obligations Unconditional. The obligations of the Guarantors under Section 7.01 shall constitute a guaranty of payment and to the fullest extent permitted by applicable Requirements of Law, are absolute, irrevocable and unconditional, joint and several, irrespective of the value, genuineness, validity, regularity or enforceability of the Guaranteed Obligations of Borrowers under this Agreement, the Notes, if any, or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or Guarantor (except for payment in full). Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantors hereunder which shall remain absolute, irrevocable and unconditional under any and all circumstances as described above:
     (i) at any time or from time to time, without notice to the Guarantors, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
     (ii) any of the acts mentioned in any of the provisions of this Agreement or the Notes, if any, or any other agreement or instrument referred to herein or therein shall be done or omitted;
     (iii) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be amended in any respect, or any right under the Loan Documents or any other agreement or instrument referred to herein or therein shall be amended or waived in any respect or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with;
     (iv) any Lien or security interest granted to, or in favor of, an Issuing Bank or any Lender or Agent as security for any of the Guaranteed Obligations shall fail to be perfected; or
     (v) the release of any other Guarantor pursuant to Section 7.09.

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          The Guarantors hereby expressly waive diligence, presentment, demand of payment, protest and any notices not provided for under Article VII, and any requirement that any Secured Party exhaust any right, power or remedy or proceed against either Borrower under this Agreement or the Notes, if any, or any other agreement or instrument referred to herein or therein, or against any other person under any other guarantee of, or security for, any of the Guaranteed Obligations. The Guarantors waive any and all notice of the creation, renewal, extension, waiver, termination or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by any Secured Party upon this Guarantee or acceptance of this Guarantee, and the Guaranteed Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Guarantee, and all dealings between each Borrower and the Secured Parties shall likewise be conclusively presumed to have been had or consummated in reliance upon this Guarantee. This Guarantee shall be construed as a continuing, absolute, irrevocable and unconditional guarantee of payment without regard to any right of offset with respect to the Guaranteed Obligations at any time or from time to time held by Secured Parties, and the obligations and liabilities of the Guarantors hereunder shall not be conditioned or contingent upon the pursuit by the Secured Parties or any other person at any time of any right or remedy against either Borrower or against any other person which may be or become liable in respect of all or any part of the Guaranteed Obligations or against any collateral security or guarantee therefor or right of offset with respect thereto. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon the Guarantors and the successors and assigns thereof, and shall inure to the benefit of the Lenders, and their respective successors and assigns, notwithstanding that from time to time during the term of this Agreement there may be no Guaranteed Obligations outstanding.
          SECTION 7.03 Reinstatement. The obligations of the Guarantors under this Article VII shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of either Borrower or other Loan Party in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise.
          SECTION 7.04 Subrogation; Subordination. A Guarantor that makes a payment with respect to any Guaranteed Obligations hereunder shall be subrogated to the rights of the payee against the Borrowers with respect to such payment; provided that until the indefeasible payment and satisfaction in full in cash of all Guaranteed Obligations and the expiration and termination of the Commitments of the Lenders under this Agreement no Guarantor shall exercise any right or remedy, direct or indirect, arising by reason of any performance by it of its guarantee in Section 7.01, whether by subrogation or otherwise, against either Borrower or any other Guarantor of any of the Guaranteed Obligations or any security for any of the Guaranteed Obligations.
          SECTION 7.05 Remedies. The Guarantors jointly and severally agree that, as between the Guarantors and the Lenders, the obligations of Borrowers under this Agreement and the Notes, if any, may be declared to be forthwith due and payable as provided in Section 8.01 (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 8.01) for purposes of Section 7.01, notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against Borrowers and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by Borrowers) shall forthwith become due and payable by the Guarantors for purposes of Section 7.01.
          SECTION 7.06 [Reserved]
          SECTION 7.07 Continuing Guarantee. The guarantee in this Article VII is a continuing guarantee of payment, and shall apply to all Guaranteed Obligations whenever arising.

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          SECTION 7.08 General Limitation on Guarantee Obligations. In any action or proceeding involving any state corporate limited partnership or limited liability company law, or any applicable state, federal or foreign bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under Section 7.01 would otherwise be held or determined to be void, voidable, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under Section 7.01, then, notwithstanding any other provision to the contrary, the amount of such liability shall, without any further action by such Guarantor, any Loan Party or any other person, be automatically limited and reduced to the highest amount (after giving effect to the right of contribution established in Section 7.10) that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding.
          SECTION 7.09 Release of Guarantors. If, in compliance with the terms and provisions of the Loan Documents, any Guarantor shall cease be a Subsidiary of Parent (a “Transferred Guarantor”) such Transferred Guarantor shall, upon ceasing to be such a Subsidiary, be automatically released from its obligations under this Agreement (including under Section 10.03 hereof) and its obligations to pledge and grant any Collateral owned by it pursuant to any Security Document and, in the case of any Equity Interests in such Guarantor no longer held by a Borrower or another Guarantor the pledge of such Equity Interests to the Collateral Agent pursuant to the Security Agreements shall be automatically released, and the Collateral Agent shall take such actions as are necessary to effect each release described in this Section in accordance with the relevant provisions of the Security Documents, so long as Borrowers shall have provided the Agents such certifications or documents as any Agent shall reasonably request in order to demonstrate that such Guarantor’s ceasing to be a Subsidiary of Parent complied with the relevant provisions of Agreement.
          SECTION 7.10 Right of Contribution. Each Guarantor hereby agrees that to the extent that a Guarantor shall have paid more than its proportionate share of any payment made hereunder, such Guarantor shall be entitled to seek and receive contribution from and against any other Guarantor hereunder which has not paid its proportionate share of such payment. Each Guarantor’s right of contribution shall be subject to the terms and conditions of Section 7.04. The provisions of this Section shall in no respect limit the obligations and liabilities of any Guarantor to the Administrative Agent, the Issuing Banks and the Lenders, and each Guarantor shall remain liable to the Administrative Agent, the Issuing Banks and the Lenders for the full amount guaranteed by such Guarantor hereunder.
ARTICLE VIII
EVENTS OF DEFAULT
          SECTION 8.01 Events of Default. Upon the occurrence and during the continuance of the following events (“Events of Default”):
     (a) default shall be made in the payment of any principal of any Loan or any Reimbursement Obligation when and as the same shall become due and payable, whether at the due date thereof (including a Term Loan Repayment Date) or at a date fixed for prepayment (whether voluntary or mandatory) thereof or by acceleration thereof or otherwise;
     (b) default shall be made in the payment of any interest on any Loan or any Fee or any other amount (other than an amount referred to in paragraph (a) above) due under any Loan Document, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three Business Days;
     (c) any representation or warranty made or deemed made in or in connection with any Loan Document, or any representation or warranty, contained in any report, certificate, finan-

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cial statement or other instrument furnished pursuant to any Loan Document, shall prove to have been false or misleading in any material respect when so made or furnished;
     (d) default shall be made in the due observance or performance by any Company of any covenant, condition or agreement contained in Section 5.02(a), 5.03(a) (with respect to the Borrowers only) or 5.08 or in Article VI;
     (e) default shall be made in the due observance or performance by any Company of any covenant, condition or agreement contained in any Loan Document (other than those specified in paragraphs (a), (b) or (d) immediately above or Section 5.01(a), (b), (c) or (d) or the first sentence of Section 5.07) and such default shall continue unremedied or shall not be waived for a period of 30 days after written notice thereof from the Administrative Agent to either Borrower;
     (f) default shall be made in the due observance or performance by any Company of any covenant, condition or agreement contained in Section 5.01(a), (b), (c) or (d) or the first sentence of Section 5.07 on or after October 31, 2008 (whether for a period before or after such date) and such default shall have continued unremedied or shall not be waived prior to the later of (x) 30 days after notice thereof from the Administrative Agent to either Borrower and (y) October 31, 2008;
     (g) any Company shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness (other than the Obligations), when and as the same shall become due and payable beyond any applicable grace period, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee or other representative on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity or become subject to a mandatory offer purchase by the obligor; provided that it shall not constitute an Event of Default pursuant to this paragraph (f) unless the aggregate amount of all such Indebtedness referred to in clauses (i) and (ii) exceeds $10.0 million at any one time (provided that, in the case of Hedging Obligations, the amount counted for this purpose shall be the amount payable by all Companies if such Hedging Obligations were terminated at such time);
     (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of any Company (other than an Immaterial Subsidiary), or of a substantial part of the property of any Company (other than an Immaterial Subsidiary), under Title 11 of the U.S. Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law; (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Company or for a substantial part of the property of any Company (other than an Immaterial Subsidiary); and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
     (i) any Company (other than an Immaterial Subsidiary) shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other federal, state or foreign bankruptcy, insolvency, receivership or similar law; (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in clause (g) above; (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Company or for a substantial part of the property of any

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Company; (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding; (v) make a general assignment for the benefit of creditors; (vi) admit in writing its inability or fail generally to pay its debts as they become due; or (vii) take any action for the purpose of effecting any of the foregoing;
     (j) one or more judgments, orders or decrees for the payment of money in an aggregate amount in excess of $20.0 million shall be rendered against any Company or any combination thereof and the same shall remain undischarged, unvacated or unbonded for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon properties of any Company to enforce any such judgment;
     (k) except as set forth in Schedule 3.14, one or more ERISA Events or noncompliance with respect to Foreign Plans shall have occurred that, when taken together with all other such ERISA Events and noncompliance with respect to Foreign Plans that have occurred, could reasonably be expected to result in liability of any Company and its ERISA Affiliates in an aggregate amount exceeding $20.0 million;
     (l) any security interest or Lien purported to be created by any Security Document on any material portion of the Collateral shall cease to be in full force and effect, or shall cease to give the Collateral Agent, for the benefit of the Secured Parties, the Liens, rights, powers and privileges purported to be created and granted under such Security Document (including a perfected first priority security interest in and Lien on all of the Collateral thereunder (except as otherwise expressly provided in such Security Document)) in favor of the Collateral Agent, or shall be asserted by either Borrower or any other Loan Party not to be a valid, perfected, first priority (except as otherwise expressly provided in this Agreement or such Security Document) security interest in or Lien on the Collateral covered thereby;
     (m) any Loan Document or any material provisions thereof shall at any time and for any reason be declared by a court of competent jurisdiction to be null and void, or a proceeding shall be commenced by any Loan Party or any other person, or by any Governmental Authority, seeking to establish the invalidity or unenforceability thereof (exclusive of questions of interpretation of any provision thereof), or any Loan Party shall repudiate or deny any portion of its liability or obligation for the Obligations; or
     (n) there shall have occurred a Change in Control;
then, and in every such event (other than an event with respect to either Borrower described in paragraph (h) or (i) above), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to Borrowers, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans and Reimbursement Obligations then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans and Reimbursement Obligations so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other Obligations of Borrowers accrued hereunder and under any other Loan Document, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrowers and the Guarantors, anything contained herein or in any other Loan Document to the contrary notwithstanding; and in any event, with respect to either Borrower described in paragraph (h) or (i) above, the Commitments shall automatically terminate and the principal of the Loans and Reimbursement Obligations then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other Obligations of Borrowers accrued hereunder and under any other

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Loan Document, shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived by Borrowers and the Guarantors, anything contained herein or in any other Loan Document to the contrary notwithstanding.
          SECTION 8.02 Rescission. If at any time after termination of the Commitments or acceleration of the maturity of the Loans, Borrowers shall pay all arrears of interest and all payments on account of principal of the Loans and Reimbursement Obligations owing by it that shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified herein) and all Defaults (other than non-payment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 10.02, then upon the written consent of the Required Lenders and written notice to Parent, the termination of the Commitments or the acceleration and their consequences may be rescinded and annulled; but such action shall not affect any subsequent Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Lenders and the Issuing Banks to a decision that may be made at the election of the Required Lenders, and such provisions are not intended to benefit Borrowers and do not give Borrowers the right to require the Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met.
          SECTION 8.03 Application of Proceeds. The proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Collateral pursuant to the exercise by the Collateral Agent of its remedies shall be applied, in full or in part, together with any other sums then held by the Collateral Agent pursuant to this Agreement, promptly by the Collateral Agent as follows:
     (a) First, to the payment of all reasonable costs and expenses, fees, commissions and taxes of such sale, collection or other realization including compensation to the Collateral Agent and its agents and counsel, and all expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith and all amounts for which the Collateral Agent is entitled to indemnification pursuant to the provisions of any Loan Document, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full;
     (b) Second, to the payment of all other reasonable costs and expenses of such sale, collection or other realization including compensation to the other Secured Parties and their agents and counsel and all costs, liabilities and advances made or incurred by the other Secured Parties in connection therewith, together with interest on each such amount at the highest rate then in effect under this Agreement from and after the date such amount is due, owing or unpaid until paid in full;
     (c) Third, without duplication of amounts applied pursuant to clauses (a) and (b) above, to the indefeasible payment in full in cash, pro rata, of interest and other amounts constituting Obligations (other than principal, Reimbursement Obligations and obligations to cash collateralize Letters of Credit) and any fees, premiums and scheduled periodic payments due under Hedging Agreements or Treasury Services Agreements constituting Secured Obligations and any interest accrued thereon, in each case equally and ratably in accordance with the respective amounts thereof then due and owing;
     (d) Fourth, to the indefeasible payment in full in cash, pro rata, of principal amount of the Obligations and any premium thereon (including Reimbursement Obligations and obligations to cash collateralize Letters of Credit) and any breakage, termination or other payments un-

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der Hedging Agreements and Treasury Services Agreements constituting Secured Obligations and any interest accrued thereon; and
     (e) Fifth, the balance, if any, to the person lawfully entitled thereto (including the applicable Loan Party or its successors or assigns) or as a court of competent jurisdiction may direct.
          In the event that any such proceeds are insufficient to pay in full the items described in clauses (a) through (f) of this Section, the Loan Parties shall remain liable, jointly and severally, for any deficiency.
ARTICLE IX
THE ADMINISTRATIVE AGENT AND THE COLLATERAL AGENT
          SECTION 9.01 Appointment and Authority. Each of the Lenders and the Issuing Banks hereby irrevocably appoints UBS AG, Stamford Branch, to act on its behalf as the Administrative Agent and the Collateral Agent hereunder and under the other Loan Documents and authorizes such Agents to take such actions on its behalf and to exercise such powers as are delegated to such Agents by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Collateral Agent, the Lenders and the Issuing Banks, and neither Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions.
          SECTION 9.02 Rights as a Lender. Each person serving as an Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not an Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include each person serving as an Agent hereunder in its individual capacity. Such person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with either Borrower or any Subsidiary or other Affiliate thereof as if such person were not an Agent hereunder and without any duty to account therefor to the Lenders.
          SECTION 9.03 Exculpatory Provisions. No Agent shall have any duties or obligations except those expressly set forth herein and in the other Loan Documents. Without limiting the generality of the foregoing, no Agent:
     (i) shall be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
     (ii) shall have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that such Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that such Agent shall not be required to take any action that, in its judgment or the judgment of its counsel, may expose such Agent to liability or that is contrary to any Loan Document or applicable Requirements of Law; and
     (iii) shall, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to

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Parent or any of its Affiliates that is communicated to or obtained by the person serving as such Agent or any of its Affiliates in any capacity.
No Agent shall be liable for any action taken or not taken by it (x) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as such Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 10.02) or (y) in the absence of its own gross negligence or willful misconduct. No Agent shall be deemed to have knowledge of any Default unless and until notice describing such Default is given to such Agent by either Borrower, a Lender or an Issuing Bank.
          No Agent shall be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to such Agent. Without limiting the generality of the foregoing, the use of the term “agent” in this Agreement with reference to the Administrative Agent or the Collateral Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom and is intended to create or reflect only an administrative relationship between independent contracting parties.
          Each party to this Agreement acknowledges and agrees that the Administrative Agent will use an outside service provider for the tracking of all UCC financing statements required to be filed pursuant to the Loan Documents and notification to the Administrative Agent, of, among other things, the upcoming lapse or expiration thereof, and that such service provider will be deemed to be acting at the request and on behalf of Borrowers and the other Loan Parties. No Agent shall be liable for any action taken or not taken by such service provider.
          SECTION 9.04 Reliance by Agent. Each Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) reasonably believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper person. Each Agent also may rely upon any statement made to it orally or by telephone and reasonably believed by it to have been made by the proper person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or an Issuing Bank, the Administrative Agent may presume that such condition is satisfactory to such Lender or such Issuing Bank unless the Administrative Agent shall have received notice to the contrary from such Lender or such Issuing Bank prior to the making of such Loan or the issuance of such Letter of Credit. Each Agent may consult with legal counsel (who may be counsel for either Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
          SECTION 9.05 Delegation of Duties. Each Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through, or delegate any and all such rights and powers to, any one or more sub-agents appointed by such Agent. Each Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply

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to any such sub-agent and to the Related Parties of each Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Agent.
          SECTION 9.06 Resignation of Agent. Each Agent may at any time give notice of its resignation to the Lenders, the Issuing Banks and Parent. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with Parent, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 75 days after the retiring Agent gives notice of its resignation, then the retiring Agent may on behalf of the Lenders and the Issuing Banks, appoint a successor Agent meeting the qualifications set forth above; provided that if the Agent shall notify Parent and the Lenders that no qualifying person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (1) the retiring Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Collateral Agent on behalf of the Lenders or the Issuing Banks under any of the Loan Documents, the retiring Collateral Agent shall continue to hold such collateral security as nominee until such time as a successor Collateral Agent is appointed) and (2) all payments, communications and determinations provided to be made by, to or through an Agent shall instead be made by or to each Lender and each Issuing Bank directly, until such time as the Required Lenders appoint a successor Agent as provided for above in this paragraph. Upon the acceptance of a successor’s appointment as Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Agent, and the retiring Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this paragraph). The fees payable by Borrowers to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between Borrowers and such successor. After the retiring Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article IX and Section 10.03 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting as Agent.
          SECTION 9.07 Non-Reliance on Agent and Other Lenders. Each Lender and each Issuing Bank acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender further represents and warrants that it has reviewed the Confidential Information Memorandum and each other document made available to it on the Platform in connection with this Agreement and has acknowledged and accepted the terms and conditions applicable to the recipients thereof. Each Lender and each Issuing Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
          SECTION 9.08 No Other Duties, etc. Anything herein to the contrary notwithstanding, none of the Bookmanagers, Arrangers, Syndication Agent, Documentation Agent or listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, the Collateral Agent, a Lender or an Issuing Bank hereunder.

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ARTICLE X
MISCELLANEOUS
          SECTION 10.01 Notices.
          (a) Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows:
(i)    if to any Loan Party, to Parent at:
BearingPoint, Inc.
8725 West Higgins Road
Chicago, Illinois 60631
Attention: Laurent Lutz
Telecopy No.: (773) 304-3194
Email: laurent.lutz@bearingpoint.com
with a copy to:
BearingPoint, Inc.
1676 International Drive
McLean, Virginia 22102
Attention: Judy Ethell
Telecopy No.: (703) 747-6057
Email: judy.ethell@bearingpoint.com
(ii)   if to the Administrative Agent or the Collateral Agent, to it at:
UBS AG, Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901
Attention: Christopher Gomes
Telecopier No.: (203) 719-4176
Email: christopher.gomes@ubs.com
(iii)  if to an Issuing Bank, to the applicable Issuing Bank as follows:
Wells Fargo Foothill, LLC
2450 Colorado Avenue
Suite 3000 West
Santa Monica, California 90404
Attention: Patrick McCormack
Telecopier No.: (310) 453-7446
Email: patrick.mccormack@wellsfargo.com
or

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UBS AG, Stamford Branch
677 Washington Boulevard
Stamford, Connecticut 06901
Attention: Christopher Gomes
Telecopier No.: (203) 719-4176
Email: christopher.gomes@ubs.com
     (iv) if to a Lender, to it at its address (or telecopier number) set forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
          (b) Electronic Communications. Notices and other communications to the Lenders and the Issuing Banks hereunder may (subject to Section 10.01(d)) be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender or any Issuing Bank pursuant to Article II if such Lender or such Issuing Bank, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent, the Collateral Agent or Parent may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it (including as set forth in Section 10.01(d)); provided that approval of such procedures may be limited to particular notices or communications.
          Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement); provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
          (c) Change of Address, etc. Any party hereto may change its address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.
          (d) Posting. Each Loan Party hereby agrees that it will provide to the Administrative Agent all information, documents and other materials that it is obligated to furnish to the Administrative Agent pursuant to this Agreement and any other Loan Document, including all notices, requests, financial statements, financial and other reports, certificates and other information materials, but excluding any such communication that (i) relates to a request for a new, or a conversion of an existing, Borrowing or other extension of credit (including any election of an interest rate or interest period relating thereto), (ii) relates to the payment of any principal or other amount due under this Agreement prior to the scheduled date therefor, (iii) provides notice of any Default under this Agreement or (iv) is required to be delivered to satisfy any condition precedent to the effectiveness of this Agreement and/or any borrowing or other extension of credit hereunder (all such non-excluded communications, collectively, the “Communi-

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cations”), by transmitting the Communications in an electronic/soft medium in a format reasonably acceptable to the Administrative Agent at christopher.gomes@ubs.com or at such other e-mail address(es) provided to Parent from time to time or in such other form, including hard copy delivery thereof, as the Administrative Agent shall require. In addition, each Loan Party agrees to continue to provide the Communications to the Administrative Agent in the manner specified in this Agreement or any other Loan Document or in such other form, including hard copy delivery thereof, as the Administrative Agent shall require. Nothing in this Section shall prejudice the right of the Agents, any Lender or any Loan Party to give any notice or other communication pursuant to this Agreement or any other Loan Document in any other manner specified in this Agreement or any other Loan Document or as any such Agent shall require.
          To the extent consented to by the Administrative Agent in writing from time to time, the Administrative Agent agrees that receipt of the Communications by the Administrative Agent at its e-mail address(es) set forth above shall constitute effective delivery of the Communications to the Administrative Agent for purposes of the Loan Documents; provided that Parent shall also deliver to the Administrative Agent an executed original of each Compliance Certificate required to be delivered hereunder.
          Each Loan Party further agrees that Administrative Agent may make the Communications available to the Lenders by posting the Communications on IntraLinks or a substantially similar electronic transmission system (the “Platform”). The Platform is provided “as is” and “as available.” The Agents do not warrant the accuracy or completeness of the Communications, or the adequacy of the Platform and expressly disclaim liability for errors or omissions in the communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third party rights or freedom from viruses or other code defects, is made by any Agent in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its Related Parties have any liability to the Loan Parties, any Lender or any other person for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of any Loan Party’s or the Administrative Agent’s transmission of communications through the Internet, except to the extent the liability of such person is found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from such person’s gross negligence or willful misconduct.
          SECTION 10.02 Waivers; Amendment.
          (a) Generally. No failure or delay by any Agent, any Issuing Bank or any Lender in exercising any right or power hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of each Agent, the Issuing Banks and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by any Loan Party therefrom shall in any event be effective unless the same shall be permitted by this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether any Agent, any Lender or any Issuing Bank may have had notice or knowledge of such Default at the time. No notice or demand on either Borrower in any case shall entitle such Borrower to any other or further notice or demand in similar or other circumstances.
          (b) Required Consents. Subject to Sections 10.02(c), (d) and (e), neither this Agreement nor any other Loan Document nor any provision hereof or thereof may be waived, amended, supplemented or modified except, in the case of this Agreement, pursuant to an agreement or agreements in

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writing entered into by Borrowers and the Administrative Agent (and, prior to the occurrence of a Successful Syndication, UBS Loan Finance LLC) or, in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent (and, prior to the occurrence of a Successful Syndication, UBS Loan Finance LLC), the Collateral Agent (in the case of any Security Document) and the Loan Party or Loan Parties that are party thereto, in each case with the written consent of the Required Lenders; provided that no such agreement shall be effective if the effect thereof would:
     (i) increase the Commitment of any Lender without the written consent of such Lender (it being understood that no amendment, modification, termination, waiver or consent with respect to any condition precedent, covenant or Default shall constitute an increase in the Commitment of any Lender);
     (ii) reduce the principal amount or premium of any Loan, LC Disbursement or Credit-Linked Deposit or reduce the rate of interest thereon (other than interest pursuant to Section 2.06(c)), or reduce any Fees payable hereunder, or change the form or currency of payment of any Obligation, without the written consent of each Lender directly affected thereby (it being understood that any amendment or modification to the financial definitions in this Agreement shall not constitute a reduction in the rate of interest for purposes of this clause (ii));
     (iii) (A) change the scheduled final maturity of any Loan, or any scheduled date of payment of or the installment otherwise due on the principal amount of any Term Loan under Section 2.09, (B) postpone the date for payment of any Reimbursement Obligation or any interest or fees payable hereunder, (C) change the amount of, waive or excuse any such payment (other than waiver of any increase in the interest rate pursuant to Section 2.06(c)), or (D) postpone the scheduled date of expiration of any Letter of Credit beyond the Maturity Date, in any case, without the written consent of each Lender directly affected thereby;
     (iv) permit the assignment or delegation by either Borrower of any of its rights or obligations under any Loan Document (except in the case of BE LLC, in connection with a transaction pursuant to Section 605(c)(i)), without the written consent of each Lender;
     (v) release all or substantially all of the Guarantors from their Guarantee (except as expressly provided in Article VII), or limit their liability in respect of such Guarantee, without the written consent of each Lender;
     (vi) release all or a substantial portion of the Collateral from the Liens of the Security Documents or alter the relative priorities of the Secured Obligations entitled to the Liens of the Security Documents, in each case without the written consent of each Lender (it being understood that additional Classes of Loans consented to by the Required Lenders may be equally and ratably secured by the Collateral with the then existing Secured Obligations under the Security Documents);
     (vii) change Section 2.14(b), (c) or (d) in a manner that would alter the pro rata sharing of payments or setoffs required thereby or any other provision in a manner that would alter the pro rata allocation among the Lenders of Loan disbursements, including the requirements of Sections 2.02(a) and 2.18(d), without the written consent of each Lender directly affected thereby;
     (viii) change any provision of this Section 10.02(b) or Section 10.02(c) or (d), without the written consent of each Lender directly affected thereby (except for additional restrictions on

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amendments or waivers for the benefit of Lenders of additional Classes of Loans consented to by the Required Lenders);
     (ix) change the percentage set forth in the definition of “Required Lenders,” “Required Class Lenders,” “Required LC Lenders” or any other provision of any Loan Document (including this Section) specifying the number or percentage of Lenders (or Lenders of any Class) required to waive, amend or modify any rights thereunder or make any determination or grant any con sent thereunder, without the written consent of each Lender (or each Lender of such Class, as the case may be), other than to increase such percentage or number or to give any additional Lender or group of Lenders such right to waive, amend or modify or make any such determination or grant any such consent;
     (x) change the application of prepayments as among or between Classes under Section 2.10(g), without the written consent of the Required Class Lenders of each Class that is being allocated a lesser prepayment as a result thereof (it being understood that the Required Lenders may waive, in whole or in part, any prepayment so long as the application, as between Classes, of any portion of such prepayment that is still required to be made is not changed and, if additional Classes of Term Loans under this Agreement consented to by the Required Lenders are made, such new Term Loans may be included on a pro rata basis in the various prepayments required pursuant to Section 2.10(g));
     (xi) change or waive the application of prepayments of Term Loans of any Class set forth in Section 2.10(g) to the remaining scheduled amortization payments to be made thereon under Section 2.09, without the written consent of the Required Class Lenders of such Class;
     (xii) subordinate the Obligations to any other obligation, without the written consent of each Lender;
     (xiii) change or waive any provision of Article X as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the written consent of such Agent; or
     (xiv) change or waive any obligation of the Lenders relating to the issuance of or purchase of participations in Letters of Credit, without the written consent of the Administrative Agent and the applicable Issuing Bank;
provided, further, that any waiver, amendment or modification prior to the completion of the primary syndication of the Commitments and Loans (as determined by the Arranger) may not be effected without the written consent of the Arranger.
          (c) Collateral. Without the consent of any other person, the applicable Loan Party or Parties and the Administrative Agent and/or Collateral Agent may (in its or their respective sole discretion, or shall, to the extent required by any Loan Document) enter into any amendment or waiver of any Loan Document, or enter into any new agreement or instrument, to effect the granting, perfection, protection, expansion or enhancement of any security interest in any Collateral or additional property to become Collateral for the benefit of the Secured Parties, or as required by local law to give effect to, or protect any security interest for the benefit of the Secured Parties, in any property or so that the security interests therein comply with applicable Requirements of Law.
          (d) Dissenting Lenders. If, in connection with any proposed change, waiver, discharge or termination of the provisions of this Agreement as contemplated by Section 10.02(b), the con-

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sent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then Parent shall have the right to replace all, but not less than all, of such non-consenting Lender or Lenders with one or more persons pursuant to Section 2.16 so long as at the time of such replacement each such new Lender consents to the proposed change, waiver, discharge or termination. Each Lender agrees that, if Parent elects to replace such Lender in accordance with this Section, it shall promptly execute and deliver to the Administrative Agent an Assignment and Assumption to evidence such sale and purchase and shall deliver to the Administrative Agent any Note (if Notes have been issued in respect of such Lender’s Loans) subject to such Assignment and Assumption; provided that the failure of any such non-consenting Lender to execute an Assignment and Assumption shall not render such sale and purchase (and the corresponding assignment) invalid and such assignment shall be recorded in the Register.
          (e) Certain Amendments without Lender Consent. Notwithstanding anything to the contrary contained in this Section 10.02, if the Administrative Agent and Parent shall have jointly identified an obvious error (including, but not limited to, an incorrect cross-reference) or any error or omission of a technical or immaterial nature, in each case, in any provision of any Loan Document, then the Administrative Agent and/or the Collateral Agent (acting in their sole discretion) and the Borrowers or any other relevant Loan Party shall be permitted to amend such provision and such amendment shall become effective without any further action or consent of any other party to any Loan Document.
          SECTION 10.03 Expenses; Indemnity; Damage Waiver.
          (a) Costs and Expenses. Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Collateral Agent and their respective Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and/or the Collateral Agent) in connection with the syndication of the credit facilities provided for herein (including the obtaining and maintaining of CUSIP numbers for the Loans), the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendment, amendment and restatement, modification or waiver of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), including in connection with post-closing searches to confirm that security filings and recordations have been properly made and including any costs and expenses of the service provider referred to in Section 9.03, (ii) all reasonable out-of-pocket expenses incurred by the Administrative Agent, the Collateral Agent, any Lender or any Issuing Bank (including the fees, charges and disbursements of any counsel for the Administrative Agent, the Collateral Agent, any Lender or any Issuing Bank), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit and (iv) all documentary and similar taxes and charges in respect of the Loan Documents.
          (b) Indemnification by Borrowers. Borrowers shall indemnify the Administrative Agent (and any sub-agent thereof), the Collateral Agent (and any sub-agent thereof) each Lender and each Issuing Bank, and each Related Party of any of the foregoing persons (each such person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee) incurred by any Indemnitee or asserted against any Indemnitee by any party hereto or any third party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document, or any amendment, amendment and restatement, modification or waiver of the provisions hereof or thereof, or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consumma-

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tion of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the applicable Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or Release or threatened Release of Hazardous Materials on, at, under or from any property owned, leased or operated by any Company at any time, or any Environmental Claim related in any way to any Company, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by either Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by either Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if such Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.
          (c) Reimbursement by Lenders. To the extent that Borrowers for any reason fail to indefeasibly pay any amount required under paragraph (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the Collateral Agent, the Issuing Banks or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Collateral Agent (or any sub-agent thereof), the Issuing Banks or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (such indemnity shall be effective whether or not the related losses, claims, damages, liabilities and related expenses are incurred or asserted by any party hereto or any third party); provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), the Collateral Agent (or any sub-agent thereof), an Issuing Bank in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent), the Collateral Agent (or any sub-agent thereof), an Issuing Bank in connection with such capacity. The obligations of the Lenders under this paragraph (c) are subject to the provisions of Section 2.14. For purposes hereof, a Lender’s “pro rata share” shall be determined based upon its share of the sum of the total LC Exposure, outstanding Loans and Credit-Linked Deposits at the time.
          (d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable Requirements of Law, no Loan Party shall assert, and each Loan Party hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof. No Indemnitee referred to in paragraph (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
          (e) Payments. All amounts due under this Section shall be payable promptly (and in no event later than 10 Business Days) after demand therefor.

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          SECTION 10.04 Successors and Assigns.
          (a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent, the Collateral Agent, each Issuing Bank and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an Eligible Assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by either Borrower or any Lender shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the other Indemnitees) any legal or equitable right, remedy or claim under or by reason of this Agreement.
          (b) Assignments by Lenders. Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that
     (i) except in the case of any assignment made in connection with the primary syndication of the Commitment and Loans or Credit-Linked Deposits by the Arranger or an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund with respect to a Lender, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $1.0 million, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, Parent otherwise consent (each such consent not to be unreasonably withheld or delayed);
     (ii) each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, except that this clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate tranches on a non-pro rata basis;
     (iii) in the case of an assignment of any portion of the LC Facility, (A) assignment of any portion of the LC Facility must include an assignment of an equal portion of such Lender’s interest in its Credit-Linked Deposit, the LC Loans and participations in LC Obligations and (B) the Credit-Linked Deposit of the assignor LC Lender shall not be released, but shall instead be purchased by the relevant assignee and continue to be held for application (to the extent not already applied) in accordance with this Agreement to satisfy such assignee’s obligations hereunder; and
     (iv) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500, and the Eligible Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

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Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section and, so long as no Event of Default has occurred and is continuing, the consent of Parent, from and after the effective date specified in each Assignment and Assumption, the Eligible Assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.15 and 10.03 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section.
          (c) Register. The Administrative Agent, acting solely for this purpose as an agent of Borrowers, shall maintain at one of its offices in Stamford, Connecticut a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and LC Disbursements owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and Borrowers, the Administrative Agent, each Issuing Bank and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by Borrowers, any Issuing Bank, the Collateral Agent and any Lender (with respect to its own interest only), at any reasonable time and from time to time upon reasonable prior notice.
          (d) Participations. Any Lender may at any time, without the consent of, or notice to, either Borrower, the Administrative Agent or the Issuing Banks sell participations to any person (other than a natural person or either Borrower or any of either Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Borrowers, the Administrative Agent and the Lenders and the Issuing Banks shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of Borrowers, maintain a register on which it enters the name and address of each Participant and the principal amounts of each Participant’s interest in the Loans held by it (the “Participant Register”). The entries in the Participant Register shall be conclusive, absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such Loan or other obligation hereunder as the owner thereof for all purposes of this Agreement notwithstanding any notice to the contrary.
          Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in clause (i), (ii) or (iii) of the first proviso to Section 10.02(b) that affects such Participant. Subject to paragraph (e) of this Section, Borrowers agree that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.15 (subject to the requirements of those Sections) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be enti-

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tled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.14 as though it were a Lender.
          (e) Limitations on Participant Rights. A Participant shall not be entitled to receive any greater payment under Sections 2.12, 2.13 and 2.15 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with Parent’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 2.15 unless the Borrowers are notified of the participation sold to such Participant and such Participant agrees, for the benefits of the Borrowers, to comply with Section 2.15(e) as though it were a Lender.
          (f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto. In the case of any Lender that is a fund that invests in bank loans, such Lender may, without the consent of either Borrower or the Administrative Agent, collaterally assign or pledge all or any portion of its rights under this Agreement, including the Loans and Notes or any other instrument evidencing its rights as a Lender under this Agreement, to any holder of, trustee for, or any other representative of holders of, obligations owed or securities issued, by such fund, as security for such obligations or securities.
          (g) Electronic Execution of Assignments. The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable Requirement of Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
          SECTION 10.05 Survival of Agreement. All covenants, agreements, representations and warranties made by the Loan Parties in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and any that the Agents, the Issuing Banks or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitments have not expired or terminated. The provisions of Sections 2.12, 2.14, 2.15 and Article X (other than Section 10.12) shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the payment of the Reimbursement Obligations, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.
          SECTION 10.06 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the

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subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof, except in each case to the extent otherwise provided in Section 1.06. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement.
          SECTION 10.07 Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
          SECTION 10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, then each Lender and each Issuing Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable Requirements of Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, or such Issuing Bank to or for the credit or the account of either Borrower or any other Loan Party against any and all of the obligations of such Borrower or such other Loan Party now or hereafter existing under this Agreement or any other Loan Document then due to such Lender or such Issuing Bank, irrespective of whether or not such Lender or such Issuing Bank shall have made any demand under this Agreement or any other Loan Document and although such obligations of such Borrower or such other Loan Party are owed to a branch or office of such Lender or such Issuing Bank different from the branch or office holding such deposit or owing such obligations. The rights of each Lender and each Issuing Bank under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender and such Issuing Bank may have. Each Lender and each Issuing Bank agrees to notify Parent and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.
          SECTION 10.09 Governing Law; Jurisdiction; Consent to Service of Process.
          (a) Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of New York, without regard to conflicts of law principles that would require the application of the laws of another jurisdiction.
          (b) Submission to Jurisdiction. Each Loan Party hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Supreme Court of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to any Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, any Issuing Bank or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Loan Party or its properties in the courts of any jurisdiction.

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          (c) Waiver of Venue. Each Loan Party hereby irrevocably and unconditionally waives, to the fullest extent permitted by applicable Requirements of Law, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in Section 10.09(b). Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable Requirements of Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
          (d) Service of Process. Each party hereto irrevocably consents to service of process in any action or proceeding arising out of or relating to any Loan Document, in the manner provided for notices (other than telecopier) in Section 10.01. Nothing in this Agreement or any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by applicable Requirements of Law.
          SECTION 10.10 Waiver of Jury Trial. Each Loan Party hereby waives, to the fullest extent permitted by applicable Requirements of Law, any right it may have to a trial by jury in any legal proceeding directly or indirectly arising out of or relating to this Agreement, any other Loan Document or the transactions contemplated hereby (whether based on contract, tort or any other theory). Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section.
          SECTION 10.11 Headings. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.
          SECTION 10.12 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lenders and the Issuing Banks agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and other representatives (it being understood that the persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any Governmental Authority or regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Requirements of Law or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to any Loan Party and its obligations or (iii) any rating agency for the purpose of obtaining a credit rating applicable to any Lender, (g) with the consent of either Borrower or (h) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender, any Issuing Bank or any of their respective Affiliates on a nonconfidential basis from a source other than either Borrower. For purposes of this Section, “Information” shall mean all information received from either Borrower or any of its Subsidiaries relating to such Borrower any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or any Issuing Bank on a nonconfidential basis prior to disclosure by such Borrower or any of its Subsidiaries; provided that, in the case of information received from Parent or any of its Subsidiaries after the Closing Date, such information is clearly identified at the time of delivery as confidential. Any person re-

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quired to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such person has exercised the same degree of care to maintain the confidentiality of such Information as such person would accord to its own confidential information.
          SECTION 10.13 USA PATRIOT Act Notice. Each Lender that is subject to the Patriot Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies Borrowers that pursuant to the requirements of the Patriot Act it is required to obtain, verify and record information that identifies Borrowers and the Guarantors, which information includes the name, address and tax identification number of Borrowers and the Guarantors and other information regarding Borrowers and the Guarantors that will allow such Lender or the Administrative Agent, as applicable, to identify Borrowers and the Guarantors in accordance with the Patriot Act. This notice is given in accordance with the requirements of the Patriot Act and is effective as to the Lenders and the Administrative Agent.
          SECTION 10.14 Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under applicable Requirements of Law (collectively, the “Charges”), shall exceed the maximum lawful rate (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by the Lender holding such Loan in accordance with applicable Requirements of Law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Effective Rate to the date of repayment, shall have been received by such Lender.
          SECTION 10.15 Lender Addendum. Each Lender to become a party to this Agreement on the date hereof shall do so by delivering to the Administrative Agent a Lender Addendum duly executed by such Lender, Borrowers and the Administrative Agent.
          SECTION 10.16 Obligations Absolute. To the fullest extent permitted by applicable Requirements of Law, all obligations of the Loan Parties hereunder shall be absolute and unconditional irrespective of:
          (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of any Loan Party;
          (b) any lack of validity or enforceability of any Loan Document or any other agreement or instrument relating thereto against any Loan Party;
          (c) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from any Loan Document or any other agreement or instrument relating thereto;
          (d) any exchange, release or non-perfection of any other Collateral, or any release or amendment or waiver of or consent to any departure from any guarantee, for all or any of the Obligations;
          (e) any exercise or non-exercise, or any waiver of any right, remedy, power or privilege under or in respect hereof or any Loan Document; or

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          (f) any other circumstances which might otherwise constitute a defense available to, or a discharge of, the Loan Parties.
          SECTION 10.17 Joint and Several Obligations. All Loans made and Letters of Credit issued hereunder are made to or for the mutual benefit, directly and indirectly, of each of the Borrowers and in consideration of the agreement of the other Borrower to accept joint and several liability for the Obligations. Each Borrower, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several and direct and primary liability for the full payment when due and performance of all Obligations and for the prompt and full payment and performance of all of the promises, covenants, representations, and warranties made or undertaken by each Borrower under the Loan Documents and the Borrowers agree that such liability is independent of the duties, obligations, and liabilities of each of the joint and several Borrowers. In furtherance of the foregoing, each Borrower jointly and severally, absolutely and unconditionally guarantees to the Administrative Agent, the Collateral Agent and the Lenders the full payment and performance when due of all the Obligations.
[Signature Pages Follow]

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          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
         
  BEARINGPOINT, INC., as a Borrower
 		  
  By:   /s/ Harry L. You    
    Name:   Harry L. You  
    Title:   CEO  
 
  BEARINGPOINT, LLC, as a Borrower
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  BEARINGPOINT AMERICAS, INC.
BEARINGPOINT GLOBAL OPERATIONS, INC.
BEARINGPOINT GLOBAL, INC.
BEARINGPOINT INTERNATIONAL I, INC.
BEARINGPOINT USA, INC.
OAD ACQUISITION CORP.
OAD GROUP, INC.
PEATMARWICK, INC.
METRIUS, INC.
SOFTLINE ACQUISITION CORP.
SOFTLINE CONSULTING & INTEGRATORS, INC.,
as Guarantors
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  BEARINGPOINT BG, LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  BEARINGPOINT ENTERPRISE HOLDINGS, LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
[AMENDED AND RESTATED CREDIT AGREEMENT]

 

         
         
  BEARINGPOINT TECHNOLOGY PROCUREMENT SERVICES, LLC
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  BEARINGPOINT ISRAEL, LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  BEARINGPOINT PUERTO RICO, LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  BEARINGPOINT RUSSIA, LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  BEARINGPOINT SOUTH PACIFIC, LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
[AMENDED AND RESTATED CREDIT AGREEMENT]

 

         
  BEARINGPOINT SOUTHEAST ASIA, LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  i2 MID ATLANTIC, LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  i2 NORTHWEST LLC,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
  PELOTON HOLDINGS, L.L.C.,
as a Guarantor
 		  
  By:   /s/ Judy Ethell    
    Name:   Judy Ethell  
    Title:   President  
 
[AMENDED AND RESTATED CREDIT AGREEMENT]

 

         
  UBS SECURITIES LLC, as Arranger, Syndication Agent
and Documentation Agent
 		  
  By:   /s/ Richard L. Tavrow    
    Name:   Richard L. Tavrow  
    Title:   Director  
 
  By:   /s/ Irja R. Otsa    
    Name:   Irja R. Otsa  
    Title:   Associate Director  
 
  UBS AG, STAMFORD BRANCH, as an Issuing Bank,
Administrative Agent and Collateral Agent
 		  
  By:   /s/ Richard L. Tavrow    
    Name:   Richard L. Tavrow  
    Title:   Director  
 
     
  By:   /s/ Irja R. Otsa    
    Name:   Irja R. Otsa  
    Title:   Associate Director  
 
[CREDIT AGREEMENT]

 

         
  MORGAN STANLEY SENIOR FUNDING, INC.
 		  
  By:   /s/ Gavin Balera    
    Name:   Gavin Balera  
    Title:   Authorized Signatory  
 
[CREDIT AGREEMENT]

 

         
  WELLS FARGO FOOTHILL, LLC, as an Issuing Bank
 		  
  By:   /s/ Patrick McCormack    
    Name:   Patrick McCormack  
    Title:   Vice President  
 
[CREDIT AGREEMENT]

 

         
         
  UBS LOAN FINANCE LLC,
as the sole Original Lender
 		  
  By:   /s/ Richard L. Tavrow    
    Name:   Richard L. Tavrow  
    Title:   Director  
 
     
  By:   /s/ Irja R. Otsa    
    Name:   Irja R. Otsa   
    Title:   Associate Director  
 
         
[CREDIT AGREEMENT]

 

         
     
     
     
     
 
Annex I
Amortization Table
         
    Term Loan
Date   Amount
 
June 30, 2007
   $ 750,000  
September 30, 2007
   $ 750,000  
December 31, 2007
   $ 750,000  
March 31, 2008
   $ 750,000  
June 30, 2008
   $ 750,000  
September 30, 2008
   $ 750,000  
December 31, 2008
   $ 750,000  
March 31, 2009
   $ 750,000  
June 30, 2009
   $ 750,000  
September 30, 2009
   $ 750,000  
December 31, 2009
   $ 750,000  
March 31, 2010
   $ 750,000  
June 30, 2010
   $ 750,000  
September 30, 2010
   $ 750,000  
December 31, 2010
   $ 750,000  
March 31, 2011
   $ 750,000  
June 30, 2011
   $ 750,000  
September 30, 2011
   $ 750,000  
December 31, 2011
   $ 750,000  
March 31, 2012
   $ 750,000  
Maturity Date
   $ 285,000,000  

Annex I-1

EX-10.7 3 c15652exv10w7.htm SECURITY AGREEMENT exv10w7
 

Exhibit 10.7
EXECUTION
EXHIBIT M
TO CREDIT AGREEMENT
     
 
SECURITY AGREEMENT
By
BEARINGPOINT, INC.
and
BEARINGPOINT, LLC
and
THE GUARANTORS PARTY HERETO
and
UBS AG, STAMFORD BRANCH,
as Collateral Agent
 
Dated as of May 18, 2007
 

 

 

TABLE OF CONTENTS
         
    Page  
PREAMBLE
     1  
 
        
RECITALS
     1  
 
        
AGREEMENT
     2  
 
        
ARTICLE I
 
        
DEFINITIONS AND INTERPRETATION
 
        
SECTION 1.1. Definitions
     2  
SECTION 1.2. Perfection Certificate
     8  
 
        
ARTICLE II
 
        
GRANT OF SECURITY AND SECURED OBLIGATIONS
 
        
SECTION 2.1. Grant of Security Interest
     9  
SECTION 2.2. Filings
     10  
ARTICLE III
 
        
PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES;
USE OF PLEDGED COLLATERAL
 
        
SECTION 3.1. Delivery of Certificated Securities Collateral
     10  
SECTION 3.2. Perfection of Uncertificated Securities Collateral
     11  
SECTION 3.3. Financing Statements and Other Filings; Maintenance of
     11  
Perfected Security Interest
        
SECTION 3.4. Other Actions
     11  
SECTION 3.5. Joinder of Additional Guarantors
     13  
SECTION 3.6. Supplements; Further Assurances
     13  
SECTION 3.7. Government Contracts
     14  
 
        
ARTICLE IV
 
        
REPRESENTATIONS, WARRANTIES AND COVENANTS
 
        
SECTION 4.1. Title
     14  
SECTION 4.2. Validity of Security Interest
     15  
SECTION 4.3. Defense of Claims; Transferability of Pledged Collateral
     15  
SECTION 4.4. Other Financing Statements
     15  
SECTION 4.5. Location of Inventory and Equipment
     15  
SECTION 4.6. Due Authorization and Issuance
     15  

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    Page  
SECTION 4.7. Consents, etc.
     16  
SECTION 4.8. [Reserved]
     16  
SECTION 4.9. Insurance
     16  
 
        
ARTICLE V
 
        
CERTAIN PROVISIONS CONCERNING SECURITIES COLLATERAL
 
        
SECTION 5.1. Pledge of Additional Securities Collateral
     16  
SECTION 5.2. Voting Rights; Distributions; etc.
     16  
SECTION 5.3. [Reserved]
     17  
SECTION 5.4. Certain Agreements of Pledgors As Issuers and Holders of Equity Interests
     17  
 
        
ARTICLE VI
 
        
CERTAIN PROVISIONS CONCERNING INTELLECTUAL
PROPERTY COLLATERAL
 
        
SECTION 6.1. Grant of Intellectual Property License
     18  
SECTION 6.2. Protection of Collateral Agent’s Security
     18  
SECTION 6.3. After-Acquired Property
     19  
SECTION 6.4. Litigation
     19  
 
        
ARTICLE VII
 
        
CERTAIN PROVISIONS CONCERNING RECEIVABLES
 
        
SECTION 7.1. Maintenance of Records
     20  
SECTION 7.2. Legend
     20  
 
        
ARTICLE VIII
 
        
TRANSFERS
 
        
SECTION 8.1. Transfers of Pledged Collateral
     20  
 
        
ARTICLE IX
 
        
REMEDIES
 
        
SECTION 9.1. Remedies
     20  
SECTION 9.2. Notice of Sale
     22  
SECTION 9.3. Waiver of Notice and Claims
     22  
SECTION 9.4. Certain Sales of Pledged Collateral
     22  
SECTION 9.5. No Waiver; Cumulative Remedies
     24  
SECTION 9.6. Certain Additional Actions Regarding Intellectual Property
     24  

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    Page  
ARTICLE X
 
        
APPLICATION OF PROCEEDS
 
        
SECTION 10.1. Application of Proceeds
     24  
 
        
ARTICLE XI
 
        
MISCELLANEOUS
 
        
SECTION 11.1. Concerning Collateral Agent
     25  
SECTION 11.2. Collateral Agent May Perform; Collateral Agent Appointed Attorney-in-Fact
     26  
SECTION 11.3. Continuing Security Interest; Assignment
     26  
SECTION 11.4. Termination; Release
     27  
SECTION 11.5. Modification in Writing
     27  
SECTION 11.6. Notices
     27  
SECTION 11.7. Governing Law, Consent to Jurisdiction and Service of Process; Waiver of Jury Trial
     28  
SECTION 11.8. Severability of Provisions
     28  
SECTION 11.9. Execution in Counterparts
     28  
SECTION 11.10. Business Days
     28  
SECTION 11.11. No Credit for Payment of Taxes or Imposition
     28  
SECTION 11.12. No Claims Against Collateral Agent
     28  
SECTION 11.13. No Release
     28  
SECTION 11.14. Obligations Absolute
     29  
 
        
SIGNATURES
     S-1  
 
        
EXHIBIT 1 Form of Joinder Agreement
        
EXHIBIT 2 Form of Control Agreement Concerning Securities Accounts
        
EXHIBIT 3 Form of Control Agreement Concerning Deposit Accounts
        
EXHIBIT 4 Form of Copyright Security Agreement
        
EXHIBIT 5 Form of Patent Security Agreement
        
EXHIBIT 6 Form of Trademark Security Agreement
        

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SECURITY AGREEMENT
          This SECURITY AGREEMENT dated as of May 18, 2007 (as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the provisions hereof, this “Agreement”) made by BearingPoint, Inc., a Delaware corporation (“Parent”), BearingPoint, LLC, a Delaware limited liability company (together with Parent, the “Borrowers”), and the Guarantors from to time to time party hereto (the “Guarantors”), as pledgors, assignors and debtors (the Borrowers, together with the Guarantors, in such capacities and together with any successors in such capacities, the “Pledgors,” and each, a “Pledgor”), in favor of UBS AG, STAMFORD BRANCH, in its capacity as collateral agent pursuant to the Credit Agreement (as hereinafter defined), as pledgee, assignee and secured party (in such capacities and together with any successors in such capacities, the “Collateral Agent”).
R E C I T A L S :
          A. The Borrowers, the Guarantors, the Collateral Agent and the lending institutions listed therein have, in connection with the execution and delivery of this Agreement, entered into that certain credit agreement, dated as of May 18, 2007 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”; which term shall also include and refer to any increase in the amount of indebtedness under the Credit Agreement and any refinancing or replacement of the Credit Agreement (whether under a bank facility, securities offering or otherwise) or one or more successor or replacement facilities whether or not with a different group of agents or lenders (whether under a bank facility, securities offering or otherwise) and whether or not with different obligors upon the Administrative Agent’s acknowledgment of the termination of the predecessor Credit Agreement).
          B. Each Guarantor has, pursuant to the Credit Agreement, unconditionally guaranteed the Secured Obligations.
          C. The Borrowers and each Guarantor will receive substantial benefits from the execution, delivery and performance of the obligations under the Credit Agreement and the other Loan Documents and each is, therefore, willing to enter into this Agreement.
          D. This Agreement is given by each Pledgor in favor of the Collateral Agent for the benefit of the Secured Parties (as hereinafter defined) to secure the payment and performance of all of the Secured Obligations.
          E. It is a condition to (i) the obligations of the Lenders to make the Loans under the Credit Agreement, and (ii) the obligations of the Issuing Bank to issue Letters of Credit that each Pledgor execute and deliver the applicable Loan Documents, including this Agreement.
A G R E E M E N T :
          NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Pledgor and the Collateral Agent hereby agree as follows:

 

 

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ARTICLE I
DEFINITIONS AND INTERPRETATION
          SECTION 1.1. Definitions.
          (a) Unless otherwise defined herein or in the Credit Agreement, capitalized terms used herein that are defined in the UCC shall have the meanings assigned to them in the UCC; provided that in any event, the following terms shall have the meanings assigned to them in the UCC:
          “Accounts”; “Bank”; “Chattel Paper”; “Commercial Tort Claim”; “Commodity Account”; “Commodity Contract”; “Commodity Intermediary”; “Documents”; “Electronic Chattel Paper”; “Entitlement Order”; “Equipment”; “Financial Asset”; “Fixtures”; “Goods”, “Inventory”; “Letter of Credit Rights”; “Letters of Credit”; “Money”; “Payment Intangibles”; “Proceeds”; “ Records”; “Securities Account”; “Securities Intermediary”; “Security Entitlement”; “Supporting Obligations”; and “Tangible Chattel Paper.”
          (b) Terms used but not otherwise defined herein that are defined in the Credit Agreement shall have the meanings given to them in the Credit Agreement. Sections 1.03 and 1.05 of the Credit Agreement shall apply herein mutatis mutandis.
          (c) The following terms shall have the following meanings:
          “Account Debtor” shall mean each person who is obligated on a Receivable or Supporting Obligation related thereto.
          “Agreement” shall have the meaning assigned to such term in the Preamble hereof.
          “Assignment of Claims Act” shall mean the Assignment of Claims Act of 1940 (41 U.S.C. Section 15, 31 U.S.C. Section 3737, and 31 U.S.C. Section 3727), including all amendments thereto and regulations promulgated thereunder.
          “Borrowers” shall have the meaning assigned to such term in the Preamble hereof.
          “Collateral Agent” shall have the meaning assigned to such term in the Preamble hereof.
          “Collateral Support” shall mean all property (real or personal) assigned, hypothecated or otherwise securing any Pledged Collateral and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property.
          “Contracts” shall mean, collectively, with respect to each Pledgor, all sale, service, performance, equipment or property lease contracts, agreements and grants and all other contracts, agreements or grants (in each case, whether written or oral, or third party or intercompany), between such Pledgor and any third party, and all assignments, amendments, restatements, supplements, extensions, renewals, replacements or modifications thereof.

 

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          “Control” shall mean (i) in the case of each Deposit Account, “control,” as such term is defined in Section 9-104 of the UCC, (ii) in the case of any Security Entitlement, “control,” as such term is defined in Section 8-106 of the UCC, and (iii) in the case of any Commodity Contract, “control,” as such term is defined in Section 9-106 of the UCC.
          “Control Agreements” shall mean, collectively, the Deposit Account Control Agreement and the Securities Account Control Agreement.
          “Copyrights” shall mean, collectively, with respect to each Pledgor, all copyrights (whether statutory or common law, whether established or registered in the United States or any other country or any political subdivision thereof, whether registered or unregistered and whether published or unpublished) and all copyright registrations and applications made by such Pledgor, in each case, whether now owned or hereafter created or acquired by or assigned to such Pledgor, together with any and all (i) rights and privileges arising under applicable law with respect to such Pledgor’s use of such copyrights, (ii) reissues, renewals, continuations and extensions thereof and amendments thereto, (iii) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable with respect thereto, including damages and payments for past, present or future infringements thereof, (iv) rights corresponding thereto throughout the world and (v) rights to sue for past, present or future infringements thereof.
          “Copyright Security Agreement” shall mean an agreement substantially in the form of Exhibit 4 hereto.
          “Credit Agreement” shall have the meaning assigned to such term in Recital A hereof.
          “Deposit Account Control Agreement” shall mean an agreement substantially in the form of Exhibit 3 hereto or such other form that is reasonably satisfactory to the Collateral Agent establishing the Collateral Agent’s Control with respect to any Deposit Account.
          “Deposit Accounts” shall mean, collectively, with respect to each Pledgor, (i) all “deposit accounts” as such term is defined in the UCC held by a Pledgor and located in the United States and in any event shall include all accounts and sub-accounts relating to any of the foregoing accounts and (ii) all cash, funds and checks from time to time on deposit in any of the accounts or sub-accounts described in clause (i) of this definition.
          “Distributions” shall mean, collectively, with respect to each Pledgor, all dividends, cash, options, warrants, rights, instruments, distributions, returns of capital or principal, income, interest, profits and other property, interests (debt or equity) or proceeds, including as a result of a split, revision, reclassification or other like change of the Pledged Securities, from time to time received, receivable or otherwise distributed to such Pledgor in respect of or in exchange for any or all of the Pledged Securities or Intercompany Notes.
          “Excluded Accounts” shall mean, (i) Specified Accounts, (ii) accounts containing balances of less than $300,000 at any time, and (iii) segregated Deposit Accounts the balance of which consists exclusively of amounts subject to Permitted Liens incurred in the ordinary course of business and not for borrowed money.

 

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          “Excluded Property” shall mean
     (a) any permit or license issued by a Governmental Authority to any Pledgor or any General Intangible, contract or agreement, in each case, only to the extent and for so long as the terms of such permit, license General Intangible, contract or agreement or any Requirement of Law applicable thereto, validly prohibit the creation by such Pledgor of a security interest in such permit, license or agreement in favor of the Collateral Agent (after giving effect to Sections 9-406(d), 9-407(a), 9-408(a) or 9-409 of the UCC (or any successor provision or provisions) or any other applicable law (including the Bankruptcy Code) or principles of equity);
     (b) Equipment owned by any Pledgor on the date hereof or hereafter acquired that is subject to a Lien securing a Purchase Money Obligation or Capital Lease Obligation permitted to be incurred pursuant to the provisions of the Credit Agreement if the contract or other agreement in which such Lien is granted (or the documentation providing for such Purchase Money Obligation or Capital Lease Obligation) validly prohibits the creation of any other Lien on such Equipment;
     (c) any intent-to-use trademark application to the extent and for so long as creation by a Pledgor of a security interest therein would result in the loss by such Pledgor of any material rights therein;
     (d) motor vehicles the perfection of a security interest in which is excluded from the Uniform Commercial Code in the relevant jurisdiction;
     (e) voting Equity Interests in any Excluded Foreign Company to the extent (but only to the extent) required to prevent the Collateral from including more than 65% of all voting Equity Interests in such Excluded Foreign Company;
     (f) Equipment leased by a Pledgor from a third party that is not a Pledgor under a lease permitted by the Credit Agreement that prohibits the granting of a Lien on such equipment;
     (g) timber to be cut, as extracted collateral and agricultural products;
     (h) Specified Accounts; and
     (i) Equity Interests in Subsidiaries held by Pledgors on the Closing Date and shown as not being pledged on Schedule 8 to the Perfection Certificate;
provided, however, that Excluded Property shall not include any Proceeds, substitutions or replacements of any Excluded Property referred to in clause (a) through (i) above (unless such Proceeds, substitutions or replacements would constitute Excluded Property referred to in clause (a) through (i) above).
     “General Intangibles” shall mean, collectively, with respect to each Pledgor, all “general intangibles,” as such term is defined in the UCC, of such Pledgor and, in any event, shall include (i) all of such Pledgor’s rights, title and interest in, to and under all Contracts and insurance policies (including all rights and remedies relating to monetary damages, including indemnification rights and remedies, and claims for damages or other relief pursuant to or in respect of any Contract), (ii) all know-how and warranties relating to any of the Pledged Collateral, (iii) any and all other rights, claims, choses-in-action and causes

 

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of action of such Pledgor against any other person and the benefits of any and all collateral or other security given by any other person in connection therewith, (iv) all guarantees, endorsements and indemnifications on, or of, any of the Pledged Collateral, (v) all lists, books, records, correspondence, ledgers, printouts, files (whether in printed form or stored electronically), tapes and other papers or materials containing information relating to any of the Pledged Collateral, including all customer or tenant lists, identification of suppliers, data, plans, blueprints, specifications, designs, drawings, appraisals, recorded knowledge, surveys, studies, engineering reports, test reports, manuals, standards, processing standards, performance standards, catalogs, research data, computer and automatic machinery software and programs and the like, field repair data, accounting information pertaining to such Pledgor’s operations or any of the Pledged Collateral and all media in which or on which any of the information or knowledge or data or records may be recorded or stored and all computer programs used for the compilation or printout of such information, knowledge, records or data, (vi) all licenses, consents, permits, variances, certifications, authorizations and approvals, however characterized, now or hereafter acquired or held by such Pledgor, including building permits, certificates of occupancy, environmental certificates, industrial permits or licenses and certificates of operation and (vii) all rights to reserves, deferred payments, deposits, refunds, indemnification of claims and claims for tax or other refunds against any Governmental Authority.
          “Goodwill” shall mean, collectively, with respect to each Pledgor, the goodwill connected with such Pledgor’s business, including all goodwill connected with (i) the use of and symbolized by any Trademark or Intellectual Property License with respect to any Trademark in which such Pledgor has any interest, (ii) all know-how, trade secrets, customer and supplier lists, proprietary information, inventions, methods, procedures, formulae, descriptions, compositions, technical data, drawings, specifications, name plates, catalogs, confidential information and the right to limit the use or disclosure thereof by any person, pricing and cost information, business and marketing plans and proposals, consulting agreements, engineering contracts and such other assets which relate to such goodwill and (iii) all product lines of such Pledgor’s business.
          “Government Contract” shall mean a contract between any Pledgor and an agency, department or instrumentality of the United States or any state, municipal or local Governmental Authority located in the United States and all obligations of any such Governmental Authority arising under any Account now or hereafter owing by any such Governmental Authority, as account debtor, to any Pledgor.
          “Guarantors” shall have the meaning assigned to such term in the Preamble hereof.
          “Instruments” shall mean, collectively, with respect to each Pledgor, all “instruments,” as such term is defined in Article 9, rather than Article 3, of the UCC.
          “Intellectual Property Collateral” shall mean, collectively, the Patents, Trademarks, Copyrights, Intellectual Property Licenses and Goodwill.
          “Intellectual Property Licenses” shall mean, collectively, with respect to each Pledgor, all license and distribution agreements with, and covenants not to sue, any other party with respect to any Patent, Trademark or Copyright or any other patent, trademark or copyright, whether such Pledgor is a licensor or licensee, distributor or distributee under any such license or distribution agreement, together with any and all (i) renewals, extensions, supplements and continuations thereof, (ii) income, fees, royalties, damages, claims and payments now and hereafter due and/or payable thereunder and with respect thereto including damages and payments for past, present or future infringements or violations thereof, (iii) rights to sue for past, present and future infringements or violations thereof and (iv) other rights to

 

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use, exploit or practice any or all of the Patents, Trademarks or Copyrights or any other patent, trademark or copyright.
          “Intercompany Notes” shall mean, with respect to each Pledgor, all intercompany notes described in Schedule 9 to the Perfection Certificate and intercompany notes hereafter acquired by such Pledgor and all certificates, instruments or agreements evidencing such intercompany notes, and all assignments, amendments, restatements, supplements, extensions, renewals, replacements or modifications thereof to the extent permitted pursuant to the terms hereof.
          “Investment Property” shall mean a security, whether certificated or uncertificated, Security Entitlement, Securities Account, Commodity Contract or Commodity Account, excluding, however, the Securities Collateral.
          “Joinder Agreement” shall mean an agreement substantially in the form of Exhibit 1 hereto.
          “Material Intellectual Property Collateral” shall mean any Intellectual Property Collateral that is material (i) to the use and operation of the Pledged Collateral or (ii) to the business, results of operations, prospects or condition, financial or otherwise, of any Pledgor.
          “Parent” shall have the meaning assigned to such term in the Preamble hereof.
          “Patents” shall mean, collectively, with respect to each Pledgor, all patents issued or assigned to, and all patent applications and registrations made by, such Pledgor (whether established or registered or recorded in the United States or any other country or any political subdivision thereof), together with any and all (i) rights and privileges arising under applicable law with respect to such Pledgor’s use of any patents, (ii) inventions and improvements described and claimed therein, (iii) reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof and amendments thereto, (iv) income, fees, royalties, damages, claims and payments now or hereafter due and/or payable thereunder and with respect thereto including damages and payments for past, present or future infringements thereof, (v) rights corresponding thereto throughout the world and (vi) rights to sue for past, present or future infringements thereof.
          “Patent Security Agreement” shall mean an agreement substantially in the form of Exhibit 5 hereto.
          “Perfection Certificate” shall mean that certain perfection certificate dated May 18, 2007 executed and delivered by each Pledgor in favor of the Collateral Agent for the benefit of the Secured Parties, and each other Perfection Certificate executed and delivered by the applicable Guarantor in favor of the Collateral Agent for the benefit of the Secured Parties contemporaneously with the execution and delivery of each Joinder Agreement executed in accordance with Section 3.5 hereof, in each case, as the same may be amended, amended and restated, supplemented or otherwise modified from time to time in accordance with the Credit Agreement or upon the request of the Collateral Agent.
          “Pledged Collateral” shall have the meaning assigned to such term in Section 2.1 hereof.
          “Pledged Securities” shall mean, collectively, with respect to each Pledgor, (i) all issued and outstanding Equity Interests of each issuer set forth on Schedule 8 to the Perfection Certificate as

 

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being owned by such Pledgor and all options, warrants, rights, agreements and additional Equity Interests of whatever class of any such issuer acquired by such Pledgor (including by issuance), together with all rights, privileges, authority and powers of such Pledgor relating to such Equity Interests in each such issuer or under any Organizational Document of each such issuer, and the certificates, instruments and agreements representing such Equity Interests and any and all interest of such Pledgor in the entries on the books of any financial intermediary pertaining to such Equity Interests, (ii) all Equity Interests of any Subsidiary of Parent, which Equity Interests are hereafter acquired by such Pledgor (including by issuance) and all options, warrants, rights, agreements and additional Equity Interests of whatever class of any such issuer acquired by such Pledgor (including by issuance), together with all rights, privileges, authority and powers of such Pledgor relating to such Equity Interests or under any Organizational Document of any such issuer, and the certificates, instruments and agreements representing such Equity Interests and any and all interest of such Pledgor in the entries on the books of any financial intermediary pertaining to such Equity Interests, from time to time acquired by such Pledgor in any manner, and (iii) all Equity Interests issued in respect of the Equity Interests referred to in clause (i) or (ii) upon any consolidation or merger of any issuer of such Equity Interests; provided, however, that Pledged Securities shall not include any Equity Interests which are not required to be pledged pursuant to Section 5.10(b) of the Credit Agreement.
          “Pledgor” shall have the meaning assigned to such term in the Preamble hereof.
          “Receivables” shall mean all (i) Accounts, (ii) Chattel Paper, (iii) Payment Intangibles, (iv) General Intangibles, (v) Instruments and (vi) all other rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, regardless of how classified under the UCC together with all of Pledgors’ rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and Supporting Obligations related thereto and all Records relating thereto.
          “Secured Parties” shall mean, collectively, the Administrative Agent, the Collateral Agent, each other Agent, the Lenders and each party to a Hedging Agreement or a Treasury Services Agreement if at the date of entering into such Hedging Agreement or Treasury Services Agreement such person was a Lender or an Affiliate of a Lender and such person executes and delivers to the Administrative Agent a letter agreement in form and substance acceptable to the Administrative Agent pursuant to which such person (i) appoints the Collateral Agent as its agent under the applicable Loan Documents and (ii) agrees to be bound by the provisions of Sections 10.03 and 10.09 of the Credit Agreement.
          “Securities Account Control Agreement” shall mean an agreement substantially in the form of Exhibit 2 hereto or such other form that is reasonably satisfactory to the Collateral Agent establishing the Collateral Agent’s Control with respect to any Securities Account.
          “Securities Collateral” shall mean, collectively, the Pledged Securities and the Intercompany Notes.
          “Specified Accounts” shall mean, (i) the Deposit Account #323-237509 maintained with JPMorgan Chase Bank, N.A., or any other deposit account used for a similar purpose under the Borrowers’ and their Subsidiaries’ contract with the State of Texas to which such Deposit Account relates or under any other similar contract with the State of Texas or any other counterparty (other than another Pledgor or its Subsidiary), in each case so long as such Deposit Account is jointly owned with the State of Texas or any other counterparty of such contract (other than another Pledgor or its Subsidiary),

 

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(ii) Deposit Accounts the balance of which consists exclusively of (A) withheld income taxes and federal, state or local employment taxes in such amounts as are required in the reasonable judgment of the Borrowers to be paid to the Internal Revenue Service or state or local government agencies within the following month with respect to employees of any of the Loan Parties and (B) amounts required to be paid over to an employee benefit plan pursuant to DOL Reg. Sec. 2510.3-102 on behalf of or for the benefit of employees of one or more Loan Parties, (iii) all segregated Deposit Accounts constituting (and the balance of which consists solely of funds set aside in connection with) payroll accounts and trust or other fiduciary accounts, (iv) segregated Deposit Accounts the balance of which consists exclusively of amounts subject to Permitted Liens incurred in the ordinary course of business and not for borrowed money if the contract or other agreement in which such Permitted Lien is granted (or the applicable Requirement of Law) validly prohibits the creation of any other Lien on such Deposit Account and (v) Deposit Accounts holding exclusively contributions of employees of the Borrowers and their Subsidiaries to any employee stock purchase plan.
          “Trademarks” shall mean, collectively, with respect to each Pledgor, all trademarks (including service marks), slogans, logos, certification marks, trade dress, uniform resource locations (URL’s), domain names, corporate names and trade names, whether registered or unregistered, owned by or assigned to such Pledgor and all registrations and applications for the foregoing (whether statutory or common law and whether established or registered in the United States or any other country or any political subdivision thereof), together with any and all (i) rights and privileges arising under applicable law with respect to such Pledgor’s use of any trademarks, (ii) reissues, continuations, extensions and renewals thereof and amendments thereto, (iii) income, fees, royalties, damages and payments now and hereafter due and/or payable thereunder and with respect thereto, including damages, claims and payments for past, present or future infringements thereof, (iv) rights corresponding thereto throughout the world and (v) rights to sue for past, present and future infringements thereof.
          “Trademark Security Agreement” shall mean an agreement substantially in the form of Exhibit 6 hereto.
          “UCC” shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that, at any time, if by reason of mandatory provisions of law, any or all of the perfection or priority of the Collateral Agent’s and the Secured Parties’ security interest in any item or portion of the Pledged Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect, at such time, in such other jurisdiction for purposes of the provisions hereof relating to such perfection or priority and for purposes of definitions relating to such provisions.
          SECTION 1.2. Perfection Certificate. The Collateral Agent and each Secured Party agree that the Perfection Certificate and all descriptions of Pledged Collateral, schedules, amendments and supplements thereto are and shall at all times remain a part of this Agreement.

 

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ARTICLE II
GRANT OF SECURITY AND SECURED OBLIGATIONS
          SECTION 2.1. Grant of Security Interest. As collateral security for the payment and performance in full of all the Secured Obligations, each Pledgor hereby pledges and grants to the Collateral Agent for the benefit of the Secured Parties, a lien on and security interest in all of the right, title and interest of such Pledgor in, to and under the following property, wherever located, and whether now existing or hereafter arising or acquired from time to time (collectively, the “Pledged Collateral”):
  (i)   all Accounts;
 
  (ii)   all Equipment, Goods, Inventory and Fixtures;
 
  (iii)   all Documents, Instruments and Chattel Paper;
 
  (iv)   all Letters of Credit and Letter of Credit Rights;
 
  (v)   all Securities Collateral;
 
  (vi)   all Investment Property;
 
  (vii)   all Intellectual Property Collateral;
 
  (viii)   the Commercial Tort Claims described on Schedule 11 to the Perfection Certificate;
 
  (ix)   all General Intangibles;
 
  (x)   all Money and all Deposit Accounts;
 
  (xi)   all Supporting Obligations;
 
  (xii)   all books and records relating to the Pledged Collateral; and
 
  (xiii)   all Proceeds and products of each of the foregoing and all accessions to and rents, profits and products of, each of the foregoing.
          Notwithstanding anything to the contrary contained in clauses (i) through (xii) above, the security interest created by this Agreement shall not extend to, and the term “Pledged Collateral” shall not include, any Excluded Property and (i) the Pledgors shall from time to time at the request of the Collateral Agent give written notice to the Collateral Agent identifying in reasonable detail the Excluded Property and shall provide to the Collateral Agent such other information regarding the Excluded Property as the Collateral Agent may reasonably request and (ii) from and after the Closing Date, no Pledgor shall permit to become effective in any document creating, governing or providing for any permit, license or agreement a provision that would prohibit the creation of a Lien on such permit, license or agreement in favor

 

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of the Collateral Agent unless such Pledgor believes, in its reasonable judgment, that such prohibition is usual and customary in transactions of such type.
          SECTION 2.2. Filings. (a) Each Pledgor hereby irrevocably authorizes the Collateral Agent at any time and from time to time to file in any relevant jurisdiction in the United States any financing statements (other than fixture filings and other filings that are required to be made in any real estate recording office) and amendments thereto that contain the information required by Article 9 of the Uniform Commercial Code of each applicable jurisdiction for the filing of any financing statement or amendment relating to the Pledged Collateral, including (i) whether such Pledgor is an organization, the type of organization and any organizational identification number issued to such Pledgor and (ii) any financing or continuation statements or other documents without the signature of such Pledgor where permitted by law, including the filing of a financing statement describing the Pledged Collateral as “all assets now owned or hereafter acquired by the Pledgor or in which Pledgor otherwise has rights”. Each Pledgor agrees to provide all information described in the immediately preceding sentence to the Collateral Agent promptly upon request by the Collateral Agent.
          (b) Each Pledgor hereby ratifies its authorization for the Collateral Agent to file in any relevant jurisdiction any financing statements relating to the Pledged Collateral if filed prior to the date hereof.
          (c) Each Pledgor hereby further authorizes the Collateral Agent to file filings with the United States Patent and Trademark Office or United States Copyright Office (or any successor office or any similar office in any other country), including this Agreement, the Copyright Security Agreement, the Patent Security Agreement and the Trademark Security Agreement, or other documents for the purpose of perfecting, confirming, continuing, enforcing or protecting the security interest granted by such Pledgor hereunder in any applications for or registrations of Copyrights registered with the United States Copyright Office, any applications for or registrations of Trademarks registered with the United States Patent and Trademark Office or any Patents applied for or issued by the United States Patent and Trademark Office, and naming such Pledgor, as debtor, and the Collateral Agent, as secured party.
ARTICLE III
PERFECTION; SUPPLEMENTS; FURTHER ASSURANCES;
USE OF PLEDGED COLLATERAL
          SECTION 3.1. Delivery of Certificated Securities Collateral. Each Pledgor represents and warrants that all certificates or instruments representing or evidencing the Pledged Securities in existence on the date hereof that constitute “certificated securities” (within the meaning of the UCC) have been delivered to the Collateral Agent in suitable form for transfer by delivery or accompanied by duly executed instruments of transfer or assignment in blank and that the Collateral Agent has a perfected first priority security interest therein. Each Pledgor hereby agrees that all certificates representing or evidencing Pledged Securities acquired by such Pledgor after the date hereof that constitute “certificated securities” (within the meaning of the UCC) shall promptly (but in any event within five days after receipt thereof by such Pledgor) be delivered to and held by or on behalf of the Collateral Agent pursuant hereto. All such certificates evidencing Pledged Securities that constitute “certificated securities” (within the meaning of the UCC) shall be in suitable form for transfer by delivery or shall be accompanied by duly

 

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executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time upon the occurrence and during the continuance of any Event of Default, to endorse, assign or otherwise transfer to or to register in the name of the Collateral Agent or any of its nominees or endorse for negotiation any or all of the Pledged Securities, without any indication that such Pledged Securities are subject to the security interest hereunder. In addition, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent shall have the right at any time to exchange certificates representing or evidencing Pledged Securities for certificates of smaller or larger denominations. Notwithstanding anything herein to the contrary, no Pledgor shall be required to deliver (i) certificates evidencing Pledged Securities of any person that is not a Subsidiary of such Pledgor or (ii) Intercompany Notes.
          SECTION 3.2. Perfection of Uncertificated Securities Collateral. Each Pledgor represents and warrants that the Collateral Agent has a perfected first priority security interest in all Pledged Securities pledged by it hereunder that are in existence on the date hereof that constitute “uncertificated securities” (within the meaning of the UCC). Each Pledgor hereby agrees that if any of the Pledged Securities owned by it that are issued by any Subsidiary of Parent constitute “uncertificated securities” (within the meaning of the UCC), then such Pledgor shall, to the extent permitted by applicable law, if necessary or desirable to perfect a security interest in such Pledged Securities, (i) cause such pledge to be recorded on the equityholder register or the books of the issuer, execute any customary pledge forms or other documents necessary or appropriate to complete the pledge and give the Collateral Agent the right to transfer such Pledged Securities under the terms hereof and (ii) upon request by the Collateral Agent, provide to the Collateral Agent an opinion of counsel, in form and substance reasonably satisfactory to the Collateral Agent, confirming such pledge and perfection thereof.
          SECTION 3.3. Financing Statements and Other Filings; Maintenance of Perfected Security Interest. Each Pledgor represents and warrants that all UCC financing statements necessary to perfect the security interest granted by it to the Collateral Agent in respect of the Pledged Collateral, to the extent that such perfection may be effected by the filing of UCC financing statements have been delivered to the Collateral Agent in completed and, to the extent necessary or appropriate, duly executed form for filing in each governmental, municipal or other office specified in Schedule 5 to the Perfection Certificate. Each Pledgor agrees that, at the sole cost and expense of the Pledgors, such Pledgor will, except to the extent that such security interest shall be released pursuant to the terms of the Loan Documents, maintain the security interest created by this Agreement in the Pledged Collateral as a perfected first priority security interest subject only to Permitted Liens.
          SECTION 3.4. Other Actions. In order to further ensure the attachment, perfection and priority of, and the ability of the Collateral Agent to enforce, the Collateral Agent’s security interest in the Pledged Collateral, each Pledgor represents and warrants (as to itself) as follows and agrees, in each case at such Pledgor’s own expense, to take the following actions with respect to the following Pledged Collateral:
     (a) Instruments and Tangible Chattel Paper. Each Instrument (other than any Instrument representing Barents Group Loans, any Intercompany Note and any other Instruments with an aggregate value not in excess of $5,000,000) pledged pursuant to this Agreement has been properly endorsed, assigned and delivered to the Collateral Agent, accompanied by instruments of transfer or assignment duly executed in blank. If any amount then payable under or in connection with any of the Pledged Collateral shall be evidenced by any Instrument

 

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or Tangible Chattel Paper, and such amount, together with all amounts payable evidenced by any Instrument or Tangible Chattel Paper (other than any Instruments representing Barents Group Loans and any Intercompany Notes) not previously delivered to the Collateral Agent exceeds $5,000,000 in the aggregate for all Pledgors, the Pledgor acquiring such Instrument or Tangible Chattel Paper shall promptly (but in any event within thirty days after receipt thereof) endorse, assign and deliver the same to the Collateral Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Collateral Agent may from time to time specify.
     (b) Deposit Accounts. As of the date hereof, no Pledgor has any Deposit Accounts other than the accounts listed in Schedule 12 to the Perfection Certificate. Upon the execution and delivery by the applicable Loan Party, the applicable Bank and the Collateral Agent of a Deposit Account Control Agreement in respect of such Deposit Account (other than Excluded Accounts) in accordance with Section 5.14 of the Credit Agreement, the Collateral Agent’s security interest in each such Deposit Account (other than the Excluded Accounts) will be perfected by Control. No Pledgor shall hereafter establish and maintain any Deposit Account (other than an Excluded Account) unless the Bank with which such Deposit Account is maintained and such Pledgor shall have duly executed and delivered to the Collateral Agent a Deposit Account Control Agreement with respect to such Deposit Account. The Collateral Agent agrees with each Pledgor that the Collateral Agent shall not give any instructions directing the disposition of funds from time to time credited to any Deposit Account or withhold any withdrawal rights from such Pledgor with respect to funds from time to time credited to any Deposit Account unless an Event of Default has occurred and is continuing. The provisions of this Section 3.4(b) shall not apply to any Deposit Accounts for which the Collateral Agent is the Bank. No Pledgor shall grant Control of any Deposit Account (other than an Excluded Account in connection with any Permitted Lien) to any person other than the Collateral Agent.
     (c) Securities Accounts and Commodity Accounts. (a) As of the date hereof, no Pledgor has any Securities Accounts or Commodity Accounts containing cash or securities with a value in excess of $500,000 at any time other than those listed in Schedule 12 to the Perfection Certificate. Upon the execution and delivery by the applicable Loan Party, the applicable Securities Intermediary or Commodity Intermediary and the Collateral Agent of a Control Agreement in respect of any such Securities Account or Commodity Account in accordance with Section 5.14 of the Credit Agreement, the Collateral Agent’s security interest in each such Securities Account and Commodity Account will be perfected by Control. No Pledgor shall hereafter establish and maintain any Securities Account or Commodity Account with a value in excess of $500,000 at any time with any Securities Intermediary or Commodity Intermediary unless such Securities Intermediary or Commodity Intermediary, as the case may be, and such Pledgor shall have duly executed and delivered a Control Agreement with respect to such Securities Account or Commodity Account, as the case may be. The Collateral Agent agrees with each Pledgor that the Collateral Agent shall not give any Entitlement Orders or instructions or directions to any issuer of uncertificated securities, Securities Intermediary or Commodity Intermediary, and shall not withhold its consent to the exercise of any withdrawal or dealing rights by such Pledgor, unless an Event of Default has occurred and is continuing or, after giving effect to any such investment and withdrawal rights, would occur. The provisions of this Section 3.4(c) shall not apply to any Financial Assets credited to a Securities Account for which the Collateral Agent is the Securities Intermediary. No Pledgor shall grant Control over any Investment Property to any person other than the Collateral Agent.

 

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     (d) As between the Collateral Agent and the Pledgors, the Pledgors shall bear the investment risk with respect to any certificated Investment Property and Pledged Securities, and the risk of loss of, damage to, or the destruction of the Investment Property and Pledged Securities, whether in the possession of, or maintained as a Security Entitlement or deposit by, or subject to the Control of, the Collateral Agent, a Securities Intermediary, a Commodity Intermediary, any Pledgor or any other person.
     (e) Commercial Tort Claims. As of the date hereof, each Pledgor hereby represents and warrants that it holds no Commercial Tort Claims for which a complaint or counterclaim has been filed and not dismissed with a value in excess of $2,000,000 other than those listed in Schedule 11 to the Perfection Certificate. If any Pledgor shall at any time hold or acquire a Commercial Tort Claim in an amount in excess of $2,000,000 for which a complaint or counterclaim has been filed and not dismissed, such Pledgor shall immediately notify the Collateral Agent in writing signed by such Pledgor of the brief details thereof and grant to the Collateral Agent in such writing a security interest therein and in the Proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Collateral Agent.
          SECTION 3.5. Joinder of Additional Guarantors. The Pledgors shall cause each Subsidiary of Parent which, from time to time, after the date hereof shall be required to pledge any assets to the Collateral Agent for the benefit of the Secured Parties pursuant to the provisions of the Credit Agreement, to execute and deliver to the Collateral Agent (i) a Joinder Agreement substantially in the form of Exhibit 1 hereto and (ii) a Perfection Certificate, in each case, within thirty (30) days of the date on which it was acquired or created, upon such execution and delivery, such Subsidiary shall constitute a “Guarantor” and a “Pledgor” for all purposes hereunder with the same force and effect as if originally named as a Guarantor and Pledgor herein. The execution and delivery of such Joinder Agreement shall not require the consent of any Pledgor hereunder. The rights and obligations of each Pledgor hereunder shall remain in full force and effect notwithstanding the addition of any new Guarantor and Pledgor as a party to this Agreement.
          SECTION 3.6. Supplements; Further Assurances. Except as otherwise set forth herein, each Pledgor shall take such further actions, and execute and/or deliver to the Collateral Agent such additional financing statements, amendments, assignments, agreements, supplements, powers and instruments, as the Collateral Agent may in its reasonable judgment deem necessary or appropriate in order to create, perfect, preserve and protect the security interest in the Pledged Collateral as provided herein and the rights and interests granted to the Collateral Agent hereunder, to carry into effect the purposes hereof or better to assure and confirm the validity, enforceability and priority of the Collateral Agent’s security interest in the Pledged Collateral or permit the Collateral Agent to exercise and enforce its rights, powers and remedies hereunder with respect to any Pledged Collateral, including the filing of financing statements, continuation statements and other documents (including this Agreement) under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interest created hereby and the execution and delivery of Control Agreements, all in form reasonably satisfactory to the Collateral Agent and in such offices (including the United States Patent and Trademark Office and the United States Copyright Office) wherever required by law to perfect, continue and maintain the validity, enforceability and priority of the security interest in the Pledged Collateral as provided herein and to preserve the other rights and interests granted to the Collateral Agent hereunder, as against third parties, with respect to the Pledged Collateral; provided that (i) no certificates representing securities or Equity Interests, Instruments, Chattel Paper or Documents shall be required to be delivered except as

 

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provided in Sections 3.1 and 3.4(a) hereof, (ii) no Control Agreements shall be required except as provided in Sections 3.4(b) and 3.4(c) hereof, (iii) no fixture filings, or other filings in any real estate recording office, shall be required, (iv) no Pledgor shall be required to provide Control in respect of any collateral except as provided in Sections 3.1 , 3.4(b) and 3.4(c) hereof, (v) no filings outside the United States shall be required to be made in respect of any Intellectual Property Collateral, (vi) no Pledgor shall be required to enter into any agreement, give any notice or make any filing under the Assignment of Claims Act or any similar law, rule or regulation of any Governmental Authority except as provided in Section 3.7 hereof and (vii) no Pledgor shall be required to deliver any Money. Without limiting the generality of the foregoing, but subject to the proviso thereto, each Pledgor shall make, execute, endorse, acknowledge, file or refile and/or deliver to the Collateral Agent from time to time upon reasonable request by the Collateral Agent such lists, schedules, descriptions and designations of the Pledged Collateral, confirmatory assignments, supplements, additional security agreements, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments as the Collateral Agent shall reasonably request. If an Event of Default has occurred and is continuing, the Collateral Agent may institute and maintain, in its own name or in the name of any Pledgor, such suits and proceedings as the Collateral Agent may be advised by counsel shall be necessary or expedient to prevent any impairment of the security interest in or the perfection thereof in the Pledged Collateral. All of the foregoing shall be at the sole cost and expense of the Pledgors.
          SECTION 3.7. Government Contracts.
          (a) If any Event of Default shall have occurred and be continuing, upon the request of the Administrative Agent, each Pledgor shall, with respect to the Government Contracts to which such Pledgor is a party, promptly deliver to the Collateral Agent an assignment agreement with respect to all or any such Government Contracts in form and substance reasonably acceptable to the Collateral Agent duly executed by such Pledgor party to such Government Contracts in compliance with the Assignment of Claims Act.
          (b) Each Pledgor hereby authorizes the Collateral Agent at any time upon the occurrence and during the continuation of an Event of Default, to execute a notice of assignment in form and substance acceptable to the Collateral Agent with respect to each such Government Contract and deliver (i) all assignment agreements and (ii) all notices of assignment to the applicable Governmental Authority for each such Government Contract to effect the assignment of all amounts due under such contract to the Collateral Agent or its assignee. The Pledgors agree to use their commercially reasonable efforts in having such notices of assignment acknowledged in writing by the appropriate Governmental Authority.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
          Each Pledgor represents, warrants and covenants as follows:
          SECTION 4.1. Title. Except for the security interest granted to the Collateral Agent for the benefit of the Secured Parties pursuant to this Agreement and Permitted Liens, such Pledgor owns and has rights and, as to Pledged Collateral acquired by it from time to time after the date hereof, will own and have rights in each item of Pledged Collateral pledged by it hereunder, free and clear of any and

 

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all Liens or claims of others. In addition, no Liens or claims exist on the Securities Collateral, other than as permitted by Section 6.02 of the Credit Agreement.
          SECTION 4.2. Validity of Security Interest. The security interest in and Lien on the Pledged Collateral granted to the Collateral Agent for the benefit of the Secured Parties hereunder constitutes (a) a legal and valid security interest in all the Pledged Collateral securing the payment and performance of the Secured Obligations, and (b) subject to the filings and other actions required to be made on or after the date hereof pursuant to this Agreement, a perfected security interest in all the Pledged Collateral to the extent perfection in such Pledged Collateral is required hereunder. The security interest and Lien granted to the Collateral Agent for the benefit of the Secured Parties pursuant to this Agreement in and on the Pledged Collateral will at all times constitute to the extent perfection in such Pledged Collateral is required hereunder a perfected, continuing security interest therein, prior to all other Liens on the Pledged Collateral except for Permitted Liens.
          SECTION 4.3. Defense of Claims; Transferability of Pledged Collateral. Subject to Section 5.05 of the Credit Agreement, each Pledgor shall, at its own cost and expense, defend title to the Pledged Collateral pledged by it hereunder and the security interest therein and Lien thereon granted to the Collateral Agent and the priority thereof against all claims and demands of all persons, at its own cost and expense, at any time claiming any interest therein adverse to the Collateral Agent or any other Secured Party other than Permitted Liens. Except to the extent permitted under the Credit Agreement, as of the date hereof there is no agreement, order, judgment or decree, and from and after the date hereof no Pledgor shall enter into any agreement or take any other action, that would restrict the transferability of any of the Pledged Collateral or otherwise impair or conflict with such Pledgor’s obligations or the rights of the Collateral Agent hereunder.
          SECTION 4.4. Other Financing Statements. It has not filed, nor authorized any third party to file, any valid or effective financing statement (or similar statement, instrument of registration or public notice under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Pledged Collateral, except such as have been filed in favor of the Collateral Agent pursuant to this Agreement or in favor of any holder of a Permitted Lien with respect to such Permitted Lien or financing statements or public notices relating to the termination statements listed on Schedule 7 to the Perfection Certificate. No Pledgor shall execute or authorize to be filed in any public office any financing statement (or similar statement, instrument of registration or public notice under the law of any jurisdiction) relating to any Pledged Collateral, except financing statements and other statements and instruments filed or to be filed in respect of and covering the security interests granted by such Pledgor to the holders of Permitted Liens.
          SECTION 4.5. [Reserved].
          SECTION 4.6. Due Authorization and Issuance. All of the Pledged Securities existing on the date hereof that constitute capital stock of a corporation have been, and to the extent any Pledged Securities that constitute capital stock of a corporation are hereafter issued, such Pledged Securities will be, upon such issuance, duly authorized, validly issued, fully paid and non-assessable. There is no amount or other obligation owing by any Pledgor to any issuer of the Pledged Securities in exchange for or in connection with the issuance of the Pledged Securities or any Pledgor’s status as a partner or a member of any issuer of the Pledged Securities.

 

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          SECTION 4.7. Consents, etc. In the event that the Collateral Agent desires to exercise any remedies, voting or consensual rights or attorney-in-fact powers set forth in this Agreement and determines it necessary to obtain any approvals or consents of any Governmental Authority or any other person therefor, then, upon the reasonable request of the Collateral Agent, the applicable, Pledgor agrees to use its best efforts to assist and aid the Collateral Agent to obtain as soon as practicable any necessary approvals or consents for the exercise of any such remedies, rights and powers.
          SECTION 4.8. [Reserved]
          SECTION 4.9. Insurance. In the event that the proceeds of any insurance claim are paid to any Pledgor after the Collateral Agent has exercised its right to foreclose after an Event of Default, such Net Cash Proceeds shall be held in trust for the benefit of the Collateral Agent and immediately after receipt thereof shall be paid to the Collateral Agent for application in accordance with the Credit Agreement.
ARTICLE V
CERTAIN PROVISIONS CONCERNING SECURITIES COLLATERAL
          SECTION 5.1. Pledge of Additional Securities Collateral. Each Pledgor shall, upon obtaining any Collateral consisting of Pledged Securities or Intercompany Notes constituting “certificated securities”, “instruments” or “uncertificated securities” (in each case within the meaning of the UCC), accept the same in trust for the benefit of the Collateral Agent and promptly (but in any event within fifteen days after receipt thereof) deliver to the Collateral Agent the certificates, instruments and other documents required under Section 3.1 and Section 3.2 hereof in respect of such additional Pledged Securities or Intercompany Notes which are to be pledged pursuant to this Agreement.
          SECTION 5.2. Voting Rights; Distributions; etc.
          (a) So long as no Event of Default shall have occurred and be continuing:
     (i) Each Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Securities Collateral or any part thereof for any purpose not inconsistent with the terms or purposes hereof, the Credit Agreement or any other document evidencing the Secured Obligations.
     (ii) Each Pledgor shall be entitled to receive and retain, and to utilize free and clear of the Lien hereof, any and all Distributions, but only if and to the extent made in accordance with the provisions of the Credit Agreement; provided, however, that any and all such Distributions consisting of Securities Collateral constituting “certificated securities” or “instruments” (in each case within the meaning of the UCC) shall be forthwith delivered to the Collateral Agent to hold as Pledged Collateral and shall, if received by any Pledgor, be received in trust for the benefit of the Collateral Agent, be segregated from the other property or funds of such Pledgor and be promptly (but in any event within fifteen days after receipt thereof) delivered to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement).

 

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          (b) So long as no Event of Default shall have occurred and be continuing, the Collateral Agent shall be deemed without further action or formality to have granted to each Pledgor all necessary consents relating to voting rights and shall, if necessary, upon written request of any Pledgor and at the sole cost and expense of the Pledgors, from time to time execute and deliver (or cause to be executed and delivered) to such Pledgor all such instruments as such Pledgor may reasonably request in order to permit such Pledgor to exercise the voting and other rights which it is entitled to exercise pursuant to Section 5.2(a)(i) hereof and to receive the Distributions which it is authorized to receive and retain pursuant to Section 5.2(a)(ii) hereof.
          (c) Upon the occurrence and during the continuance of any Event of Default, upon notice from the Collateral Agent to the Pledgors:
     (i) All rights of each Pledgor to exercise the voting and other consensual rights it would otherwise be entitled to exercise pursuant to Section 5.2(a)(i) hereof shall immediately cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall thereupon have the sole right to exercise such voting and other consensual rights.
     (ii) All rights of each Pledgor to receive Distributions which it would otherwise be authorized to receive and retain pursuant to Section 5.2(a)(ii) hereof shall immediately cease and all such rights shall thereupon become vested in the Collateral Agent, which shall thereupon have the sole right to receive and hold as Pledged Collateral such Distributions.
          (d) Each Pledgor shall, at its sole cost and expense, from time to time execute and deliver to the Collateral Agent appropriate instruments as the Collateral Agent may request in order to permit the Collateral Agent to exercise the voting and other rights which it may be entitled to exercise pursuant to Section 5.2(c)(i) hereof and to receive all Distributions which it may be entitled to receive under Section 5.2(c)(ii) hereof.
          (e) All Distributions which are received by any Pledgor contrary to the provisions of Section 5.2(a)(ii) hereof shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Pledgor and shall immediately be paid over to the Collateral Agent as Pledged Collateral in the same form as so received (with any necessary endorsement).
          SECTION 5.3. [Reserved]
          SECTION 5.4. Certain Agreements of Pledgors As Issuers and Holders of Equity Interests.
          (a) In the case of each Pledgor which is an issuer of Securities Collateral, such Pledgor agrees to be bound by the terms of this Agreement relating to the Securities Collateral issued by it and will comply with such terms insofar as such terms are applicable to it.
          (b) If the Equity Interests of such issuer in which a security interest is granted hereunder are “uncertificated securities” within the meaning of the UCC, such issuer agrees that it will comply with instructions of the Collateral Agent with respect to the Equity Interests of such issuer without further consent by the applicable Pledgor; and

 

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          (c) In the case of each Pledgor which is a partner, shareholder or member, as the case may be, in a partnership, limited liability company or other entity, such Pledgor hereby consents to the extent required by the applicable Organizational Document to the pledge by each other Pledgor, pursuant to the terms hereof, of the Pledged Securities in such partnership, limited liability company or other entity and, upon the occurrence and during the continuance of an Event of Default, to the transfer of such Pledged Securities to the Collateral Agent or its nominee and to the substitution of the Collateral Agent or its nominee as a substituted partner, shareholder or member in such partnership, limited liability company or other entity with all the rights, powers and duties of a general partner, limited partner, shareholder or member, as the case may be.
ARTICLE VI
CERTAIN PROVISIONS CONCERNING INTELLECTUAL
PROPERTY COLLATERAL
          SECTION 6.1. Grant of Intellectual Property License. For the purpose of enabling the Collateral Agent, during the continuance of an Event of Default, to exercise rights and remedies under Article IX hereof at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, each Pledgor hereby grants to the Collateral Agent, to the extent assignable, an irrevocable, non-exclusive license to use, assign, license or sublicense any of the Intellectual Property Collateral now owned or hereafter acquired by such Pledgor, wherever the same may be located. Such license shall include access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout hereof.
          SECTION 6.2. Protection of Collateral Agent’s Security. Except to the extent that the failure to do so would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, on a continuing basis, each Pledgor shall, at its sole cost and expense, (i) promptly following its becoming aware thereof, notify the Collateral Agent of any adverse determination in any proceeding or the institution of any proceeding in any federal, state or local court or administrative body or in the United States Patent and Trademark Office or the United States Copyright Office regarding any Material Intellectual Property Collateral, such Pledgor’s right to register such Material Intellectual Property Collateral or its right to keep and maintain such registration in full force and effect, (ii) maintain all Material Intellectual Property Collateral as presently used and operated, (iii) not permit to lapse or become abandoned any Material Intellectual Property Collateral, and not settle or compromise any pending or future litigation or administrative proceeding with respect to any such Material Intellectual Property Collateral, in either case except as shall be consistent with commercially reasonable business judgment, (iv) upon such Pledgor obtaining knowledge thereof, promptly notify the Collateral Agent in writing of any event which may be reasonably expected to materially and adversely affect the value or utility of any Material Intellectual Property Collateral or the rights and remedies of the Collateral Agent in relation thereto including a levy or threat of levy or any legal process against any Material Intellectual Property Collateral, (v) not license any Intellectual Property Collateral other than licenses entered into by such Pledgor in, or incidental to, the ordinary course of business, or amend or permit the amendment of any of the licenses in a manner that materially and adversely affects the right to receive payments thereunder, or in any manner that would materially impair the value of any Intellectual Property Collateral or the Lien on and security interest in the Intellectual Property Collateral created therein hereby, without the consent of the Collateral Agent, (vi) diligently keep adequate records respecting all Intellectual Property Collateral

 

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and (vii) furnish to the Collateral Agent from time to time upon the Collateral Agent’s request therefor reasonably detailed statements and amended schedules further identifying and describing the Intellectual Property Collateral and such other materials evidencing or reports pertaining to any Intellectual Property Collateral as the Collateral Agent may from time to time reasonably request.
          SECTION 6.3. After-Acquired Property. If any Pledgor shall at any time after the date hereof (i) obtain any rights to any additional Intellectual Property Collateral or (ii) become entitled to the benefit of any additional Intellectual Property Collateral or any renewal or extension thereof, including any reissue, division, continuation, or continuation-in-part of any Intellectual Property Collateral, or any improvement on any Intellectual Property Collateral, or if any intent-to use trademark application is no longer subject to clause (c) of the definition of Excluded Property, the provisions hereof shall automatically apply thereto and any such item enumerated in the preceding clause (i) or (ii) shall automatically constitute Intellectual Property Collateral as if such would have constituted Intellectual Property Collateral at the time of execution hereof and be subject to the Lien and security interest created by this Agreement without further action by any party. Each Pledgor shall, together with each Compliance Certificate delivered to the Administrative Agent pursuant to Section 5.01(c) of the Credit Agreement, provide to the Collateral Agent written notice of any of the foregoing that shall have occurred during the fiscal quarter, or the last fiscal quarter of the fiscal year, to which such Compliance Certificate relates and, in the case of any additional Intellectual Property Collateral that is applied for or registered with the United States Copyright Office or applied for or registered with or issued by the United States Patent and Trademark office, execute an instrument in form reasonably acceptable to the Collateral Agent for filing in the United States Copyright Office or the United States Patent and Trademark Office, as applicable.
     SECTION 6.4. Litigation. Unless there shall occur and be continuing any Event of Default, each Pledgor shall have the right to commence and prosecute in its own name, as the party in interest, for its own benefit and at the sole cost and expense of the Pledgors, such applications for protection of the Intellectual Property Collateral and suits, proceedings or other actions to prevent the infringement, counterfeiting, unfair competition, dilution, diminution in value or other damage as are necessary to protect the Intellectual Property Collateral. Upon the occurrence and during the continuance of any Event of Default, the Collateral Agent shall have the right but shall in no way be obligated to file applications for protection of the Intellectual Property Collateral and/or bring suit in the name of any Pledgor, the Collateral Agent or the Secured Parties to enforce the Intellectual Property Collateral and any license thereunder. In the event of such suit, each Pledgor shall, at the reasonable request of the Collateral Agent, do any and all lawful acts and execute any and all documents requested by the Collateral Agent in aid of such enforcement and the Pledgors shall promptly reimburse and indemnify the Collateral Agent for all costs and expenses incurred by the Collateral Agent in the exercise of its rights under this Section 6.4 in accordance with Section 10.03 of the Credit Agreement. In the event that the Collateral Agent shall elect not to bring suit to enforce the Intellectual Property Collateral, each Pledgor agrees, at the reasonable request of the Collateral Agent, to take all commercially reasonable actions necessary, whether by suit, proceeding or other action, to prevent the infringement, counterfeiting, unfair competition, dilution, diminution in value of or other damage to any of the Intellectual Property Collateral by any person.

 

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ARTICLE VII
CERTAIN PROVISIONS CONCERNING RECEIVABLES
          SECTION 7.1. Maintenance of Records. Each Pledgor shall, at such Pledgor’s sole cost and expense, upon the Collateral Agent’s demand made at any time after the occurrence and during the continuance of any Event of Default, deliver all tangible evidence of Receivables, including all documents evidencing Receivables and any books and records relating thereto to the Collateral Agent or to its representatives (copies of which evidence and books and records may be retained by such Pledgor). Upon the occurrence and during the continuance of any Event of Default, the Collateral Agent may transfer a full and complete copy of any Pledgor’s books, records, credit information, reports, memoranda and all other writings relating to the Receivables to and for the use by any person that has acquired or is contemplating acquisition of an interest in the Receivables or the Collateral Agent’s security interest therein without the consent of any Pledgor.
          SECTION 7.2. Legend. At any time at which an Event of Default shall have occurred and be continuing, each Pledgor shall legend, at the request of the Collateral Agent and in form and manner satisfactory to the Collateral Agent, the Receivables and the other books, records and documents of such Pledgor evidencing or pertaining to the Receivables with an appropriate reference to the fact that the Receivables have been assigned to the Collateral Agent for the benefit of the Secured Parties and that the Collateral Agent has a security interest therein.
ARTICLE VIII
TRANSFERS
          SECTION 8.1. Transfers of Pledged Collateral. No Pledgor shall sell, convey, assign or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral pledged by it hereunder except as permitted by the Credit Agreement.
ARTICLE IX
REMEDIES
          SECTION 9.1. Remedies. Upon the occurrence and during the continuance of any Event of Default, the Collateral Agent may from time to time exercise in respect of the Pledged Collateral, in addition to the other rights and remedies provided for herein or otherwise available to it, the following remedies:
          (i) Personally, or by agents or attorneys, immediately take possession of the Pledged Collateral or any part thereof, from any Pledgor or any other person who then has possession of any part thereof with or without notice or process of law but without breach of the peace, and for that purpose may enter upon any Pledgor’s premises where any of the Pledged Collateral is located, remove such Pledged Collateral, remain present at such premises to receive copies of all communications and remittances relating

 

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to the Pledged Collateral and use in connection with such removal and possession any and all services, supplies, aids and other facilities of any Pledgor;
          (ii) Demand, sue for, collect or receive any money or property at any time payable or receivable in respect of the Pledged Collateral including instructing the obligor or obligors on any agreement, instrument or other obligation constituting part of the Pledged Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Collateral Agent, and in connection with any of the foregoing, compromise, settle, extend the time for payment and make other modifications with respect thereto; provided, however, that in the event that any such payments are made directly to any Pledgor, prior to receipt by any such obligor of such instruction, such Pledgor shall segregate all amounts received pursuant thereto in trust for the benefit of the Collateral Agent and shall promptly (but in no event later than one (1) Business Day after receipt thereof) pay such amounts to the Collateral Agent;
          (iii) Sell, assign, grant a license to use or otherwise liquidate, or direct any Pledgor to sell, assign, grant a license to use or otherwise liquidate, any and all investments made in whole or in part with the Pledged Collateral or any part thereof, and take possession of the proceeds of any such sale, assignment, license or liquidation;
          (iv) Take possession of the Pledged Collateral or any part thereof, by directing any Pledgor in writing to deliver the same to the Collateral Agent at any place or places so designated by the Collateral Agent, in which event such Pledgor shall at its own expense: (A) forthwith cause the same to be moved to the place or places designated by the Collateral Agent and therewith delivered to the Collateral Agent, (B) store and keep any Pledged Collateral so delivered to the Collateral Agent at such place or places pending further action by the Collateral Agent and (C) while the Pledged Collateral shall be so stored and kept, provide such security and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition;
          (v) Withdraw all moneys, instruments, securities and other property in any bank, financial securities, deposit or other account of any Pledgor constituting Pledged Collateral for application to the Secured Obligations as provided in Article X hereof;
          (vi) Retain and apply the Distributions to the Secured Obligations as provided in Article X hereof;
          (vii) Exercise any and all rights as beneficial and legal owner of the Pledged Collateral, including perfecting assignment of and exercising any and all voting, consensual and other rights and powers with respect to any Pledged Collateral; and
          (viii) Exercise all the rights and remedies of a secured party on default under the UCC, and the Collateral Agent may also in its sole discretion, without notice except as specified in Section 9.2 hereof, sell, assign or grant a license to use the Pledged Collateral or any part thereof in one or more parcels at public or private sale, at any exchange, broker’s board or at any of the Collateral Agent’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable. The Collateral Agent or any other Secured Party or any of their respective Affiliates may, to the fullest extent permitted under applicable law, be the purchaser, licensee, assignee or recipient of the Pledged Collateral or any part thereof at any such sale and shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for

 

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all or any portion of the Pledged Collateral sold, assigned or licensed at such sale, to use and apply any of the Secured Obligations owed to such person as a credit on account of the purchase price of the Pledged Collateral or any part thereof payable by such person at such sale. Each purchaser, assignee, licensee or recipient at any such sale shall acquire the property sold, assigned or licensed absolutely free from any claim or right on the part of any Pledgor, and each Pledgor hereby waives, to the fullest extent permitted by law, all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. The Collateral Agent shall not be obligated to make any sale of the Pledged Collateral or any part thereof regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Pledgor hereby waives, to the fullest extent permitted by law, any claims against the Collateral Agent arising by reason of the fact that the price at which the Pledged Collateral or any part thereof may have been sold, assigned or licensed at such a private sale was less than the price which might have been obtained at a public sale, even if the Collateral Agent accepts the first offer received and does not offer such Pledged Collateral to more than one offeree.
          SECTION 9.2. Notice of Sale. Each Pledgor acknowledges and agrees that, to the extent notice of sale or other disposition of the Pledged Collateral or any part thereof shall be required by law, ten (10) days’ prior notice to such Pledgor of the time and place of any public sale or of the time after which any private sale or other intended disposition is to take place shall be commercially reasonable notification of such matters.
          SECTION 9.3. Waiver of Notice and Claims. Each Pledgor hereby waives, to the fullest extent permitted by applicable law, notice or judicial hearing in connection with the Collateral Agent’s taking possession or the Collateral Agent’s disposition of the Pledged Collateral or any part thereof, including any and all prior notice and hearing for any prejudgment remedy or remedies and any such right which such Pledgor would otherwise have under law, and each Pledgor hereby further waives, to the fullest extent permitted by applicable law: (i) all damages occasioned by such taking of possession, (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Collateral Agent’s rights hereunder and (iii) all rights of redemption, appraisal, valuation, stay, extension or moratorium now or hereafter in force under any applicable law. The Collateral Agent shall not be liable for any incorrect or improper payment made pursuant to this Article IX in the absence of gross negligence or willful misconduct on the part of the Collateral Agent. Any sale of any Pledged Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the applicable Pledgor therein and thereto, and shall be a perpetual bar both at law and in equity against such Pledgor and against any and all persons claiming or attempting to claim the Pledged Collateral so sold, or any part thereof, from, through or under such Pledgor.
          SECTION 9.4. Certain Sales of Pledged Collateral.
          (a) Each Pledgor recognizes that, by reason of certain prohibitions contained in law, rules, regulations or orders of any Governmental Authority, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Pledged Collateral, to limit purchasers to those who meet the requirements of such Governmental Authority. Each Pledgor acknowledges that any such sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions, and, notwithstanding such circumstances, agrees that any such restricted sale shall not be deemed not to have been made in a commercially reasonable manner solely on account of

 

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such limitations and that, except as may be required by applicable law, the Collateral Agent shall have no obligation to engage in public sales.
          (b) Each Pledgor recognizes that, by reason of certain prohibitions contained in the Securities Act, and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Securities Collateral and Investment Property, to limit purchasers to persons who will agree, among other things, to acquire such Securities Collateral or Investment Property for their own account, for investment and not with a view to the distribution or resale thereof. Each Pledgor acknowledges that any such private sales may be at prices and on terms less favorable to the Collateral Agent than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act), and, notwithstanding such circumstances, agrees that any such private sale shall not be deemed not to have been made in a commercially reasonable manner solely on account of such limitations and that, except as may be required by applicable law, the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Securities Collateral or Investment Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would agree to do so.
          (c) Notwithstanding the foregoing, each Pledgor shall, upon the occurrence and during the continuance of any Event of Default, at the reasonable request of the Collateral Agent, for the benefit of the Collateral Agent, cause any registration, qualification under or compliance with any Federal or state securities law or laws to be effected with respect to all or any part of the Securities Collateral as soon as practicable and at the sole cost and expense of the Pledgors. Each Pledgor will use its commercially reasonable efforts to cause such registration to be effected (and be kept effective) and will use its commercially reasonable efforts to cause such qualification and compliance to be effected (and be kept effective) as may be so requested and as would permit or facilitate the sale and distribution of such Securities Collateral including registration under the Securities Act (or any similar statute then in effect), appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with all other requirements of any Governmental Authority. Each Pledgor shall use its commercially reasonable efforts to cause the Collateral Agent to be kept advised in writing as to the progress of each such registration, qualification or compliance and as to the completion thereof, shall furnish to the Collateral Agent such number of prospectuses, offering circulars or other documents incident thereto as the Collateral Agent from time to time may reasonably request, and shall indemnify, on customary terms, and shall use its commercially reasonable efforts to cause the issuer of the Securities Collateral to indemnify, on customary terms, the Collateral Agent and all others participating in the distribution of such Securities Collateral against all claims, losses, damages and liabilities caused by any untrue statement (or alleged untrue statement) of a material fact contained therein (or in any related registration statement, notification or the like) or by any omission (or alleged omission) to state therein (or in any related registration statement, notification or the like) a material fact required to be stated therein or necessary to make the statements therein not misleading.
          (d) If the Collateral Agent determines to exercise its right to sell any or all of the Securities Collateral or Investment Property, upon written request, the applicable Pledgor shall from time to time furnish to the Collateral Agent all such information as the Collateral Agent may request in order to determine the number of securities included in the Securities Collateral or Investment Property which may be sold by the Collateral Agent as exempt transactions under the Securities Act and the rules of the Securities and Exchange Commission thereunder, as the same are from time to time in effect.

 

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          (e) Each Pledgor further agrees that a breach of any of the covenants contained in this Section 9.4 will cause irreparable injury to the Collateral Agent and the other Secured Parties, that the Collateral Agent and the other Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 9.4 shall be specifically enforceable against such Pledgor, and such Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred and is continuing.
          SECTION 9.5. No Waiver; Cumulative Remedies.
          (a) No failure on the part of the Collateral Agent to exercise, no course of dealing with respect to, and no delay on the part of the Collateral Agent in exercising, any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power, privilege or remedy hereunder preclude any other or further exercise thereof or the exercise of any other right, power, privilege or remedy; nor shall the Collateral Agent be required to look first to, enforce or exhaust any other security, collateral or guaranties. All rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies provided by law or otherwise available.
          (b) In the event that the Collateral Agent shall have instituted any proceeding to enforce any right, power, privilege or remedy under this Agreement or any other Loan Document by foreclosure, sale, entry or otherwise, and such proceeding shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Agent, then and in every such case, the Pledgors, the Collateral Agent and each other Secured Party shall be restored to their respective former positions and rights hereunder with respect to the Pledged Collateral, and all rights, remedies, privileges and powers of the Collateral Agent and the other Secured Parties shall continue as if no such proceeding had been instituted.
          SECTION 9.6. Certain Additional Actions Regarding Intellectual Property. If any Event of Default shall have occurred and be continuing, upon the written demand of the Collateral Agent, each Pledgor shall execute and deliver to the Collateral Agent an assignment or assignments of the registered Patents, Trademarks and/or Copyrights and Goodwill and such other documents as are necessary or appropriate to carry out the intent and purposes hereof. Within five (5) Business Days of written notice thereafter from the Collateral Agent, each Pledgor shall make available to the Collateral Agent, to the extent within such Pledgor’s power and authority, such personnel in such Pledgor’s employ on the date of the Event of Default as the Collateral Agent may reasonably designate to permit such Pledgor to continue, directly or indirectly, to produce, advertise and sell the products and services sold by such Pledgor under the registered Patents, Trademarks and/or Copyrights, and such persons shall be available to perform their prior functions on the Collateral Agent’s behalf.
ARTICLE X
APPLICATION OF PROCEEDS
          SECTION 10.1. Application of Proceeds. The proceeds received by the Collateral Agent in respect of any sale of, collection from or other realization upon all or any part of the Pledged Collateral pursuant to the exercise by the Collateral Agent of its remedies shall be applied, together with

 

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any other sums then held by the Collateral Agent pursuant to this Agreement, in accordance with the Credit Agreement.
ARTICLE XI
MISCELLANEOUS
          SECTION 11.1. Concerning Collateral Agent.
          (a) The Collateral Agent has been appointed as collateral agent pursuant to the Credit Agreement. The actions of the Collateral Agent hereunder are subject to the provisions of the Credit Agreement. The Collateral Agent shall have the right hereunder to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking action (including the release or substitution of the Pledged Collateral), in accordance with this Agreement and the Credit Agreement. The Collateral Agent may employ agents and attorneys-in-fact in connection herewith and shall not be liable for the negligence or misconduct of any such agents or attorneys-in-fact selected by it in good faith. The Collateral Agent may resign and a successor Collateral Agent may be appointed in the manner provided in the Credit Agreement. Upon the acceptance of any appointment as the Collateral Agent by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent under this Agreement, and the retiring Collateral Agent shall thereupon be discharged from its duties and obligations under this Agreement. After any retiring Collateral Agent’s resignation, the provisions hereof shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was the Collateral Agent.
          (b) The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equivalent to that which the Collateral Agent, in its individual capacity, accords its own property consisting of similar instruments or interests, it being understood that neither the Collateral Agent nor any of the Secured Parties shall have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Securities Collateral, whether or not the Collateral Agent or any other Secured Party has or is deemed to have knowledge of such matters or (ii) taking any necessary steps to preserve rights against any person with respect to any Pledged Collateral.
          (c) The Collateral Agent shall be entitled to rely upon any written notice, statement, certificate, order or other document or any telephone message believed by it to be genuine and correct and to have been signed, sent or made by the proper person, and, with respect to all matters pertaining to this Agreement and its duties hereunder, upon advice of counsel selected by it.
          (d) If any item of Pledged Collateral also constitutes collateral granted to the Collateral Agent under any other deed of trust, mortgage, security agreement, pledge or instrument of any type, in the event of any conflict between the provisions hereof and the provisions of such other deed of trust, mortgage, security agreement, pledge or instrument of any type in respect of such collateral, the Collateral Agent, in its sole discretion, shall select which provision or provisions shall control.

 

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          (e) The Collateral Agent may rely on advice of counsel as to whether any or all UCC financing statements of the Pledgors need to be amended as a result of any of the changes described in Section 5.13(a) of the Credit Agreement. If any Pledgor fails to provide information to the Collateral Agent about such changes on a timely basis, the Collateral Agent shall not be liable or responsible to any party for any failure to maintain a perfected security interest in such Pledgor’s property constituting Pledged Collateral, for which the Collateral Agent needed to have information relating to such changes. The Collateral Agent shall have no duty to inquire about such changes if any Pledgor does not inform the Collateral Agent of such changes, the parties acknowledging and agreeing that it would not be feasible or practical for the Collateral Agent to search for information on such changes if such information is not provided by any Pledgor.
          SECTION 11.2. Collateral Agent May Perform; Collateral Agent Appointed Attorney-in-Fact. If any Pledgor shall fail to perform any covenants contained in this Agreement (including such Pledgor’s covenants to (i) pay the premiums in respect of all required insurance policies hereunder, (ii) pay and discharge any taxes, assessments and special assessments, levies, fees and governmental charges imposed upon or assessed against, and landlords’, carriers’, mechanics’, workmen’s, repairmen’s, laborers’, materialmen’s, suppliers’ and warehousemen’s Liens and other claims arising by operation of law against, all or any portion of the Pledged Collateral, (iii) make repairs, (iv) discharge Liens or (v) pay or perform any obligations of such Pledgor under any Pledged Collateral) or if any representation or warranty on the part of any Pledgor contained herein shall be breached, the Collateral Agent may (but shall not be obligated to) do the same or cause it to be done or remedy any such breach, and may expend funds for such purpose; provided, however, that the Collateral Agent shall in no event be bound to inquire into the validity of any tax, Lien, imposition or other obligation which such Pledgor fails to pay or perform as and when required hereby and which such Pledgor does not contest in accordance with the provisions of the Credit Agreement. Any and all amounts so expended by the Collateral Agent shall be paid by the Pledgors in accordance with the provisions of Section 10.03 of the Credit Agreement. Neither the provisions of this Section 11.2 nor any action taken by the Collateral Agent pursuant to the provisions of this Section 11.2 shall prevent any such failure to observe any covenant contained in this Agreement nor any breach of representation or warranty from constituting an Event of Default. Each Pledgor hereby appoints the Collateral Agent its attorney-in-fact, with full power and authority in the place and stead of such Pledgor and in the name of such Pledgor, or otherwise, from time to time in the Collateral Agent’s discretion to take any action and to execute any instrument consistent with the terms of the Credit Agreement, this Agreement and the other Security Documents which the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof (but the Collateral Agent shall not be obligated to and shall have no liability to such Pledgor or any third party for failure to so do or take action). The foregoing grant of authority is a power of attorney coupled with an interest and such appointment shall be irrevocable for the term hereof. Each Pledgor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof.
          SECTION 11.3. Continuing Security Interest; Assignment. This Agreement shall create a continuing security interest in the Pledged Collateral and shall (i) be binding upon the Pledgors, their respective successors and assigns and (ii) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and the other Secured Parties and each of their respective successors, transferees and assigns. No other persons (including any other creditor of any Pledgor) shall have any interest herein or any right or benefit with respect hereto. Without limiting the generality of the foregoing clause (ii), any Secured Party may assign or otherwise transfer any indebtedness held by it secured by this Agreement to any other person, and such other person shall thereupon become vested with all the benefits in respect thereof granted to such Secured Party, herein or otherwise,

 

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subject however, to the provisions of the Credit Agreement and, in the case of a Secured Party that is a party to a Hedging Agreement or a Treasury Services Agreements, such Hedging Agreement or Treasury Services Agreement, as applicable. Each of the Pledgors agrees that its obligations hereunder and the security interest created hereunder shall continue to be effective or be reinstated, as applicable, if at any time payment, or any part thereof, of all or any part of the Secured Obligations is rescinded or must otherwise be restored by the Secured Party upon the bankruptcy or reorganization of any Pledgor or otherwise.
          SECTION 11.4. Termination; Release. When all the Obligations and all other Secured Obligations then due and outstanding (other than, in each case, amounts in respect of indemnification, expense reimbursement, tax gross-up or yield protection for which no claim has been made) have been paid in full and the Commitments of the Lenders to make any Loan or to issue any Letter of Credit under the Credit Agreement shall have expired or been sooner terminated and all Letters of Credit have been terminated or cash collateralized in accordance with the provisions of the Credit Agreement, this Agreement shall terminate. Upon the sale, transfer or other disposition of any Pledged Collateral permitted under the Credit Agreement (other than any such sale, transfer or disposition to a Loan Party), the Lien on such Pledged Collateral shall automatically be released. Upon any Pledgor ceasing to be a Subsidiary of Parent pursuant to a transaction permitted pursuant to the Credit Agreement, the Lien on all Pledged Collateral of such Pledgor shall be released and such Pledgor shall cease to be a Pledgor, and shall cease to have any further obligations, hereunder. Upon such release or any release of Pledged Collateral or any part thereof in accordance with the provisions of the Credit Agreement, the Collateral Agent shall, upon the request and at the sole cost and expense of the Pledgors, assign, transfer and deliver to Pledgor, against receipt and without recourse to or warranty by the Collateral Agent except as to the fact that the Collateral Agent has not encumbered the released assets, such of the Pledged Collateral or any part thereof to be released (in the case of a release) as may be in possession of the Collateral Agent and as shall not have been sold or otherwise applied pursuant to the terms hereof, and, with respect to any other Pledged Collateral, proper documents and instruments (including UCC-3 termination financing statements or releases) acknowledging the termination hereof or the release of such Pledged Collateral, as the case may be.
          SECTION 11.5. Modification in Writing. No amendment, modification, supplement, termination or waiver of or to any provision hereof, nor consent to any departure by any Pledgor therefrom, shall be effective unless the same shall be made in accordance with the terms of the Credit Agreement and unless in writing and signed by the Collateral Agent. Any amendment, modification or supplement of or to any provision hereof, any waiver of any provision hereof and any consent to any departure by any Pledgor from the terms of any provision hereof in each case shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, any other document evidencing the Secured Obligations or applicable law, no notice to or demand on any Pledgor in any case shall entitle any Pledgor to any other or further notice or demand in similar or other circumstances.
          SECTION 11.6. Notices. Unless otherwise provided herein or in the Credit Agreement, any notice or other communication herein required or permitted to be given shall be given in the manner and become effective as set forth in the Credit Agreement, as to any Pledgor, addressed to it at the address of Parent set forth in the Credit Agreement and as to the Collateral Agent, addressed to it at the address set forth in the Credit Agreement, or in each case at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 11.6.

 

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          SECTION 11.7. Governing Law, Consent to Jurisdiction and Service of Process; Waiver of Jury Trial. Sections 10.09 and 10.10 of the Credit Agreement are incorporated herein, mutatis mutandis, as if a part hereof.
          SECTION 11.8. Severability of Provisions. Any provision hereof which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without invalidating the remaining provisions hereof or affecting the validity, legality or enforceability of such provision in any other jurisdiction.
          SECTION 11.9. Execution in Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all such counterparts together shall constitute one and the same agreement.
          SECTION 11.10. Business Days. In the event any time period or any date provided in this Agreement ends or falls on a day other than a Business Day, then such time period shall be deemed to end and such date shall be deemed to fall on the next succeeding Business Day, and performance herein may be made on such Business Day, with the same force and effect as if made on such other day.
          SECTION 11.11. No Credit for Payment of Taxes or Imposition. No Pledgor shall be entitled to any credit against the principal, premium, if any, or interest payable under the Credit Agreement, and no Pledgor shall be entitled to any credit against any other sums which may become payable under the terms thereof or hereof, by reason of the payment of any Tax on the Pledged Collateral or any part thereof.
          SECTION 11.12. No Claims Against Collateral Agent. Nothing contained in this Agreement shall constitute any consent or request by the Collateral Agent, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the Pledged Collateral or any part thereof, nor as giving any Pledgor any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in such fashion as would permit the making of any claim against the Collateral Agent in respect thereof or any claim that any Lien based on the performance of such labor or services or the furnishing of any such materials or other property is prior to the Lien hereof.
          SECTION 11.13. No Release. Nothing set forth in this Agreement or any other Loan Document, nor the exercise by the Collateral Agent of any of the rights or remedies hereunder, shall relieve any Pledgor from the performance of any term, covenant, condition or agreement on such Pledgor’s part to be performed or observed under or in respect of any of the Pledged Collateral or from any liability to any person under or in respect of any of the Pledged Collateral or shall impose any obligation on the Collateral Agent or any other Secured Party to perform or observe any such term, covenant, condition or agreement on such Pledgor’s part to be so performed or observed or shall impose any liability on the Collateral Agent or any other Secured Party for any act or omission on the part of such Pledgor relating thereto or for any breach of any representation or warranty on the part of such Pledgor contained in this Agreement, the Credit Agreement or the other Loan Documents, or under or in respect of the Pledged Collateral or made in connection herewith or therewith. Anything herein to the contrary notwithstanding, neither the Collateral Agent nor any other Secured Party shall have any obligation or liability under any contracts, agreements and other documents included in the Pledged Collateral by reason of this Agreement, nor shall the Collateral Agent or any other Secured Party be obligated to perform any of the obligations

 

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or duties of any Pledgor thereunder or to take any action to collect or enforce any such contract, agreement or other document included in the Pledged Collateral hereunder. The obligations of each Pledgor contained in this Section 11.13 shall survive the termination hereof and the discharge of such Pledgor’s other obligations under this Agreement, the Credit Agreement and the other Loan Documents.
          SECTION 11.14. Obligations Absolute. All obligations of each Pledgor hereunder shall be absolute and unconditional irrespective of:
     (i) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of any other Pledgor;
     (ii) any lack of validity or enforceability of the Credit Agreement, any Hedging Agreement, any Treasury Services Agreement or any other Loan Document, or any other agreement or instrument relating thereto;
     (iii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Secured Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any Hedging Agreement, Treasury Services Agreement or any other Loan Document or any other agreement or instrument relating thereto;
     (iv) any pledge, exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to any departure from any guarantee, for all or any of the Secured Obligations;
     (v) any exercise, non-exercise or waiver of any right, remedy, power or privilege under or in respect hereof, the Credit Agreement, any Hedging Agreement, any Treasury Services Agreement or any other Loan Document except as specifically set forth in a waiver granted pursuant to the provisions of Section 11.5 hereof; or
     (vi) any other circumstances which might otherwise constitute a defense available to, or a discharge of, any Pledgor.
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     IN WITNESS WHEREOF, each Pledgor and the Collateral Agent have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first above written.
         
  BEARINGPOINT, INC.,
as Pledgor
 		  
  By:   /s/ Harry L. You   
    Name:   Harry L. You   
    Title:   Chief Executive Officer   
 
         
  BEARINGPOINT, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
BEARINGPOINT AMERICAS, INC.
BEARINGPOINT GLOBAL OPERATIONS, INC.
BEARINGPOINT GLOBAL, INC.
BEARINGPOINT INTERNATIONAL I, INC.
BEARINGPOINT USA, INC.
OAD ACQUISITION CORP.
OAD GROUP, INC.
PEATMARWICK, INC.
METRIUS, INC.
SOFTLINE ACQUISITION CORP.
SOFTLINE CONSULTING AND INTEGRATORS, INC., as
Pledgors
         
     
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 

 

S-2
         
  BEARINGPOINT BG, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
         
  BEARINGPOINT ENTERPRISE HOLDINGS, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
         
  BEARINGPOINT TECHNOLOGY PROCUREMENT SERVICES, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
         
  BEARINGPOINT ISRAEL, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
         
  BEARINGPOINT PUERTO RICO, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 

 

S-3
         
  BEARINGPOINT RUSSIA, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
         
  BEARINGPOINT SOUTH PACIFIC, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
         
  BEARINGPOINT SOUTHEAST ASIA, LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
         
  i2 MID ATLANTIC LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 
         
  i2 NORTHWEST LLC,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 

 

S-4
         
  PELOTON HOLDINGS, L.L.C.,
as Pledgor
 		  
  By:   /s/ Judy Ethell   
    Name:   Judy Ethell   
    Title:   President   
 

 

S-5
         
  UBS AG, STAMFORD BRANCH,
as Collateral Agent
 		  
  By:   /s/ Richard L. Tavrow   
    Name:   Richard L. Tavrow   
    Title:   Director, Banking Products Services, US   
 
         
     
  By:   /s/ David B. Julie   
    Name:   David B. Julie   
    Title:   Associate Director, Banking Products Services, US   
 

EX-10.8 4 c15652exv10w8.htm FORM OF TERM NOTE exv10w8
 

Exhibit 10.8
[Form of]
TERM NOTE
     
$____________
  New York, New York
[Date]
     FOR VALUE RECEIVED, the undersigned, BearingPoint, Inc., a Delaware corporation (“Parent”), BearingPoint, LLC, a Delaware limited liability company (“BE LLC” and, together with Parent, the “Borrowers”), hereby promise to pay to the order [                       ] (the “Lender”) on the Maturity Date (as defined in the Credit Agreement referred to below) in lawful money of the United States and in immediately available funds, the principal amount of _________ DOLLARS ($_________), or, if less, the aggregate unpaid principal amount of all Term Loans of the Lender outstanding under the Credit Agreement referred to below, which sum shall be due and payable in such amounts and on such dates as are set forth in the Credit Agreement. Borrowers further agree to pay interest in like money at such office specified in Section 2.14 of the Credit Agreement on the unpaid principal amount hereof from time to time from the date hereof at the rates, and on the dates, specified in Section 2.06 of such Credit Agreement.
     The holder of this Note may endorse and attach a schedule to reflect the date, Type and amount of each Term Loan of the Lender outstanding under the Credit Agreement, the date and amount of each payment or prepayment of principal hereof, and the date of each interest rate conversion or continuation pursuant to Section 2.08 of the Credit Agreement and the principal amount subject thereto; provided that the failure of the Lender to make any such recordation (or any error in such recordation) shall not affect the obligations of Borrowers hereunder or under the Credit Agreement.
     This Note is one of the Notes referred to in the Credit Agreement dated as of May [ ], 2007 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among BearingPoint, Inc., a Delaware corporation (“Parent”), BearingPoint, LLC a Delaware limited liability company (“BE LLC” and, together with Parent, the “Borrowers”), the Guarantors, the Lenders, UBS SECURITIES LLC, as lead arranger, documentation agent and syndication agent, WELLS FARGO FOOTHILL, LLC and UBS AG, STAMFORD BRANCH, each as an issuing bank, and UBS AG, STAMFORD BRANCH, as administrative agent for the Lenders and collateral agent for the Secured Parties and Issuing Banks is subject to the provisions thereof and is subject to optional and mandatory prepayment in whole or in part as provided therein. Terms used herein which are defined in the Credit Agreement shall have such defined meanings unless otherwise defined herein or unless the context otherwise requires.
     This Note is secured and guaranteed as provided in the Credit Agreement and the Security Documents. Reference is hereby made to the Credit Agreement and the Security Documents for a description of the properties and assets in which a security interest has been granted, the nature and extent of the security and guarantees, the terms and conditions upon which the security interest and each guarantee was granted and the rights of the holder of this Note in respect thereof.
     Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable all as provided therein.

 

 

     All parties now and hereafter liable with respect to this Note, whether maker, principal, surety, guarantor, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind.
     THIS NOTE MAY NOT BE TRANSFERRED EXCEPT IN COMPLIANCE WITH THE TERMS OF THE CREDIT AGREEMENT. TRANSFERS OF THIS NOTE MUST BE RECORDED IN THE REGISTER MAINTAINED BY THE ADMINISTRATIVE AGENT PURSUANT TO THE TERMS OF THE CREDIT AGREEMENT.
     THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
[Signature Page Follows]

M-2

 

         
  BEARINGPOINT, INC.,
     as Borrower
 		  
  By:      
    Name:      
    Title:      
 
  BEARINGPOINT, LLC,
     as Borrower
 		  
  By:      
    Name:      
    Title   
 

M-3

EX-10.24 5 c15652exv10w24.txt AMENDED AND RESTATED 2000 LONG-TERM INCENTIVE PLAN Exhibit 10.24 BEARINGPOINT, INC. 2000 LONG-TERM INCENTIVE PLAN (AS AMENDED AND RESTATED EFFECTIVE AS OF FEBRUARY 2, 2007) I. INTRODUCTION 1.1 PURPOSES. The purposes of the 2000 Long-Term Incentive Plan (this "Plan") of BearingPoint, Inc., a Delaware corporation (the "Company"), are (i) to align the interests of the Company's stockholders and the recipients of awards under this Plan by providing a means to increase the proprietary interest of such recipients in the Company's growth and success, (ii) to advance the interests of the Company by increasing its ability to attract and retain highly competent employees (including the Company's executive officers), Non-Employee Directors and consultants and (iii) to motivate such persons to act in the long-term best interests of the Company and its stockholders. This Plan is a continuation, and amendment and restatement, of the BearingPoint, Inc. 2000 Long-Term Incentive Plan, the provisions of which shall continue to control with respect to any options or stock awards outstanding thereunder to the extent necessary to avoid establishment of a new measurement date for financial accounting purposes. 1.2 CERTAIN DEFINITIONS. "AFFILIATE" shall mean (i) any subsidiary corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, as described in Section 424(f) of the Code and (ii) any other entity in which the Company has an equity interest or with which the Company has a significant business relationship. "AGREEMENT" shall mean the written agreement evidencing an award hereunder between the Company and the recipient of such award. "AWARD" shall mean any award under this Plan. "BOARD" shall mean the Board of Directors of the Company. "BONUS STOCK" shall mean shares of Common Stock which are not subject to a Restriction Period or Performance Measures. "BONUS STOCK AWARD" shall mean an award of Bonus Stock under this Plan. "CHANGE IN CONTROL" shall have the meaning set forth in Section 7.8(b). "CODE" shall mean the Internal Revenue Code of 1986, as amended. "COMMITTEE" shall mean the committee designated by the Board which shall consist of two or more members of the Board, each of whom may be a "Non-Employee Director" within the meaning of Rule 16b-3 under the Exchange Act. "COMMON STOCK" shall mean the common stock, $0.01 par value, of the Company. "COMPANY" shall have the meaning set forth in Section 1.1. "DISABILITY" shall mean, unless otherwise provided by the Committee in an Agreement, the inability of the recipient of an award to perform substantially such recipient's duties and responsibilities for a continuous period of at least six months, as determined solely by the Committee. "DISCRETIONARY DIRECTOR OPTIONS" shall have the meaning set forth in Section 6.5. "DISCRETIONARY DIRECTOR RESTRICTED STOCK AWARD" shall have the meaning set forth in Section 6.6. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "FAIR MARKET VALUE" shall mean the closing price of a share of Common Stock as reported on the New York Stock Exchange on the date as of which such value is being determined or, if there shall be no reported transactions on such date, on the next preceding date for which a transaction was reported; provided, however, that if the Common Stock is not traded on the New York Stock Exchange, Fair Market Value may be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate. "FREE-STANDING SAR" shall mean an SAR which is not issued in tandem with, or by reference to, an option, which entitles the holder thereof to receive, upon exercise, shares of Common Stock (which may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of such SARs which are exercised. "INCENTIVE STOCK OPTION" shall mean an option to purchase shares of Common Stock that meets the requirements of Section 422 of the Code, or any successor provision, which is intended by the Committee to constitute an Incentive Stock Option. "IPO" shall mean the initial public offering of Common Stock of the Company on February 8, 2001 pursuant to an effective registration statement under the Securities Act of 1933, as amended. "NON-EMPLOYEE DIRECTOR" shall mean any director of the Company who is not an officer or employee of the Company or any subsidiary of the Company. "NON-STATUTORY STOCK OPTION" shall mean an option to purchase shares of Common Stock which is not an Incentive Stock Option. "PERFORMANCE CASH" shall mean a right, contingent upon the attainment of specified Performance Measures within a specified Performance Period, to receive an amount of cash other than a Performance Share Award or an SAR. "PERFORMANCE CASH AWARD" shall mean an award of Performance Cash under this Plan. "PERFORMANCE MEASURES" shall mean the criteria and objectives, established by the Committee, which shall be satisfied or met (i) as a condition to the exercisability of all or a portion of an option or SAR, (ii) as a condition to the grant of a Stock Award or (iii) during the applicable 2 Restriction Period or Performance Period as a condition to the holder's receipt, in the case of a Restricted Stock Award, of the Restricted Stock subject to such award, or, in the case of a Performance Share Award, of the shares of Common Stock, or in the case of a Performance Cash Award, of the cash, subject to such award and/or of payment with respect to such award. Such criteria and objectives may include one or more of the following: the attainment by a share of Common Stock of a specified Fair Market Value for a specified period of time, earnings per share, net income, return to stockholders (including dividends), return on equity, earnings of the Company, revenues, market share, cash flow, return on assets, costs, shareholder value, EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization), funds from operations, cash from operations, net cash flow, net cash flow before financing activities, other cash flow measures, total shareholder return, return on capital, return on invested capital, operating income, after-tax operating income, proceeds from dispositions, or cost reduction goals, or any combination of the foregoing. In the sole discretion of the Committee, the Committee may amend or adjust the Performance Measures or other terms and conditions of an outstanding award in recognition of unusual or nonrecurring events affecting the Company or its financial statements or changes in law or accounting principles. "PERFORMANCE PERIOD" shall mean any period designated by the Committee during which the Performance Measures applicable to a Performance Share Award or Performance Cash Award shall be measured. "PERFORMANCE SHARE" shall mean a right, contingent upon the attainment of specified Performance Measures within a specified Performance Period, to receive one share of Common Stock, which may be Restricted Stock or, in lieu of all or a portion thereof, the Fair Market Value of such share of Common Stock in cash. "PERFORMANCE SHARE AWARD" shall mean an award of Performance Shares under this Plan. "PERSON" shall have the meaning set forth in Section 7.8(b)(iii). "RESTRICTED STOCK" shall mean either (i) shares of Common Stock which are subject to a Restriction Period, or (ii) Common Stock equivalent units which are subject to a Restriction Period. "RESTRICTED STOCK AWARD" shall mean an award of Restricted Stock under this Plan. "RESTRICTION PERIOD" shall mean any period designated by the Committee during which the Restricted Stock subject to a Restricted Stock Award is subject to forfeiture and may not be sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or disposed of, except as provided in this Plan or the Agreement relating to such award. "RETIREMENT" shall mean, unless otherwise provided by the Committee in an Agreement, termination of employment with or service to the Company by reason of retirement on or after age 65. "SAR" shall mean a stock appreciation right which may be a Free-Standing SAR or a Tandem SAR. "STOCK AWARD" shall mean a Restricted Stock Award or a Bonus Stock Award. "STOCK BASED AWARDS LIMITATIONS" shall have the meaning set forth in Section 1.5(e). 3 "TANDEM SAR" shall mean an SAR which is granted in tandem with, or by reference to, an option (including a Non-Statutory Stock Option granted prior to the date of grant of the SAR), which entitles the holder thereof to receive, upon exercise of such SAR and surrender for cancellation of all or a portion of such option, shares of Common Stock (which may be Restricted Stock), cash or a combination thereof with an aggregate value equal to the excess of the Fair Market Value of one share of Common Stock on the date of exercise over the base price of such SAR, multiplied by the number of shares of Common Stock subject to such option, or portion thereof, which is surrendered. "TAX DATE" shall have the meaning set forth in Section 7.5. "TEN PERCENT HOLDER" shall have the meaning set forth in Section 2.1(a). 1.3 ADMINISTRATION. This Plan shall be administered by the Committee. Any one or a combination of the following awards may be made under this Plan to eligible persons: (i) options to purchase shares of Common Stock in the form of Incentive Stock Options or Non-Statutory Stock Options, (ii) SARs in the form of Tandem SARs or Free-Standing SARs, (iii) Stock Awards in the form of Restricted Stock or Bonus Stock, (iv) Performance Shares and (v) Performance Cash. The Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and, if applicable, the number of shares of Common Stock, the number of SARs, the number of Performance Shares and the amount of Performance Cash subject to such an award, the exercise price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of the award, including, without limitation, the form of the Agreement evidencing the award. The Committee may, in its sole discretion and for any reason at any time, take action such that (i) any or all outstanding options and SARs shall become exercisable in part or in full, (ii) all or a portion of the Restriction Period applicable to any outstanding Restricted Stock Award shall lapse, (iii) all or a portion of the Performance Period applicable to any outstanding Performance Share Award or Performance Cash Award shall lapse and (iv) the Performance Measures applicable to any outstanding award (if any) shall be deemed to be satisfied at the maximum or any other level. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be final, binding and conclusive. The Committee may delegate some or all of its power and authority hereunder to the Board, the Chief Executive Officer or any other executive officer of the Company as the Committee deems appropriate; provided, however, that the Committee may not delegate its power and authority to the Chief Executive Officer or any other executive officer of the Company with regard to the selection for participation in this Plan of an officer or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an award to such an officer or other person. The Committee may engage or authorize the engagement of a third party administrator to carry out administrative functions under the Plan. No member of the Board or Committee, and neither the Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in 4 connection with this Plan in good faith, and the members of the Board and the Committee, the Chief Executive Officer and any such other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys' fees) arising therefrom to the full extent permitted by law, except as otherwise may be provided in the Company's Certificate of Incorporation and/or By-laws, and under any directors' and officers' liability insurance that may be in effect from time to time. A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either (i) acts of a majority of the members of the Committee present at any meeting at which a quorum is present, or (ii) acts approved in writing by all of the members of the Committee without a meeting. 1.4 ELIGIBILITY. Participants in this Plan shall consist of the Company's employees (including its executive officers), Non-Employee Directors and consultants, and persons expected to become employees (including executive officers), Non-Employee Directors and consultants, of the Company and its Affiliates, as the Committee in its sole discretion may select from time to time, and such other persons designated by the Committee pursuant to Section 7.13. For purposes of this Plan, references to employment also shall mean a consulting relationship and references to employment by the Company also shall mean employment by an Affiliate. The Committee's selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. Non-Employee Directors of the Company shall be eligible to participate in this Plan in accordance with Article VI. 1.5 SHARES AVAILABLE. (a) Shares Available. The number of shares of Common Stock that are authorized for grants or awards under this Plan (the "Authorized Shares") is 92,179,333. The Board and the appropriate officers of the Company are authorized to take from time to time whatever actions are necessary, and to file any required documents with governmental authorities, stock exchanges and transaction reporting systems to ensure that shares of Common Stock are available for issuance pursuant to Awards. (b) Maximum Grants of Incentive Stock Options. Subject to adjustment as provided in Section 7.7, the maximum number of shares that may be granted as Incentive Stock Options shall be 92,179,333. (c) Restoration of Available Shares. To the extent that shares of Common Stock subject to an outstanding option (except to the extent shares of Common Stock are issued or delivered by the Company in connection with the exercise of a Tandem SAR), Free-Standing SAR, Stock Award or Performance Share Award are not issued or delivered by reason of the expiration, termination, cancellation or forfeiture of such award or otherwise in a manner such that all or some of the shares covered by an Award are not issued to a Participant or are exchanged for Awards that do not involve Common Stock, then such shares of Common Stock shall again be available under this Plan. Notwithstanding the foregoing, in the case of any SAR settled upon exercise by delivery of shares of Common Stock, the full number of shares with respect to which the SAR was exercised shall count against the number of Authorized Shares and shall not again become available under this Plan. (d) Available Common Stock. Shares of Common Stock shall be made available from authorized and unissued shares of Common Stock, or authorized and issued shares of 5 Common Stock reacquired and held as treasury shares or otherwise or a combination thereof. (e) Limitations on Awards to Employees. Notwithstanding anything to the contrary contained in this Plan, the following limitations shall apply to any Awards to employees made hereunder: (i) no employee may be granted, during any calendar year, Awards consisting of Options or SARs (including Options or SARs that are granted as Performance Awards) that are exercisable for more than 2,750,000 shares of Common Stock; (ii) no employee may be granted, during any calendar year, Awards consisting of Stock Awards (including Stock Awards that are granted as Performance Awards) covering or relating to more than 1,375,000 shares of Common Stock (the limitation set forth in this clause (ii), together with the limitations set forth in clause (i) above, being hereinafter collectively referred to as the "Stock Based Awards Limitations"); and (iii) no employee may be granted employee Awards consisting of Performance Cash Awards in respect of any calendar year having a value determined on the Grant Date in excess of $5,000,000. 6 II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS 2.1 STOCK OPTIONS. The Committee may, in its discretion, grant options to purchase shares of Common Stock to such eligible persons as may be selected by the Committee. Each option, or portion thereof, that is not an Incentive Stock Option shall be a Non-Statutory Stock Option. An Incentive Stock Option may not be granted to any person who is not an employee of the Company or any parent or subsidiary (as defined in Section 424 of the Code). Each Incentive Stock Option shall be granted within ten years of November 15, 2006. To the extent that the aggregate Fair Market Value (determined as of the date of grant) of shares of Common Stock with respect to which options designated as Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under this Plan or any other plan of the Company or any parent or subsidiary as defined in Section 424 of the Code) exceeds the amount (currently $100,000) established by the Code, such options shall constitute Non-Statutory Stock Options. Notwithstanding anything herein to the contrary, without the prior approval of the Company's stockholders, options issued under the Plan will not be repriced, replaced, or regranted through cancellation or by decreasing the exercise price of a previously granted option, except as expressly provided by the adjustment provisions of Paragraph 7.7. Options shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) Number of Shares and Purchase Price. The number of shares of Common Stock subject to an option and the purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee; provided, however, that the purchase price per share of Common Stock purchasable upon exercise of the option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option; and provided further, that if an Incentive Stock Option shall be granted to any person who, at the time such option is granted, owns capital stock possessing more than ten percent of the total combined voting power of all classes of capital stock of the Company (or of any parent or subsidiary as defined in Section 424 of the Code) (a "Ten Percent Holder"), the purchase price per share of Common Stock shall not be less than the price (currently 110% of Fair Market Value) required by the Code in order to constitute an Incentive Stock Option. (b) Exercise Period and Exercisability. The period during which an option may be exercised shall be determined by the Committee; provided, however, that no option shall be exercised later than ten years, or ten and one-half years in certain countries to take advantage of favorable local laws, after its date of grant; and provided further, that if an Incentive Stock Option shall be granted to a Ten Percent Holder, such option shall not be exercised later than five years after its date of grant. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an option or to the exercisability of all or a portion of an option. The Committee shall determine whether an option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable option, or portion thereof, may be exercised only with respect to whole shares of Common Stock. (c) Method of Exercise. An option may be exercised (i) by giving written notice to the Company specifying the number of whole shares of Common Stock to be purchased and by 7 accompanying such notice with payment therefor in full (or by arranging for such payment to the Company's satisfaction) either (A) in cash, (B) by delivery (either actual delivery or by attestation procedures established by the Company) of Shares of Common Stock having an aggregate Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise, (C) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (D) a combination of (A) and (B), in each case to the extent set forth in the Agreement relating to the option, (ii) if applicable, by surrendering to the Company any Tandem SARs which are cancelled by reason of the exercise of the option and (iii) by executing such documents as the Company may reasonably request. The Company shall have sole discretion to disapprove of an election pursuant to any of clauses (i)(B)-(D). Any fraction of a share of Common Stock which would be required to pay such purchase price shall be disregarded and the remaining amount due shall be paid in cash by the optionee. No certificate representing Common Stock shall be delivered until the full purchase price therefor and any withholding taxes thereon, as described in Section 7.5, have been paid (or arrangement made for such payment to the Company's satisfaction). 2.2 STOCK APPRECIATION RIGHTS. The Committee may, in its discretion, grant SARs to such eligible persons as may be selected by the Committee. The Agreement relating to an SAR shall specify whether the SAR is a Tandem SAR or a Free-Standing SAR. Notwithstanding anything herein to the contrary, without the prior approval of the Company's stockholders, SARs issued under the Plan will not be repriced, replaced, or regranted through cancellation or by decreasing the exercise price of a previously granted SAR, except as expressly provided by the adjustment provisions of Paragraph 7.7. SARs shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) Number of SARs and Base Price. The number of SARs subject to an award shall be determined by the Committee. Any Tandem SAR related to an Incentive Stock Option shall be granted at the same time that such Incentive Stock Option is granted. The base price of a Tandem SAR shall be the exercise price per share of Common Stock of the related option. The base price of a Free-Standing SAR shall be determined by the Committee; provided, however, that such base price shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such SAR. (b) Exercise Period and Exercisability. The Agreement relating to an award of SARs shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof. The period for the exercise of an SAR shall be determined by the Committee but in no event may an SAR be exercised more than ten years, or ten and one-half years in certain countries to take advantage of favorable local laws, after its date of grant; provided, however, that no Tandem SAR shall be exercised later than the expiration, cancellation, forfeiture or other termination of the related option. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of an SAR or to the exercisability of all or a portion of an SAR. The Committee shall determine whether an SAR may be exercised in cumulative or non-cumulative installments and in part or in full at any time. An exercisable SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only with respect 8 to whole shares of Common Stock and, in the case of a Free-Standing SAR, only with respect to a whole number of SARs. If an SAR is exercised for shares of Restricted Stock, a certificate or certificates representing such Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the exercise of an SAR for shares of Common Stock, including Restricted Stock, the holder of such SAR shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such SAR. (c) Method of Exercise. A Tandem SAR may be exercised (i) by giving written notice to the Company specifying the number of whole SARs which are being exercised, (ii) by surrendering to the Company any options which are cancelled by reason of the exercise of the Tandem SAR and (iii) by executing such documents as the Company may reasonably request. A Free-Standing SAR may be exercised (i) by giving written notice to the Company specifying the whole number of SARs which are being exercised and (ii) by executing such documents as the Company may reasonably request. 2.3 TERMINATION OF EMPLOYMENT OR SERVICE. Subject to the requirements of the Code, all of the terms relating to the exercise, cancellation or other disposition of an option or SAR upon a termination of employment with or service to the Company of the recipient of such option or SAR, as the case may be, whether by reason of Disability, Retirement, death or any other reason, shall be determined by the Committee. III. STOCK AWARDS 3.1 STOCK AWARDS. The Committee may, in its discretion, grant Stock Awards to such eligible persons as may be selected by the Committee. The Agreement relating to a Stock Award shall specify whether the Stock Award is a Restricted Stock Award or Bonus Stock Award. 3.2 TERMS OF STOCK AWARDS. Stock Awards shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a) Number of Shares and Other Terms. The number of shares of Common Stock subject to a Restricted Stock Award or Bonus Stock Award and the Performance Measures (if any) and Restriction Period applicable to a Restricted Stock Award shall be determined by the Committee. Bonus Stock Awards shall not be subject to any Performance Measures or Restriction Periods. (b) Vesting and Forfeiture. The Agreement relating to a Restricted Stock Award shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of the Restricted Stock subject to such award (i) if specified Performance Measures are satisfied or met during the specified Restriction Period or (ii) if the holder of such award remains continuously in the employment of or service to the Company during the specified Restriction Period and for the forfeiture of all or a portion of the shares of Common Stock subject to such award (x) if specified Performance Measures are not satisfied or met during the specified Restriction Period or (y) if the holder of such award does not remain continuously in the employment of or service to the Company during the specified Restriction Period. 9 (c) Share Certificates. During the Restriction Period, a certificate or certificates representing a Restricted Stock Award may be registered in the holder's name or a nominee name at the discretion of the Company and may bear a legend, in addition to any legend which may be required pursuant to Section 7.6, indicating that the ownership of the shares of Common Stock represented by such certificate is subject to the restrictions, terms and conditions of this Plan and the Agreement relating to the Restricted Stock Award. As determined by the Committee, all certificates registered in the holder's name shall be deposited with the Company, together with stock powers or other instruments of assignment (including a power of attorney), each endorsed in blank with a guarantee of signature if deemed necessary or appropriate by the Company, which would permit transfer to the Company of all or a portion of the shares of Common Stock subject to the Restricted Stock Award in the event such award is forfeited in whole or in part. Upon termination of any applicable Restriction Period (and the satisfaction or attainment of applicable Performance Measures), or upon the grant of a Bonus Stock Award, in each case subject to the Company's right to require payment of any taxes in accordance with Section 7.5, a certificate or certificates evidencing ownership of the requisite number of shares of Common Stock shall be delivered to the holder of such award. (d) Rights with Respect to Restricted Stock Awards. Unless otherwise set forth in the Agreement relating to a Restricted Stock Award, and subject to the terms and conditions of the Agreement relating to a Restricted Stock Award, (i) the holder of a Restricted Stock Award denominated in shares of Common Stock shall have all rights as a stockholder of the Company, including, but not limited to, voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of Common Stock; provided, however, that a distribution with respect to shares of Common Stock, other than a regular cash dividend, shall be deposited with the Company and shall be subject to the same restrictions as the shares of Common Stock with respect to which such distribution was made, and (ii) the holder of a Restricted Stock Award denominated in Common Stock equivalent units shall have no rights as a stockholder of the Company unless and until shares of Common Stock are issued and delivered to the holder of the Restricted Stock Award with respect to such Common Stock equivalent units; provided, however, that a Restricted Stock Award denominated in Common Stock equivalent units may provide for the payment of dividend equivalents which correspond to the payment of dividends on Common Stock. 3.3 TERMINATION OF EMPLOYMENT OR SERVICE. All of the terms relating to the satisfaction of Performance Measures and the termination of the Restriction Period relating to a Restricted Stock Award, or any forfeiture and cancellation of such award upon a termination of employment with or service to the Company of the recipient of such award, whether by reason of Disability, Retirement, death or any other reason, shall be determined by the Committee. IV. PERFORMANCE AWARDS 4.1 PERFORMANCE SHARE AWARDS AND PERFORMANCE CASH AWARDS. The Committee may, in its discretion, grant Performance Share Awards and Performance Cash Awards to such eligible persons as may be selected by the Committee. 4.2 TERMS OF PERFORMANCE SHARE AWARDS AND PERFORMANCE CASH AWARDS. Performance Share Awards and Performance Cash Awards shall be subject to the following terms and conditions and 10 shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. (a) Number of Performance Share Awards; Amount of Performance Cash Awards; and Performance Measures. Performance Share Awards and Performance Cash Awards granted to employees under this Plan that are intended to qualify as qualified performance-based compensation under Section 162(m) of the Code shall be paid, vested or otherwise deliverable solely on account of the attainment of one or more pre-established, objective Performance Measures established by the Committee prior to the earlier to occur of (x) 90 days after the commencement of the period of service to which the Performance Measure relates and (y) the lapse of 25% of the period of service (as scheduled in good faith at the time the goal is established), and in any event while the outcome is substantially uncertain. A Performance Measure is objective if a third party having knowledge of the relevant facts could determine whether the goal is met. Such a Performance Measure may be based on one or more business criteria that apply to the employee, one or more business units, segments or otherwise of the Company, or the Company as a whole, and if so desired by the Committee, by comparison with a peer group of companies. Unless otherwise stated, such a Performance Measure need not be based upon an increase or positive result under a particular business criterion and could include, for example, maintaining the status quo or limiting economic losses (measured, in each case, by reference to specific business criteria). In interpreting Plan provisions applicable to Performance Measures and Performance Share Awards and Performance Cash Awards intended to comply with Section 162(m) of the Code, it is the intent of this Plan to conform with the standards of Section 162(m) of the Code and Treasury Regulation Section 1.162-27(e)(2)(i), as to grants to those employees whose compensation is, or is likely to be, subject to Section 162(m) of the Code, and the Committee in establishing such goals and interpreting this Plan shall be guided by such provisions. Prior to the payment of any compensation based on the achievement of Performance Measures applicable to such Awards, the Committee must certify in writing that applicable Performance Measures and any of the material terms thereof were, in fact, satisfied. Subject to the foregoing provisions, the terms, conditions and limitations applicable to any such Awards made pursuant to this Plan shall be determined by the Committee. (b) Vesting and Forfeiture. The Agreement relating to a Performance Share Award and Performance Cash Awards shall provide, in the manner determined by the Committee, in its discretion, and subject to the provisions of this Plan, for the vesting of such award, if specified Performance Measures are satisfied or met during the specified Performance Period, and for the forfeiture of all or a portion of such award, if specified Performance Measures are not satisfied or met during the specified Performance Period. (c) Settlement of Vested Performance Share Awards and Performance Cash Awards. (i) The Agreement relating to a Performance Share Award (A) shall specify whether such award may be settled in shares of Common Stock (including shares of Restricted Stock) or cash or a combination thereof and (B) may specify whether the holder thereof shall be entitled to receive, on a current or deferred basis, dividend equivalents, and, if determined by the Committee, interest on or the deemed reinvestment of any deferred dividend equivalents, with respect to the number of shares of Common Stock subject to such award. If a Performance Share Award is settled in shares of Restricted Stock, a certificate or certificates representing such 11 Restricted Stock shall be issued in accordance with Section 3.2(c) and the holder of such Restricted Stock shall have such rights of a stockholder of the Company as determined pursuant to Section 3.2(d). Prior to the settlement of a Performance Share Award in shares of Common Stock, including Restricted Stock, the holder of such award shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such award. (ii) The Agreement relating to a Performance Cash Award shall provide that the award will be settled in cash and may, if determined by the Committee, earn interest or other earnings on a deemed investment which the award holder shall be entitled to receive on a current or deferred basis, all as specified in the Agreement governing the award. 4.3 TERMINATION OF EMPLOYMENT OR SERVICE. All of the terms relating to the satisfaction of Performance Measures and the termination of the Performance Period relating to a Performance Share Award or a Performance Cash Award, or any forfeiture and cancellation of such award upon a termination of employment with or service to the Company of the recipient of such award, whether by reason of Disability, Retirement, death or other termination, shall be determined by the Committee. V. OTHER STOCK-BASED AWARDS In addition to Restricted Stock Awards, the Committee may from time to time grant other stock-based awards to eligible participants in such amounts, on such terms and conditions, and for such consideration, including no consideration or such minimum consideration as may be required by law, as it shall determine. Other stock-based awards may be denominated in cash, in Common Stock or other securities, in stock-equivalent units, in stock appreciation units, in securities or debentures convertible into Common Stock, or in any combination of the foregoing and may be paid in Common Stock or other securities, in cash, or in a combination of Common Stock or other securities and cash, all as determined in the sole discretion of the Committee. 12 VI. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS 6.1 ELIGIBILITY. Each Non-Employee Director shall be eligible to participate in this Plan as provided in this Article VI. 6.2 AUTOMATIC GRANTS OF STOCK OPTIONS. Each Non-Employee Director shall automatically be granted Non-Statutory Stock Options as follows: (a) Time of Grant. Automatic grants of Non-Statutory Stock Options shall be made on the dates specified below: (1) Each person who is serving as a Non-Employee Director as of March 20, 2001 shall automatically be granted, on the date that the next Non-Employee Director is elected, an option to purchase 15,000 shares of Common Stock. (2) Each person who is first elected or first begins to serve as a Non-Employee Director on or after March 20, 2001 shall automatically be granted, on the date of such initial election or service, an option to purchase 15,000 shares of Common Stock. (3) Each person who is a Non-Employee Director shall automatically be granted an option to purchase 5,000 shares of Common Stock on the date he or she is first elected to serve as Chair of the Audit Committee of the Board of Directors of the Company. (b) Purchase Price. The purchase price per share of Common Stock purchasable upon exercise of an option granted under this Section 6.2 shall be 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option. (c) Exercise Period and Exercisability. Each option granted under Section 6.2(a)(1) or Section 6.2(a)(2) shall be fully exercisable on and after the one year anniversary of its date of grant and each option granted under Section 6.2(a)(3) shall be fully exercisable on and after the day preceding the day of the next annual meeting of stockholders of the Company following its date of grant. Each option granted under this Section 6.2 shall expire 10 years after its date of grant. An exercisable option, or portion thereof, may be exercised in whole or in part only with respect to whole shares of Common Stock. Options granted under this Section 6.2 shall be exercisable in accordance with Section 2.1(c). (d) Cessation of Automatic Grants. No further grants shall be made under this Section 6.2 commencing as of January 1, 2007. 6.3 AUTOMATIC GRANT OF STOCK OPTION -- TERMINATION OF DIRECTORSHIP. (a) Disability. If the recipient of an option granted under Section 6.2 ceases to be a director of the Company by reason of Disability, each such option held by the holder thereof shall be exercisable only to the extent such option is exercisable on the effective date of such recipient's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earlier to occur of the (i) date which is one year after the effective date of such recipient's ceasing to be a director and (ii) the expiration date of the term of such option. 13 (b) Retirement. If the recipient of an option granted under Section 6.2 ceases to be a director of the Company by reason of Retirement, each such option held by the holder thereof shall be exercisable only to the extent such option is exercisable on the effective date of such recipient's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earlier to occur of the (i) date which is three months after the effective date of such recipient's ceasing to be a director and (ii) the expiration date of the term of such option. (c) Death. If the recipient of an option granted under Section 6.2 ceases to be a director of the Company by reason of death, each such option held by the holder thereof shall be exercisable only to the extent such option is exercisable on the effective date of such recipient's ceasing to be a director and may thereafter be exercised by such holder's executor, administrator, legal representative, beneficiary or similar person until and including the earlier to occur of the (i) date which is one year after the date of such recipient's death and (ii) the expiration date of the term of such option. (d) Other Termination. If the recipient of an option granted under Section 6.2 ceases to be a director of the Company for any reason other than Disability, Retirement or death, each such option held by the holder thereof shall be exercisable only to the extent such option is exercisable on the effective date of such recipient's ceasing to be a director and may thereafter be exercised by such holder (or such holder's legal representative or similar person) until and including the earlier to occur of the (i) date which is three months after the effective date of such recipient's ceasing to be a director and (ii) the expiration date of the term of such option. (e) Death Following Termination of Directorship. If the recipient of an option granted under Section 6.2 dies during the period set forth in Section 6.3(a) following such recipient's ceasing to be a director of the Company by reason of Disability, or if such recipient dies during the period set forth in Section 6.3(b) following such recipient's Retirement, or if such a recipient dies during the period set forth in Section 6.3(d) following such recipient's ceasing to be a director for any reason other than by reason of Disability or Retirement, each such option held by the holder thereof shall be exercisable only to the extent that such option is exercisable on the date of the recipient's death and may thereafter be exercised by such holder's executor, administrator, legal representative, beneficiary or similar person until and including the earlier to occur of the (i) date which is one year after the date of such recipient's death and (ii) the expiration date of the term of such option. 6.4 AUTOMATIC GRANTS OF RESTRICTED STOCK AWARDS. Each Non-Employee Director shall be granted a Restricted Stock Award as follows: (a) Time of Grant. Each person who is serving as a Non-Employee Director immediately following any annual meeting of stockholders of the Company held on or after November 4, 2003 shall automatically be granted, on the date of such meeting, a Restricted Stock Award for 8,000 shares of Common Stock, unless the Compensation Committee determines that such Restricted Stock Award shall be in Common Stock equivalent units with dividend equivalents. (b) Vesting. The Restricted Stock Award shall be fully vested upon grant. 14 (c) Restriction Period. The Restriction Period for the Restricted Stock Award shall be the period of time during which the Non-Employee Director provides services as a member of the Board. The Restriction Period shall terminate on the date that the Non-Employee Director ceases to serve as a member of the Board. (d) Cessation of Automatic Grants. No further grants shall be made under this Section 6.4 commencing as of January 1, 2007. 6.5 DISCRETIONARY GRANTS OF STOCK OPTIONS. The Committee may, in its discretion, grant options to purchase shares of Common Stock ("Discretionary Director Options") to all Non-Employee Directors or to any one or more of them. Each Discretionary Director Option shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable: (a) Number of Shares and Purchase Price. The number of shares of Common Stock subject to a Discretionary Director Option and the purchase price per share of Common Stock purchasable upon exercise of the option shall be determined by the Committee; provided, however, that the purchase price per share of Common Stock purchasable upon exercise of the option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of such option. (b) Exercise Period and Exercisability. The period during which a Discretionary Director Option may be exercised shall be determined by the Committee. The Committee may, in its discretion, establish Performance Measures which shall be satisfied or met as a condition to the grant of a Discretionary Director Option or to the exercisability of all or a portion of a Discretionary Director Option. The Committee shall determine whether a Discretionary Director Option shall become exercisable in cumulative or non-cumulative installments and in part or in full at any time. An exercisable Director Discretionary Option, or portion thereof, may be exercised only with respect to whole shares of Common Stock. Each Discretionary Director Option shall be exercisable in accordance with Section 2.1(c). (c) Termination of Directorship. All of the terms relating to the exercise, cancellation or other disposition of a Discretionary Director Option upon a termination of service as a director of the Company of the recipient of a Discretionary Director Option, whether by reason of Disability, Retirement, death or any other reason, shall be determined by the Committee. 6.6 DISCRETIONARY GRANTS OF RESTRICTED STOCK AWARDS. The Committee may, in its discretion, grant Restricted Stock Awards ("Discretionary Director Restricted Stock Awards") to all Non-Employee Directors or to any one or more of them. Each Discretionary Director Restricted Stock Award shall contain such terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable. VII. GENERAL 7.1 EFFECTIVE DATE AND TERM OF PLAN. This amended and restated Plan shall be submitted to the stockholders of the Company for approval within 12 months of November 15, 2006, the date of its adoption by the Board, and, if approved, shall become effective as of the date of such adoption by the Board. No option granted under the amended and restated Plan may be exercised prior to the date of such stockholder approval. If stockholder approval is not obtained, this Plan shall continue in the form prior to this amendment and restatement. This Plan shall terminate 10 years after its effective date or if the amended and restated Plan is approved by stockholders, 10 years 15 after November 15, 2006, unless terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any award granted prior to such termination. 7.2 AMENDMENTS. (a) The Board or the Committee may amend this Plan as it shall deem advisable, subject to any requirement of stockholder approval required by applicable law, rule or regulation, including Section 422 of the Code; provided, however, that no amendment shall be made without stockholder approval if such amendment would (i) increase the maximum number of shares of Common Stock available under this Plan (subject to Section 7.7), (ii) effect any change inconsistent with Section 422 of the Code or (iii) extend the term of this Plan. Except as provided in Section 7.2(b), no amendment may impair the rights of a holder of an outstanding award without the consent of such holder. (b) 409A Compliance: It is the intent of the Company in establishing this Plan that the terms and provisions of the Plan and any Agreement comply with Section 409A of the Code. The Board or the Committee may amend any provision of this Plan and/or any outstanding Award at any time in order that this Plan and Awards made hereunder be compliant with Section 409A of the Code. Any such amendment may be retroactively effective including impairing an outstanding Award or otherwise adversely affecting an outstanding award to the extent determined necessary in the judgment of the Committee or the Board in order to comply with Section 409A of the Code. The Board and Committee shall have the sole discretion and power to effect such amendments, and a determination by the Board or the Committee of the necessity for and scope of any such amendment shall be final, binding and conclusive upon all persons holding awards or to be granted awards under this Plan for all purposes. 7.3 AGREEMENT. No Award shall be valid until an Agreement is executed by the Company and the recipient of such Award and, upon execution by each party and delivery of the Agreement to the Company, such award shall be effective as of the effective date set forth in the Agreement. 7.4 NON-TRANSFERABILITY OF AWARDS. Unless the Committee provides for the transferability of a particular award and such transferability is specified in the Agreement relating to such award, including by an amendment to an Agreement, no Award shall be transferable other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures stated in Section 7.11 or otherwise approved by the Company. Except to the extent permitted by the foregoing sentence or the Agreement relating to the Award, (a) each Award may be exercised or settled during the recipient's lifetime only by the recipient or the recipient's legal representative or similar person, and (b) no Award may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any such Award, such Award and all rights thereunder shall immediately become null and void. In no circumstances may an Award be transferred for value or consideration. 7.5 TAX WITHHOLDING. The Company shall have the right to require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash pursuant to an Award made hereunder, payment by the holder of such Award of any federal, state, local or other taxes which may be required to be withheld or paid in connection with such Award. An Agreement may provide that (i) the Company shall withhold whole shares of Common Stock which would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the 16 date the obligation to withhold or pay taxes arises in connection with an award (the "Tax Date"), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (A) a cash payment to the Company, (B) delivery (either actual delivery or by attestation procedures established by the Company) to the Company of shares of Common Stock having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation, (C) authorizing the Company to withhold whole shares of Common Stock which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to a holder, equal to the amount necessary to satisfy any such obligation, (D) in the case of the exercise of an option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (E) any combination of (A), (B) and (C), in each case to the extent set forth in the Agreement relating to the award; provided, however, that the Company shall have sole discretion to disapprove of an election pursuant to any of clauses (ii)(B)-(E). Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder. 7.6 RESTRICTIONS ON SHARES. Each Award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the shares of Common Stock subject to such Award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the exercise or settlement of such award or the delivery of shares thereunder, such Award shall not be exercised or settled and such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Committee may provide for such restrictions upon the transferability of shares of Common Stock delivered pursuant to any Award made hereunder as it deems appropriate and such restrictions shall be specified in the Agreement relating to such award. The Company may require that certificates evidencing shares of Common Stock delivered pursuant to any Award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder and such other restrictions, if any, specified in the Agreement relating to the Award pursuant to which such shares were delivered. 7.7 ADJUSTMENT. (a) The existence of outstanding Awards shall not affect in any manner the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the capital stock of the Company or its business or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock (whether or not such issue is prior to, on a parity with or junior to the existing Common Stock) or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding of any kind, whether or not of a character similar to that of the acts or proceedings enumerated above. (b) In the event of any subdivision or consolidation of outstanding shares of Common Stock, declaration of a dividend payable in shares of Common Stock or other stock split, then (i) the number of shares of Common Stock reserved under this Plan and the number of 17 shares of Common Stock available for issuance pursuant to specific types of Awards as described in Section 1.5, (ii) the number of shares of Common Stock covered by outstanding Awards, (iii) the exercise price or other price in respect of such Awards, (iv) the appropriate Fair Market Value and other price determinations for such Awards, and (v) the Stock Based Awards Limitations shall each be proportionately adjusted by the Board as appropriate to reflect such transaction. In the event of any other recapitalization or capital reorganization of the Company, any consolidation or merger of the Company with another corporation or entity, the adoption by the Company of any plan of exchange affecting Common Stock or any distribution to holders of Common Stock of securities or property (including cash dividends that the Board determines are not in the ordinary course of business but excluding normal cash dividends or dividends payable in Common Stock), the Board shall make appropriate adjustments to (i) the number of shares of Common Stock reserved under this Plan and the number of shares of Common Stock available for issuance pursuant to specific types of Awards as described in Section 1.5, (ii) the number of shares of Common Stock covered by Awards, (iii) the exercise price or other price in respect of such Awards, (iv) the appropriate Fair Market Value and other price determinations for such Awards, and (v) the Stock Based Awards Limitations to reflect such transaction; provided that such adjustments shall only be such as are necessary to maintain the proportionate interest of the holders of the Awards and preserve, without increasing, the value of such Awards. In the event of a corporate merger, consolidation, acquisition of assets or stock, separation, reorganization or liquidation, the Board shall be authorized (x) to assume under this Plan previously issued compensatory awards, or to substitute new Awards for previously issued compensatory awards, including Awards, as part of such adjustment; (y) to cancel Awards that are Options or SARs and give the Participants who are the holders of such Awards notice and opportunity to exercise for 15 days prior to such cancellation; or (z) to cancel any such Awards and to deliver to the Participants cash in an amount that the Board shall determine in its sole discretion is equal to the fair market value of such Awards on the date of such event, which in the case of Options or SARs shall be the excess of the Fair Market Value of Common Stock on such date over the exercise or strike price of such Award. 7.8 CHANGE IN CONTROL. Except as may be otherwise provided in any Agreement evidencing an Award entered into after January 1, 2007, Awards shall be subject to the following provisions: (a) (i) Notwithstanding any provision in this Plan or any Agreement, in the event of a Change in Control in connection with which the holders of Common Stock receive shares of common stock that are registered under Section 12 of the Exchange Act, (A) all outstanding options and SARS shall immediately become exercisable in full, (B) the Restriction Period applicable to any outstanding Restricted Stock Award shall lapse, (C) the Performance Period applicable to any outstanding Performance Share Award or Performance Cash Award shall lapse, (D) the Performance Measures applicable to any outstanding award shall be deemed to be satisfied at the maximum level and (E) there shall be substituted for each share of Common Stock available under this Plan, whether or not then subject to an outstanding award, the number and class of shares into which each outstanding share of Common Stock shall be converted pursuant to such Change in Control. In the event of any such substitution, the purchase price per share in the case of an option and the base price in the case of an SAR shall be appropriately adjusted by the Committee (whose determination shall be final, binding and conclusive), such adjustments to be made 18 in the case of outstanding options and SARs without an increase in the aggregate purchase price or base price. (ii) Notwithstanding any provision in this Plan or any Agreement, in the event of any Change in Control other than a Change in Control in connection with which the holders of Common Stock receive shares of common stock that are registered under Section 12 of the Exchange Act, each outstanding award shall be surrendered to the Company by the holder thereof, and each such award shall immediately be cancelled by the Company, and the holder shall receive, within ten days of the occurrence of a Change in Control, a cash payment from the Company in an amount equal to (I) in the case of an option, the number of shares of Common Stock then subject to such option, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the purchase price per share of Common Stock subject to the option, (II) in the case of a Free-Standing SAR, the number of shares of Common Stock then subject to such SAR, multiplied by the excess, if any, of the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control, over the base price of the SAR, (III) in the case of a Restricted Stock Award or Performance Share Award, the number of shares of Common Stock or the number of Performance Shares, as the case may be, then subject to such award, multiplied by the greater of (A) the highest per share price offered to stockholders of the Company in any transaction whereby the Change in Control takes place or (B) the Fair Market Value of a share of Common Stock on the date of occurrence of the Change in Control and (IV) in the case of a Performance Cash Award, the maximum amount payable under the award determined as if Performance Measures applicable to the award were satisfied at the maximum level. In the event of such a Change in Control, each Tandem SAR shall be surrendered by the holder thereof and shall be cancelled simultaneously with the cancellation of the related option. The Company may, but is not required to, cooperate with any person who is subject to Section 16 of the Exchange Act to assure that any cash payment in accordance with the foregoing to such person is made in compliance with Section 16 and the rules and regulations thereunder. (b) Change in Control. For the purpose of this Plan, a "Change in Control" shall mean: (i) a sale or transfer of all or substantially all of the assets of the Company on a consolidated basis in any transaction or series of related transactions; (ii) any merger, consolidation or reorganization to which the Company is a party, except for a merger, consolidation or reorganization in which the Company is the surviving corporation and, after giving effect to such merger, consolidation or reorganization, the holders of the Company's outstanding equity (on a fully diluted basis) immediately prior to the merger, consolidation or reorganization will own in the aggregate immediately following the merger, consolidation or reorganization the Company's outstanding equity (on a fully diluted basis) either (i) having the ordinary voting power to elect a majority of the members of the Company's board of directors to be elected by the holders of Common Stock and any other class which 19 votes together with the Common Stock as a single class or (ii) representing at least 50% of the equity value of the Company as reasonably determined by the Board; (iii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the holders of the Company's equity, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened solicitation by any individual, entity or group (a "Person") other than the Board, including any "person" within the meaning of Section 13(d) of the Exchange Act, for the purpose of opposing a solicitation by any other Person with respect to the election or removal of directors, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; or (iv) any Person or its affiliates, acquires beneficial ownership of 30% or more of the outstanding equity of the Company generally entitled to vote on the election of directors. 7.9 NO RIGHT OF PARTICIPATION OR EMPLOYMENT. No person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment by the Company or any Affiliate of the Company or affect in any manner the right of the Company or any Affiliate of the Company to terminate the employment of any person at any time without liability hereunder. 7.10 RIGHTS AS STOCKHOLDER. No person shall have any right as a stockholder of the Company with respect to any shares of Common Stock or other equity security of the Company which is subject to an award hereunder unless and until such person becomes a stockholder of record with respect to such shares of Common Stock or equity security. 7.11 DESIGNATION OF BENEFICIARY. If permitted by the Company, a holder of an award may file with the Committee a written designation of one or more persons as such holder's beneficiary or beneficiaries (both primary and contingent) in the event of the holder's death. To the extent an outstanding option or SAR granted hereunder is exercisable, such beneficiary or beneficiaries shall be entitled to exercise such option or SAR. Each beneficiary designation shall become effective only when filed in writing with the Committee during the holder's lifetime on a form prescribed by the Committee. The spouse of a married holder domiciled in a community property jurisdiction shall join in any designation of a beneficiary other than such spouse. The filing with the Committee of a new beneficiary designation shall cancel all previously filed beneficiary designations. If a holder fails to designate a beneficiary, or if all designated beneficiaries of a holder predecease the holder, then each outstanding option and SAR hereunder held by such holder, to the extent exercisable, may be exercised by such holder's executor, administrator, legal representative or similar person. 7.12 GOVERNING LAW. This Plan, each award hereunder and the related Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by 20 the Code or the laws of the United States, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws. 7.13 GRANTING AWARDS TO FOREIGN PERSONS. Without the amendment of this Plan, the Committee may grant awards to persons designated by the Committee from time to time, who otherwise are eligible persons under Section 1.4 and who are subject to the laws of foreign countries or jurisdictions. The Committee may grant awards to such persons on such terms and conditions different from those specified in this Plan as may in the judgment of the Committee be necessary or desirable to foster and promote achievement of the purposes of this Plan and, in furtherance of such purposes, the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of the laws of other countries or jurisdictions in which the Company or its Affiliates operate or have employees or other persons who are eligible persons under Section 1.4. 7.14 ADDITIONAL PROVISIONS APPLICABLE TO OPTIONS GRANTED PRIOR TO IPO. In order to comply with certain requirements of the California Corporate Securities Law of 1968, as amended, this Section shall apply to options granted under this Plan prior to an IPO (a "Pre-IPO Option"). The terms set forth in the Agreements pursuant to which Pre-IPO Options are granted on January 31, 2000 (the "January 31, 2000 Options") relating to (i) the period during which an option may be exercised, (ii) the exercise, cancellation or other disposition of an option upon a termination of employment with the Company of the recipient of such option, whether by reason of Disability, Retirement, death or any other reason, (iii) restrictions on the transferability of an option and (iv) the providing of annual financial statements to the holder of an option are hereby incorporated into this Plan by reference as if set forth herein verbatim and shall apply in all respects only to all Pre-IPO Options granted to eligible persons; provided, however, that Pre-IPO Options may be granted under this Plan having exercise periods different from those of the January 31, 2000 Options so long as each such Pre-IPO Option becomes exercisable at a rate of at least 20% per year during the five-year period commencing on the date of grant of such Pre-IPO Option. 21 EX-10.25 6 c15652exv10w25.htm EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED AND RESTATED exv10w25
 

Exhibit 10.25
BEARINGPOINT, INC.
EMPLOYEE STOCK PURCHASE PLAN
(Amended and Restated Effective February 1, 2007)
     1. Purpose. The purpose of the BearingPoint, Inc. Employee Stock Purchase Plan (the “Plan”) is to provide employees of BearingPoint, Inc., a Delaware corporation (the “Company”), and its Affiliates (as defined below) added incentive to remain employed by such companies and to encourage increased efforts to promote the best interests of such companies by permitting eligible employees to purchase shares of common stock, par value $0.01 per share, of the Company (“Common Stock”) at below-market prices. The Company intends to use reasonable efforts to have the Plan qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”). However, the Company does not undertake or represent that the Plan complies or will continue to comply with Section 423 of the Code. In addition, this Plan authorizes the grant of options and issuances of Common Stock which do not qualify under Section 423 of the Code pursuant to sub-plans adopted by the Committee (as defined in Section 12) designed to achieve desired tax or other objectives in particular locations or with respect to particular entities. For purposes of the Plan, the term “Affiliate” shall mean (i) any subsidiary corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, as described in Section 424(f) of the Code (a “Subsidiary”); and (ii) any other entity in which the Company has an equity interest or with which the Company has a significant business relationship. Furthermore, “Designated Affiliate” shall mean any Affiliate which has been designated by the Committee as eligible to participate in the Plan with respect to its employees.
     2. Eligibility.
          (a) Eligible Employee.
          (i) Grandfathered Offering Period. Participation in the Grandfathered Offering Period (as defined in Section 4(a)(i)) shall be limited to each Eligible Employee (as defined in Section 2(a)(ii)) who is actively participating in such Offering Period as of the Effective Date (as defined in Section 3). No right to purchase Common Stock under the Grandfathered Offering Period shall accrue in favor of any person who is not participating in the Grandfathered Offering Period as of the Effective Date.
          (ii) Regular Offering Periods. For any Regular Offering Period (as defined in Section 4(a)(ii)) commencing on or after the Effective Date, participation in a Regular Offering Period shall be open to each employee of the Company or any Designated Affiliate whose customary employment is for at least 20 hours per week as of the first day of such Offering Period (hereinafter, an “Eligible Employee”). No right to purchase Common Stock under a Regular Offering Period shall accrue in favor of any person who is not an Eligible Employee as of the first day of the applicable Regular Offering Period. For purposes of the Plan, the term “employee” shall mean any person employed by the Company or any Designated Affiliate, but shall not include any individual who performs services for the Company or any Designated Affiliate pursuant to an agreement (written or oral) that classifies such individual’s relationship with the

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Company or any Designated Affiliate as other than a common law employee of the Company or any Designated Affiliate, regardless of whether such individual is at any time determined to be a common law employee of the Company or any Designated Affiliate.
          (iii) Special Offering Period. Each employee who is an Eligible Employee on the first day of a Special Offering Period (as defined in Section 4(a)(iii)) shall be eligible to participate in and shall automatically be enrolled in such Offering Period; provided, however, any Eligible Employee who is classified by the Company as a Managing Director, including Executive Officers, as of the first day of a Special Offering Period shall not be eligible to participate in such Offering Period. The Committee, in its discretion, may modify the rules of eligibility for a Special Offering Period, notwithstanding the immediately preceding sentence, prior to the first day of the Special Offering Period. No right to purchase Common Stock under the Special Offering Period shall accrue in favor of any person who is not an Eligible Employee as of the first day of the Special Offering Period.
          (b) Rights and Privileges. All Eligible Employees who participate in an Offering Period (a “Participant”) shall have the same rights and privileges under such Offering Period except for differences which may be mandated by local law and which are consistent with Section 423(b)(5) of the Code; provided, however, that a Participant in a sub-plan adopted pursuant to Section 16 hereof which is not designed to qualify under Section 423 of the Code need not have the same rights and privileges as a Participant in the portion of the Plan that is qualified under Section 423 of the Code. The Committee may impose restrictions on eligibility and participation of Eligible Employees who are officers and directors to facilitate compliance with federal or state securities laws or foreign laws and may impose other restrictions on eligibility and participation of employees consistent with Section 423 of the Code or local law.
     3. Effective Date of Plan. The Plan originally became effective as of February 8, 2001. The Plan, as amended and restated herein, shall become effective as of February 1, 2007 (the “Effective Date”).
     4. Offering Periods and Purchase Periods.
     (a) Offering Periods. While the Plan is in effect, the Committee, in its sole discretion, may commence any of the following offering periods (each an “Offering Period”):
          (i) Grandfathered Offering Period. There shall be an Offering Period that commenced February 1, 2005, and ends, if not sooner terminated, seven calendar days after a Form S-8 Registration Statement for the Plan becomes effective (the “Grandfathered Offering Period”).
          (ii) Regular Offering Periods. Unless the Committee determines otherwise, during each calendar year the Plan shall commence two Offering Periods of such duration as the Committee determines (each, a “Regular Offering Period”).

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          (iii) Special Offering Periods. The Committee may commence additional Offering Periods at such times and for such durations as the Committee shall determine (each, a “Special Offering Period”).
          (b) Purchase Periods. While the Plan is in effect, the Committee, in its sole discretion, may commence any of the following purchase periods (each a “Purchase Period”) for each applicable Offering Period as follows:
          (i) Grandfathered Purchase Period. Unless the Committee determines otherwise, there shall be a single Purchase Period that is concurrent with the Grandfathered Offering Period (the “Grandfathered Purchase Period”), i.e., commencing on February 1, 2005, and ending, if not sooner terminated, seven calendar days after a Form S-8 Registration Statement for the Plan becomes effective.
          (ii) Regular Purchase Period. Unless the Committee determines otherwise, the Purchase Period for a Regular Offering Period shall be concurrent with such Offering Period (the “Regular Purchase Period”).
          (iii) Special Purchase Period. Unless the Committee determines otherwise, the Purchase Period for a Special Offering Period shall be concurrent with such Offering Period (the “Special Purchase Period”).
          (c) Participation.
          (i) Options. Each Participant shall be granted a separate right to purchase Common Stock (an “Option”) for each applicable Offering Period in which such Participant participates. The Option shall be granted on the first day of the applicable Offering Period and shall be exercised automatically on the last day of each applicable Purchase Period (the “Exercise Date”) within such Offering Period.
          (ii) Maximum Number of Shares. The Option represents the right to purchase on the Exercise Date of the applicable Purchase Period, at the Purchase Price hereinafter provided for, shares of Common Stock up to such maximum number of shares as specified by the Committee on or before the first day of the applicable Offering Period. With respect to a Participant participating in the Grandfathered Offering Period, such Participant may purchase as many shares of Common Stock for each Grandfathered Purchase Period within the Grandfathered Offering Period as permissible under Section 4(c)(iv).
          (iii) Limitations on 5% Owners. Notwithstanding any provision in this Plan to the contrary, no Eligible Employee shall be granted an Option under this Plan if such employee, immediately after the Option would otherwise be granted, would own 5% or more of the total combined voting power or value of all classes of stock of the Company or any Subsidiary (including any stock attributable to such employee under Section 424(d) of the Code).

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          (iv) $25,000 Limit. Notwithstanding any provision in this Plan to the contrary, no Eligible Employee may be granted an Option which permits such Eligible Employee’s rights to purchase Common Stock under this Plan and all other employee stock purchase plans, which qualify under Section 423 of the Code, of the Company and its Affiliates to accrue at a rate which exceeds $25,000 of the fair market value of such Common Stock (determined at the time such Option is granted) for each calendar year in which the Option is outstanding at any time, as required by Section 423 of the Code. The determination of the accrual of the right to purchase Common Stock shall be made in accordance with Section 423(b)(8) of the Code and the regulations thereunder.
          (v) Restrictions on Participating in Multiple Offering Periods. Unless otherwise determined by the Committee, an Eligible Employee may simultaneously participate in a Regular Offering Period and a Special Offering Period, or in the Grandfathered Offering Period and a Special Offering Period. An Eligible Employee, however, may not participate in a Regular Offering Period while participating in the Grandfathered Offering Period.
          (d) Applicable Offering Period. Once an Eligible Employee is enrolled in the Plan for an Offering Period, such Offering Period shall continue to apply to such employee until the earliest of (A) the end of such Offering Period or (B) the end of such employee’s participation under Section 8.
          (e) Black-Out Periods. If the Company is subject to a black-out period (as a result of the Company’s insider trading policies, Regulation BTR promulgated under the Securities Exchange Act of 1934 or any other applicable law), then the Committee may make appropriate adjustments, as determined in its discretion, to any of the Offering Periods and Purchase Periods that are affected by the black-out period.
     5. Basis of Participation.
          (a) Regular Offering Period.
          (i) Enrollment. Subject to compliance with applicable rules prescribed by the Committee and Section 4(c), each Eligible Employee shall be entitled to enroll in a Regular Offering Period as of the first day of any Regular Offering Period which begins on or after such employee has become an Eligible Employee.
          (ii) Payroll Deductions. To enroll in a Regular Offering Period, an Eligible Employee shall make a request to the Company or its designated agent, at the time and in the manner prescribed by the Committee, specifying the amount of payroll deduction to be applied to the compensation paid to the employee by the Company or Designated Affiliate while the employee is a Participant. The amount of each payroll deduction specified in such request for each such payroll period shall be a whole percentage of such Participant’s compensation, unless otherwise determined by the Committee to be a whole dollar amount, in either case not to exceed 15%, or such lesser percentage as may be determined by the Committee, of the employee’s compensation

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          (before withholding or other deductions) paid to the Participant during the Regular Offering Period by the Company or any of the Designated Affiliates. Subject to compliance with applicable rules prescribed by the Committee, the request shall become effective on the first day of the Regular Offering Period following the day the Company or its designated agent receives such request. Payroll deductions (and any other amount paid under Section 5(e)) shall be made for each Participant in accordance with such Participant’s request until such Participant’s participation in the Plan terminates, such Participant makes a new request that changes the amount of payroll deductions, the Participant elects to suspend his or her participation in the Plan or the Plan terminates, all as hereinafter provided.
          (iii) Modifications, Suspensions or Termination by Participant. A Participant may change the amount of his or her payroll deduction at any time during the Regular Offering Period by so directing the Company or its designated agent at the time and in the manner specified by the Committee. The Committee may establish and amend rules limiting the frequency with which Participants may discontinue, suspend, resume or modify payroll deductions during any Regular Offering Period and may impose a waiting period. A Participant may elect to terminate his or her participation in a Regular Offering Period as provided in Section 8. The Committee also may change the rules regarding termination of participation or changes in participation in the Plan.
          (iv) Regular Purchase Account. Payroll deductions (and any other amount paid under Section 5(e)) for each Participant shall be credited to a purchase account established and maintained on behalf of the Participant on the books of the Participant’s employer or such employer’s designated agent (a “Purchase Account”). The following sub-accounts have been established for crediting payroll deductions and other contributions to the Plan: a Regular Purchase Account, a Grandfathered Purchase Account, and a Special Purchase Account. Subject to the limitations set forth in Section 4(c), on each Exercise Date in a Regular Offering Period, the amount in each Participant’s Regular Purchase Account will be applied to the purchase of the number of shares of Common Stock determined by dividing such amount by the Regular Purchase Price (as defined in Section 6(b)) for the Regular Purchase Period ending on such Exercise Date. No interest shall accrue at any time for any amount credited to the Regular Purchase Account of a Participant except where otherwise required by local law as determined by the Committee. Unless otherwise specified by the Committee, payroll deductions (and any other amount paid under Section 5(e)) made with respect to employees paid in currencies other than U.S. dollars shall be accumulated in local (non-U.S.) currency and converted to U.S. dollars as of the Exercise Date.
          (b) Grandfathered Offering Period.
          (i) Payroll Deductions. Payroll deductions (and any other amount paid under Section 5(e)) shall be made for each Eligible Employee participating in the Grandfathered Offering Period in accordance with such employee’s request until such employee’s participation in the Plan terminates, the Grandfathered Offering Period ends,

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the Participant elects to terminate his or her participation in the Grandfathered Offering Period, or the Plan terminates as provided in Section 8.
          (ii) Modifications, Suspensions or Termination by Participant. A Participant in the Grandfathered Offering Period may change the amount of his or her payroll deduction at any time during the Grandfathered Offering Period by so directing the Company or its designated agent at the time and in the manner specified by the Committee. The Committee may establish and amend rules limiting the frequency with which Participants may discontinue, suspend, resume or modify payroll deductions during the Grandfathered Offering Period and may impose a waiting period. A Participant may elect to terminate his or her participation in the Grandfathered Offering Period as provided in Section 8. The Committee also may change the rules regarding termination of participation or changes in participation in the Plan.
          (iii) Grandfathered Purchase Account. Payroll deductions (and any other amount paid under Section 5(e)) for each Participant in the Grandfathered Offering Period shall be credited to the Participant’s Grandfathered Purchase Account. On the Exercise Date for the Grandfathered Offering Period, the amount in a Participant’s Grandfathered Purchase Account shall be applied to the purchase of the number of shares of Common Stock determined by dividing such amount by the Grandfathered Purchase Price (as defined in Section 6(a)) as of such Exercise Date. No interest shall accrue at any time for any amount credited to a Grandfathered Purchase Account of a Participant except where otherwise required by local law as determined by the Committee. Unless otherwise specified by the Committee, payroll deductions (and any other amount paid under Section 5(e)) made with respect to employees paid in currencies other than U.S. dollars shall be accumulated in local (non-U.S.) currency and converted to U.S. dollars as of the Exercise Date.
          (c) Special Offering Period.
          (i) Contributions. On each Exercise Date within a Special Offering Period, the Company shall credit to the Special Purchase Account of each Participant in the Special Offering Period, who is employed on such date by the Company or a Designated Affiliate, a fixed dollar amount or an amount equal to a percentage of such Participant’s annualized base salary as in effect on the first day of the Special Offering Period, as determined by the Committee, in its discretion; provided, however, such credit shall be limited to the extent such credit would cause a Participant to purchase more than the maximum number of shares of Common Stock that a Participant may purchase for such Offering Period, as specified by the Committee prior to the first day of the Special Offering Period. Unless otherwise specified by the Committee, the amounts credited with respect to employees paid in currencies other than U.S. dollars shall be converted to U.S. dollars as of the Exercise Date.
          (ii) Opt-Out. Immediately prior to the Exercise Date for the first Special Purchase Period within a Special Offering Period, the Committee shall give each Participant in the Special Offering Period the right to opt-out of the Special Offering Period. In the event that a Participant in the Special Offering Period elects to opt-out of

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the Special Offering Period, no credit will be applied to the Participant’s Special Purchase Account. Any amount that would have been credited to the Participant’s Special Purchase Account shall be forfeited and shall not be paid to such Participant in cash or otherwise. Additionally, a Participant who elects to opt-out of the Special Offering Period shall not receive a credit to such Participant’s Special Purchase Account during a subsequent Special Purchase Period within the same Special Offering Period.
          (iii) Special Purchase Account. Solely for U.S. tax purposes, any amount credited to a Participant’s Special Purchase Account shall be deemed to have been made by each Participant and shall be treated as wages paid to the Participant. On each Exercise Date within a Special Offering Period, the amount credited to each Participant’s Special Purchase Account will be applied to the purchase of the number of shares of Common Stock determined by dividing such amount by the Special Purchase Price (as defined in Section 6(c)) for the Special Purchase Period ending on such Exercise Date.
     (d) Restrictions on Common Stock. Prior to the first day of the relevant Offering Period, the Committee may, in its discretion, establish transfer restrictions on the shares of Common Stock to be acquired by a Participant during such Offering Period.
     (e) Other Methods of Participation. The Committee may, in its discretion, establish additional procedures whereby Eligible Employees may participate in the Plan by means other than payroll deduction, including, but not limited to, delivery of funds by Participants in a lump sum or automatic charges to Participants’ bank accounts. Such other methods of participating shall be subject to such rules and conditions as the Committee may establish. The Committee may at any time amend, suspend or terminate any participation procedures established pursuant to this paragraph without prior notice to any Participant or Eligible Employee.
     6. Purchase Price. The purchase price per share of Common Stock hereunder shall be determined as follows:
     (a) Grandfathered Purchase Price. The purchase price per share of Common Stock for the Grandfathered Purchase Period shall be 85% of the Fair Market Value of a share of Common Stock on the Exercise Date for the Grandfathered Purchase Period (the “Grandfathered Purchase Price”). If such sum results in a fraction of one hundredth of one cent, the Grandfathered Purchase Price shall be increased to the next higher hundredth of one cent.
     (b) Regular Purchase Price. Unless otherwise determined by the Committee prior to the commencement of a Regular Offering Period, the purchase price per share of Common Stock for a Regular Purchase Period shall be 85% of the Fair Market Value of a share of Common Stock on the Exercise Date for such Regular Purchase Period (the “Regular Purchase Price”). If such sum results in a fraction of one hundredth of one cent, the Regular Purchase Price shall be increased to the next higher hundredth of one cent.
     (c) Special Purchase Price. Unless otherwise determined by the Committee prior to the first day of a Special Offering Period, the purchase price per share of Common Stock for a Special Purchase Period shall be 85% of the Fair Market Value of a share of Common Stock on

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the Exercise Date for such Special Purchase Period (the “Special Purchase Price”). If such sum results in a fraction of one hundredth of one cent, the Special Purchase Price shall be increased to the next higher hundredth of one cent.
     (d) Fair Market Value. For purposes of the Plan, “Fair Market Value” of a share of Common Stock on a given day shall be the last sale price of a share of Common Stock as reported on the New York Stock Exchange or on such other national securities exchange or market on which the Common Stock may be principally listed or quoted on the date as of which such value is being determined, or if there shall be no reported transactions for such date, on the next preceding date for which transactions are reported. If the Common Stock is not listed on a national securities exchange or market on the relevant date, Fair Market Value of a share of Common Stock shall be determined by the Committee in good faith. In no event, however, shall the Purchase Price be less than the par value of a share of Common Stock.
     7. Purchase Accounts and Certificates.
          (a) Delivery of Shares.
          (i) The Common Stock purchased on an Exercise Date by each Participant shall be posted to such Participant’s Purchase Account as soon as practicable after, and credited to such Participant’s Purchase Account as of, such Exercise Date. The Committee may permit or require that shares be deposited directly with a broker designated by the Committee (or a broker selected by the Committee) or to a designated agent of the Company, and the Committee may utilize electronic or automated methods of share transfer. The Committee may require that shares be retained with such broker or agent for a designated period of time (and may restrict dispositions during that period) and/or may establish other procedures to permit tracking of disqualifying dispositions of such shares or to restrict transfer of such             shares. The Committee may require that shares purchased under the Plan shall automatically participate in a dividend reinvestment plan or program maintained by the Company. The Company shall retain the amount of payroll deductions (and any other amount paid under Section 5(e)) used to purchase Common Stock as full payment for the Common Stock. All             shares of Common Stock issued under the Plan shall be fully paid and non-assessable .
          (ii) Except as provided in Section 8 and Section 9, a Participant will be issued whole shares of Common Stock credited to such Participant’s Purchase Account when the Participant’s participation in the Plan is terminated, the Plan is terminated, or upon request, but, in the last case, only in denominations of at least 25 shares.
          (b) Purchase Account Information. After the close of each applicable Purchase Period, information will be made available to each Participant as soon as practicable regarding the entries made to such Participant’s Purchase Account, the number of shares of Common Stock purchased and the applicable Purchase Price.
          (c) Refunds. In the event that a Participant purchases the maximum number of shares of Common Stock, as determined in accordance with Section 4(c), and cash remains

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           credited to the Participant’s Grandfathered Purchase Account or the Participant’s Regular Purchase Account, such cash shall be delivered as soon as practicable to such Participant.
     8. Suspension or Termination of Participation.
          (a) Suspension or Termination of Participation.
          (i) Election. A Participant may elect at any time, in the manner prescribed by the Committee, to suspend or terminate his or her participation in the Grandfathered Offering Period or any Regular Offering Period, provided such election is received by the Company or its designated agent prior to the date specified by the Committee for suspension or termination of participation during the Offering Period for which such suspension or termination is to be effective.
          (ii) Payroll Deductions and Refund. Upon any suspension or termination of participation pursuant to Section 8(a)(i), the Participant’s payroll deductions shall cease. Upon termination of participation pursuant to Section 8(a)(i), the Participant’s payroll deductions (and any other amount paid under Section 5(e)) credited to such Participant’s Grandfathered Purchase Account or Regular Purchase Account, if any, on the date of such termination shall be delivered as soon as practicable to such Participant. Following a suspension, a Participant may elect to resume payroll deductions in the applicable Grandfathered Offering Period or Regular Offering Period by providing notice, in the manner prescribed by the Committee.
          (iii) Reenrollment after Termination of Participation. A Participant who elects to terminate participation in the Grandfathered Offering Period or the Regular Offering Period shall be permitted to resume participation only in the next Regular Offering Period by making a new request at the time and in the manner described in Section 5 hereof
     (iv) Issuance of Share Certificates. If a Participant has not participated in any Offering Period for a period of two years, the Company, or its designated agent, may issue certificates for the number of full shares of Common Stock and the cash equivalent for any fractional share of Common Stock held in the Participant’s Purchase Account to such Participant or his or her legal representative. The cash equivalent for any fractional share of Common Stock shall be determined by multiplying the fractional share by the Fair Market Value of a share of Common Stock on the day immediately preceding the date of share issuance.
          (b) Other Termination of Participation.
          (i) Other Termination Events. If the Participant dies, voluntarily or involuntarily terminates employment with the Company or a Designated Affiliate for any reason, the Participant’s employer ceases to be a Designated Affiliate, or the Participant otherwise ceases to be an Eligible Employee, such Participant’s participation in the Plan shall immediately terminate. Unless otherwise required by local law, a Participant’s employment will be considered to have ceased for purposes of this Plan when he or she is

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no longer actively employed and will not be extended by any notice period mandated under local labor law. Notwithstanding the foregoing sentence, the Committee shall have the sole discretion to determine when a Participant’s employment has ceased for purposes of this Plan. The Committee also may establish rules regarding when leaves of absence or change of employment status will be considered to be a termination of employment, and the Committee may establish termination of employment procedures for this Plan which are independent of similar rules established under other benefit plans of the Company and its Affiliates.
          (ii) Refund after Other Termination Event. Upon such terminating event set forth in Section 8(b)(i), any payroll deductions (and any other amount paid under Section 5(e)) credited to such Participant’s Grandfathered Purchase Account or Regular Purchase Account on the date of such termination shall be delivered as soon as practicable to such Participant or his or her legal representative, as the case may be without interest (except where required by local law) and certificates for the number of full shares of Common Stock and the cash equivalent for any fractional share held for such Participant’s benefit shall be issued to such Participant or his or her legal representative less any transaction costs or fees. The cash equivalent for any fractional share held for the benefit of a Participant shall be determined by multiplying the fractional share by the Fair Market Value of a share of Common Stock on the day immediately preceding such election to receive such shares.
     9. Termination or Amendment of the Plan.
     (a) Termination. The Plan shall terminate on June 30, 2026 unless earlier terminated by action of the Board of Directors (the “Board”) of the Company or the Committee, in which case notice of such termination shall be given to all Participants, but any failure to give such notice shall not impair the effectiveness of the termination. Such termination shall not impair any outstanding rights to purchase Common Stock under the Plan for the then current applicable Purchase Period in which such termination is to be effected. If at any time the number of shares of Common Stock remaining available for purchase under the Plan are not sufficient to satisfy all then-outstanding Options, the Board or Committee may determine an equitable basis of apportioning available Common Stock among all Participants. Upon termination of the Plan, the number of full shares of Common Stock held for each Participant’s benefit shall be issued as soon as practicable to such Participant and the cash equivalent of any fractional share so held determined as provided in Section 8, and, except as otherwise provided in Section 15, the cash, if any, credited to such Participant’s Grandfathered Purchase Account or Regular Purchase Account, shall be distributed as soon as practicable to such Participant.
     (b) Amendment. The Board or the Committee may amend the Plan from time to time in any respect for any reason; provided, however, no such amendment shall (a) materially adversely affect any outstanding rights to purchase Common Stock under the Plan for the then current applicable Purchase Period in which such amendment is to be effected, (b) increase the maximum number of shares of Common Stock which may be purchased under the Plan, (c) decrease the Purchase Price of the Common Stock for any Purchase Period below the lesser of 85% of the Fair Market Value thereof on the first day of the Offering Period containing such

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Purchase Period and 85% of such Fair Market Value on the last day of such Purchase Period or (d) adversely affect the qualification of the Plan under Section 423 of the Code.
     10. Non-Transferability. Rights acquired under the Plan are not transferable and may be exercised only by a Participant and any attempted transfer shall be null and void and without effect. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, such act shall be treated as an election by the Participant to discontinue participation in the Plan pursuant to Section 8.
     11. Shareholder’s Rights. No Eligible Employee or Participant shall by reason of the Plan have any rights of a shareholder of the Company until he or she shall acquire Common Stock as herein provided.
     12. Administration of the Plan. The Plan shall be administered by a committee appointed by the Board consisting of two or more members of the Board (the “Committee”). In addition to the power to amend or terminate the Plan pursuant to Section 9, the Committee shall have full power and authority to: (i) interpret and administer the Plan and any instrument or agreement entered into under the Plan; (ii) establish such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; (iii) designate which Affiliates will participate in the Plan; and (iv) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan, including by way of illustration the adoption of sub-plans applicable to specified Affiliates or locations or the delegation of any of its power and authority to one or more individuals. Decisions of the Committee shall be final, conclusive and binding upon all persons, including the Company or its Affiliates, any Participant and any other employee of the Company or its Affiliates. A majority of the members of the Committee may determine its actions and fix the time and place of its meetings. The Committee may delegate to one or more individuals the day-to-day administration of the Plan. The Company shall pay all expenses incurred in the administration of the Plan. No Board or Committee member shall be liable for any action or determination made in good faith with respect to the Plan or any option granted thereunder. Except as otherwise provided in Section 2(b), the Plan shall be administered so as to ensure that all Participants have the same rights and privileges as are provided by Section 423(b)(5) of the Code.
     13. Maximum Number of Shares. Subject to adjustment as hereinafter set forth, the maximum number of shares of Common Stock that may be purchased under the Plan is 19 million shares, plus an annual increase on the first day of each of the Company’s fiscal years beginning July 1, 2001 and ending June 30, 2026 equal to the lesser of (i) 30 million shares, (ii) three percent (3%) of the shares outstanding on the last day of the immediately preceding fiscal year or (iii) such lesser number of shares as is determined by the Board or the Committee. Common Stock sold hereunder may be purchased for Participants in the open market (on an exchange or in negotiated transactions) or may be previously acquired treasury shares, authorized and unissued shares, or any combination of shares purchased in the open market, previously acquired treasury shares or authorized and unissued shares. If the Company shall, at any time prior to, on or after the Effective Date of the Plan, change its issued Common Stock into an increased number of shares, with or without par value, through a stock dividend or a stock split, or into a decreased number of shares, with or without par value, through a

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combination of shares, then, effective with the record date for such change, the maximum number of shares of Common Stock which thereafter may be purchased under the Plan and the maximum number of shares which thereafter may be purchased during any Offering Period shall be the maximum number of shares which, immediately prior to such record date, remained available for purchase under the Plan and under any Offering Period proportionately increased, in case of such stock dividend or stock split, or proportionately decreased in case of such combination of shares.
     14. Miscellaneous. Except as otherwise expressly provided herein, (i) any request, election or notice under the Plan from an Eligible Employee or Participant shall be transmitted or delivered to the Company or its designated agent and, subject to any limitations specified in the Plan, shall be effective when received by the Company or its designated agent and (ii) any request, notice or other communication from the Company or its designated agent that is transmitted or delivered to Eligible Employees or Participants shall be effective when so transmitted or delivered. The Plan, and the Company’s obligation to sell and deliver Common Stock hereunder, shall be subject to all applicable federal, state and foreign laws, rules and regulations, and to such approval by any regulatory or governmental agency as may, in the opinion of counsel for the Company, be required.
     15. Change in Control. In order to maintain the Participants’ rights in the event of any Change in Control of the Company, as hereinafter defined, on a date prior to such Change in Control, in the Committee’s discretion, (i) the then current Offering Periods shall end, (ii) in the Committee’s sole discretion, either the full amount or a pro-rated amount of the contributions that would have been otherwise made for the then current Special Offering Period shall be credited to all eligible Participants’ Purchase Accounts, (iii) all amounts credited to the Participants’ Purchase Accounts shall be applied to purchase shares of Common Stock pursuant to Sections 6 and 7, and (iv) the Plan shall immediately thereafter terminate. For purposes of this Section 15, “Change in Control” shall mean:
          (a) a sale or transfer of all or substantially all of the assets of the Company on a consolidated basis in any transaction or series of related transactions;
          (b) any merger, consolidation or reorganization to which the Company is a party, except for a merger, consolidation or reorganization in which the Company is the surviving corporation and, after giving effect to such merger, consolidation or reorganization, the holders of the Company’s outstanding equity (on a fully diluted basis) immediately prior to the merger, consolidation or reorganization will own in the aggregate immediately following the merger, consolidation or reorganization the Company’s outstanding equity (on a fully diluted basis) either (i) having the ordinary voting power to elect a majority of the members of the Company’s board of directors to be elected by the holders of Common Stock and any other class which votes together with the Common Stock as a single class or (ii) representing at least 50% of the equity value of the Company as reasonably determined by the Board;
          (c) individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to

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           the date hereof whose election, or nomination for election by the holders of the Company’s equity, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened solicitation by any individual, entity or group (a “Person”) other than the Board, including any “person” within the meaning of Section 13(d) of the Exchange Act, for the purpose of opposing a solicitation by any other Person with respect to the election or removal of directors, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board; or
          (d) any Person, other than KPMG LLP or its affiliates, acquires beneficial ownership of 30% or more of the outstanding equity of the Company generally entitled to vote on the election of directors.
     16. Committee Rules for Foreign Jurisdictions.
          (a) Rules and Procedures. The Committee may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Committee is specifically authorized to adopt rules and procedures regarding handling of payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local requirements.
          (b) Sub-Plans. The Committee may also adopt sub-plans applicable to particular Designated Affiliates or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 5(a), but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.
     17. No Enlargement of Employee Rights. Nothing contained in this Plan shall be deemed to give any Eligible Employee the right to be retained in the employ of the Company or any Affiliate or to interfere with the right of the Company or any Affiliate to discharge any Eligible Employee at any time.
     18. Governing Law. This Plan, any related agreements (such as an enrollment form), and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or the law of the United States, shall be governed by the laws of the state of Delaware and construed in accordance therewith without giving effect to principles of conflicts of law.

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EX-10.31 7 c15652exv10w31.htm AMENDMENT NO.5 TO AMENDED AND RESTATED 401(K) PLAN exv10w31
 

Exhibit 10.31
AMENDMENT NO. 5
TO THE
AMENDED AND RESTATED
BEARINGPOINT, INC. 401(k) PLAN
          WHEREAS, BearingPoint, Inc. (the “Company”) maintains the Amended and Restated BearingPoint, Inc. 401(k) Plan (the “Plan”); and
          WHEREAS, pursuant to its authority under Section 16.1 of the Plan, the Company, by action of the Compensation Committee (the “Committee”) of the Company’s Board of Directors, acted on September 14, 2006, to amend the Plan, effective as of such date, to eliminate (i) the Company’s ability to make Employer Matching Contributions in the form of Company Stock (as such terms are defined in the Plan) and (ii) a Participant’s right to make new contributions or transfers to the Company Stock Fund in the Plan.
          NOW, THEREFORE, to implement the Committee’s action, the Plan is hereby amended, effective September 14, 2006, in the following respects:
1. Section 4.2 is amended in its entirety to read as follows:
Section 4.2. Employer Matching Contributions. Subject to the limitations set forth in Article 6, an Employer, in its sole discretion, may elect to contribute for each Plan Year on behalf of each Participant who (i) made salary reduction contributions for the Plan Year and (ii) is employed on the last day of such Plan year, such amount as the Employer may determine. Matching contributions shall be stated as a percentage or percentages of the Participant’s salary reduction contributions. The Employer shall designate the percentage or percentages for the Plan Year and may limit the amount or percentage of salary reduction contributions to be matched. Employer matching contributions shall be made only in cash.
Employer matching contributions for any Plan Year may be delivered to the Trustee in one or more installments, and shall be delivered to the Trustee prior to the due date, including extensions thereof, of the Employer’s federal income tax return for the fiscal year of the Employer that ends with or within such Plan Year.

 

 

2. Section 4.3 is amended in its entirety to read as follows:
Section 4.3. Profit Sharing Contributions. Subject to the limitations set forth in Article 6, each Employer, in its sole discretion, may elect to contribute for a Plan Year on behalf of its Eligible Employees who are Participants and who are employed on the last day of such Plan Year such amount as the Company may determine.
Employer profit sharing contributions for any Plan Year may be delivered to the Trustee in one or more installments, and shall be delivered to the Trustee prior to the due date, including extensions thereof, of the Employer’s federal income tax return for the fiscal year of the Employer that ends with or within such Plan Year. All Employer profit sharing contributions shall be made in cash.
3. Section 7.2(b) is amended in its entirety to read as follows:
(b) Company Stock Fund. In addition to the investment funds established pursuant to subsection (a), the Trustee shall, operate and maintain a Company Stock Fund. The assets of the Company Stock Fund shall be invested in shares of Company Stock. Notwithstanding the foregoing, at such time as the Committee determines that no Participant has any portion of his or her Account invested in the Company Stock Fund, the Trustee shall be directed to close the Company Stock Fund and Company Stock shall no longer be a permitted investment in the Plan.
4. Section 8.1(b) is amended in its entirety to read as follows:
(b) Investment Election. Each Participant shall make an investment election that shall apply to the investment of contributions to be made on his behalf pursuant to Article 4 or 5 and any earnings on such contributions. Such election shall specify that such contributions be invested either (i) wholly in one of the funds maintained or employed by the Trustee pursuant to subsection (a) or (ii) divided among such funds in multiples established by the Committee from time to time. Separate investment elections with respect to different types of contributions shall not be made. The Plan is intended to be an “ERISA section 404(c) plan” as described in Department of Labor Regulations section 2550.404c-1; therefore, the Committee shall follow the Participant’s investment elections, in accordance with such Regulation. During any period in which no direction as to the investment of a Participant’s account is on file with the Committee, contributions made by him or on his behalf to the Plan shall be invested in such manner as the Committee shall determine.

2

 

5. Section 8.1(c) is amended by adding the following language to the end thereof:
Notwithstanding any provision of this Plan to the contrary, effective September 14, 2006, a Participant shall not be permitted to change an investment election so as to cause any amounts to be transferred into the Company Stock Fund.
6. Section 8.1(d) is deleted in its entirety, and a new Section 8.1(d) is added to read as follows:
(d) Company Stock Fund. Notwithstanding any provision of this Plan to the contrary, effective September 14, 2006, a Participant shall not be permitted to elect to have any new contribution invested in the Company Stock Fund. Any existing investments in the Company Stock Fund prior to September 14, 2006 may continue to remain in the Company Stock Fund.
7. In all respects not amended, the Plan is hereby ratified and confirmed.

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          IN WITNESS WHEREOF, this amendment has been executed on behalf of the Company by the undersigned duly authorized officer of the Company.
           
         
  BEARINGPOINT, INC.
 		  
Date: 2/6/07  By:   /s/ James M. Monastero    
    Name:   James M. Monastero   
    Its: Chief People Officer & EVP, Global HR   
 

4

EX-10.32 8 c15652exv10w32.htm AMENDMENT NO.6 TO AMENDED AND RESTATED 401(K) PLAN exv10w32
 

Exhibit 10.32
AMENDMENT NO. 6
TO THE
BEARINGPOINT, INC. 401(k) PLAN
          WHEREAS, BearingPoint, Inc. (the “Corporation”) sponsors and maintains the BearingPoint, Inc. 401(k) Plan (the “Plan”); and
          WHEREAS, pursuant to its authority under Section 16.1 of the Plan, the Corporation is amending the Plan to reflect provisions of the final Treasury regulations under Internal Revenue Code sections 401(k) and 401(m), and to make certain other clarifying changes to the Plan.
          NOW, THEREFORE, the Plan is hereby amended as follows, effective January 1, 2006, except as otherwise provided herein.
          1. The second sentence of Section 6.1(b), Distribution of Excess Salary Reduction Contributions, is amended to read as follows (revisions are underlined):
    The amount of any income or loss allocable to such excess deferrals, including income or loss attributable to the gap period (as defined in Regulations), shall be determined pursuant to applicable Regulations.
          2. Section 9.1(b), Hardship Withdrawals, is amended to read as follows (revisions are underlined):
    (b) Hardship Withdrawals. A Participant who is an Employee may withdraw as of any Valuation Date all or a portion of the balance of his Salary Reduction Account only if the Participant has incurred a financial hardship. For purposes of this Section, a distribution is made on account of a hardship only if the distribution is both made on account of an immediate and heavy financial need of the Participant and is necessary to satisfy the need. The determination of the existence of financial hardship and the amount required to be distributed to satisfy the need created by the hardship will be made by the Committee or the Committee’s delegate in a uniform and nondiscriminatory manner according to the following rules:
    (1) A financial hardship shall be deemed to exist if the Participant certifies to the Committee or the Committee’s delegate that the financial need is on account of:
    (A) expenses for (or necessary to obtain) medical care that would be deductible under section 213(d) of the Code (determined without regard to whether the expenses exceed 7.5% of adjusted gross income);
    (B) costs directly related to the purchase of a principal residence for the Participant (excluding mortgage payments);

 

 

    (C) payment of tuition, room and board expenses, and related educational fees for up to the next 12 months of post-secondary education for the Participant, the Participant’s spouse, the Participant’s children, or any dependents of the Participant (as defined in section 152 of the Code, and, for taxable years beginning on or after January 1, 2005, without regard to section 152(b)(1), (b)(2) and (d)(1)(B) of the Code);
    (D) payments necessary to prevent the eviction of the Participant from the Participant’s principal residence or foreclosure on the mortgage on that residence;
    (E) payments for burial or funeral expenses for the Participant’s deceased parent, spouse, children or dependents (as defined in section 152 of the Code, and, for taxable years beginning on or after January 1, 2005, without regard to section 152(d)(1)(B) of the Code), effective for Hardship Withdrawals made on or after January 1, 2007;
    (F) expenses for the repair of damage to the Participant’s principal residence that would qualify for the casualty deduction under section 165 of the Code (determined without regard to whether the loss exceeds 10% of adjusted gross income), effective for Hardship Withdrawals made on or after January 1, 2007; or
    (G) any other event or circumstance which is deemed an immediate and heavy financial hardship by the Commissioner of Internal Revenue.
    (2) A distribution shall be treated as necessary to satisfy an immediate and heavy financial need of a Participant only to the extent the amount of the distribution is not in excess of the amount required to satisfy the financial need. For this purpose, the amount required to satisfy the financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution.
    (3) A distribution is deemed necessary to satisfy an immediate and heavy financial need of the Participant if (i) the Participant has obtained all other currently available distributions (including distribution of ESOP dividends under section 404(k) of the Code, but not hardship distributions) and nontaxable (at the time of the loan) loans, under the Plan and all other plans maintained by the Employer, and (ii) the Participant is prohibited, as described below, from making elective contributions and employee contributions to the Plan and all other plans maintained by the Employer for at least six (6) months after receipt of the hardship distribution.
    (4) The Participant’s elective deferrals and contributions under this Plan, and employee contributions under all other plans maintained by the Employer will be suspended for six (6) months after receipt of the hardship

2

 

withdrawal. Other plans maintained by the Employer means all qualified and nonqualified plans of deferred compensation maintained by the Employer, including a cash or deferred arrangement that is part of a cafeteria plan within the meaning of section 125 of the Code, and stock option, stock purchase, or similar plans maintained by the Employer, however, it does not include the mandatory employee contribution portion of a defined benefit plan or a health or welfare benefit plan (including one that is part of a cafeteria plan).
    (5) Notwithstanding anything to the contrary, earnings credited to a Participant’s Salary Reduction Account attributable to periods after 1988 shall not be available for withdrawal pursuant to this subsection. Furthermore, the amount available for withdrawal pursuant to this subsection shall be reduced by the amount of any loan outstanding made pursuant to Section 9.2, and no withdrawal pursuant to this subsection shall be permitted to the extent that such withdrawal would cause the aggregate amount of such loan outstanding to exceed the limits described in Section 9.2.
    (6) Notwithstanding anything herein to the contrary, hardship distributions may be made for a need arising from Hurricane Katrina, to a Participant (i) whose principal residence on August 29, 2005, was located in one of the counties or parishes in Louisiana, Mississippi or Alabama that were designated as disaster areas eligible for “Individual Assistance” by the Federal Emergency Management Agency because of the devastation caused by Hurricane Katrina, (ii) whose place of employment was located in one of these counties or parishes on such date, or (iii) whose lineal ascendant or descendant, dependent or spouse had a principal residence or place of employment in one of these counties or parishes on such date. The Committee or the Committee’s delegate may rely upon representations from the Participant as to the need for and amount of a hardship distribution, unless the Committee or its delegate has actual knowledge to the contrary, and such distribution is treated as a hardship distribution for all purposes under the Code and Regulations. The foregoing applies to any hardship of the Participant, not just the types enumerated above, and the post-distribution contribution restriction in (4) above will not apply. The hardship distributions must be made on or after August 29, 2005, and no later than March 31, 2006. The foregoing will be implemented in accordance with IRS Announcement 2005-70.

3

 

          3. A new second sentence is added to Section 10.4, Leased Employees, as follows:
    Notwithstanding the foregoing, an Employee’s change in status from an Employee to a “leased employee” is not a severance from employment that would permit a distribution of the Participant’s Account.
          4. The last sentence of Section 10.5(c), under Reemployment of Veterans, is amended to read as follows (revisions are underlined):
    The Plan shall not take into account the make up deferrals or make up matching contributions for purposes of the nondiscrimination rules of Section 6.3 of the Plan (relating to sections 401(k)(3) and 401(m) of the Code for any Plan Year.
          IN WITNESS WHEREOF, this Amendment has been executed on behalf of the Corporation by the undersigned duly authorized member of the Corporation.
           
         
  BEARINGPOINT, INC.
 		  
Date: 12/27/2006  By:   /s/ Sean Huurman    
    Its: Managing Director, Global Human Resource & 401K Committee Chair   
 

4

EX-10.33 9 c15652exv10w33.htm AMENDMENT NO.7 TO AMENDED AND RESTATED 401(K) PLAN exv10w33
 

Exhibit 10.33
AMENDMENT NO. 7
TO THE
AMENDED AND RESTATED
BEARINGPOINT, INC. 401(k) PLAN
     WHEREAS, BearingPoint, Inc. (the “Company”) maintains the Amended and Restated BearingPoint, Inc. 401(k) Plan (the “Plan”);
     WHEREAS, pursuant to Section 12.1 of the Plan, the Company appointed a Committee as the administrator of the Plan (“Committee”);
     WHEREAS, pursuant to its authority under Section 16.1 of the Plan, the Committee acted on June 14, 2007, to amend the Plan, effective as of the date stated below, to permit non-spouse beneficiaries to make direct rollovers from the Plan as permitted under the Pension Protection Act of 2006; and
     WHEREAS, pursuant to its authority under Section 16.1 of the Plan, the Committee acted on June 14, 2007, to amend the Plan, effective as of the date stated below, to provide that the interest rate charged on Plan loans will be a commercially reasonable interest rate determined by the Committee and to clarify that the reasonable expenses incurred in administering the Plan and the Trust and in the investment and custody of the assets of the Plan and the Trust may be paid from the Trust.
     NOW, THEREFORE, to implement the Committee’s and the Chief People Officer’s action, the Plan is hereby amended as of the effective dates below in the following respects:
     1. Effective May 1, 2007, Section 9.2(b)(4) is amended in its entirety to read as follows:
     “Each loan shall bear a commercially reasonable interest rate, as determined by the Committee, which shall be a fixed rate commensurate with the interest rate then being charged by persons and lending institutions in the business of lending money in the area for loans made under similar circumstances and which are regulated by and adhere to industry lending laws and standards.”
     2. Effective for distributions made on or after May 1, 2007, Section 9.3(a)(3)(a)(ii) is amended by adding the following language to the end thereof:
“provided, however, that, effective for distributions made on or after May 1, 2007, in the case of a designated Beneficiary (within the meaning of section 401(a)(9)(E) of the Code) who is a person or trust other than the Participant’s spouse, the Beneficiary may elect to have all or part of the distribution made in a direct trustee-to-trustee transfer to an individual retirement plan described in section 408(a) or (b) of the Code (an “IRA”) if the following requirements are satisfied:

 

 

     (A) The IRA is established for the purpose of receiving the distribution on behalf of such designated Beneficiary in a manner that identifies the IRA as an IRA with respect to the deceased Participant and also identifies the designated Beneficiary.
     (B) The IRA will be treated as an inherited IRA pursuant to the provisions of section 402(c)(11) of the Code.
     (C) The amount distributed in a trustee-to-trustee transfer to an IRA satisfies the requirements for an eligible rollover distribution as set forth in Section 9.5 other than the requirement that the designated Beneficiary satisfies the definition of “distributee” in Section 9.5(b)(iii).
     (D) Such direct trustee-to-trustee transfer to an IRA is an eligible rollover distribution only for purposes of section 402(c)(11) of the Code.”
     3. Effective May 1, 2007, Section 14.1 is amended in its entirety to read as follows:
“Section 14.1. Expenses. Unless paid by the Employer, all reasonable costs and expenses incurred in administering the Plan and the Trust and in the investment and custody of assets of the Plan and the Trust, including the expenses of the Committee, the fees of counsel and any agents for the Committee, the fees and expenses of the Trustee, the fees of counsel for the Trustee and other administrative expenses shall be paid by the Trust, except where required by law or regulation to be paid by the Employer.”
     IN WITNESS WHEREOF, this amendment has been executed on behalf of the Corporation by the undersigned duly authorized officer of the Corporation.
         
  BEARINGPOINT, INC.
 		  
Date: June 20, 2007  By:   /s/ Sean Huurman    
       
       
 
  Its: Managing Director, Global Human Resources
 		  
     
     
     
 

2

EX-10.39 10 c15652exv10w39.htm FORM OF MANAGING DIRECTOR AGREEMENT exv10w39
 

Exhibit 10.39
     
(BEARING POINT LOGO)
Managing Director Agreement 		  (BAR CODE)
MANAGING DIRECTOR AGREEMENT
This Agreement (“Agreement”) is between BearingPoint (“BearingPoint”) and                      (“You” and all similar references) as of                      (the “Effective Date”):
1. Employment. You accept employment on the terms of this Agreement from the Effective Date until the end of your employment with BearingPoint in accordance with Section 6. By signing this Agreement, you agree to: (a) devote your professional time and effort to BearingPoint’s business and to refrain from professional practice other than on account of or for the benefit of BearingPoint; (b) perform any and all work assigned to you by BearingPoint faithfully and to the best of your ability at such times and places as BearingPoint designates; (c) abide by all policies of BearingPoint, current and future, including the Equal Employment Opportunity policy attached as Exhibit A; and the Anti-Harassment policy attached as Exhibit B, (d) abide by the Confidentiality and Intellectual Property Agreement attached as Exhibit C, and (e) abide by the terms of the Consent Form, concerning personal data, attached as Exhibit D. You also confirm that you are not currently bound by any agreement that could prohibit or restrict you from being employed by BearingPoint or from performing any of your duties under this Agreement
2. Compensation and Benefits. As of the Effective Date, BearingPoint will pay you a base salary, less required and authorized withholding and deductions, payable in installments in accordance with BearingPoint’s normal payroll practices. From time to time, BearingPoint may adjust your salary and other compensation in its discretion. During your employment, you will be eligible to participate in any employee compensation or benefit plans (including group medical and 401 (k)), incentive award programs, and stock option plans, any applicable employee stock purchase plan and to receive other fringe benefits that BearingPoint may decide to make generally available to employees in your position. BearingPoint may amend or discontinue any of its plans, programs, policies and procedures at any time for any or no reason with or without notice.
You agree that in order to receive any stock options, you will be required to enter into a separate stock option agreement which will provide (among other things) for the termination of your stock options and a payment to BearingPoint or its designee of some or all of your gain if you violate Sections 1(d), 3, 6(b), or Exhibit C.
3. Covenants. In consideration of your employment and eligibility for stock options, you agree to the following obligations which are reasonably designed to protect BearingPoint’s legitimate business interests without unreasonably restricting your ability to earn a living after leaving BearingPoint. The wishes or preferences of a Client or Prospective Client (defined below) are not relevant to or admissible in any dispute under Sections 3 or 4:
     (a) While employed with BearingPoint and for 1 year after your termination or resignation, you shall not, directly or indirectly: (i) perform, provide or assist any entity in performing or providing BearingPoint Services for any Client or Prospective Client; or (ii) solicit or assist any entity in soliciting any Client or Prospective Client for the purpose of performing or providing any BearingPoint Services.
     (b) While employed with BearingPoint and for 2 years after your termination or resignation, you shall not, directly or indirectly solicit, employ or retain (or assist another entity in doing so) any employee of BearingPoint or any former employee who left BearingPoint within 12 months before or after your termination or resignation to perform BearingPoint Services with you or any person associated with you.
4. Remedies. In addition to any other remedies that may be available to BearingPoint for breach of this Agreement, you agree to the following obligations and accept the following consequences for breaching Section 3. You agree that BearingPoint will suffer damages as a result of your breach of Section 3 that are difficult to

 

 

Managing Director Agreement    
calculate and that the payments required by Section 4 are a reasonable forecast of the damages likely to result and are not a penalty of any kind. In particular, you agree that your total compensation is based on your value to BearingPoint, and that it reflects your efforts at developing and maintaining client and employee relationships on behalf of BearingPoint.
     (a) If you breach Section 3(a)(i) or (ii), you will, in addition to any payments under Sections 4(b), pay BearingPoint or its designee 50% of the gross fees and other amounts paid or payable during the 3 years after the breach to you or any other entity associated with you, by any Client or Prospective Client that was solicited or provided with services in violation of Section 3(a)(i) or (ii). These payments will be made in cash within thirty days after payment by the Client or Prospective Client.
     (b) If you breach Section 3(b). you will, in addition to any payments under Sections 4(a), pay BearingPoint or its designee 100% of the total compensation (including salary and bonus) paid or payable by BearingPoint to the solicited, employed or retained employee during: (i) the 12 months before your breach of Section 3(b); or (ii) in the case of a former employee, the 12 months before the employee left BearingPoint. These payments will be made in not less than quarterly cash installments over the 24 months following such breach.
5. Certain Definitions.
     “Cause” means any of the following conduct by you: (I) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (II) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor; (III) engagement in any activity that you know or should know could harm the business or reputation of BearingPoint; (IV) material failure to adhere to BearingPoint’s corporate codes, policies or procedures; (V) continued failure to meet performance standards as determined by BearingPoint over two consecutive performance review periods; (VI) a breach or threatened breach of any provision of Sections 1(d), 3 or Exhibit C, or a material breach of any other provision of this Agreement if the breach is not cured to BearingPoint’s satisfaction within a reasonable period after BearingPoint provides you with notice (to your address on BearingPoint’s records) of the breach (no notice and cure period is required if the breach cannot be cured); or (VII) violation of any statutory, contractual, or common law duty or obligation to BearingPoint, including without limitation the duty of loyalty.
     “Client” means any entity that is or was a client of BearingPoint (which includes any subsidiary of BearingPoint throughout this definition) at or within 12 months before the time you seek to solicit or perform services for such client and that, within 2 years before your termination or resignation, you: (I) performed BearingPoint Services for or on behalf of BearingPoint, or a related or affiliated entity, or (II) had contact with, knowledge of, or access to Proprietary Information (as defined in Exhibit C) or other information concerning the client, in connection with your BearingPoint employment.
     “BearingPoint” as used throughout this Agreement includes any successor to, or subsidiary of BearingPoint with which you become employed or associated (except as more broadly defined elsewhere in this Agreement).
     “BearingPoint Services” means the management and information technology BearingPoint services conducted and provided by BearingPoint during your employment.
     “Prospective Client” means any entity that is not a Client but with respect to whom, within 1 year before your termination or resignation, you: (I) conducted, prepared or submitted, or assisted in conducting, preparing or submitting, any proposal or client development or marketing efforts on behalf of BearingPoint (which includes any subsidiary of BearingPoint throughout this definition), or a related or affiliated entity, or (II) had contact with, knowledge of, or access to Proprietary Information or other information concerning the prospective client, in connection with your BearingPoint employment.
6. Termination and Resignation. (a) Your employment is terminable at will. BearingPoint may terminate your employment for Cause effective immediately upon written notice (to your address on BearingPoint’s records). You will be entitled to earned and unpaid base salary and payment for any earned and unused

 

 

Managing Director Agreement    
personal days through the termination date (in the case of performance deficiencies, you also will receive an additional payment as provided below).
BearingPoint also may terminate your employment other than for Cause or for no reason, effective upon written notice (to your address on BearingPoint’s records) or any later date specified in the notice. In this case, or if BearingPoint terminates your employment due to deficient performance by you, you will be entitled to all earned and unpaid base salary through the termination date. BearingPoint will also pay you for any earned and unused personal days and an additional amount of severance pay which, when added to your personal days payment (if any), totals 3 months pay at your then current base salary. All of the payments in this Section 6(a) are less required and authorized withholding and deductions. BearingPoint, in its sole discretion, may elect any method or manner of payment under this provision, and may also require you to perform services, as detailed in Section 1 of this Agreement, during the period of time prior to your specified termination date.
     (b) You may voluntarily terminate your employment with BearingPoint upon 3 months prior written notice directed to the BearingPoint People Department unless the Chief Executive Officer of BearingPoint or his designee waives this notice in writing. Without limiting any other remedies, if you breach this Section 6(b), you will pay BearingPoint or its designee 25% of the total compensation (including salary and bonus) paid or payable to you on an annualized basis by BearingPoint during the fiscal year in which your breach occurs. These payments will be made in not less than quarterly cash installments over the 24 months following your breach.
     (c) You agree to provide all assistance requested by BearingPoint in transitioning your duties, responsibilities and client and other BearingPoint relationships to other BearingPoint personnel, both during your employment and after your termination or resignation.
7. Arbitration. All disputes between you and BearingPoint (which includes any subsidiary of BearingPoint throughout this Section 7) shall be resolved by arbitration in Virginia. Arbitrable disputes include without limitation employment and employment termination claims and claims by you for employment discrimination, harassment, retaliation, wrongful termination, or violations under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Family and Medical Leave Act, or the Employee Retirement Income Security Act, under any other federal, state, foreign or local law, regulation, ordinance, executive order, constitution, or under common law.
Arbitrations shall take place before a panel of three arbitrators which shall consist of one person selected by each of the two sides to the dispute and the third person jointly selected by the other two arbitrators. The arbitration panel shall have no authority to modify this Agreement (except pursuant to Section 12) or to award punitive or exemplary damages. BearingPoint may, without waiving its right to compel arbitration, and without securing or posting any bond, seek injunctive or other provisional relief from a court of competent jurisdiction in aid of arbitration, to prevent any arbitration award from being rendered ineffectual, to protect BearingPoint’s confidential information or intellectual property or for any other purpose in the interests of BearingPoint. The courts of Virginia or any court of competent jurisdiction in any other state will have jurisdiction over any proceeding relating to arbitrations, and may enter judgment on any arbitration award rendered or grant judicial recognition of the award or an order of enforcement. You agree to reimburse BearingPoint upon demand for any and all costs (including, without limitation, attorneys’ fees and court costs) incurred by BearingPoint in enforcing any of its rights under this Agreement.
Survival. Sections 1(d), (e), 2 through 14, and Exhibits C and D shall survive any termination of this Agreement or your employment (including your resignation).
9. Entire Agreement. This Agreement is the entire agreement between you and BearingPoint regarding these matters and supersedes any verbal and written agreements on such matters. In the event of a conflict between the main body of this Agreement and the Exhibits, the main body of the Agreement shall control. This Agreement may be modified only by written agreement signed by you and the CEO or his or her designee. All Section headings are for convenience only and do not modify or restrict any of this Agreement’s terms.
10. Choice of Law. This Agreement shall be governed by the laws of the Commonwealth of Virginia. You and BearingPoint consent to the jurisdiction and venue of any state or federal court in the State of Virginia and agree that any permitted lawsuit may be brought to such courts or other court of competent jurisdiction. Each party hereby waives, releases and agrees not to assert, and agrees to cause its affiliates to waive, release and not

 

 

Managing Director Agreement  
assert, any rights such party or its affiliates may have under any foreign law or regulation that would be inconsistent with the terms of this Agreement as governed by Virginia law.
11. Waiver. Any party’s waiver of any other party’s breach of any provision of this Agreement shall not waive any other right or any future breaches of the same or any other provision. The CEO may, in his or her sole discretion, waive any of the provisions of Sections 1(d), 3, 4, 6, or Exhibit C.
12. Severability. If any provision of this Agreement is held invalid or unenforceable for any reason, the invalidity shall not nullify the validity of the remaining provisions of this Agreement. If any provision of this Agreement is determined by a court or arbitration panel to be overly broad in duration, geographical coverage or scope, or unenforceable for any other reason, such provision will be narrowed so that it will be enforced as much as permitted by law.
13. Assignment and Beneficiaries. This Agreement only benefits and is binding on the parties and their respective affiliates, successors and permitted assigns provided that you may not assign your rights or duties under this Agreement without the express prior written consent with the other parties. BearingPoint may assign any rights or duties that it has, in whole or in part, to other affiliated or subsidiary entities without your consent.
14. Counterparts. For convenience of the parties, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original for all purposes.
The parties state that they have read, understood and agree to be bound by this Agreement and that they have had the opportunity to seek the advice of legal counsel before signing it and have either sought such counsel or have voluntarily decided not to do so:
                 
BEARINGPOINT       EMPLOYEE    
 
                
By:
               
 
               
 
          (Signature)    
Title:
               
 
               
 
          (Print Employee’s Full Name)    
 
                
Dated:
               
 
               
 
          (Employee’s ID)    
 
                
 
          Dated:    
 
         
 
    

 

EX-10.40 11 c15652exv10w40.htm FORM OF MANAGING DIRECTOR AGREEMENT exv10w40
 

Exhibit 10.40
     
(BEARING POINT LOGO)
Managing Director Agreement 		  (BAR CODE)
MANAGING DIRECTOR AGREEMENT
This Agreement (“Agreement”) is between BearingPoint, Inc. (“BearingPoint”) and                      (“You” and all similar references) as of                      (the “Effective Date”):
1. Employment/Exclusive Services. You accept employment as of the Effective Date on the terms and conditions of this Agreement. You agree to: (a) devote your professional time and best effort to BearingPoint’s business and to refrain from professional practice other than on BearingPoint’s behalf; (b) perform all assigned work faithfully and to the best of your ability at such times and places as BearingPoint designates; (c) abide by all policies of BearingPoint, current and future, including the EEO policy attached as Exhibit A, and the Anti-Harassment policy attached as Exhibit B; (d) comply with the Confidentiality and Intellectual Property Agreement attached as Exhibit C; (e) abide by the terms of the Consent Form, concerning personal data, attached as Exhibit D; and (f) agree to, and abide with, the list of Competitive Businesses, attached as Exhibit E. By executing this Agreement, you represent and confirm that you are not bound by any covenant restricting you from being employed at BearingPoint or from performing your duties under this Agreement.
2. Compensation and Benefits. As of the Effective Date, BearingPoint will pay you a base salary, less withholding and deductions, payable in accordance with BearingPoint’s normal payroll practices. From time to time, BearingPoint may adjust your salary and other compensation in its discretion. During your employment, you will be eligible to participate in employee compensation or benefit plans (including group medical and 401(k)), incentive award programs, and employee stock option or purchase plans and to receive other fringe benefits that BearingPoint makes generally available to employees in your position. BearingPoint may amend or discontinue any of its plans, programs, policies and procedures at any time for any or no reason with or without notice.
As a condition of receiving any stock options or other equity awards, you will be required to enter into a separate stock option or other agreement that will provide (among other things) for the termination of your stock options or other equity awards and a payment to BearingPoint or its designee of some or all of your gain if you violate Sections 1(d), 3, 4, 5, and/or Exhibit C of this Agreement. You also agree and authorize BearingPoint to deduct or withhold from your base salary or other compensation amounts which are owed to BearingPoint or for any other lawful purpose.
3. Duty of Loyalty. You acknowledge and agree that you owe a fiduciary duty of loyalty, fidelity and allegiance to act at all times in the best interests of BearingPoint and to do no act that would injure the business, interests, or reputation of BearingPoint. You understand and agree that you will not divert business from BearingPoint to a Competitive Business, prepare for a future competitive venture or engage in self-dealing while in BearingPoint’s employ. In keeping with these duties, you shall make full disclosure to BearingPoint of all business opportunities pertaining to BearingPoint’s business and shall not appropriate for your future benefit business opportunities of BearingPoint.
4. Conflicts of Interest. You understand and agree that any direct or indirect interest in, connection with, or benefit from any outside activities, particularly commercial or consulting activities, which interest might in any way adversely affect BearingPoint, involves a possible conflict of interest. Consistent with your fiduciary duties to BearingPoint, you agree that you shall not knowingly become involved in a conflict of interest with BearingPoint or upon discovery of such a conflict, permit it to continue. You also agree to disclose promptly to BearingPoint’s General Counsel any facts which might involve such a conflict of interest that has not been approved by BearingPoint’s Board of Directors.

 

 

Managing Director Agreement    
5. Covenants. In consideration of your employment, special training, access to Proprietary Information and eligibility for stock options or other equity awards, you agree to the following obligations that you acknowledge are reasonably designed to protect BearingPoint’s legitimate business interests without unreasonably restricting your ability to earn a living after leaving BearingPoint.
     (a) Non-Disclosure. To assist you in performing your duties, BearingPoint agrees to provide you special training regarding its business methods and access to certain confidential and proprietary information and materials belonging to BearingPoint and to third parties, including its Clients and Prospective Clients who have furnished information to BearingPoint. You will be entrusted with business opportunities of BearingPoint and placed in a position to use and develop business goodwill on BearingPoint’s behalf. You agree that all of this non-public information, including the identities of BearingPoint’s Clients and Prospective Clients and their key decision makers or other client or prospect lists, is “Proprietary Information” as defined in Exhibit C. In keeping with the obligations imposed by Exhibit C, you agree that you will not, at any time during or after your employment at BearingPoint, make any unauthorized disclosure of BearingPoint’s Proprietary Information to any third party or otherwise use such Proprietary Information to BearingPoint’s competitive disadvantage.
     (b) Non-Competition. While employed with BearingPoint and for 18 months after your termination or resignation, for whatever reason, you will not, directly or indirectly, on your own behalf or on behalf of a Competitive Business (as specified in Exhibit E), in any geographic area or market where you (or a direct report of your business unit) provided BearingPoint Services during the preceding 12 months: (I) engage in or be employed by or affiliated with a Competitive Business in which you perform the same or similar duties or responsibilities or provide comparable services that you performed or provided while employed as a Managing Director of BearingPoint; (II) offer to provide to any Client or Prospective Client similar services in the same line of business to those which you conducted, provided or offered to provide while employed by BearingPoint; (III) render advice or services to, or otherwise assist, any Competitive Business in rendering advice or services similar to that advice or services offered or provided by BearingPoint through you or your business unit to any Client or Prospective Client; (IV) divert or attempt to divert any Client or Prospective Client from BearingPoint to a Competitive Business; (V) transact any business with any Client or Prospective Client which, in any manner, would have, or is likely to have, an adverse effect upon BearingPoint’s existing or prospective business relationships; and/or (VI) develop, acquire or maintain an ownership interest in a Competitive Business, provided that ownership interest of less than 5% of the outstanding capital stock of a publicly traded Competitive Business shall not be a violation of this provision. If BearingPoint abandons a particular aspect of its business (i.e., ceases providing such services with the intention to permanently refrain from such aspect of the business), then this covenant shall not apply to such former aspect of BearingPoint’s business.
     (c) Non-Solicitation of Clients and Prospective Clients. During your employment with BearingPoint and for a period of 18 months after your termination or resignation, for whatever reason, you agree not to take any action to, or do anything reasonably intended to, solicit any Client or Prospective Client on your own behalf or on behalf of a Competitive Business (as specified in Exhibit E) or otherwise influence or attempt to influence any Client or Prospective Client to cease or refrain from doing business, or reduce the Client’s business, with BearingPoint. The term “solicit” includes any direct or indirect approach, verbal or written, to a Client or Prospective Client containing an offer, announcement, request, petition, solicitation or other entreaty that asks, urges, encourages, invites, moves or otherwise persuades a Client or Prospective Client to contact or respond to you or a Competitive Business for business purposes. You understand and agree that impermissible solicitation includes, but is not limited to, informing any Client or Prospective Client of your intent to form or join a Competitive Business or announcing to any Client or Prospective Client your departure from BearingPoint or your forming or joining a Competitive Business. You also agree not to make any public or private false, derogatory or disparaging comments about BearingPoint (or its employees) to any Clients or Prospective Clients or act in any manner that could reasonably be expected to result in damage to the goodwill or business reputation of BearingPoint.
     (d) Non-Solicitation of Employees. While employed with BearingPoint and for 18 months after your termination or resignation, for whatever reason, you agree not to hire, employ, solicit for employment or attempt to hire (or assist a Competitive Business in doing so) any employee of BearingPoint or any former employee who left BearingPoint within 12 months before or after your termination or resignation. This prohibition applies to any direct or indirect, written or verbal, contact for employment purposes and includes, but is not limited to, notice of alternative job opportunities, responses to employee inquiries, referrals to hiring managers or providing employee identity, contact, performance or compensation information to a Competitive

 

 

Managing Director Agreement    
Business or its representative. Impermissible solicitation also includes any direct or indirect offer to engage or retain a BearingPoint employee or former employee as an employee, agent, consultant, independent contractor or in any other capacity to perform services for a person or entity other than BearingPoint.
6. Remedies. In addition to and without limiting any remedies in law or in equity that may be available to BearingPoint for breach of this Agreement, including, but not limited to, injunctive and other equitable relief, you also agree to the following obligations and accept the following consequences:
     (a) Compensation Forfeiture. If BearingPoint determines that you have breached Sections 3 or 4, you agree to forfeit or repay all salary and other compensation that you have earned or would otherwise be entitled to from BearingPoint during any period of disloyalty or conflicting interest. This compensation forfeiture shall be absolute and not subject to any apportionment for properly performed services during any period when disloyal acts were committed. By executing this Agreement, you authorize BearingPoint to engage in self-help and deduct or withhold from any compensation otherwise due or owing to you in order to satisfy such forfeiture. You also agree to forfeit and pay to BearingPoint all gains realized from the disloyal or conflicting acts and to reimburse BearingPoint for all losses incurred as a result of the disloyalty, including costs and attorney’s fees.
     (b) Injunctive Relief. You acknowledge and agree that BearingPoint’s remedy at law for any breach of the covenants or other provisions contained in Sections 3, 4, 5 or Exhibit C would be inadequate and that BearingPoint shall, in addition to any other remedies, be entitled to a temporary restraining order, a preliminary and permanent injunction, or other equitable relief, restraining and enjoining you from committing or continuing to commit any violation of these covenants. For purposes of any enforcement action, you stipulate and agree that money damages would be difficult to ascertain and calculate and an inadequate remedy.
     (c) Competitive Injuries. In addition to injunctive relief, if you breach Sections 3, 4, 5(a), (b) or (c) and/or Exhibit C, BearingPoint will be entitled to recover its actual and consequential damages, including its lost profits, attorney’s fees and costs. In addition, you agree to (I) repay to BearingPoint the sign-on bonus you received under your employment offer, if any, (II) forfeit all stock options, restricted stock and any other equity awards you have received from BearingPoint, and (III) pay to BearingPoint an amount equal to the profits you have realized upon the exercise of any stock options, sale of any restricted stock or disposition of any other equity interest received under an equity award from BearingPoint. These payments shall be tendered to BearingPoint, in cash or by certified check, within 30 days of your receipt of written notice and demand for payment from BearingPoint.
     (d) Employee Solicitation. In addition to injunctive relief, if you breach Section 5(d), BearingPoint will be entitled to recover its actual and consequential damages, attorney’s fees and costs. You agree that actual damages shall include, but not be limited to, and you agree to pay to BearingPoint, (I) the costs incurred in hiring a replacement (i.e., advertising costs, headhunter fees, sign-on bonuses and training costs); (II) the excess salary differential, if any, between the replacement and departed employee for a period of 2 years; (III) the sign-on bonus the departed employee received under his or her offer letter, if any; (IV) the training expenses incurred by BearingPoint in the preceding 24 months on behalf of the departed employee; (V) all compensation that the departing employee earned or was paid during any period of disloyalty or conflicting interest; and (VI) all lost profits sustained as a result of the employee’s departure from BearingPoint. These payments will be tendered to BearingPoint upon demand, in cash or by certified check, in not less than quarterly installments over the 24 months following such breach.
7. Certain Definitions.
     “Cause” means any of the following conduct by you: (I) embezzlement or misappropriation of corporate funds; (II) breach of fiduciary duty or other material acts of dishonesty; (III) conviction of, or plea of guilty or nolo contendere to, any felony or misdemeanor involving moral turpitude; (IV) engaging in conduct that you know or should know could harm the business or reputation of BearingPoint; (IV) material failure to adhere to BearingPoint’s corporate codes, policies or procedures; (V) continued failure to meet performance standards as determined by BearingPoint over two consecutive performance review periods; (VI) a breach or threatened breach of any provision of Sections 1(d), 3, 4, 5 or Exhibit C, or a material breach of any other provision of this

 

 

Managing Director Agreement    
Agreement if the breach is not cured to BearingPoint’s satisfaction within a reasonable period after BearingPoint provides you with notice (to your address on BearingPoint’s records) of the breach (no notice and cure period is required if the breach cannot be cured); or (VII) violation of any statutory, contractual, or common law duty or obligation to BearingPoint, including without limitation the duty of loyalty.
     “Client” means any person, firm, corporation, partnership, association or other entity that is or was a client of BearingPoint and with which you had direct or indirect contact by virtue of and in the course of your employment with BearingPoint or with respect to which you possess information that is proprietary or confidential to BearingPoint or the client.
     “Prospective Client” means any person, firm, corporation, partnership, association or other entity that is not a Client but with respect to whom, within 1 year before your termination or resignation, you: (I) conducted, prepared or submitted, or assisted in conducting, preparing or submitting, any proposal or client development or marketing efforts on behalf of BearingPoint (which includes any subsidiary of BearingPoint throughout this definition), or a related or affiliated entity, (II) had contact with, knowledge of, or access to Proprietary Information or other information concerning the prospective client, in connection with your BearingPoint employment; or (III) dealt with while the person was employed by a Client but who has since changed employers or become employed by a non-Client firm, corporation, partnership, association or other entity in a business decision making role.
     “BearingPoint” as used throughout this Agreement means BearingPoint, Inc. and includes any successor to, and/or subsidiary or related or affiliated entity of BearingPoint, Inc. with which you become employed or associated.
     “BearingPoint Services” means any services conducted and provided by BearingPoint during your employment including, without limitation, management and information technology services.
     “Competitive Business” means any person, firm, corporation, partnership, association or other entity that offers services competitive to BearingPoint Services. For purposes of Sections 5(b) and 5(c) above “Competitive Business” means one or more of those entities, and their successors in interest, specified in Exhibit E.
8. Termination and Resignation.
     (a) Your employment is terminable at will and may be terminated with or without cause and effective immediately upon written notice to your address on BearingPoint’s records. Upon termination by BearingPoint and subject to the terms and conditions of this Agreement, you will be entitled to all earned and unpaid base salary through your termination date. If terminated without cause and upon receipt by BearingPoint of your signed full and binding unilateral Severance and Release Agreement (“Release”) of all claims against BearingPoint arising from, or associated with your employment, BearingPoint will pay you for any earned and unused personal days and an additional amount of severance pay which, when added to your personal days payment (if any), totals 3 months pay at your then current base salary. The form of Release shall be specified at such time by BearingPoint. All of the payments in this Section 8(a) are less required and authorized withholding, deductions or other offsets authorized by this Agreement. BearingPoint, in its sole discretion, may elect any method or manner of payment under this provision, and may also require you to perform services, as detailed in Section 1 of this Agreement, during the period of time prior to your specified termination date.
     (b) You may voluntarily terminate your employment with BearingPoint upon 3 months prior written notice directed to the BearingPoint People Department unless the Chief Executive Officer of BearingPoint or his designee waives this notice in writing. Without limiting any other remedies, if you breach this Section 8(b), you will pay BearingPoint or its designee 25% of the total compensation (including salary and bonus) paid or payable to you on an annualized basis by BearingPoint during the fiscal year in which your breach occurs. These payments will be made in not less than quarterly cash installments over the 24 months following your breach. You will not be eligible for severance or any other payments.
     (c) You agree to provide all assistance requested by BearingPoint in transitioning your duties, responsibilities and Client and other BearingPoint relationships to other BearingPoint personnel, both during your employment and after your termination or resignation. You understand and agree that all announcements

 

 

Managing Director Agreement    
or other communications regarding your termination or departure from BearingPoint and the transition of your work shall be made and handled exclusively by BearingPoint.
(d) During the term of your employment and for 18 months after your termination or resignation from BearingPoint, you agree to notify BearingPoint immediately, in writing, of all offers of employment received by you from any Competitive Business to perform services or other duties similar to those which you provide or provided to BearingPoint. In providing this notice, you shall disclose the identity of the Competitive Business, the location of the prospective job opportunity and your proposed duties and responsibilities. You also agree to provide such notice and consult in good faith with BearingPoint before accepting, directly or indirectly through an agent or representative, any such offer to ensure compliance with the covenants contained in Sections 3, 4 and 5 and Exhibit C of this Agreement. You also agree to provide any prospective employer with timely written notice that you are under a written employment agreement with BearingPoint which contains post-employment restrictive covenants restricting competitive activities.
9. Mediation and Arbitration. The parties agree that any and all legally cognizable disputes, claims or controversies arising out of or relating to this Agreement or causes of action arising from your employment or termination therefrom (including individual or collective claims for employment discrimination, harassment, retaliation, wrongful termination, or violations of Title VII, ADEA, ADA, FMLA, FLSA or ERISA or other federal, state, foreign or local law) shall be submitted to JAMS, or its successor, for mediation, and if the matter is not resolved through mediation, then it shall be submitted to JAMS, or its successor, for final and binding arbitration in Virginia before one arbitrator. Mediation may be commenced by providing JAMS and the other party a written request for mediation, setting forth the subject of the dispute and the relief requested. Arbitration with respect to the matters submitted to mediation may be initiated by filing a written demand for arbitration at any time following the first mediation session or 45 days after the date of filing the written request for mediation, whichever occurs first. Either party may seek equitable relief prior to the mediation or arbitration to preserve the status quo or to seek relief under Sections 3, 4, 5 and/or Exhibit C of this Agreement. Unless otherwise agreed by the parties, the mediator shall be disqualified from serving as arbitrator. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. Judgment on the Award may be entered in any court having jurisdiction. The arbitrator may, in the Award, allocate all or part of the costs of the arbitration, including the fees of the arbitrator and the reasonable attorneys’ fees of the prevailing party.
10. Survival. Sections 1(d), 1(e), 2 through 16, and Exhibits C and D shall survive any termination of this Agreement or your employment (including your resignation).
11. Entire Agreement. This Agreement is the entire agreement between you and BearingPoint regarding these matters and supersedes any verbal and written agreements on such matters. In the event of a conflict between the main body of this Agreement and the Exhibits, the main body of the Agreement shall control. This Agreement may be modified only by written agreement signed by you and the CEO or his or her designee. All Section headings are for convenience only and do not modify or restrict any of this Agreement’s terms.
12. Choice of Law. This Agreement shall be governed by the laws of the Commonwealth of Virginia. You and BearingPoint consent to the jurisdiction and venue of any state or federal court in the State of Virginia and agree that any permitted lawsuit may be brought to such courts or other court of competent jurisdiction. Each party hereby waives, releases and agrees not to assert, and agrees to cause its affiliates to waive, release and not assert, any rights such party or its affiliates may have under any foreign law or regulation that would be inconsistent with the terms of this Agreement as governed by Virginia law.
13. Waiver. Any party’s waiver of any other party’s breach of any provision of this Agreement shall not waive any other right or any future breaches of the same or any other provision. The CEO may, in his or her sole discretion, waive any of the provisions of Sections 1(d), 3, 4, 6, or Exhibit C.
14. Severability. If any provision of this Agreement is held invalid or unenforceable for any reason, the invalidity shall not affect or nullify the validity of the remaining provisions of this Agreement. If any provision of this Agreement is determined to be overly broad in duration, geographical coverage or scope, or unenforceable or unreasonable for any other reason, the parties intend for the restriction to be modified or reformed so as to be reasonable and enforceable and, as so modified, to be fully enforced.

 

 

Managing Director Agreement    
15. Assignment and Beneficiaries. This Agreement only benefits and is binding on the parties and their respective affiliates, successors and permitted assigns provided that you may not assign your rights or duties under this Agreement without the express prior written consent with the other parties. BearingPoint may assign any rights or duties that it has, in whole or in part, to other affiliated or subsidiary entities without your consent.
16. Counterparts. For convenience of the parties, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original for all purposes.

 

 

Managing Director Agreement    
The parties state that they have read, understood and agree to be bound by this Agreement and that they have had the opportunity to seek the advice of legal counsel before signing it and have either sought such counsel or have voluntarily decided not to do so:
                 
BEARINGPOINT       EMPLOYEE    
 
                
By:
               
 
               
 
          (Signature)    
 
                
Title:
               
 
               
 
          (Print Employee’s Full Name)    
 
                
Dated:
               
 
               
 
          (Employee’s ID)    
 
                
 
          Dated:    
 
         
 
    

 

EX-10.54 12 c15652exv10w54.htm MANAGING DIRECTOR AGREEMENT exv10w54
 

Exhibit 10.54
EXHIBIT F
MANAGING DIRECTOR AGREEMENT
This Agreement (“Agreement”) is between BearingPoint, Inc., (“BearingPoint”) and Judy Ethell (“You” and all similar references) as of July 1, 2005 (the “Effective Date”):
1. Employment. You accept employment on the terms of this Agreement from the Effective Date until the end of your employment with BearingPoint in accordance with Section 6. By signing this Agreement, you agree to: (a) devote your professional time and effort to BearingPoint’s business and to refrain from professional practice other than on account of or for the benefit of BearingPoint; (b) perform any and all work assigned to you by BearingPoint faithfully and to the best of your ability at such times and places as BearingPoint designates; (c) abide by all policies of BearingPoint, current and future, including the Equal Employment Opportunity policy attached as Exhibit A, and the Anti-Harassment policy attached as Exhibit B, (d) abide by the Confidentiality and Intellectual Property Agreement attached as Exhibit C, and (e) abide by the terms of the Consent Form, concerning personal data, attached as Exhibit D. You also confirm that you are not currently bound by any agreement that could prohibit or restrict you from being employed by BearingPoint Or from performing any of your duties under this Agreement.
2. Compensation and Benefits. As of the Effective Date, BearingPoint will pay you a base salary, less required and authorized withholding and deductions, payable in installments in accordance with BearingPoint’s normal payroll practices. From time to time, BearingPoint may adjust your Salary and other compensation in its discretion. During your employment, you will be eligible to participate in any employee compensation or benefit plans (including group medical and 401(k)), incentive award programs, and stock option plans, any applicable employee stock purchase plan and to receive other fringe benefits that BearingPoint may decide to make generally available to employees in your position. BearingPoint may amend or discontinue any of its plans, programs, policies and procedures at any time for any or no reason with or without notice.
You agree that in order to receive any stock options, you will be required to enter into a separate stock option agreement which will provide (among other things) for the termination of your stock options and a payment to BearingPoint or its designee of some or all of your gain if you violate Sections 1(d), 3, 6(b), or Exhibit C.
3. Covenants. In consideration of your employment and eligibility for stock options, restricted stock units and other equity rights, you agree to the following obligations which are reasonably designed to protect BearingPoint’s legitimate business interests without unreasonably restricting your ability to earn a living after leaving BearingPoint. The wishes or preferences of a Client or Prospective Client (defined below) are not relevant to or admissible in any dispute under Sections 3 or 4:

 

 

(a) While employed with BearingPoint and until 1 year after your termination or resignation, you cannot enter a relationship or venture to provide BearingPoint Services anywhere in the world for the benefit of an entity other than BearingPoint. A relationship or venture is defined as an association with (i) another management group member of BearingPoint (or other comparable individual), or (ii) any individual who was a management group member of BearingPoint (or other comparable individual) within 12 months before your termination or resignation or 12 months before you seek to perform BearingPoint Services with such an individual, whichever is later.
(b) While employed with BearingPoint and for 2 years after your termination or resignation, you shall not, directly or indirectly: (i) perform, provide or assist any “Competing Entity” as that term is defined in Section 5 below, in performing or providing BearingPoint Services for any Client or Prospective Client; or (ii) solicit or assist any entity in soliciting any Client or Prospective Client for the purpose of performing or providing any BearingPoint Services. Without limitation whatsoever to the foregoing, you expressly acknowledge and agree that for the purpose of providing, or assisting any Competing Entity in providing, BearingPoint Services, your calling upon, meeting with, making presentations to, having business related discussions with Clients and Prospective Clients of BearingPoint, within such 2 years of ceasing, for whatever reason, to serve as the Chief Accounting Officer (CAO) or Chief Financial Officer (CFO) of BearingPoint will necessarily constitute a violation of this Subsection 3.(b), immediately entitling BearingPoint to pursue all legal and equitable remedies available.
(c) While employed with BearingPoint and for 2 years after your termination or resignation, you shall not, directly or indirectly, accept employment or a contract for the provision of services, with any Competing Entity.
(d) While employed with BearingPoint and for 2 years after your termination or resignation, you shall not, directly or indirectly solicit, employ or retain (or assist another entity in doing so) any employee of BearingPoint or any former employee who left BearingPoint within 12 months before or after your termination or resignation to perform BearingPoint Services with you or any person associated with you.
4. Remedies. In addition to any other remedies that may be available to BearingPoint for breach of this Agreement, you agree to the following obligations and accept the following consequences for breaching Section 3. You agree that BearingPoint will suffer damages as a result of your breach of Section 3 that are difficult to calculate and that the payments required by Section 4 are a reasonable forecast of the damages likely to result and are not a penalty of any kind. In particular, you agree that your total compensation is based on your value to BearingPoint, and that it reflects your efforts at developing and maintaining client and employee relationships on behalf of BearingPoint.
(a) If you breach Section 3(b)(i) or (ii), you will, in addition to any payments under Sections 4(b), pay BearingPoint or its designee 50% of the gross fees and other amounts paid or payable during the 3 years after the breach to you or any other entity associated with you, by any Client or Prospective Client that was solicited or provided with services

 

 

in violation of Section 3(b)(i) or (ii). These payments will be made in cash within thirty days after payment by the Client or Prospective Client.
(b) If you breach Section 3(d), you will, in addition to any payments under Sections 4(a), pay BearingPoint or its designee 100% of the total compensation (including salary and bonus) paid or payable by BearingPoint to the solicited, employed or retained employee during: (i) the 12 months before your breach of Section 3(d); or (ii) in the case of a former employee, the 12 months before the employee left BearingPoint. These payments will be made in not less than quarterly cash installments over the 24 months following such breach.
5. Certain Definitions.
“Cause” means any of the following conduct by you: (I) embezzlement, misappropriation of corporate funds, or other material acts of dishonesty; (II) commission or conviction of any felony, or of any misdemeanor involving moral turpitude, or entry of a plea of guilty or nolo contendere to any felony or misdemeanor; (III) engagement in any activity that you know or should know could harm the business or reputation of BearingPoint; (IV) material failure to adhere to BearingPoint’s corporate codes, policies or procedures; (V) continued failure to meet performance standards as determined by BearingPoint over two consecutive performance review periods; (VI) a breach or threatened breach of any provision of Sections 1(d), 3 or Exhibit C, or a material breach of any other provision of this Agreement if the breach is not cured to BearingPoint’s satisfaction within a reasonable period after BearingPoint provides you with notice (to your address on BearingPoint’s records) of the breach (no notice and cure period is required if the breach cannot be cured); or (VII) violation of any statutory, contractual, or common law duty or obligation to BearingPoint, including without limitation the duty of loyalty.
“Client” means any entity that is or was a client of BearingPoint (which includes any subsidiary of BearingPoint throughout this definition) at or within 12 months before the time you seek to represent a competitive enterprise or entity, or solicit or perform services for such client and that, within 2 years before your termination or resignation, you (I) performed BearingPoint Services for or on behalf of BearingPoint, or a related or affiliated entity, or (II) had contact with, knowledge of, or access to Proprietary Information (as defined in Exhibit C) or other information concerning the client, in connection with your BearingPoint employment.
“BearingPoint” as used throughout this Agreement includes any successor to, or subsidiary of BearingPoint with which you become employed or associated (except as more broadly defined elsewhere in this Agreement).
“BearingPoint Services” means the managed services, business strategy consulting services, systems integration and information technology operations services, conducted and provided by BearingPoint.

 

 

“Competing Entity” means any of the following entities, their affiliates, subsidiaries, and successors: Accenture Ltd., Answerthink, Booz Allen, Cambridge Technology Partners (CTP), Computer Sciences Corporation (CSC), Deloitte Consulting, EDS, Cap Gemini Ernst & Young, KPMG LLP, Anteon, SAP, Hewlett-Packard, IBM, Lucent Technologies, Oracle, PricewaterhouseCoopers, Unisys, US Web, and Ernst & Young.
“Prospective Client” means any entity that is not a Client but with respect to whom, within 1 year before your termination or resignation, you (I) conducted, prepared or submitted, or assisted in conducting, preparing or submitting, any proposal or client development or marketing efforts on behalf of BearingPoint (which includes any subsidiary of BearingPoint throughout this definition), or a related or affiliated entity, or (II) had contact with, knowledge of, or access to Proprietary Information or other information concerning the prospective client, in connection with your BearingPoint employment.
6. Termination and Resignation. (a) Your employment is terminable at will. BearingPoint may terminate your employment for Cause effective immediately upon written notice (to your address on BearingPoint’s records). You will be entitled to earned and unpaid base salary and payment for any earned and unused personal days through the termination date (in the case of performance deficiencies, yon also will receive an additional payment as provided below).
BearingPoint also may terminate your employment other than for Cause or for no reason, effective upon written notice (to your address on BearingPoint’s records) or any later date specified in the notice. In this case, you will be entitled to all earned and unpaid base salary through the termination date. BearingPoint will also pay you for any earned and unused personal days and an additional amount of severance pay Which, when added to your personal days payment (if any), totals 3 months pay at your then current base salary. All of the payments in this Section 6(a) are less required and authorized withholding and deductions. BearingPoint, in its sole discretion, may elect any method or manner of payment under this provision, and may also require you to perform services, as detailed in Section 1 of this Agreement, during the period of time prior to your specified termination date. In the event you qualify for payment under any of the provisions of the employment letter entered into by you and BearingPoint on March 17, 2005 (the “Employment Letter”) as a result of your termination or resignation of employment, you shall not be eligible to receive any payment under the provisions of this Managing Director Agreement.
(b) You may voluntarily terminate your employment with BearingPoint upon 3 months prior written notice directed to BearingPoint’s Human Resources Department. Without limiting any other remedies, if you breach this Section 6(b), you will pay BearingPoint or its designee 25% of the total compensation (including salary and bonus) paid or payable to you on an annualized basis by BearingPoint during the fiscal year in which your breach occurs. These payments will be made in not less than quarterly cash installments over the 24 months following your breach.

 

 

(c) You agree to provide all assistance requested by BearingPoint in transitioning your duties, responsibilities and client and other BearingPoint relationships to other BearingPoint personnel, both during your employment and after your termination or resignation.
7. Arbitration. All disputes between you and BearingPoint (which includes any subsidiary of BearingPoint throughout this Section 7) shall be resolved by arbitration in Virginia. Arbitrable disputes include without limitation employment and employment termination claims and claims by you for employment discrimination, harassment, retaliation, wrongful termination, or violations under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Family and Medical Leave Act, or the Employee Retirement Income Security Act, under any other federal, state, foreign or local law, regulation, ordinance, executive order, constitution, or under common law.
Arbitrations shall take place before a panel of three arbitrators which shall consist of one person selected by each of the two sides to the dispute and the third person jointly selected by the other two arbitrators. The arbitration panel shall have no authority to modify this Agreement (except pursuant to Section 12) or to award punitive or exemplary damages. BearingPoint may, without waiving its right to compel arbitration, and without securing or posting any bond, seek injunctive or other provisional relief from a court of competent jurisdiction in aid of arbitration, to prevent any arbitration award from being rendered ineffectual, to protect BearingPoint’s confidential information or intellectual property or for any other purpose in the interests of BearingPoint. The courts of Virginia or any court of competent jurisdiction in any other state will have jurisdiction over any proceeding relating to arbitrations, and may enter judgment on any arbitration award rendered or grant judicial recognition of the award or an order of enforcement. You agree to reimburse BearingPoint upon demand for any and all costs (including, without limitation, attorneys’ fees and court costs) incurred by BearingPoint in enforcing any of its rights under this Agreement.
8. Survival. Sections 1(d), 1(e), 2 through 14, and Exhibits C and D shall survive any termination of this Agreement or your employment (including your resignation).
9. Entire Agreement. This Agreement is the entire agreement between you and BearingPoint regarding these matters and supersedes any verbal and written agreements on such matters. In the event of a conflict between the main body of this Agreement and the Exhibits, the main body of the Agreement shall control. This Agreement may be modified only by written agreement. All Section headings are for convenience only and do not modify or restrict any of this Agreement’s terms.
10. Choice of Law/Conflicts. This Agreement shall be governed by the laws of the Commonwealth of Virginia. You and BearingPoint consent to the jurisdiction and venue of any state or federal court in the State of Virginia and agree that any permitted lawsuit may be brought to such courts or other court of competent jurisdiction. Each party hereby waives, releases and agrees not to assert, and agrees to cause its affiliates to waive,

 

 

release and not assert, any rights such party or its affiliates may have under any foreign law or regulation that would be inconsistent with the terms of this Agreement as governed by Virginia law. In the event of a conflict between the provisions of this Managing Director Agreement and the provisions of the Employment Letter accepted by you and which resulted in your employment with BearingPoint, the terms of the Employment Letter shall control.
11. Waiver. Any party’s waiver of any other party’s breach of any provision of this Agreement shall not waive any other right or any future breaches of the same or any other provision.
12. Severability. If any provision of this Agreement is held invalid or unenforceable for any reason, the invalidity shall not nullify the validity of the remaining provisions of this Agreement. If any provision of this Agreement is determined by a court or arbitration panel to be overly broad in duration, geographical coverage or scope, or unenforceable for any other reason, such provision will be narrowed so that it will be enforced as much as permitted by law.
13. Assignment and Beneficiaries. This Agreement only benefits and is binding on the parties and their respective affiliates, successors and permitted assigns provided that you may not assign your rights or duties under this Agreement without the express prior written consent with the other parties. BearingPoint may assign any rights or duties that it has, in whole or in part, to other affiliated or subsidiary entities without your consent.
14. Counterparts. For convenience of the parties, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original for all purposes.
The parties state that they have read, understood and agree to be bound by this Agreement and that they have had the opportunity to seek the advice of legal counsel before signing it and have either sought such counsel or have voluntarily decided not to do so:
             
For BearingPoint, Inc.:
      For Employee:    
 
            
 
      /s/ Judy Ethell    
 
           
Harry L. You
       Judy Ethell    
Chief Executive Officer
      Date: June 22, 2005    
BearingPoint, Inc
           

 

EX-14.1 13 c15652exv14w1.htm STANDARDS OF BUSINESS CONDUCT exv14w1
 

Exhibit 14.1
(BEARINGPOINT LOGO)
Policy Document
Standards of business conduct
Effective May 31, 2007

 

 

Every day, each of us makes decisions that can impact not only our compliance with legal and regulatory requirements but also our company’s reputation in the marketplace. The Standards of Business Conduct will help us make the right decisions.

 

 

Standards of business conduct
Table of contents
         
FROM OUR LEADERSHIP
     5  
 
        
OUR STANDARDS OF BUSINESS CONDUCT: INTRODUCTION
     6  
Core values
     7  
Other resources
     8  
 
        
OUR RELATIONSHIPS
     10  
Relationships with our clients
     10  
Relationships with our business partners and suppliers
     10  
Relationships with each other
     11  
An inclusive and non-harassing workplace
     11  
Environment and workplace safety
     12  
Relationships with our competitors
     12  
 
        
CONFLICTS OF INTEREST
     14  
Relationships between employees
     14  
Relationships with clients, business partners and suppliers
     14  
Outside directorships, employment and ownership interests
     15  
Corporate opportunities
     15  
 
        
GIFTS AND ENTERTAINMENT
     16  
Government officials in the United States
     16  
Non-U.S. government officials
     17  
Non-government clients, partners and suppliers
     18  
Gifts to each other
     19  
Gifts and entertainment: References and resources
     19  

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CONFIDENTIALITY AND PRIVACY
     20  
Proprietary information
     20  
Material non-public information
     20  
Insider trading policy
     21  
Third-party confidential information
     21  
Personal data privacy and protection
     22  
 
        
CORPORATE STEWARDSHIP
     23  
Protection and proper use of assets
     23  
Lobbying and political activities
     23  
Individual activities
     24  
Financial reporting
     24  
Time and expense reporting
     25  
Global engagements
     26  
Charities
     27  
 
        
ENFORCEMENT AND RESPONSIBILITIES
     28  
Employee resources/ reporting concerns
     28  
Obligation to report
     29  
 
        
A COMMITMENT TO YOU
     30  
 
        
APPENDIX A: EXAMPLES OF U.S. REGULATIONS AND LAWS
     31  
 
        
APPENDIX B: DEFINITIONS
     33  

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Standards of business conduct
From our leadership
Every solid business is built on a culture of honesty and integrity. Clients, partners and employees want to work with companies that they can trust. That’s why BearingPoint’s executive management has sponsored the development of these guidelines, the Standards of Business Conduct (SBC), for employees to follow while conducting business on BearingPoint’s behalf. These guidelines will help ensure that we consistently act with the highest ethical standards across segments and around the world.
The SBC will serve as the single global standard for ethical behavior across our company. It is designed as a reference to help you understand and find important company policies and applicable regulations. It also describes steps to take in the event of an ethical question, concern or violation. Every day, each of us makes decisions that can impact not only our compliance with legal and regulatory requirements but also our company’s reputation in the marketplace. The SBC will help us make the right decisions.
We appreciate your participation and hope you enjoy our approach to reinforcing a culture of integrity and building a company of which we are proud to be a part.
             
(PHOTO OF HARRY YOU)
  Chief Executive Officer,
Harry You 		  (PHOTO OF LAURENT LUTZ)   General Counsel,
Laurent Lutz
 
            
(PHOTO OF ED HARBACH)
  President and
Chief Operating Officer,
Ed Harbach 		  (PHOTO OF RUSS BERLAND)   Chief Compliance
Officer, Russ Berland
 
            
(PHOTO OF JUDY ETHELL)
  Chief Financial Officer,
Judy Ethell		        

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Our standards of business conduct: Introduction
Integrity is essential for the continued success of our company. Our conduct must be above reproach and consistent with our values. Compliance with the Standards of Business Conduct (SBC) is the basis for maintaining our reputation for fairness and honesty inside and outside our company. We expect each of our team members to act with integrity and in a manner that enhances the reputation of our company, avoiding even the appearance of improper conduct. It is up to each of us to exercise ethical leadership in our daily decisions and actions — not only doing the right thing, but also using Company resources and trusted colleagues to validate our decisions while encouraging others to do the same. When we see potential problems, it is our responsibility to raise our concerns. Ethical behavior and compliance with laws are always more important than any business outcome. This is our challenge and our commitment.
Our SBC are just that —BearingPoint’s standards for legal and ethical behavior while conducting BearingPoint business or engaging in any activities that have the potential to impact BearingPoint.
This document is divided into sections that address our relationships, potential conflicts of interest, gifts and entertainment, confidentiality and privacy, corporate stewardship, and enforcement and responsibilities. Throughout the SBC, there are references and hyperlinks to specific company policies. Key words and concepts are hyperlinked to Appendix B: Definitions. And a point of contact for each section is provided on the Compliance/Ethics page of Inside BearingPoint. And in all cases, the process in the Enforcement and Responsibilities section is used for raising concerns about potential violations of the SBC. The SBC is not only a reference tool that provides each of us specific information on our standards and expectations, it is also a connection point to other resources when further guidance is needed.

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Standards of business conduct
Core values
The SBC is derived from our core values and is supported by official BearingPoint policies and procedures:
Commitment to clients’ success. We work hard to build committed, lasting, strategic relationships that allow us to have clients for life. We are focused on creating a client service experience that is responsive, enriching and valued. Our clients’ business results are our paramount priority; we succeed only when they do.
Commitment to each other’s success. We strive to create an environment where we recruit, mentor and retain talented employees who reach their full potential. By leveraging the talents of each individual and encouraging everyone to excel in high-performance teams, we create a highly motivated organization that can achieve breakthrough results. Our collective experience and success allows us to make monumental advances and achieve far more important goals than what can be achieved through individual performance alone.
Leaders who serve. Achieving our vision and aggressive goals depends on the strength and depth of our leadership. We are accountable and hold others accountable. We lead by example and encourage employees to demonstrate leadership in conducting their duties. Leadership is an opportunity to serve the team by casting compelling vision, managing for extreme results and mentoring individuals to achieve their full potential.
Teamwork and collaboration. We believe that teams power breakthrough results. When we work together, we win together, ensuring that the goals of the business are the focal point of our energies. We foster and reward open communication, teamwork and personal development.
Integrity in our actions. We set high standards and follow through on what we say we are going to do. We act with fairness and honesty. We are proud of what we do and how we interact with our clients, business partners and colleagues. We are consummate professionals, transparent in our actions, straightforward and dependable. Each of us demonstrates ethical leadership — not only doing

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the right thing but also using company resources and trusted colleagues to validate our decisions while encouraging others to do the same.
Speed with purpose. We act with a sense of speed and purpose in all that we do. We must constantly increase our business velocity to stay ahead of our clients’ needs and to be out in front of the market with our solutions. We make decisions, correct mistakes quickly and embrace innovation, while insisting on results that bring real business value.
Stewardship. We strive to leave the company a better place than where we started and carefully analyze every decision we make. We recognize that true stewardship grows from the investments we make in training and development and through the creation of opportunities for our people. In the end, we must act as the owners and protectors of future generations.
One firm. We work together as one company to achieve our common vision and shared success. We have open collaboration, guided by a common strategy. We make selective choice of services and markets, so as to win through significant investments in focused areas rather than many small initiatives.
Other resources
Although the SBC discusses some laws, regulations, company policies and business practices, it cannot address every issue that may arise in the conduct of our business. Therefore, it is important that if you have any questions about how to interpret or apply any of the standards within this document that you seek the appropriate guidance from the designated contacts provided on the Compliance/Ethics page of Inside BearingPoint.
In addition, you may share any questions or concerns regarding any compliance-related issue by using GuideLine, a one-stop ethics and compliance resource. GuideLine allows you to contact the Office of the Chief Compliance Officer confidentially and, if you wish, anonymously. GuideLine is administered by an outside company that, on request, can remove identifying information but still enable you to communicate back and forth about your questions or concerns with the Office of the Chief Compliance Officer. Translation services are available.

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Standards of business conduct
You can contact GuideLine:
•   Via telephone: Call 1 800 206 4081 in the United States and Canada, or click here for international access numbers.
•   Via the Web: Click here to place or follow up on an inquiry, report or question via the Web.
•   Via e-mail: Please e-mail inquiries, complaints or questions to guideline@bearingpoint.com.
All inquiries are handled confidentially, in a manner consistent with BearingPoint policies and procedures.

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Our relationships
We should deal fairly with our clients, business partners and suppliers, each other, and competitors. Our reputation is one of the most important things we have and we should all strive to protect it.
Relationships with our clients
We expect that all BearingPoint employees act with integrity in striving to meet our clients’ needs and that we compete fairly and legally. Our proposals must clearly and fairly represent our experiences and our services. We should not knowingly underbid or overstate our ability to deliver services or promise anything that would violate law or BearingPoint policies. Each of us should operate in accordance with the terms of our client contracts and adhere to applicable legal requirements and company policies regarding all aspects of each engagement, including the offering or receipt of gifts and items of value. (For more information, see the Gifts and Entertainment section.)
Relationships with our business partners and suppliers
We recognize the importance of teamwork in meeting our common goals. It is important to choose our business partners and suppliers based on informed decisions regarding quality, price, reputation for integrity and the need for the service. When we take positive action to ensure that we obtain goods and services in compliance with applicable laws, we avoid any action that would appear to be in conflict with law or BearingPoint policies and procedures.
We must never base the decision to form a business partnership or to choose a supplier on individual personal interest. No employee, nor his/her immediate family, may accept any gift above nominal value or kickback from a business partner or supplier. We must avoid conflicts of interest and even the appearance of improper conduct. (For more information, see the Conflicts of Interest and Gifts and Entertainment sections.)

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Standards of business conduct
Relationships with each other
We are committed to each other’s success and understand that teamwork and cooperation among all of us is critical to our company’s success. Our relationships are an important dimension of our corporate culture. To foster this culture, BearingPoint establishes and enforces policies and procedures about equal opportunity, workplace conduct and employee safety.
An inclusive and non-harassing workplace
We strive to recruit and maintain a workforce where diversity is valued and all employees are treated with dignity and respect. A culture of inclusion is important and we must be sensitive to cultural and individual differences by acknowledging the rights of others to hold values, attitudes and opinions that differ from our own. Varied backgrounds, cultures and experiences make us stronger as a company. Any form of discrimination or harassment will not be tolerated. BearingPoint prohibits discrimination on the basis of race, ethnic origin, religion, sex, national origin, disability, protected veteran status or any other factors that are covered by law. In addition, we will not tolerate sexual advances, comments or any other actions in the workplace that create an offensive or intimidating work environment. We must be careful that items we keep in our workspace, jokes we tell others, images we display on our computer screens or any other actions we take or choices we make do not harass or discriminate against our fellow employees. Each of us has responsibility to abide by the law and BearingPoint corporate and regional policies regarding employment, including, but not limited to, Harassment, Equal Opportunity, Disabilities and IT Use Policy.
The Global Human Resources site on Inside BearingPoint contains additional information regarding global employment policies; questions on human resource policies applicable in the United States and Canada may be directed to the Human Resource Information Center (HRIC) at HRIC@bearingpoint.com. Employees operating outside of the United States and Canada should contact their regional human resource representatives for more information on applicable employment policies. If you have a question regarding non-harassment or discrimination policy, please click here. If you have a concern

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about a potential violation of the policies, contact GuideLine or e-mail GuideLine@bearingpoint.com.
Environment and workplace safety
We must comply with local environmental, health and safety laws, and foster a healthy, safe and productive work environment, free from recognized occupational hazards and violence. BearingPoint does not tolerate threats, threatening behavior or acts of violence against employees, visitors, clients or other individuals by anyone on company property or at client locations or while on company business. Each of us has a responsibility to abide by all applicable state/local/national laws, regulations and international standards regarding workplace conduct; we must also abide by all BearingPoint corporate and applicable regional policies, including, but not limited to, Workplace Conduct Policies, Safety in the Workplace, Workplace Violence, Weapons Possession, and Drug and Alcohol Use.
The safety and security of our employees is of paramount importance and BearingPoint has established policies and procedures toward that goal. Some of these measures include: establishment of a Crisis Response Center, Emergency Programs for medical and non-medical emergencies, and Global Travel Advisory Services. Please refer to the global Safety and Security site on Inside BearingPoint for more information. The site contains contact information for employees’ questions or concerns.
Relationships with our competitors
While we may compete aggressively, we must conduct our business in a fair and lawful manner, abiding by antitrust and competition laws in the United States and countries in which we do business. We must strive to avoid even the appearance of a violation of these laws. Seeking to gain unfair competitive advantage over our competitors by disparaging their qualifications or misrepresenting our own is not acceptable business practice and will not be tolerated.

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Standards of business conduct
For questions about or guidance on complying with these laws, contact your local BearingPoint legal counsel for your country or business unit. To report concerns regarding a potential violation of this policy, please contact GuideLine, e-mail GuideLine@bearingpoint.com or call the Office of the Chief Compliance Officer.

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Conflicts of interest
We must be cautious about situations that may compromise our position or place our actions and reputation in question. We must avoid any conflict or even the appearance of a conflict of interest at every level of the company and comply with our Corporate Conflict of Interest policies. Conflicts of interest are relationships or interests that are or appear to be competing with the best interest of the organization and can involve employees and their immediate families, clients, partners, suppliers and shareholders. It is impossible to cover them all here, however. Following are common situations where conflicts can potentially and often do arise.
Relationships between employees
No employee may work in a position in which he or she has the authority to hire, directly supervise or attempt to influence the employment actions of an immediate family member or romantic partner. Any individual in a supervisory position may not pursue a romantic relationship with any person with whom there is a reporting relationship. While BearingPoint does not endorse such relationships, we recognize that occasionally such instances arise.1 In situations where a romantic partnership develops between two BearingPoint employees where one is in a direct line of performance or supervision, the senior-most employee must immediately disclose the relationship in writing to management and the human resources representative for appropriate action, including, but not limited to, separation or transfer of one or both employees to achieve compliance with this standard.2 All employees are subject to BearingPoint Harassment policies.
Relationships with clients, business partners and suppliers
We should not pursue romantic relationships with clients, business partners or supplier representatives with whom we have regular professional contact. Such romantic or immediate family relationships may create an appearance of a conflict
 
1 We recognize that in some EU countries relationships of this nature are considered matters of an employees’ private life and not subject to disclosure or approval from the company.
 
2 Unless prohibited by local law.

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Standards of business conduct
of interest. If a romantic or immediate family relationship exists or arises, we must disclose those relationships in writing to our managing director and GuideLine.3 If you are unsure as to whether your relationship may be considered a conflict of interest, contact GuideLine or e-mail GuideLine@bearingpoint.com.
Outside directorships, employment and ownership interests
It may be a conflict of interest to occupy a position such as officer or director or to be a Substantial Investor in a customer, competitor, partner or supplier. We may not be officers or members of any company’s board of directors or equivalent positions, without first obtaining approval from our general counsel.4
We may not hold outside employment whose duties are in conflict with the best interest of BearingPoint. We must always disclose any outside employment in writing to our performance managers.
Corporate opportunities
We should work to advance BearingPoint’s business interests. We may not personally pursue any outside business opportunity for ourselves that we find through BearingPoint and we may never compete with BearingPoint directly or indirectly.5
Conflicts of interest may be difficult to discern and are not limited to any of the situations described above. Because identifying or handling these conflicts can be difficult to manage on your own, all employees are encouraged to seek guidance whenever they are in doubt or have questions. For additional information or questions on these or other potential conflict situations, please refer to corporate and regional Conflict of Interest policies. Please contact GuideLine or e-mail GuideLine@bearingpoint.com if you have concerns or need to report a potential conflict of interest.
 
3 We recognize that in some EU countries relationships of this nature are considered matters of an employees’ private life and not subject to disclosure or approval from the company.
 
4 In EU countries we ask that you contact your local BearingPoint legal counsel regarding these matters.
 
5 In EU countries we ask that you contact your local BearingPoint legal counsel regarding these matters.

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Gifts and entertainment
Maintaining the highest standards of integrity and objectivity in all dealings with our clients, partners, suppliers and each other is critical to our business and our reputation. BearingPoint has specific policies regarding gifts and entertainment, as defined below.
•   A gift is any item of value, including, but not limited to, any gratuity, cash or cash equivalent, benefit, favor, service, tickets or passes to an entertainment, social or sporting event, reward, or promise of future employment. Items that are not considered gifts include modest refreshments, greeting cards, plaques, other items of low value, and rewards and prizes open to the general public.
•   Entertainment includes costs associated with a legitimate business activity, including, but not limited to, meals, tickets to sporting or social events, and golf outings, and must be within the boundaries of reason and moderation. To be considered entertainment (rather than a gift), BearingPoint personnel must attend the event along with clients and/or business partners or prospects.
It is imperative that we abide by all applicable policies, procedures and laws governing gifts and entertainment. These laws and policies are summarized in the sections below.
Gifts and entertainment: Government officials in the United States
Federal laws prohibit U.S. government employees from accepting anything of value. Therefore, we may not offer or accept from government employees any gift, entertainment or item of value from government employees. We may never offer or accept from state or local government employees any gift or entertainment of value unless allowed by applicable law.

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Standards of business conduct
Gifts and entertainment: Non-U.S. government officials
BearingPoint is subject to the Foreign Corrupt Practices Act (FCPA)1 and all of us worldwide must comply with BearingPoint’s FCPA Compliance Program, regardless of the country where we live or work. The FCPA prohibits making payments or giving gifts to non-U.S. government officials by or on behalf of U.S businesses for the purpose of obtaining or keeping business. We must not accept, give or authorize any promise, payment or gift of anything of value to or from any non-U.S. government official or political party member to influence or reward any act of that official. Any gift or entertainment associated with normal business courtesies offered to or accepted from a non-U.S. government official must comply with the BearingPoint FCPA Compliance Program and must be reported to and approved by the regional FCPA compliance officer. In addition, we may not authorize any third party working on our behalf to give or receive gifts to or from foreign officials because that would also be considered a violation of the FCPA Compliance Program. Violating any provisions of the FCPA could subject an individual and the company to criminal and civil penalties. We must be aware of any local country laws governing gifts and entertainment to or from government officials. You should check with local BearingPoint legal counsel for your country or business unit about these local laws, as well as with any questions or concerns.2
More information regarding the BearingPoint FCPA Compliance Program is located on Inside BearingPoint. Please direct any questions regarding the FCPA Compliance Program to your regional FCPA compliance officer or to Guideline or GuideLine@bearingpoint.com.
 
1 United States Code, Title 15. Commerce and Trade, Chapter 2b — Securities Exchanges, § 78dd-1 [Section 30a of the Securities Exchange Act of 1934].
 
2 No foreign law will supersede U.S. law.

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Gifts and entertainment: Non-government clients, partners and suppliers
We must not offer or accept any gift to or from any director, officer, employee or representative of any organization with whom the company does business in an attempt to provide an inappropriate business benefit. We may provide and accept reasonable business entertainment, such as an occasional meal, social or sporting event, authorized transportation in company vehicles, or attendance at company-sponsored promotional events. These activities should be part of a legitimate business activity, should not intend or appear to improperly influence behavior, and should occur on an infrequent basis. In some cases, we may provide or receive non-monetary gifts associated with common business courtesies to non-government clients if the gifts are of a nominal value and comply with BearingPoint’s regional and country policies and procedures on gifts, gift limits and expenses. The regional expense policies for North America, Latin America, EMEA and Asia-Pacific can provide further clarification on nominal value because it can vary from country to country.
In those situations where it would harm a business relationship or prove embarrassing or culturally insensitive to refuse gifts exceeding our limits, we may accept the gift on behalf of BearingPoint and use the gift for company purposes or donate the gift for a company-endorsed charitable use. See regional BearingPoint procedures or seek guidance from your manager and/or local BearingPoint legal counsel for your country or business unit should you accept or wish to accept a gift as described above because there may be reporting requirements associated with doing so.
Employees, officers and directors whose business units are based in North America are subject to the BearingPoint North America Employee Expense Reimbursement Policy and the BearingPoint North America Employee Expense Procedures. Employees located or working in Asia-Pacific countries are subject to the ASPAC Expense Policy. Employees located or working in EMEA or Latin America are subject to their respective regional expense policies. Employees,

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Standards of business conduct
officers and directors operating in countries other than the United States are also subject to local laws regarding gifts and entertainment. You must report all gifts or entertainment given or received to your managing director.
Gifts to each other
Although BearingPoint policy does not specify a dollar limit on gift-giving among employees, we must always use reason and good judgment when giving or accepting a gift. Contributing to a gift must always be voluntary; contributions may not be given for the purpose of trying to influence, gain favor or show favoritism. BearingPoint does not reimburse the cost of gifts given from one employee to another. Company-approved items provided to employees as recognition for a business achievement or as part of company-sponsored events are not considered gifts under our SBC. Gifts given by the company to the employee or employee’s family are governed by applicable country laws.
Gifts and entertainment: References and resources
For more information regarding gifts and entertainment, please refer to the company policies as referenced above. If you have a question regarding the appropriateness of a gift that your engagement management team cannot answer, or if you are aware of a violation to the gifts or expenses policies, please contact GuideLine or e-mail GuideLine@bearingpoint.com.

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Confidentiality and privacy
BearingPoint’s success in the marketplace requires that we maintain the trust of our clients and the investment community. We are often in possession of different types of confidential information for our company and our clients and it is imperative that we protect its confidentiality.
Proprietary information
At a minimum, proprietary information includes company operating information, such as trade secrets, business and marketing plans, employee lists and contact information, technologies, contract terms, customer lists and databases.
Generally, we may only disclose proprietary information about the company, which is not material non-public information (defined below), if we are specifically authorized to do so to further legitimate business objectives. Such disclosures are subject to appropriate protections, such as non-disclosure agreements.
We understand, respect and support the obligations that employees may have to their former employers. These restrictions may include obligations to maintain the confidentiality of the former employers’ proprietary information and covenants regarding non-solicitation of the former employers’ employees and clients.
Material non-public information
Generally, employees of the company are not authorized to disclose material non-public information about the company.
Any information concerning the company is considered material if there is a substantial likelihood that a reasonable investor would consider it important in determining whether to buy, sell, hold or engage in other transactions concerning the company’s securities. This information includes, but is not limited to, changes in earnings, winning or losing new business, plans to issue securities, mergers and acquisitions, positive or negative actions impacting the company, or changes in key personnel. Information is considered non-public if it has not been the subject of public disclosure.

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Standards of business conduct
It is BearingPoint’s policy to comply with all periodic reporting and disclosure requirements, including Regulation Fair Disclosure (FD). It is our practice to disclose material information about the company in a public, timely and non-selective manner. Only authorized representatives of the company, such as the chief executive officer, chief financial officer, general counsel or assistant corporate secretary, have the authority to approve communication of material non-public information on behalf of the company.
Insider trading policy
It is illegal to trade on the basis of material non-public information and it is illegal to “tip” or provide or otherwise release information to someone who trades on the basis of that information. We must abide by federal regulations and BearingPoint’s Insider Trading policies. Insider trading is the buying, selling, short-selling or otherwise trading in any security (including stocks, bonds or options) based on material non-public information. Insider trading applies to BearingPoint securities, as well as those of its affiliates, customers, and suppliers and partners.
Violation of U.S. federal insider trading laws can expose you and the company to significant criminal and civil penalties, including fines, jail and additional sanctions imposed by the Securities and Exchange Commission. Employees who violate BearingPoint’s insider trading policies are subject to disciplinary sanctions up to and including termination, as well as possible legal action.
Third-party confidential information
Any information entrusted to us by our clients is safeguarded according to the terms of our client contracts and confidentiality agreements. As a trusted business advisor, it is our duty not to release any confidential information pertaining to our clients unless legally required to do so.
Policy-related questions may be directed to the general counsel or Investor Relations. If you have a concern about a potential violation of this section, please contact GuideLine or e-mail GuideLine@bearingpoint.com.

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Personal data privacy and protection
We recognize that protecting the privacy of personal data1 that comes into our possession is of paramount importance. We are committed to process2 personal data in compliance with applicable laws and will abide by all BearingPoint policies and procedures regarding the protection of personal data. We have reasonably adequate organizational and technical measures in place to protect the security of personal data.
Whenever we process personal data we will comply with our global Privacy Policy and other related company policies and procedures regardless of whether the data pertains to employees, clients or other third parties.3 Besides adhering to other principles detailed in the Privacy Policy, we will process personal data fairly and only for the legitimate purposes specified.
We provide employees access to view and change their personal data and inquire about their privacy concerns.
If you have questions or concerns regarding the protection of your personal data, you may access the Privacy Questions and Concerns site on Inside BearingPoint, contact GuideLine or e-mail GuideLine@BearingPoint.com.
 
1 In general, “personal data” means data relating to a living individual who is or can be identified from the data.
 
2 “Process” means any operation or set of operations performed upon personal data, whether or not by automatic means, including collection, recording, organization, use, transfer, disclosure, storage, manipulation, combination and deletion.
 
3 Including, for example, policies and procedures regarding the disclosure of confidential information of BearingPoint employees, such as salary information.

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Standards of business conduct
Corporate stewardship
Protection and proper use of assets
Company and client assets (including facilities, software, computers, computer networks, e-mail, telephones, fax machines, etc.) are to be used only for legitimate business purposes. It is our policy that the BearingPoint network or other BearingPoint resources may not be used in violation of law, in an inappropriate manner (for example, to access or show sexually explicit material) or for outside business purposes. We are each accountable for the proper use, safeguard and maintenance of our company’s and our clients’ assets and resources. These assets and resources include our chargeable time; therefore, it is important that we engage only in legitimate business activities during our charged hours whether those hours are being charged to the company or to a client. Inside BearingPoint provides further information on our policies and procedures pertaining to the use of assets and resources, including e-mail and Internet usage.
If you have questions or suspect misuse, fraud or theft of our company’s or our clients’ assets, please contact GuideLine, e-mail GuideLine@bearingpoint.com or call the Office of the Chief Compliance Officer.
Lobbying and political activities
We represent ourselves and our company in a way that will enhance and uphold our reputation for integrity. Through the course of our business, we may have the opportunity to interact with government officials and participate in the political process in the countries in which we operate. We realize that such interaction for the purposes of influencing legislation, regulations or decisions may constitute lobbying. In many cases, lobbying requires registration and/or disclosures and its definition can vary widely by country or region. Therefore, we are responsible for knowing and abiding by all company policy and local and national laws, rules, regulations and procedures governing lobbying and lobbyists. We must not conduct activities that may constitute lobbying without the advice and approval of our appropriate legal counsel.

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Additionally, we recognize that laws and regulations in the countries in which we operate may strictly limit contributions by corporations and government contractors to political parties and candidates. We must abide by all local laws and regulations, and by the standards as set forth by the U.S. Federal Election Commission or other applicable or governing organizations. No political contribution shall be made by BearingPoint, whether directly or indirectly, without approval by the general counsel or their designee.
Individual activities
Individual employees are not prohibited from participating in the political process individually through lobbying or by personally making political donations to candidates or committees. Such activities must not be associated with BearingPoint and must be in compliance with the laws of an employee’s country and local governments. BearingPoint will not reimburse employees or endorse political activities employees undertake as private individuals.
BearingPoint permits contributions to federal and local political action committees to support legislation favorable to the company and our clients. We must conduct any volunteer activities on personal time, and we may not use company resources (including secretarial services, telephones, computers, etc.).
For questions or further information, please contact the BearingPoint Government Relations Office. To report a concern, please contact GuideLine or e-mail GuideLine@bearingpoint.com.
Financial reporting
As a publicly traded company in the United States, BearingPoint is required by U.S. law to make full, fair, accurate, timely and understandable disclosure in all reports and documents it files. We maintain and present accounting and financial records and associated reports in accordance with Generally Accepted Accounting Principles (GAAP) and the laws in the countries in which we operate. Any communications with financial analysts and investors must be made in compliance with

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Standards of business conduct
the Regulation Fair Disclosure,1 and may only be released by the chief executive officer, chief financial officer or their designee(s). Requests for information or other communications from stakeholders should be referred immediately to the chief financial officer or general counsel. Requests for company information or comment should be referred immediately to Corporate Communications. Requests from an investigator, law enforcement official or private attorney should be referred immediately to the appropriate legal counsel.
Additionally, business records and communications, such as e-mails, internal reports, memos and similar items, may become public. Therefore, all communications should be written carefully and with forethought because they may be saved and forwarded to others. It is our policy to maintain work papers and records in accordance with U.S. federal and other local requirements, as well as company policies regarding Records Retention.
For questions or if you need more information regarding our current financial processes and procedures, refer to the Finance and Accounting portal on Inside BearingPoint. If you have a concern, please contact GuideLine or e-mail GuideLine@bearingpoint.com. You may submit confidential, anonymous concerns regarding questionable accounting or auditing matters to GuideLine.
Time and expense reporting
It is BearingPoint’s policy that we document and record all of our hours accurately and in accordance with the applicable BearingPoint’s Time and Expense Reporting policies, procedures and processes for the applicable region or country. We must document and record expenses accurately. BearingPoint reimburses employees for reasonable and necessary business expenses incurred while conducting business on behalf of the company and its clients in accordance with BearingPoint’s Expense Reimbursement policies and company procedures. Abiding by the applicable regional and local policies and procedures (North America, Asia-Pacific, EMEA and Latin America) is critical in keeping current
 
1  The U.S. Government Securities and Exchange Commission Regulation on Fair Disclosure is available at http://www.sec.gov/rules/final/33-7881.htm

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and accurate in the reporting of our time and expenses, including legitimate adjustments to time and expense reports.
For questions or if you need more information regarding time and expense policies and procedures, refer to the global Time and Expense portal or your regional portal on Inside BearingPoint. If you have a concern regarding improper time or expense reporting, please contact GuideLine or e-mail GuideLine@bearingpoint.com.
Global engagements
BearingPoint has established Rules of Global Engagement (RGE) to assist in the growth of our business outside of North America and to minimize BearingPoint’s exposure to legal and financial risks in cross-border engagements. The RGE designate specific procedures and regulations governing the movement of personnel, funds or technology across country borders by BearingPoint employees. We must abide by national laws and applicable local laws and regulations regarding export controls, and we must comply with all BearingPoint RGE and procedures, including the completion and submission of the eC600 form to our Engagement Advisory Services group for all cross-border engagements. We must only travel from one country to another using the appropriate travel documentation, including visas where applicable. Failure to abide by these policies could expose the individual and the company to significant legal, tax and other risks. We must research and seek appropriate advice in advance of entering a business relationship that involves cross-border activities.
For more information regarding cross-border engagements, please reference the Rules of Global Engagement website on Inside BearingPoint. For more information on cross-border travel and visa information, please reference GEMS. For more information on export control, please contact the Office of the General Counsel.

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Standards of business conduct
Policy-related questions may be directed to the Engagement Advisory Services group. If you have concerns regarding violation of this policy, please contact GuideLine, e-mail GuideLine@bearingpoint.com or call the Office of the Chief Compliance Officer.
Charities
BearingPoint promotes participation in charitable activities, both as individuals and on behalf of the company. As such, BearingPoint has established the Angel Points program to allow employees to lend their exceptional talents to a variety of causes that help communities and individuals in need. Participation in charitable activities is strictly voluntary. In no cases may an employee use his or her position to in any way influence an employee’s decision on whether or not to participate or contribute to a charitable event or cause. No company resource may be used for a charitable cause not authorized or approved by the company as stated in the charities policies and procedures.

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Enforcement and responsibilities
We, the employees of BearingPoint, are responsible to demonstrate BearingPoint values and abide by these Standards of Business Conduct (SBC), as well as company policies, procedures and applicable laws. It is our responsibility to report a violation or a suspected violation. Failure to report a violation or suspected violation may, depending on the circumstances, be a violation of these standards. It is also our responsibility to cooperate with authorized investigations of suspected violations.1
Employees found to have violated our SBC, laws or company policies may be subject to disciplinary actions that may include, but are not limited to, censure, demotion, reassignment, suspension or discharge. In some circumstances, civil litigation or criminal prosecutions may be pursued. Investigations are handled in accordance with company policy and are overseen by the Office of the Chief Compliance Officer.
Employee resources/reporting concerns
BearingPoint has established guidelines to assist all of us in complying with the SBC and in reporting concerns about violations or suspected violations. For guidance on any requirement of the SBC, you may contact the designated contact for that area by going to the Contacts section of the Compliance website. BearingPoint prohibits retaliation of any form against any employee who makes a good faith report of misconduct, as well as against those who cooperate in an investigation. In the event you have a concern to report, you may:
•   Contact your performance manager to review the matter. Your performance manager is responsible for elevating the issue to the Office of the Chief Compliance Officer or other appropriate personnel to determine how compliance matters should be handled.
 
•   Contact a member of management (other than your performance manager). If you are uncomfortable discussing the matter with your performance manager, you may reach out to a higher level of management within your
 
1 In certain countries, such as Germany, Austria and France, obligations and processes for raising concerns and cooperating with investigations about potential misconduct are governed by local law. The Compliance website contains local reporting requirements that vary from this standard.

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Standards of business conduct
    Engagement Team or leadership chain of command. All members of the BearingPoint management team maintain an open-door policy.
 
•   Contact human resources, the general counsel, director of ethics, chief compliance officer or the chief executive officer, as well as other executive officers. If you are uncomfortable discussing the matter with a higher level of management, you may reach out to others within the organization, including executive officers.
 
•   Contact GuideLine. Submissions to GuideLine can be made anytime:
  –   Call 1800 206 4081 in the United States and Canada, or click here for international access numbers. Translation services are available.
 
  –   Submit via the Web by clicking here.
    Inquiries to the telephone line and website are handled by trained specialists, and your communications can remain anonymous upon your request.
  –   E-mail GuideLine@bearingpoint.com. Note that e-mails sent to the GuideLine e-mail address are not anonymous.
Reports of violations are kept confidential to the extent reasonably possible. We process all reports of violations in accordance with company policies and take appropriate action in the event that a violation is found.
Obligation to report
If you receive a complaint or concern under this process regarding potential violations of the SBC or applicable law, you must2 report it to the Office of the Chief Compliance Officer immediately by sending an e-mail to GuideLine© bearingpoint.com. Please direct additional questions regarding any information contained in the Standards of Business Conduct to the Contacts section of the Compliance website.
 
2 In certain countries, such as Germany, Austria and France, obligations and processes for raising concerns and cooperating with investigations about potential misconduct are governed by local law. The Compliance website contains local reporting requirements that vary from this standard.

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A commitment to you
BearingPoint has established the Office of the Chief Compliance Officer to oversee our compliance and ethics commitments, including these Standards of Business Conduct (SBC). This office is staffed with ethics and compliance specialists who provide guidance, oversight and support to all employees of BearingPoint to help them act in an ethical and fully compliant manner. Whether contacted through GuideLine or through direct contact with individuals within the office, these specialists are here to help enable you to adhere to the SBC and BearingPoint’s policies.
In order for us to succeed, we must each be positioned to be successful and comply with the spirit and letter of the SBC and the policies and procedures behind them. The Office of the Chief Compliance Officer is committed to your success and to providing you with the tools, education and assistance you need to incorporate these standards into your daily business conduct.
To contact the Office of the Chief Compliance Officer, e-mail GuideLine@bearingpoint.com or visit the Compliance portal on Inside BearingPoint.

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Standards of business conduct
Appendix A: Examples of U.S. regulations and laws
Our U.S. federal and state government clients have very specific rules for conducting business that impact how we all operate, not just those working directly on U.S. federal or state contracts. For example, it is a criminal violation (a felony) to knowingly make a false claim or false statement to the U.S. federal government. Violations of these and other statutes can subject us to damaging litigation, reduction of negotiated contract prices, suspension of BearingPoint’s eligibility to receive U.S. federal contracts, or even debarment from doing business with the U.S. federal government. BearingPoint abides by Federal Compliance Policies.
Violations may also subject BearingPoint and its individual employees to civil lawsuits or criminal prosecution with possible fines, debarment or suspension, and prison sentences. U.S. states and many localities have similar laws and regulations, and BearingPoint has various obligations to disclose such issues. BearingPoint offers training specific to public services requirements that is mandatory for any employee within public services and any employee from any other business unit working on a public services contract.
Although not a complete listing, several of the most prominent statutes governing how we work with the U.S. federal government are cited below for convenience. For a complete listing and information on U.S. federal regulations, contact the BearingPoint Office of the General Counsel or Office of the Chief Compliance Officer.
Anti-Kickback Act of 1986
This U.S. act prohibits kickbacks, bribes or improper payments or anything of value in return for favorable treatment for a U.S. federal contract or subcontract.

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Federal Acquisition Regulations (FAR) and Procurement Integrity Act
The U.S. federal government has stringent rules regarding the awarding of contracts and pay for contractor services. The Federal Acquisition Regulation impacts the costs that can be charged to the client, timekeeping, accounting policies and procedures, the nature of work to be provided, and the manner in which competitions among companies are operated and contracts enacted. The Procurement Integrity Act also places special restrictions on hiring or retaining as an employee or consultant any government employee (other than secretarial, clerical or similarly graded employees). Accordingly, contact the BearingPoint legal counsel for your business unit for guidance before interviewing, hiring or retaining any such former government employee who left the government within the three previous years.
Byrd Amendment
This regulation guides political contributions. The Byrd Amendment forbids the use of U.S. federal funds to pay for anyone to influence or attempt to influence any member of Congress or their staff for the purposes of award or modification to a federal contract.
The Civil Rights Act of 1964
This act states that covered employers may not discriminate in any aspect of employment on the basis of race, color, religion, sex and national origin.
Truth in Negotiations Act
The Truth in Negotiations Act states all costs and pricing statements and other communications regarding cost or pricing to the U.S. federal government must be truthful, accurate, current and complete.

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Standards of business conduct
Appendix B: Definitions
     
Phrase   Definition
Conflict of interest
  Any relationship or interest that is or appears to be competing with the best interest of the organization.
 
    
Diversity
  The concept of diversity means understanding that each individual is unique, recognizing with acceptance and respect our individual differences, whether by race, ethnicity, gender, sexual orientation, socio-economic status, age, physical abilities, religious beliefs, political beliefs or other ideologies.
 
    
Employees
  For the purpose of this document, includes all full-time, part-time, temporary, permanent and worker-on-call individuals. This does not include those individuals who are provided to BearingPoint under contract from another company, such as a staffing agency.
 
    
Entertainment
  Costs associated with a legitimate business activity, including, but not limited to, meals, tickets to sporting or social events, golf outings, etc., and must be within the boundaries of reason and moderation. To be considered entertainment (rather than a gift), BearingPoint personnel must attend the event along with clients and/or business partners or prospects.
 
    
Ethically
  In an ethical manner, with integrity and in accordance with BearingPoint’s values and these Standards of Business Conduct.

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Phrase   Definition
Foreign government
official
  Any officer or employee of a foreign government or any of its departments or agencies or incorporated entities (e.g., state-owned utilities or airlines); any officer or employee of any legal entity or joint venture that is wholly or in part owned or controlled by a foreign government, by any department or agency thereof, or by any state-owned enterprise; any public international organization, officer or employee (e.g., an employee of the United Nations or World Bank); any person acting in an official capacity, even if honorary; any director, officer or employee of a state-owned company; or a close relative of a high government official.
 
    
Gift
  Any item of value, including, but not limited to, any gratuity, cash or cash equivalent, benefit, favor, service, use of company resources or facilities, tickets or passes to an entertainment, social or sporting event, reward, or promise of future employment. Items that are not considered gifts include modest refreshments, greeting cards, plaques, other items of little intrinsic value, and rewards and prizes open to the general public.
 
    
Immediate family
  Includes a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and daughters-in-law, brothers- and sisters-in-law, and anyone living in such person’s home.

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Standards of business conduct
     
Phrase   Definition
Insider trading
  The buying, selling, short-selling or otherwise trading in any security (including stocks, bonds or options) based on material non-public information. “Insider” means all of BearingPoint’s directors and employees and all other persons who have knowledge of, access to or possession of material non-public information regarding BearingPoint or any other entity, if the information about the other entity was obtained as a result of your relationship to BearingPoint. For example, members of employees’ families, consultants engaged by BearingPoint, our customers and suppliers, and others may be considered insiders if they have knowledge of or access to material non-public information.
 
    
Kickback
  Gratuitous payment or gift of a thing of value made to a person for a referral of business or a business advantage.
 
    
Lobbying
  Lobbying activities are lobbying contacts and efforts in support of such contacts, including preparation and planning activities, research and other back- ground work that is intended, at the time it is performed, for use in contacts, and coordination with the lobbying activities of others.

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Phrase   Definition
Material information
  Any information that might influence a reasonable investor’s decision to buy, sell, exercise or hold any BearingPoint securities or that might otherwise affect the price of any BearingPoint securities or the securities of another entity. Examples of material information include, but are not limited to, monthly and quarterly revenues and earnings, the gain or loss of an important customer, the development or discontinuance of an important product, a significant competitive development, a possible acquisition, disposition or alliance, and an important change in management.
 
    
Nominal value
  Of a small amount; for the purposes of this document, nominal amounts can only be determined in consultation with appropriate and applicable regional policies.
 
    
Personal data
  Data relating to a living individual who is or can be identified from the data.
 
    
Process
  As pertains to data privacy, any operation or set of operations performed upon personal data, whether by automatic or manual means, including collection, recording, organization, use, transfer, disclosure, storage, manipulation, combination and deletion.
 
    
Records
  Anything documented or other such physical evidence providing information about past events.
 
    
Romantic partner
  A romantic partner, for purposes of this document, is defined as a romantic or sexual partner of a BearingPoint employee.

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Standards of business conduct
     
Phrase   Definition
Security
  Any publicly traded common stock, preferred stock, notes, debentures or other securities and any options to purchase any publicly traded common stock, preferred stock, notes, debentures or other securities. With respect to BearingPoint, this currently consists of its common stock.
 
    
Significant other
  A spouse or domestic partner of a BearingPoint employee.
 
    
Substantial investor
  A substantial investor (for purposes of this SBC only) is an employee who has a financial or other interest (directly or through a family member) in a customer, competitor, partner or supplier or other party doing business with BearingPoint that creates a close alignment between the investor’s interests and the company’s interests by virtue of the amount of the investment or the investor’s potential to exert influence or control over the company. While not a lower limit, in all cases when an employee owns 5% or more of a company, whether directly or indirectly, that employee is considered a substantial investor in the company.
 
    
Teamwork
  Cooperative effort by the members of a group or team to achieve a common goal.
 
    
Tip
  To provide confidential, advance or inside information; when an insider, intending to give the receiver an advantage in the market, violates his fiduciary duty to the issuing company by deliberately giving inside information to an outsider or in any way suggesting or inferring possible future actions that are designed to or have the effect of influencing financial behavior.

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Phrase   Definition
U.S. export
  An actual shipment or transfer out of the United States but also includes the “release” of technology to a foreign national. Release includes 1) visual inspection or access by foreign nationals of U.S. technology, including remote access to software in any form or fashion (for example, access to client systems, access via the Web links, access from an available FTP site posting, etc.); 2) oral exchanges of information in the United States or abroad of controlled U.S. technology; or 3) the application to situations abroad of personal knowledge or technical experience acquired in the United States—that is, a technology knowledge transfer regarding a controlled technology (for example, a U.S. person giving advice to a foreign national regarding what direction to take to approach software debugging an Oracle 11i install is considered an export of controlled technology). If you have questions about export defined from a non-U.S. perspective, please consult your local BearingPoint legal counsel.
 
    
Work papers
  Documentation of evidence of our work, how our time was spent on the project, etc.; papers provide continuity in the event that team members or leadership change during an engagement.

38

 

The effective date of this Standards of Business Conduct is May 31, 2007. As of this date, the SBC will supersede the previously published Professional Conduct Chapter of the Business Practices Guide, any conflicting provisions of the PS Business Ethics and Code of Conduct Policy Statement, and Code of Business Conduct & Ethics. If there is a conflict between any BearingPoint ethics-related guidance or policy document and the SBC, the SBC prevails. Should you have questions or concerns about this statement and its applicability to BearingPoint documents or policies not specifically named here, please contact the Office of the Chief Compliance Officer.

 

 

(BEARINGPOINT LOGO)
BearingPoint, Inc.
www.bearingpoint.com
© 2007 BearingPoint, Inc. All rights reserved. BearingPoint® is a registered trademark of BearingPoint, Inc. or its affiliates in the United States and other countries. Any other marks are the property of their respective owners.
C3901-0507-01-USRD913

 

EX-16.1 14 c15652exv16w1.txt LETTER FROM PRICEWATERHOUSECOOPERS LLP Exhibit 16.1 [PRICEWATERHOUSECOOPERS LOGO] PricewaterhouseCoopers LLP 125 High Street Boston, MA 02110-1707 Telephone (617) 530 5000 Facsimile (617) 530 5001 www.pwc.com June 28, 2007 Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Commissioners: We have read the statements made by BearingPoint, Inc. in the first and second paragraphs of Item 9 to the BearingPoint's Annual Report on Form 10-K for the year ended December 31, 2006. We agree with the statements concerning our Firm in the first and second paragraphs of such Form 10-K. Very truly yours, /s/ PricewaterhouseCoopers LLP EX-21.1 15 c15652exv21w1.htm LIST OF SUBSIDIARIES exv21w1
 

Exhibit 21.1
BearingPoint, Inc. Subsidiaries
800 MHZ Transition Administrator, LLC (Delaware)
Barents Group Egypt, Ltd. (Egypt)
BearingPoint (Asia Pacific) Limited (British Virgin Islands)
BearingPoint (Asia Pacific) Pte. Ltd. (Singapore)
BearingPoint (ASPAC) Sdn. Bhd. (Malaysia)
BearingPoint (Hong Kong) Limited (British Virgin Islands)
BearingPoint (Netherlands Americas) N.V. (Curaçao)
BearingPoint (Thailand) Ltd. (Thailand)
BearingPoint 2002 Asia Pacific Pte. Ltd. (Singapore)
BearingPoint 2002 Asia Pacific Pty. Ltd. (Australia)
BearingPoint 2002 Australia Pty. Ltd. (Australia)
BearingPoint 2002 (Brasil) Ltda. (Brazil)
BearingPoint 2002 Peru SRL (Peru)
BearingPoint 2002 Singapore Pte. Ltd. (Singapore)
BearingPoint Advisors Venezuela C.A. (Venezuela)
BearingPoint Americas Holdings Limited (Bermuda)
BearingPoint Americas, Inc. (Delaware)
BearingPoint Australia Pty. Ltd. (Australia)
BearingPoint B.V. (Netherlands)
BearingPoint Belgium s.p.r.l. (Belgium)
BearingPoint BG Australia Pty. Ltd. (Australia)
BearingPoint BG, LLC (Delaware)
BearingPoint Business Consulting España SL (Spain)
BearingPoint Business Consulting Private Limited (India)
BearingPoint Canada Holding I, Inc. (Canada)
BearingPoint Canada Holding II, Inc. (Canada)
BearingPoint Capital, LLC (Delaware)
BearingPoint Chile Limitada (Chile)
BearingPoint Co., Ltd. (Chiyoda-ku) (Japan)
BearingPoint Co., Ltd. (Shinjuku-ku) (Japan)
BearingPoint Consulting 2002 Finland Oy (Finland)
BearingPoint Denmark ApS (Denmark)
BearingPoint ECA Limited (Kenya)
BearingPoint Enterprise Holdings, LLC (Delaware)

 

 

BearingPoint Europe Limited (United Kingdom)
BearingPoint Finland Oy (Finland)
BearingPoint France SAS (France)
BearingPoint Germany GmbH (Germany)
BearingPoint Global Caymans I Limited (Cayman Islands)
BearingPoint Global Caymans II Limited (Cayman Islands)
BearingPoint Global Consulting Netherlands B.V. (Netherlands)
BearingPoint Global Delaware, LLC (Delaware)
BearingPoint Global Holdings II Limited (Bermuda)
BearingPoint Global Holdings Limited (Bermuda)
BearingPoint Global Operations, Inc. (Delaware)
BearingPoint Global Solutions Danismanlik Ltd. Sirket (Turkey)
BearingPoint Global Solutions Delivery GmbH (Germany)
BearingPoint Global, Inc. (Delaware)
BearingPoint GmbH (Austria)
BearingPoint GmbH (Germany)
BearingPoint Guam LLC (Guam)
BearingPoint Holdings GmbH & Co. KG (Germany)
BearingPoint Hungary Consulting Limited Liability Company (Hungary)
BearingPoint Hungary No. 2 Services Limited Liability Company (Hungary)
BearingPoint INFONOVA GmbH (Austria)
BearingPoint INFONOVA GmbH (Germany)
BearingPoint Information Technologies (Shanghai) Ltd. (China)
BearingPoint Information Technology N.V. (Aruba)
BearingPoint Information Technology N.V. (Curaçao)
BearingPoint International Bermuda Holdings Limited (Bermuda)
BearingPoint International Holdings I Limited (Bermuda)
BearingPoint International Holdings II Limited (Bermuda)
BearingPoint International Holdings Limited (Bermuda)
BearingPoint International I, Inc. (Delaware)
BearingPoint Ireland Limited (Bermuda)
BearingPoint Israel, LLC (Delaware)
BearingPoint Italy Srl. (Italy)
BearingPoint Jordan LLC. Co. (Jordan)
BearingPoint KCA Holdings Limited (Bermuda)
BearingPoint Limitada (El Salvador)
BearingPoint Limited (Ireland)

 

 

BearingPoint Limited (United Kingdom)
BearingPoint LP (Canada)
BearingPoint S. A. (Brazil)
BearingPoint Managed Services GmbH (Germany)
BearingPoint Managed Services, S.L. (Spain)
BearingPoint Management Consulting (Shanghai) Ltd. (China)
BearingPoint Management Consulting N.V. (Curaçao)
BearingPoint Management Consulting N.V. (Aruba)
BearingPoint Mexicana S.A. de C.V. (Mexico)
BearingPoint Mexico S. de R.L. de C.V. (Mexico)
BearingPoint Middle East FZ-LLC (United Arab Emirates)
BearingPoint N.B. Inc. (Canada)
BearingPoint N.V. (Suriname)
BearingPoint Netherlands Holdings B.V. (Netherlands)
BearingPoint New Zealand Limited (New Zealand)
BearingPoint Norway AS (Norway)
BearingPoint OOO (Russia)
BearingPoint Pakistan (Private) Limited (Pakistan)
BearingPoint Peru SRL (Peru)
BearingPoint Philippines Limited (Bermuda)
BearingPoint Pte. Ltd. (Singapore)
BearingPoint Puerto Rico, LLC (Delaware)
BearingPoint Russia, LLC (Delaware)
BearingPoint S.A. (Argentina)
BearingPoint S.A. (Costa Rica)
BearingPoint S.I., Inc. (Korea)
BearingPoint Software Solutions, S.L. (Spain)
BearingPoint South Pacific, LLC (Delaware)
BearingPoint Southeast Asia, LLC (Delaware)
BearingPoint Spain Holdings Limited (United Kingdom)
BearingPoint Sweden AB (Sweden)
BearingPoint Switzerland AG (Switzerland)
BearingPoint Technology Holdings Limited (Bermuda)
BearingPoint Technology Procurement Services GmbH (Austria)
BearingPoint Technology Procurement Services, LLC (Delaware)
BearingPoint Technology Solutions, ULC (Canada)
BearingPoint USA, Inc. (Delaware)

 

 

BearingPoint USVI, LLC (U.S. Virgin Islands)
BearingPoint V, Inc. (Canada)
BearingPoint, Inc. (Korea)
BearingPoint, LLC (Delaware)
Dallas Project Holdings Limited (Barbados)
Educational Information Management Systems LLC (Delaware)
GDFFT Holding N.V. (Curaçao)
i2 Mid Atlantic, LLC (Delaware)
i2Northwest, LLC (Delaware)
KCI Funding Corporation (Delaware)
Kompetenzzentrum für wissensbasierte Anwendungen und System Forschungs-und Entwichklungs GmbH
(Austria)
KPMG Consulting, Inc. (Panama)
KPMG Consultoria S.A. (Guatemala)
KPMG-Versa Partnership (Canada)
Metis Projekt- Vertriebs- GmbH (Germany)
Metrius, Inc. (Delaware)
OAD Acquisition Corp. (Delaware)
OAD Group, Inc. (California)
Paradawn N.V. (Curaçao)
Peatmarwick, Inc. (New York)
Peloton Holdings, LLC (Delaware)
PT Barents Indonesia (Indonesia)
Shijon N.V. (Curaçao)
Siacon GmbH (Germany)
Softline Acquisition Corp. (Delaware)
Softline Consulting and Integrators, Inc. (California)

 

EX-31.1 16 c15652exv31w1.htm CERTIFICATION OF CHIEF EXECUTIVE OFFICER exv31w1
 

Exhibit 31.1
CERTIFICATION
I, Harry L. You, certify that:
1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2006 of BearingPoint, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
  (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  (c)   Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  (d)   Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
  (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
 
  (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
         
Date:
   June 28, 2007    
 
 
 
    
 
        
/s/ Harry L. You    
Harry L. You    
Chief Executive Officer    

 

EX-31.2 17 c15652exv31w2.htm CERTIFICATION OF CHIEF FINANCIAL OFFICER exv31w2
 

Exhibit 31.2
CERTIFICATION
I, Judy A. Ethell, certify that:
1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2006 of BearingPoint, Inc. (the “Registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
  (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  (c)   Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  (d)   Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
  (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
 
  (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
         
Date:
   June 28, 2007    
 
 
 
    
 
        
/s/ Judy A. Ethell    
Judy A. Ethell    
Chief Financial Officer    

 

EX-32.1 18 c15652exv32w1.htm 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER exv32w1
 

Exhibit 32.1
Certification of the Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350
     In connection with the Annual Report of BearingPoint, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Harry L. You, Chief Executive Officer of the Company, hereby certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
  (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
             
Date:
   June 28, 2007   /s/ Harry L. You
 
       
 
     
 
Harry L. You 		   

 

EX-32.2 19 c15652exv32w2.htm 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER exv32w2
 

Exhibit 32.2
Certification of the Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. Section 1350
     In connection with the Annual Report of BearingPoint, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Judy A. Ethell, Chief Financial Officer of the Company, hereby certify, to the best of my knowledge, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
  (1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
  (2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
             
Date:
   June 28, 2007   /s/ Judy A. Ethell    
 
           
 
     
 
Judy A. Ethell 		   

 

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