-----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, TkHf4EOjwvBhnkSRXBQtVMyNrQzyFohM/tXJMB4+XAOSd0Cs6PKjzueRSmW7NhfN Y+vDsJ5mVxruMKH44CIkkw== 0000928385-98-001115.txt : 19990827 0000928385-98-001115.hdr.sgml : 19990827 ACCESSION NUMBER: 0000928385-98-001115 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19980522 DATE AS OF CHANGE: 19990826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANSWERTHINK CONSULTING GROUP INC CENTRAL INDEX KEY: 0001057379 STANDARD INDUSTRIAL CLASSIFICATION: 8742 IRS NUMBER: 650750100 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-48123 FILM NUMBER: 98630689 BUSINESS ADDRESS: STREET 1: 1401 BRICKELL AVENUE STE 440 CITY: MIAMI STATE: FL ZIP: 33131 BUSINESS PHONE: 3053758005 S-1/A 1 AMENDMENT #2 TO THE FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998 REGISTRATION NO. 333-48123 - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 2 FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ANSWERTHINK CONSULTING GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) FLORIDA 8748 65-0750100 (PRIMARY S.I.C. CODE NUMBER) (IRS EMPLOYER (STATE OF IDENTIFICATION NO.) INCORPORATION) 1401 BRICKELL AVENUE, SUITE 350 MIAMI, FLORIDA 33131 (305) 375-8005 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) TED A. FERNANDEZ PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHAIRMAN ANSWERTHINK CONSULTING GROUP, INC. 1401 BRICKELL AVENUE, SUITE 350 MIAMI, FLORIDA 33131 (305) 375-8005 (NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE OF AGENT FOR SERVICE) COPIES TO: DAVID B.H. MARTIN, JR., ESQ. HOGAN & KEITH F. HIGGINS, ESQ. ROPES & GRAY ONE HARTSON L.L.P. 555 13TH STREET, N.W. INTERNATIONAL PLACE BOSTON, MA 02110- WASHINGTON, DC 20004-1190 (202) 637- 2624 (617) 951-7000 5600 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR ANY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ PROSPECTUS (Subject To Completion) Issued May , 1998 3,850,000 Shares [LOGO OF ANSWERTHINK CONSULTING GROUP, INC. APPEARS HERE] COMMON STOCK ----------- OF THE 3,850,000 SHARES OF COMMON STOCK BEING OFFERED, 2,850,000 SHARES ARE BEING SOLD BY THE COMPANY AND 1,000,000 SHARES ARE BEING SOLD BY THE SELLING SHAREHOLDERS. SEE "PRINCIPAL AND SELLING SHAREHOLDERS." THE COMPANY WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE SALE OF SHARES BY THE SELLING SHAREHOLDERS. PRIOR TO THE OFFERING THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $12 AND $14. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE. ----------- The Common Stock has been approved for listing on The Nasdaq National Market under the symbol "ANSR." ----------- THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 2 HEREOF. ----------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- PRICE $ A SHARE -----------
UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS AND PROCEEDS TO SELLING PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS -------- -------------- ----------- ------------ Per Share...................... $ $ $ $ Total(3)....................... $ $ $ $
- - ------------- (1) The Company and the Selling Shareholders have agreed to indemnify the several Underwriters, as defined, against certain liabilities, including liabilities under the Securities Act of 1933. See "Underwriters." (2) Before deducting expenses payable by the Company estimated to be $900,000. (3) The Company and certain Selling Shareholders have granted to the Underwriters an option exercisable within 30 days of the date hereof to purchase up to an aggregate of 577,500 additional Shares of Common Stock at the price to public less underwriting discounts and commissions for the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full, the total price to public, underwriting discounts and commissions, proceeds to Company and proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriters." ----------- The Shares are offered, subject to prior sale, when, as and if accepted by the Underwriters named herein and subject to approval of certain legal matters by Ropes & Gray, counsel for the Underwriters. It is expected that delivery of the Shares will be made on or about , 1998 at the office of Morgan Stanley & Co. Incorporated, New York, New York, against payment therefor in immediately available funds. ----------- MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE Securities Corporation NATIONSBANC MONTGOMERY SECURITIES LLC THE ROBINSON-HUMPHREY COMPANY , 1998 NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING (THE "OFFERING") OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. --------------- UNTIL (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. --------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 1 Risk Factors............................................................. 2 The Company.............................................................. 9 Use of Proceeds.......................................................... 9 Dividend Policy.......................................................... 9 Capitalization........................................................... 10 Dilution................................................................. 11 Selected Consolidated Financial and Pro Forma Data....................... 12 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 14 Business................................................................. 20 Management............................................................... 31 Certain Transactions..................................................... 38 Principal and Selling Shareholders....................................... 41 Description of Capital Stock............................................. 42 Shares Eligible for Future Sale.......................................... 45 Underwriters............................................................. 48 Legal Matters............................................................ 50 Experts.................................................................. 50 Additional Information................................................... 50 Index to Financial Statements............................................ F-1
--------------- The Company intends to furnish its shareholders with annual reports containing audited consolidated financial statements and an opinion thereon expressed by an independent public accounting firm and with quarterly reports for the first three quarters of each year containing unaudited consolidated interim financial information. --------------- Unless otherwise indicated, all information in this Prospectus assumes (i) the conversion of all of the outstanding shares of convertible preferred stock into 7,160,104 shares of Common Stock (the "Conversion") concurrent with the Offering and (ii) no exercise of the Underwriters' over-allotment option. As used in this Prospectus, unless the context otherwise requires, references to "AnswerThink" or the "Company" are to the Company and its consolidated subsidiaries. --------------- CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS." [INSIDE GATEFOLD] [TEXT:] In today's climate of intense global competition and accelerating technological change, companies are increasingly turning to technology-enabled solutions to improve their productivity and competitive position. In this environment, IT is viewed not as an isolated back office function but rather as a critical component of organizational strategy. [SYLIZED TEXT:] "INTERPRISE" [TEXT:] The Company believes that success is today's business environment requires excellence in communication and collaboration, not just within the corporate enterprise, but across the network of customers, suppliers, strategic partners and others which together form the extended enterprise-what the Company refers to as the "Interprise" business model. AnswerThink provides IT solutions to help its clients succeed in this Interprise environment, which demands the assimilation and integration of data from both internal and external sources. [DIAGRAM SHOWING RELATIONSHIPS BETWEEN INTERNET, INTRANET, EXTRANET, CUSTOMERS AND INTEGRATED APPLICATIONS APPEARS HERE] [STYLIZED TEXT:] "KNOWLEDGE" [TEXT:] AnswerThink does more than study problems. It identifies and answers questions at the outset of an engagement which allows it to propose and implement solutions on time and on budget. By using its knowledge-based delivery process and employing experienced, multidisciplinary consulting teams, the Company is able to reduce both the risk of delivery and time of implementation of its project. [TEXT:] AnswerThink has developed Mind~share/SM/, a proprietary intranet-based knowledge management system that captures, indexes and disseminates the combined knowledge base and experience of its consultants. [SECOND PAGE GATEFOLD] [STYLIZED TEXT:] "SOLUTIONS" [TEXT:] AnswerThink provides solutions in the areas of process transformation and benchmarking, software package implementation and advanced technologies integration. AnswerThink delivers these solutions through multidisciplinary teams of professionals with experience in these areas that deliver solutions for each of the specific business functions in an organization. These teams target finance, administration and human resources, information technology, sales and customer support, and supply chain management. [DIAGRAM OUTLINING THE COMPANY'S BUSINESS FUNCTIONS, SOLUTION SETS AND CORE COMPETENCIES APPEARS HERE.] [LOGO OF ACG APPEARS HERE] PROSPECTUS SUMMARY This summary is qualified by the more detailed information and the audited financial statements and the unaudited pro forma financial information and notes thereto appearing elsewhere in this Prospectus. THE COMPANY AnswerThink Consulting Group, Inc. ("AnswerThink" or the "Company") is a rapidly growing provider of knowledge-based consulting and information technology ("IT") services to Fortune 1000 companies and other sophisticated buyers. The Company addresses its clients' strategic business needs by offering a wide range of integrated services or solutions, including benchmarking, process transformation, software package implementation, electronic commerce, decision support technology, technology architecture and integration and Year 2000 solutions. These solutions target a client's specific business functions (finance and administration, human resources, IT, sales and customer support, and supply chain management) and allow a business to reach beyond the enterprise and link the people, processes and technologies of the extended organization or "Interprise." AnswerThink markets its services to senior executives in organizations where business transformation and technology- enabled change can have a significant competitive impact. AnswerThink leverages its knowledge base to propose solutions to its clients' most critical and complex business problems. The Company delivers its services through multidisciplinary project teams that include professionals with both IT and business expertise. The Company's knowledge-based approach to consulting combines the knowledge and experience of its consultants with "best practice" process solutions and a benchmarking database developed by its subsidiary, The Hackett Group, Inc. (the "Hackett Group"). The Company believes its highly focused service delivery model provides its customers with a lower risk of delivery and a faster time to benefit as compared to the linear, "methodology based" processes employed by many other IT consulting firms. The Company was formed in April 1997 by several former leaders of the IT consulting practice of a "Big Six" accounting firm. From the outset, the Company made operational investments to develop a comprehensive market strategy, build a business infrastructure and create sophisticated management information and service delivery systems capable of supporting a large-scale consulting and IT services business. Since its formation, AnswerThink has acquired several consulting and IT services businesses, each of which brought to the Company complementary skills and customer relationships. In addition, the Company has grown internally by recruiting approximately 200 consultants. As of April 3, 1998, the Company employed 343 consultants. The Company supports its national solution delivery organization through a network of 10 offices located in Atlanta, Boston, Chicago, Cleveland, Dallas, Iselin (NJ), Miami, New York, Philadelphia and Silicon Valley. The Company has served a broad range of clients, including Avon Products, Bell Atlantic, Florida Power & Light, International Paper and Lucent Technologies. THE OFFERING Common Stock offered by the Company...... 2,850,000 shares Common Stock offered by the Selling Shareholders............................ 1,000,000 shares Total Common Stock offered............... 3,850,000 shares Common Stock outstanding after the Offering................................ 33,479,311 shares (1) Use of proceeds.......................... Repayment of indebtedness, working capital, potential acquisitions and general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol... ANSR
SUMMARY CONSOLIDATED FINANCIAL AND PRO FORMA DATA (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
APRIL 23, 1997 (INCEPTION) TO QUARTER ENDED JANUARY 2, 1998 APRIL 3, 1998 ------------------------------------------------------------- PRO FORMA PRO FORMA ACTUAL AS ADJUSTED(2) ACTUAL AS ADJUSTED(2) -------------- ----------------------------- -------------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net revenues............ $ 14,848 $ 34,014 $ 18,532 $ 19,864 Loss from operations.... (12,473) (11,435) (39,159) (39,301) Net loss................ (12,090) (10,909) (39,453) (39,275) Net loss per common share--basic and diluted................ $ (1.91) $ (0.70) $ (3.86) $ (2.13) Weighted average common shares outstanding..... 6,342,319 15,675,379 10,226,330 18,455,701
AS OF APRIL 3, 1998 ----------------------------------- PRO FORMA ACTUAL PRO FORMA(3) AS ADJUSTED(3) ------- ------------ -------------- CONSOLIDATED BALANCE SHEET DATA: Working capital............................. $ 4,250 $ 1,504 $27,560 Total assets................................ 37,841 44,638 64,174 Total long-term liabilities................. 9,720 9,729 2,229 Convertible preferred stock................. 11,140 -- -- Shareholders' equity........................ 2,645 17,015 50,571
- - ------- (1) Based on shares of Common Stock outstanding as of April 3, 1998 giving effect to 269,166 shares of Common Stock issued in the Legacy Acquisition (as defined). Excludes (i) 1,367,169 shares of Common Stock issuable upon exercise of options outstanding as of April 3, 1998, none of which were then exercisable, (ii) 37,500 shares of Common Stock issuable upon exercise of a warrant outstanding and exercisable as of April 3, 1998, and (iii) 9,382,831 additional shares of Common Stock reserved for future issuance under the Stock Plans (as defined). (2) Gives effect to the Legacy Acquisition, the Conversion, the Offering, and, for the earlier period, the 1997 Acquisitions (as defined). (3) Gives effect to the Legacy Acquisition and the Conversion. As adjusted reflects the Offering. 1 RISK FACTORS In evaluating the Company's business, prospective investors should carefully consider the following factors in addition to the other information presented in this Prospectus before purchasing the shares of Common Stock offered hereby. This Prospectus contains certain statements of a forward-looking nature relating to future events or the future financial performance of the Company. Prospective investors are cautioned that such statements are only predictions and that actual events or results may differ materially. In evaluating such statements, prospective investors should specifically consider the various factors identified in this Prospectus, including but not limited to the matters set forth below, which could cause actual results to differ materially from those indicated by such forward-looking statements. LIMITED COMBINED OPERATING HISTORY; HISTORY OF LOSSES The Company was formed in April 1997 and has grown substantially since its inception both internally and through acquisitions. Although certain of the acquired businesses have been in operation for some time, the Company has a limited history of combined operations. Consequently, the historical and pro forma information herein may not be indicative of the Company's financial condition and future performance. As a result of the commencement of operations, building of infrastructure and hiring of consultants, the Company had a net loss of $12.1 million for the period from its inception through January 2, 1998. The Company's operating results and financial condition will be adversely affected if revenues do not increase to cover the Company's expanding level of operating expenses. There can be no assurance that the Company will be successful in its efforts to increase its revenues. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY The Company expects variations in its revenues and operating results from quarter to quarter. Such variations are likely to be caused by such factors as mix and timing of client projects, completion of client projects, project delays, the number of business days in a quarter, hiring, integration and utilization of consultants and employees, variations in utilization rates and average billing rates for consultants and project managers, the length of the Company's sales cycle, the accuracy of estimates of resources required to complete ongoing projects, the ability of clients to terminate engagements without penalty and the integration of acquired entities. Because a significant portion of the Company's expenses is relatively fixed, a variation in the number or timing of client assignments or in employee utilization rates can cause significant variations in operating results from quarter to quarter and could result in losses to the Company. Unanticipated termination of a major project, a client's decision not to proceed to the stage of the project anticipated by the Company or the completion during a quarter of several major client projects without deploying consultants to new engagements could result in the Company's underutilization of employees and could therefore have a material adverse effect on the Company's business, financial condition and results of operations. In addition, to the extent that increases in the number of professional personnel are not followed by corresponding increases in revenues, the Company's operating results could be materially and adversely affected. Further, it is difficult for the Company to forecast the timing of revenue because project cycles depend on factors such as the size and scope of assignments and circumstances specific to particular clients. Because the Company only derives revenue when its consultants are actually working, its operating results are adversely affected when client facilities close due to holidays or inclement weather. In particular, the Company has generated a smaller proportion of its revenues and lower operating income during the fourth quarter of the year due to the number of holidays in that quarter. Given all of the foregoing, the Company believes that quarter-to-quarter comparisons of its operating results for preceding quarters are not necessarily meaningful and that such results for one quarter should not be relied upon as an indication of future performance. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Results of Operations." 2 MANAGEMENT OF GROWTH The Company is currently experiencing rapid growth that has challenged, and will likely continue to challenge, the Company's managerial and other resources. Since its inception through April 3, 1998, the number of consultants employed by the Company increased to 343 and further significant increases are anticipated during the current year. In addition, the number of active client engagements increased to 117 as of April 3, 1998. The Company has also expanded its geographic coverage to facilities in 10 locations since its inception and intends to continue to expand its geographic coverage and open additional offices in the future. The Company's ability to manage its growth will depend on its ability to continue to enhance its operating, financial and management information systems and to expand, develop, motivate and manage effectively an expanding professional work force. In addition, the Company's future success will depend in large part on its ability to continue to set rates and fees accurately and to maintain high rates of employee utilization and project quality, particularly if the average size of the Company's projects continues to increase. If the Company is unable to manage growth effectively, the quality of the Company's services, its ability to retain key personnel and its business, financial condition and results of operations could be materially adversely affected. Furthermore, there can be no assurance that the Company's business will continue to expand. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." RISKS RELATED TO ACQUISITIONS Since its inception, the Company has significantly expanded through acquisitions. In the future, a key element of the Company's growth strategy will be to pursue additional acquisitions in order to obtain well-trained, high-quality professionals, new service offerings, additional industry expertise, a broader client base or an expanded geographic presence. There can be no assurance that the Company will be able to integrate successfully recent or future acquired businesses without substantial expense, delays or other operational or financial problems or that it will be able to identify, acquire or profitably manage additional businesses. The Company may also require debt or equity financing for future acquisitions that may not be available on terms favorable to the Company, if at all. In addition, acquisitions may involve a number of risks, including diversion of management's attention, failure to retain key acquired personnel, unanticipated events or circumstances, legal liabilities and amortization of acquired intangible assets. Client satisfaction or performance problems at a single acquired firm could have a material adverse impact on the reputation of the Company as a whole. Further, there can be no assurance that the Company's recent or future acquired businesses will generate anticipated revenues or earnings. Any one of these risks could have a material adverse effect on the Company's business, financial condition and results of operations See "Business--Growth Strategy." INFLUENCE OF EXISTING SHAREHOLDERS Upon completion of the Offering, the Company's directors, executive officers and shareholders beneficially owning 5% or more of the Company's Common Stock together will beneficially own approximately 54.9% of the outstanding shares of Common Stock (approximately 53.7% if the Underwriters' over-allotment option is exercised in full). As a result, these shareholders, acting together, will be able to control matters requiring approval by the shareholders of the Company, including the election of directors. In addition, these shareholders are party to the Shareholders Agreement (as defined) pursuant to which they have agreed to vote their shares in favor of any person designated as a director by the other parties as provided therein. Although these provisions of the Shareholders Agreement have been waived temporarily, they will resume full force and effect if three independent directors have not been appointed prior to January 1, 1999. This concentration of ownership and the Shareholders Agreement may have the effect of delaying or preventing a change in control of the Company, including transactions in which stockholders might otherwise receive a premium for their shares over then current market prices. See "Management--Directors and Executive Officers," "Certain Transactions--Shareholders Agreement" and "Principal and Selling Shareholders." ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS The Company's Articles of Incorporation and Bylaws, as well as Florida corporate law, contain certain provisions that could have the effect of delaying, deferring or preventing a change in control of the Company. 3 These provisions could limit the price that certain investors might be willing to pay in the future for shares of the Common Stock. Certain of such provisions allow the Company to issue preferred stock having rights senior to those of the Common Stock without shareholder approval. Other provisions impose various procedural and other requirements that could make it difficult for shareholders to effect certain corporate actions. See "Description of Capital Stock." DEPENDENCE ON GENERAL ECONOMIC CONDITIONS Demand for professional IT and consulting services is also significantly affected by the general level of economic activity. When economic activity slows, clients may delay or cancel plans that involve the hiring of IT consultants. The Company is unable to predict the level of economic activity at any particular time, and fluctuations of conditions in the general economy could adversely affect the Company's business, operating results and financial condition. ATTRACTION AND RETENTION OF SKILLED PROFESSIONALS The Company's business involves the delivery of professional services and is labor-intensive. The Company's success depends in large part upon its ability to attract, develop, motivate and retain highly skilled IT professionals and business consultants. Qualified IT professionals and business consultants are in great demand and are likely to remain a limited resource for the foreseeable future. There can be no assurance that the Company will be able to attract and retain sufficient numbers of highly skilled IT professionals and business consultants, and any inability to do so could impair the Company's ability to adequately manage and complete its existing projects and to secure and complete client engagements and as a result could have a material adverse effect on the Company's business, operating results and financial condition. In addition, even if the Company is able to expand its team of highly skilled IT professionals and business consultants, the resources required to attract and retain such employees may adversely affect the Company's operating margins. See "Business--Human Resources." COMPETITION The market for consulting and IT services includes a large number of competitors, is subject to rapid change and is highly competitive. Primary competitors include participants from a variety of market segments, including "Big Six" accounting firms, systems consulting and implementation firms, application software firms, service groups of computer equipment companies, outsourcing companies, systems integration companies and general management consulting firms. Many of these competitors have significantly greater financial, technical and marketing resources and greater name recognition than the Company. The Company also competes with its clients' internal resources, particularly where these resources represent a fixed cost to the client. Such competition may impose additional pricing pressures on the Company. There can be no assurance that the Company will compete successfully with its existing competitors or with any new competitors. In addition, the Company is party to a confidential settlement agreement with a "Big Six" accounting firm resulting from certain litigation which contains certain non-competition and non- solicitation provisions. There can be no assurance that the Company may not be inhibited from soliciting certain potential clients. See "--Litigation and Settlement" and "Business--Competition." PROJECT RISKS; FIXED PRICE CONTRACTS Many of the Company's engagements involve projects that are critical to the operations of its clients' businesses and provide benefits that may be difficult to quantify. The Company's failure or inability to meet a client's expectations in the performance of its services could give rise to claims against the Company or damage the Company's reputation, adversely affecting its business, operating results and financial condition. In addition, most of the Company's contracts are terminable by the client with little or no notice to the Company and without 4 significant penalty. The Company derives a significant portion of its revenues from large client projects involving significant dollar values and the cancellation or significant reduction in the scope of a large engagement could have a material adverse effect on the Company's business, financial condition and results of operations. The Company undertakes certain projects on a fixed-price basis, which is distinguishable from the Company's principal method of billing on a time and materials basis, and undertakes other projects on a capped-fee basis. The failure of the Company to complete such projects within budget or below the cap would expose the Company to risks associated with potentially unrecoverable cost overruns. In addition, even when there is no fixed price or cap the Company's failure or inability to meet a client's expectations with regard to price could result in the refusal of a client to pay, all of which could have a material adverse effect on the Company's business, operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." CONCENTRATION OF REVENUES Since its inception, the Company has derived a significant portion of its net revenues from a relatively limited number of clients. For example, during the period from its inception through January 2, 1998, the Company's ten most significant clients accounted for approximately 38%, and two clients accounted for 13%, of its net revenues. There can be no assurance that these clients will continue to engage the Company for additional projects or do so at the same revenue levels. Clients engage the Company on an assignment-by-assignment basis, and a client can generally terminate a contract with little or no notice to the Company and without significant penalty. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Clients and Representative Solutions." DEPENDENCE ON PRINCIPAL SERVICE OFFERINGS The Company has derived a substantial portion of its revenues from projects based primarily on package software implementation and, to a lesser degree, Year 2000 issue consulting. Any factors negatively affecting the demand for package software implementation could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the demand for Year 2000 consulting services is likely to decline as Year 2000 issues are resolved. Although the Company intends to use the business relationships and knowledge of clients' systems obtained in providing Year 2000 consulting or package software implementation services to generate additional projects for these clients, there can be no assurance that the Company will be successful in generating any such additional business. See "Business--Services." RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON THIRD PARTY SOFTWARE OFFERINGS The Company's success will depend in part on its ability to develop IT solutions that keep pace with continuing changes in IT, evolving industry standards and changing client preferences. There can be no assurance that the Company will be successful in adequately addressing these developments on a timely basis or that, if these developments are addressed, the Company will be successful in the marketplace. In addition, there can be no assurance that products or technologies developed by others will not render the Company's services uncompetitive or obsolete. The Company's failure to address these developments could have a material adverse effect on the Company's business, operating results and financial condition. The Company derives a significant portion of its revenue from projects in which it implements software developed by third parties, such as PeopleSoft, Inc. ("PeopleSoft") and Oracle Corporation ("Oracle"). The Company's future success in its package implementation consulting services depends largely on its relationship with these organizations. There can be no assurance that the Company will continue to maintain a favorable relationship with these software developers. In addition, in the event that PeopleSoft and Oracle are unable to maintain their leadership positions within the business applications software market, if the Company's relationship with these organizations deteriorates, or if these organizations elect to compete directly with the Company, the Company's business, financial condition and results of operations could be materially adversely affected. See "Business--Services." 5 RELIANCE ON KEY EXECUTIVES The success of the Company is highly dependent upon the efforts, abilities, business generation capabilities and project execution skills of its senior leadership team. The loss of the services of any of its senior leadership team for any reason could have a material adverse effect upon the Company's business, operating results and financial condition, including its ability to secure and complete engagements. The Company has obtained a key-man insurance policy on Ted A. Fernandez, the Company's President, Chief Executive Officer and Chairman. INTELLECTUAL PROPERTY RIGHTS The Company relies upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright and trademark laws to protect its proprietary rights and the proprietary rights of third parties from whom the Company licenses intellectual property. Although the Company enters into confidentiality agreements with its employees and limits distribution of proprietary information, there can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. Although the Company believes that its services do not infringe on the intellectual property rights of others and that it has all rights necessary to utilize the intellectual property employed in its business, the Company is subject to the risk of claims alleging infringement of third-party intellectual property rights. Any such claims could require the Company to spend significant sums in litigation, pay damages, develop non-infringing intellectual property or acquire licenses to the intellectual property which is the subject of asserted infringement. See "Business--Intellectual Property Rights." LITIGATION AND SETTLEMENT Certain of the Company's key executives and other management employees resigned from a "Big Six" accounting firm during the first quarter of 1997. The accounting firm initiated litigation in connection with such resignations and the formation of the Company arising out of activities alleged to have constituted a breach of non-competition and non-solicitation obligations. This litigation was settled, and the Company, its key executives, certain other management employees and certain of its shareholders are subject to certain provisions contained in a confidential settlement agreement among such persons and the accounting firm (the "Settlement Agreement"). The Settlement Agreement prohibits the Company from soliciting or hiring the accounting firm's employees, and from soliciting or servicing certain of its clients, and prohibits the accounting firm from soliciting the Company's employees, for a period of two years commencing December 31, 1996. Subsequent to the execution of the Settlement Agreement, the accounting firm asserted through legal proceedings that the Company and its executives and employees had conducted activities prohibited by the Settlement Agreement. The Company vigorously denied such assertions, and the accounting firm's claims in these respects were rejected by the court with jurisdiction over the Settlement Agreement. The Company and its executives and management believe that they can operate and grow the Company despite the limitations imposed by the Settlement Agreement. The Company, its key executives and management employees intend to continue to abide by the terms of the Settlement Agreement. There can be no assurance, however, that future claims will not be asserted by the accounting firm. See "Business--Legal Proceedings." SIGNIFICANT UNALLOCATED NET PROCEEDS A substantial majority of the anticipated net proceeds of the Offering has not been designated for specific uses. Therefore, the Company's management will have broad discretion with respect to the use of the net proceeds of the Offering. See "Use of Proceeds." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Common Stock. Consequently, the initial public offering price per share of the Common Stock will be determined by negotiations among management of 6 the Company and the Representatives. See "Underwriters" for factors to be considered in determining the initial public offering price per share. Application has been made for quotation of the Common Stock on the Nasdaq National Market; however, there can be no assurance that an active trading market will develop and be sustained after the Offering. The market price of the Common Stock may fluctuate substantially due to a variety of factors, including quarterly fluctuations in results of operations, adverse circumstances affecting the introduction or market acceptance of new services offered by the Company, announcements of new services by competitors, changes in earnings estimates by analysts, changes in accounting principles, sales of Common Stock by existing holders, loss of key personnel and other factors. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has often had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted against such a company. Any such litigation instigated against the Company could result in substantial costs and a diversion of management's attention and resources, which could have a material adverse effect on the Company's business, operating results and financial condition. IMMEDIATE AND SUBSTANTIAL DILUTION The initial public offering price of $13.00 per share (based on the mid- point of the range set forth on the cover of this Prospectus) of Common Stock is substantially higher than the pro forma as adjusted net tangible book value per share of Common Stock after the Offering. Purchasers of shares of Common Stock in the Offering will experience immediate and substantial dilution of $12.13 in the pro forma as adjusted net tangible book value per share of Common Stock after the Offering. To the extent outstanding options to purchase Common Stock are exercised, there will be further dilution. See "Dilution." SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS AGREEMENTS Sales of substantial amounts of Common Stock in the public market following the Offering could adversely affect the prevailing market price of the Common Stock and the Company's ability to raise capital in the future. Upon completion of the Offering, the Company will have a total of 33,479,311 shares of Common Stock outstanding, of which the 3,850,000 shares offered hereby will be freely tradable without restriction under the Securities Act of 1933, as amended (the "Securities Act"), by persons other than "affiliates" of the Company, as defined under the Securities Act. The remaining 29,629,311 shares of Common Stock outstanding are "restricted securities" as that term is defined by Rule 144 promulgated under the Securities Act (the "Restricted Shares"). None of the Restricted Shares will be eligible for sale in the public market on the date of this Prospectus. Following the period ending 180 days after the date of this Prospectus, 18,804,005 of the Restricted Shares will be eligible for sale in the public market subject to Rule 144 under the Securities Act. See "Shares Eligible for Future Sale--Lock-up Agreements." Following the date of this Prospectus, the Company intends to register on one or more registration statements on Form S-8 approximately 10,750,000 shares of Common Stock issuable under the Stock Plans. Of the 10,750,000 shares issuable under the Stock Plans, 1,367,169 shares are subject to outstanding options as of April 3, 1998, none of which will be exercisable at the time of the Offering. The Company also has reserved 37,500 shares for issuance upon exercise of a warrant outstanding and exercisable as of April 3, 1998. In the event the warrant is exercised during the period ending 180 days after the date of this Prospectus, the shares issued upon exercise of the warrant will not be eligible for sale in the public market during such period but will be eligible for sale in the public market upon completion of such period subject to Rule 144 under the Securities Act. See "Management--Stock Option Plan," "Certain Transactions" and "Shares Eligible for Future Sale". Upon completion of the Offering, the holders of 20,661,757 shares of Common Stock will be entitled to certain registration rights with respect to such shares. If such holders, by exercising their registration rights, cause a large number of shares to be registered and sold in the public market, such sales could have an adverse effect on the market price of the Common Stock. In addition, if the Company is required, pursuant to such registration 7 rights, to include shares held by such persons in a registration statement which the Company files to raise additional capital, the inclusion of such shares could have an adverse effect on the Company's ability to raise needed capital. See "Certain Transactions" and "Shares Eligible for Future Sale." DIVIDEND POLICY The Company does not expect to pay any cash dividends on its Common Stock in the foreseeable future. It is the present policy of the Company to retain earnings, if any, for use in the operation of the Company's business. In addition, under the terms of the Credit Facility (as defined), the Company is restricted from paying dividends to its shareholders. See "Dividend Policy" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 8 THE COMPANY The Company was incorporated on April 23, 1997 as a Florida corporation. The Company maintains its principal executive offices at 1401 Brickell Avenue, Suite 350, Miami, Florida 33131. The Company's telephone number is (305) 375- 8005 and its Internet address is http://www.answerthink.com. Information contained in the Company's worldwide web site is not a part of this Prospectus. USE OF PROCEEDS The net proceeds to the Company from the Offering are estimated to be $33,556,500 ($39,178,350 if the Underwriters exercise their over-allotment option in full), at an assumed initial public offering price of $13.00 per share (the mid-point of the range set forth on the cover of this Prospectus) and after deducting underwriting discounts and commissions and estimated Offering expenses payable by the Company. The Company will use a portion of the net proceeds to repay $7.5 million borrowed under its credit facility, as amended (the "Credit Facility") with BankBoston, N.A. ("BankBoston"), which as of April 3, 1998 bears interest at a weighted average rate of 8.5% per annum. The Company's borrowings under the Credit Facility were used for acquisitions. The Credit Facility expires on November 7, 2000. The Company will also use $3.75 million of the net proceeds to retire a portion of a short-term promissory note, currently bearing interest at the rate of 12.0% per annum, issued to the sole stockholder of the Hackett Group in connection with the Company's acquisition of that entity. The Company will also repay $2,582,500 in short-term notes, bearing interest at the rate of 6.0% per annum, payable to the stockholders of Legacy Technology, Inc. ("Legacy") which were issued in connection with the Legacy Acquisition. The balance of the net proceeds, or approximately $19,724,000, will be used for working capital, potential acquisitions and general corporate purposes. The Company does not currently have any agreements, arrangements or understandings with respect to any future acquisitions, and no portion of the net proceeds has been allocated for any specific acquisition. Pending their use as described in this Prospectus, the net proceeds of the Offering will be invested in short-term, interest-bearing, investment-grade securities. The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Shareholders. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--The Acquisitions" and "--Liquidity and Capital Resources." DIVIDEND POLICY The Company does not expect to pay any cash dividends on its Common Stock in the foreseeable future. It is the present policy of the Company's Board of Directors to retain earnings, if any, for use in the operation of the Company's business. In addition, under the terms of the Credit Facility, the Company is restricted from paying dividends to its shareholders. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." 9 CAPITALIZATION The following table sets forth the capitalization of the Company (i) as of April 3, 1998, (ii) on a pro forma basis giving effect to the Legacy Acquisition and the Conversion, and (iii) pro forma as adjusted to give effect to the sale by the Company of 2,850,000 shares of Common Stock in the Offering at an assumed initial public offering price of $13.00 per share (the mid-point of the range set forth on the cover of this Prospectus) and the application of the estimated net proceeds therefrom. See "Use of Proceeds." This table is qualified in its entirety by, and should be read in conjunction with, the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
AS OF APRIL 3, 1998 ------------------------------------- PRO FORMA ACTUAL PRO FORMA(3) AS ADJUSTED(4) -------- ------------ -------------- (IN THOUSANDS) Long-term liabilities.................... $ 9,720 $ 9,729 $ 2,229 -------- ------- ------- Convertible preferred stock, $.001 par value, 3,650,000 authorized, 1,790,026 issued and outstanding (actual); none authorized, issued or outstanding (pro forma and as adjusted).................. 11,140 -- -- -------- ------- ------- Shareholders' equity Preferred stock, $.001 par value, 1,250,000 authorized, none issued and outstanding (actual, pro forma and as adjusted)............................. -- -- -- Common stock, $.001 par value, 125,000,000 authorized (actual, pro forma and as adjusted); 23,200,041 (actual), 30,629,311 (pro forma) and 33,479,311 (as adjusted) issued and outstanding, respectively (1)......... 23 31 33 Additional paid-in capital............. 55,780 70,142 103,696 Unearned compensation--restricted stock (2)................................... (1,614) (1,614) (1,614) Accumulated deficit.................... (51,544) (51,544) (51,544) -------- ------- ------- Total shareholders' equity........... 2,645 17,015 50,571 -------- ------- ------- Total capitalization............... $ 23,505 $26,744 $52,800 ======== ======= =======
- - -------- (1) Excludes (i) 1,367,169 shares of Common Stock issuable upon exercise of options outstanding as of April 3, 1998, none of which were then exercisable, (ii) 37,500 shares of Common Stock issuable upon exercise of a warrant outstanding and exercisable as of April 3, 1998, and (iii) 9,382,831 additional shares of Common Stock reserved for future issuance under the Company's 1998 Stock Option and Incentive Plan (the "Stock Option Plan") and its 1998 Employee Stock Purchase Plan (together with the Stock Option Plan, the "Stock Plans"). See "Management--Stock Option Plan" and "Shares Eligible for Future Sale." (2) Reflects unearned compensation expense, incurred as a result of restricted stock issued to employees of acquired companies. See Note 9 of Notes to Consolidated Financial Statements. (3) Gives effect to the Legacy Acquisition and the Conversion. (4) As adjusted reflects the Offering. 10 DILUTION The Company's pro forma net tangible deficiency at April 3, 1998 was ($4.3) million, or $(.14) per share. Pro forma net tangible deficiency per share represents the Company's pro forma net tangible deficiency (net tangible assets less total liabilities) divided by the number of shares of Common Stock outstanding, including shares subject to vesting and performance criteria and giving effect to the Legacy Acquisition and the Conversion. Without taking into account any other changes in the pro forma net tangible book value after April 3, 1998, other than to give effect to the sale of 2,850,000 shares of Common Stock in the Offering by the Company at an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover of this Prospectus), and after deducting underwriting discounts and commissions and estimated Offering expenses payable by the Company, the pro forma net tangible book value of the Company, as adjusted, as of April 3, 1998 would have been $29.3 million, or $.87 per share. This represents an immediate increase in pro forma net tangible book value of $1.01 per share to existing shareholders and an immediate dilution in pro forma net tangible book value of $12.13 per share to purchasers of Common Stock in the Offering. The following table illustrates this dilution: Assumed initial public offering price per share................... $13.00 ------ Pro forma net tangible deficiency book value per share at April 3, 1997........................................................ (.14) Increase in pro forma net tangible book value per share resulting from the Offering.................................... 1.01 ------ Pro forma as adjusted net tangible book value per share after the Offering......................................................... 0.87 ------ Pro forma as adjusted dilution per share to new investors......... $12.13 ======
If the Underwriters' over-allotment option is exercised in full, the increase in pro forma net tangible book value per share resulting from the Offering, pro forma as adjusted net tangible book value per share after the Offering and pro forma as adjusted dilution per share to new investors would be $1.17, $1.03 and $11.97, respectively. The following table summarizes, as of April 3, 1998 after giving effect to the Legacy Acquisition, the Conversion and the Offering, the differences between the number of shares of Common Stock purchased in the Offering, the total consideration paid to the Company and the average price per share paid by the existing stockholders and by the new investors (based upon an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover of this Prospectus), before deduction of estimated underwriting discounts and Offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE --------------------- ---------------------- PRICE NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE ---------- ---------- ----------- ---------- --------- Existing shareholders... 30,360,145 90.7% $22,175,851 37.4% $ .73 Legacy Acquisition...... 269,166 0.8% -- -- -- New investors........... 2,850,000 8.5% 37,050,000 62.6% $13.00 ---------- ----- ----------- ----- Total................. 33,479,311 100.0% $59,225,851 100.0% ========== ===== =========== =====
The foregoing table assumes no exercise of the Underwriters' over-allotment option and no exercise of stock options to purchase 1,367,169 shares of Common Stock at an average exercise price of $4.06 per share, the warrant to purchase up to 37,500 shares of Common Stock at $6.00 per share outstanding as of April 3, 1998 or options to be issued to new employees between April 3, 1998 and the time of the Offering. To the extent the warrant or any of these options are exercised, there will be further dilution to new investors. See "Risk Factors--Shares Eligible for Future Sale; Registration Rights Agreements." 11 SELECTED CONSOLIDATED FINANCIAL AND PRO FORMA DATA The following selected consolidated financial data for the period from April 23, 1997 (inception) to January 2, 1998 (the "Inception Period") and as of January 2, 1998 are derived from the Company's Consolidated Financial Statements and related notes thereto, which have been audited by Coopers & Lybrand L.L.P., independent accountants and which appear elsewhere in this Prospectus. The following selected consolidated financial data for the quarter ended and as of April 3, 1998 are derived from unaudited financial information contained in the Company's Consolidated Financial Statements and related notes thereto which appear elsewhere in this Prospectus. The following selected pro forma financial data are derived from the Company's Unaudited Pro Forma Consolidated Financial Information appearing elsewhere in this Prospectus. The Pro Forma Consolidated Statement of Operations Data for the Inception Period give effect to the 1997 Acquisitions, the Legacy Acquisition and the Conversion as if they had been completed on April 23, 1997, the Pro Forma Consolidated Statement of Operations Data for the quarter ended April 3, 1998 give effect to the Legacy Acquisition and the Conversion as if they had been completed on April 23, 1997 and the Pro Forma Balance Sheet as of April 3, 1998 gives effect to the Legacy Acquisition and the Conversion as if they had been completed on such date. As adjusted information gives effect to the completion of the Offering at an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover of this Prospectus) and the application of the estimated net proceeds therefrom. The selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and related notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the pro forma financial data should be read in conjunction with the Unaudited Pro Forma Consolidated Financial Information of the Company and the related notes thereto. Management believes the assumptions used in the Unaudited Pro Forma Consolidated Financial Information provide a reasonable basis on which to present the pro forma financial data. The pro forma financial data are provided for informational purposes only and should not be construed to be indicative of the Company's financial position or results of operations had the transactions and events described in the notes thereto been consummated on the dates assumed and are not intended to project the Company's financial condition or results of operations on any future date or for any future period.
APRIL 23, 1997 (INCEPTION) QUARTER TO JANUARY 2, 1998 ENDED APRIL 3, 1998 ---------------------------------------------------------- PRO FORMA PRO FORMA ACTUAL AS ADJUSTED(1) ACTUAL AS ADJUSTED(2) ------------- --------------------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net revenues........... $ 14,848 $ 34,014 $ 18,532 $ 19,864 Costs and expenses: Project personnel and expenses............ 13,333 22,688 11,194 11,893 Selling, general and administrative...... 8,085 16,858 5,654 6,429 Compensation related to vesting of restricted shares... -- -- 40,843 40,843 Settlement costs..... 1,903 1,903 -- -- In-process research and development technology.......... 4,000 4,000 -- -- ------------- ------------- ---------- ---------- Total costs and operating expenses.......... 27,321 45,449 57,691 59,165 ------------- ------------- ---------- ---------- Loss from operations.......... (12,473) (11,435) (39,159) (39,301) Other income (expense): Interest income...... 498 520 28 26 Interest expense..... (115) -- (322) -- Income tax benefit... -- 6 -- -- ------------- ------------- ---------- ---------- Net loss............... $ (12,090) $ (10,909) $ (39,453) $ (39,275) ============= ============= ========== ========== Net loss per common share--basic and diluted............... $ (1.91) $ (.70) $ (3.86) $ (2.13) ============= ============= ========== ========== Weighted average common shares outstanding.... 6,342,319 15,675,379 10,226,330 18,455,701
12
AS OF JANUARY 2, 1998 AS OF APRIL 3, 1998 ---------- ----------------------------------- PRO FORMA ACTUAL ACTUAL PRO FORMA(3) AS ADJUSTED(4) ---------- ------- ------------ -------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Working capital......... $ 8,180 $ 4,250 $ 1,504 $27,560 Total assets............ 28,650 37,841 44,638 64,174 Total long-term liabilities............ 12,200 9,720 9,729 2,229 Convertible preferred stock.................. 10,040 11,140 -- -- Total shareholders' equity................. 846 2,645 17,015 50,571
- - -------- (1) Gives effect to (i) the 1997 Acquisitions, (ii) the Legacy Acquisition, (iii) the Conversion and (iv) the sale of 2,850,000 shares of Common Stock in the Offering by the Company at an assumed initial public offering price of $13.00 per share (the midpoint of the price range set forth on the cover of this Prospectus) and the application of the estimated net proceeds therefrom which results in a reduction in interest expense of approximately $712,000. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations--The Acquisitions" and "Unaudited Pro Forma Consolidated Financial Information." (2) Gives effect to (i) the Legacy Acquisition, (ii) the Conversion and (iii) the sale of 2,850,000 shares of Common Stock in the Offering by the Company at an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover of this Prospectus) and the application of the net proceeds therefrom which results in a reduction in interest expense of approximately $381,000. See "Use of Proceeds", "Management's Discussion and Analysis of Financial Condition and Results of Operations--The Acquisitions--The Legacy Acquisition" and "Unaudited Pro Forma Consolidated Financial Information." (3) Gives effect to (i) the Legacy Acquisition and (ii) the Conversion. See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations--The Acquisitions--The Legacy Acquisition" and "Unaudited Pro Forma Consolidated Financial Information." (4) Gives effect to (i) the Legacy Acquisition, (ii) the Conversion, and (iii) the sale of 2,850,000 shares of Common Stock in the Offering by the Company at an assumed initial public offering price of $13.00 per share (the mid-point of the price range set forth on the cover of this Prospectus) and the application of the net proceeds therefrom as set forth under "Use of Proceeds." See "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations--The Acquisitions--The Legacy Acquisition and "Unaudited Pro Forma Consolidated Financial Information." 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW AnswerThink is a rapidly growing provider of knowledge-based consulting and IT services to Fortune 1000 companies and other sophisticated buyers. The Company began operations on April 23, 1997. The Company's primary activities during its initial stages consisted of recruiting consultants and developing and building a service delivery model and the underlying information systems to support the future growth of the business. Concurrent with this effort, the Company embarked on an aggressive acquisition strategy that resulted in three significant acquisitions during 1997 (the "1997 Acquisitions") and the acquisition of Legacy in May 1998 (the "Legacy Acquisition"). The Company's operations during the Inception Period resulted in a loss of $12.1 million which was attributable to the developmental nature of the business during the start-up phase and to a $4.0 million charge for in-process research and development technology recognized in connection with AnswerThink's acquisition of the Hackett Group. The Company recognizes revenues on contracts as work is performed, principally on a time and materials basis. For projects billed on a time and materials basis, the Company recognizes revenue based on the number of hours worked by consultants at an agreed-upon rate per hour. The Company believes the financial risk under these types of arrangements is mitigated by the fact that clients retain the financial risk associated with implementing projects. The Company also undertakes certain projects, usually short-term, on a capped- fee basis for which revenues are recognized on a percentage of completion method based on project hours worked. The Company anticipates that the majority of its work will continue to be performed on a time and materials basis. See "Risk Factors--Project Risks; Fixed Price Contracts." The Company's revenue growth is directly tied to its ability to attract and retain new consultants to service its increasing client base. The most significant expense for the Company is the project personnel and related costs associated with its consultants. The market for skilled consultants is highly competitive and is characterized by very high demand with a relatively small pool of qualified personnel. The ability of the Company to manage consultant utilization, contain payroll costs and control employee turnover costs in light of these market forces will have a significant impact on its profitability. To help address these concerns, the Company grants restricted shares of Common Stock or stock options to all employees including those of acquired companies which generally vest over four to six years. The Company recognized non-cash compensation expense of $40.8 million in the quarter ended April 3, 1998 resulting from the accelerated vesting of 3,320,000 restricted shares of Common Stock that had been issued to certain members of the Company's management in connection with the formation of the Company. These charges were non-cash in nature and do not negatively impact shareholders' equity. The Company believes that such issuances were critical to its ability to attract and retain qualified personnel during the Company's crucial start-up phase. THE ACQUISITIONS The 1997 Acquisitions All acquisitions completed by the Company have been accounted for under the purchase method of accounting. Accordingly, the historical Consolidated Financial Statements of the Company include the operating results of the acquired businesses from the date of each respective acquisition. 14 On August 1, 1997, the Company acquired Relational Technologies, Inc. ("RTI"), a Georgia-based information technology consulting and Oracle software implementation company. RTI focuses on the implementation of Oracle manufacturing, financial and human resources applications. Through the acquisition of RTI, the Company became an Oracle Business Alliance Member, which enables the Company to market Oracle applications products to its customers. RTI was acquired for 1,220,700 restricted shares of Common Stock issued to RTI's shareholders. On October 13, 1997, the Company completed its acquisition of the Hackett Group, an Ohio-based consulting firm specializing in benchmarking and process transformation. The Hackett Group, through its proprietary "best-practice" database focuses on the efficiency of such organizational functions as finance, human resources, IT services and supply chain management. The Company acquired all of the Hackett Group's outstanding shares from its sole stockholder, Gregory P. Hackett. The original purchase price was paid in the form of $6.5 million in cash, a $5.1 million promissory note, and 444,000 restricted shares of Common Stock. The note and the restricted shares were subject to certain earn-out provisions. On March 12, 1998, Mr. Hackett and the Company amended the terms of the acquisition to waive the earn-out provisions. On November 12, 1997, the Company acquired all the outstanding shares of Delphi Partners, Inc., ("Delphi"), a New Jersey-based PeopleSoft application solutions and information technology consulting company. Delphi focuses on the implementation of PeopleSoft financial, human resources and manufacturing applications. Through the acquisition of Delphi, the Company became a PeopleSoft Implementation Partner. The total acquisition consideration paid consisted of $7.4 million in cash and 560,000 restricted shares of Common Stock issued to Delphi shareholders. The sellers of Delphi will also receive up to $2.5 million to be paid by April 30, 1999 upon the achievement of certain pre-tax profit targets related to the performance of Delphi during 1998. The Legacy Acquisition On April 25, 1998, the Company signed a definitive agreement to acquire Legacy, a Massachusetts-based provider of decision support and data warehouse solutions to Fortune 1000 companies. The Company completed this acquisition on May 20, 1998. The total consideration consisted of $2.6 million in promissory notes and 269,166 shares of Common Stock. The promissory notes will be payable over a 12-month period commencing October 1, 1998 or, if earlier, 20 days after the Company completes a public offering of shares of its Common Stock. The stockholders of Legacy will also receive up to $1.3 million in additional consideration, half of which will be in the form of cash and half of which will be in shares of Common Stock, upon the achievement of certain revenue and pre-tax profit targets related to the performance of Legacy during the 12- month period ending April 30, 1999. 15 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the Company's results of operations and the percentage relationship to net revenues of such results. This information for quarterly periods has been prepared on the same basis as the Consolidated Financial Statements and, in the opinion of the Company's management, reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented.
APRIL 23, 1997 APRIL 23, 1997 QUARTER ENDED (INCEPTION) (INCEPTION) --------------------------------------------------- TO JANUARY 2, TO JUNE 30, SEPTEMBER 30, JANUARY 2, APRIL 3, 1998 1997 1997 1998 1998 --------------- ----------------- --------------- -------------- ---------------- (IN THOUSANDS, EXCEPT PERCENTAGE DATA) Net revenues............ $ 14,848 100.0 % $ 62 100.0% $ 2,698 100.0 % $12,088 100.0 % $ 18,532 100.0 % Costs and expenses: Project personnel and expenses.............. 13,333 89.8 1,616 nm 3,730 138.3 7,987 66.1 11,194 60.4 Selling, general and administrative........ 8,085 54.5 1,290 nm 2,932 108.7 3,863 32.0 5,654 30.5 Compensation related to vesting of restricted shares................ -- -- -- -- -- -- -- -- 40,843 220.4 Settlement costs....... 1,903 12.8 1,756 nm 125 4.6 22 0.1 -- -- In-process research and development technology............ 4,000 26.9 -- -- -- -- 4,000 33.1 -- -- -------- ----- -------- ------ ------- ------ ------- ----- -------- ------ Total costs and operating expenses.... 27,321 184.0 4,662 nm 6,787 251.6 15,872 131.3 57,691 311.3 -------- ----- -------- ------ ------- ------ ------- ----- -------- ------ Loss from operations... (12,473) (84.0) (4,600) nm (4,089) (151.6) (3,784) (31.3) (39,159) (211.3) Other income (expense): Interest income (expense), net........ 383 2.6 252 406.5 194 7.2 (63) (0.5) (294) (1.6) -------- ----- -------- ------ ------- ------ ------- ----- -------- ------ Net loss................ $(12,090) (81.4)% $ (4,348) nm $(3,895) (144.4)% $(3,847) (31.8)% $(39,453) (212.9)% ======== ===== ======== ====== ======= ====== ======= ===== ======== ======
Quarter Ended April 3, 1998 Compared to Quarter Ended January 2, 1998 In light of the Company's incorporation on April 23, 1997 and the absence of operations in the first quarter of the prior year, management has decided to present a comparison of results for the first quarter of 1998 versus the fourth quarter of 1997 because it believes that such a comparison is the most meaningful presentation to the reader and helps address the continuation of trends established during the prior fiscal year. Net Revenues. Net revenues for the first quarter of 1998 increased by $6.4 million or 53.3% over the prior quarter as the Company continued to increase the number of clients served to 117 from 109 at the end of the prior quarter. The comparison of revenues to the prior quarter is positively impacted by the timing of the Delphi acquisition, which was completed during the second month of the prior quarter. The comparison is also slightly positively impacted by seasonality since the first quarter of 1998 had only one observed holiday as compared to three holidays in the prior quarter. Project Personnel and Expenses. Project personnel and expenses for the first quarter of 1998 increased by $3.2 million or 40.2% over the prior quarter. The increase in project personnel and expenses over the prior quarter was caused in part by the timing of the Delphi acquisition mentioned above. Project personnel and expenses as a percentage of net revenues decreased by 5.7% from 66.1% to 60.4% primarily as a result of more effective deployment of consultants onto billable projects during the first quarter of 1998. During the first quarter of 1998, the number of consultants employed by the Company increased by 68 to 343 from 275 at the end of the prior quarter. 16 Selling, General and Administrative. Selling, general and administrative expenses for the first quarter of 1998 increased by $1.8 million or 46.4% over the prior quarter, but decreased as a percentage of revenues by 1.5% from 32.0% to 30.5%. The increase in selling, general and administrative expenses is primarily attributable to a continued increase in the number of functional support personnel employed, which increased by 13 from the end of the prior quarter. The primary increases were made in the recruiting, human resources, and service delivery areas. Compensation Related to Vesting of Restricted Shares. The Company recorded a charge in the first quarter of 1998 of approximately $40.8 million relating to the vesting of restricted shares held by five of the Company's senior managers, one director and two managing directors of business units that were subject to certain performance vesting criteria. The vesting of these shares was accelerated into the first quarter of 1998 based on the Company's results to date and the expectation of completion of the Offering during the second quarter of 1998. There are no additional restricted shares outstanding that are subject to performance criteria for vesting. Settlement Costs. The Company did not incur any additional settlement costs during the first quarter of 1998. In-process Research and Development Technology. The Company did not incur any costs relating to in-process and research and development technology during the first quarter of 1998. Interest Income (Expense), Net. Interest expense for the first quarter of 1998 increased by $231,000 or 367% over the prior quarter as a result of the debt incurred in connection with the 1997 Acquisitions. Inception Period (April 23, 1997 to January 2, 1998) Net Revenues. Net revenues for the Inception Period were $14.8 million. The Company achieved month-to-month net revenue increases by increasing the number of services delivered to new clients, as well as leveraging the Company's existing client base by undertaking additional projects for these clients. The number of active clients served increased from one at June 30, 1997, to 27 at September 30, 1997 and to 109 at January 2, 1998. Net revenues increased during the quarter ended September 30, 1997 primarily as a result of the acquisition of RTI. The net revenues increase during the quarter ended January 2, 1998 resulted from the acquisitions of the Hackett Group and Delphi, as well as an increase in the total number of clients served. Project Personnel and Expenses. During its start-up phase, the Company invested a significant amount of project resources to develop its service delivery model and the related management information systems in order to position the Company for future growth. Project personnel and expenses amounted to $13.3 million, or 89.8% of net revenues, for the Inception Period. The Company increased the number of project personnel through recruiting efforts and the 1997 Acquisitions. The Company had 46 consultants at June 30, 1997, 142 at September 30, 1997 and 275 at January 2, 1998. Project personnel and expenses as a percent of net revenues decreased over each quarterly period and was 66.1% for the quarter ended January 2, 1998. The decrease in project personnel and expenses as a percentage of net revenues resulted primarily from higher utilization as the personnel of the acquired entities were already deployed to existing clients. Selling, General and Administrative. Selling, general and administrative expenses for the Inception Period totaled $8.1 million, or 54.5% of net revenues. Functional support personnel increased from 16 at June 30, 1997, to 37 at September 30, 1997 and to 63 at January 2, 1998. This increase and resulting personnel costs were incurred to create an infrastructure that could support a rapidly growing organization with the ability to integrate strategic acquisitions. The primary expenditures were made in the sales and marketing and recruiting and service delivery systems functions. Selling, general and administrative expenses as a percent of net revenues decreased significantly over each quarterly period and were 32.0% for the quarter ended January 2, 1998. The decrease in selling, general and administrative expenses as a percentage of net revenues resulted primarily from the lower level of selling, general and administrative costs incurred by the acquired companies. 17 Settlement Costs. Settlement costs totaled $1.9 million, or 12.8% of net revenues, for the Inception Period. Settlement costs consisted primarily of (i) payments to certain key executives and certain other management employees of the Company relating to the obligations assumed by the Company for compensation earned during the period from December 1, 1996 to the date of the Company's inception (the "Dispute Period") by such employees, and (ii) legal fees incurred in connection with the ensuing litigation. See "Business--Legal Proceedings." The substantial majority of these costs were incurred during the first quarter of the Company's operations before the matter was settled. In-process Research and Development Technology. The in-process research and development technology charge of $4.0 million resulted from the acquisition of the Hackett Group. At the date of acquisition, there were four benchmark applications that had not met technological feasibility requirements and did not have any alternative future use and therefore the value of such applications was charged to operations. This charge was recorded during the quarter ended January 2, 1998 and is considered a non-recurring item. Interest Income (Expense), Net. Net interest income amounted to $383,000, or 2.6% of net revenues, for the Inception Period. The majority of the interest income was earned in the first six months of the Company's operations as the initial capitalization of the Company was placed in short-term investments. The invested cash and borrowed funds were used to complete the Hackett Group and Delphi acquisitions mentioned previously, thereby causing the Company to be a net borrower of funds for the quarter ended January 2, 1998. AVAILABILITY OF NET OPERATING LOSSES The Company generated a tax loss of approximately $8.0 million during the Inception Period. Current accounting standards require that future tax benefits, such as net operating losses, be recognized to the extent that realization of such benefits is more likely than not. In light of the loss experienced during the Inception Period, a valuation allowance has been established for the entire amount of the net operating loss carryforward. LIQUIDITY AND CAPITAL RESOURCES The Company was formed in April 1997 with $20.4 million of capital raised through the issuance of Series A Convertible Preferred Stock ("Series A Convertible Preferred") to the Initial Investors, as defined. The Company issued additional shares of Series A Convertible Preferred in July 1997 to certain executives for $600,000. In February 1998, the Company issued additional shares of Series A Convertible Preferred to certain of the Initial Investors and their affiliates for aggregate consideration of $600,000. In March 1998, the Company issued shares of Series B Convertible Preferred Stock ("Series B Convertible Preferred") for aggregate consideration of $500,000 to an affiliate of BankBoston. Concurrent with the Offering, each outstanding share of convertible preferred stock will be converted into four shares of Common Stock. See "Description of Capital Stock" and "Shares Eligible for Future Sale." In connection with the acquisition of the Hackett Group, the Company issued a $5.1 million promissory note to the sole stockholder of the Hackett Group, subject to certain earn-out provisions. This note is payable in three separate installments. The first installment obligation is $3.75 million, bears interest at a rate of 12% per annum and was originally due March 31, 1998. The second installment obligation of $497,000 is due March 31, 1999, and the third installment obligation of $896,000 is due March 31, 2000. The obligations for the second and third installment payments bear interest at a rate of 8% per annum. In connection with the amendment to the terms of the Hackett Group acquisition on March 12, 1998, Mr. Hackett agreed to extend the due date on the $3.75 million installment from March 31, 1998 to the earlier of the completion of the Offering or January 15, 1999, and the Company agreed to waive the earn-out provisions. In connection with the Legacy Acquisition, the Company issued 269,166 shares of Common Stock and $2.6 million in promissory notes to the former stockholders of Legacy. The Company intends to repay the $3.75 million installment obligation to the Hackett Group's former stockholder and the $2.6 million in notes issued to Legacy's former stockholders with a portion of the proceeds of the Offering. See "Use of Proceeds." On November 7, 1997, the Company entered into an agreement with BankBoston, for a $10.0 million revolving credit facility for acquisitions, which amount could be increased to $20.0 million if certain future earnings and performance criteria are satisfied. The Credit Facility is secured by substantially all of the Company's assets and contains certain restrictive covenants. Amounts outstanding under the Credit Facility will 18 be repaid with a portion of the proceeds of the Offering. At April 3, 1998, the Company had an outstanding balance of $7.5 million at a weighted average annual interest rate of 8.5% under the Credit Facility. As part of the 1997 Acquisitions, the Company utilized approximately $12.7 million of cash, net of cash acquired, to complete the purchases of the Hackett Group and Delphi stock in October and November 1997, respectively. Additionally, the Company invested approximately $2.1 million in computer hardware and software and telecommunications equipment to develop its infrastructure in support of future growth plans. During the Inception Period and first quarter of 1998, net cash used by the Company in operating activities amounted to approximately $11.2 million and $33,000, respectively, principally to cover operating losses and to fund working capital. At April 3, 1998, the Company had cash and cash equivalents of approximately $3.9 million. The Company believes that the proceeds from the Offering and funds that are available or that will become available under the Credit Facility or that may be generated from operations will be sufficient to finance the Company's currently anticipated capital requirements on a short-term and on a long-term (greater than 12 month) basis. There can be no assurance, however, that the Company's actual needs will not exceed anticipated levels or that the Company will generate sufficient revenues or have sufficient funds available under the Credit Facility to fund its operations in the absence of other sources. There also can be no assurance that any additional required financing will be available through additional bank borrowings, debt or equity offerings or otherwise, or that if such financing is available, that it will be available on terms favorable to the Company. YEAR 2000 ISSUE Many existing computer programs were designed and developed without considering the impact of the upcoming change in the century and consequently use only two digits to identify a year in the date field. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000 (the "Year 2000 Issue"). All of the Company's systems have been recently implemented and are Year 2000 compliant. The Company believes the Year 2000 Issue will not have a material adverse impact on the Company's financial condition or results of operation. 19 BUSINESS AnswerThink is a rapidly growing provider of knowledge-based consulting and IT services to Fortune 1000 companies and other sophisticated buyers. The Company addresses its clients' strategic business needs by offering a wide range of integrated services or solutions, including benchmarking, process transformation, software package implementation, electronic commerce, decision support technology, technology architecture and integration and Year 2000 solutions. These solutions target a client's specific business functions (finance and administration, human resources, IT, sales and customer support, and supply chain management) and allow a business to reach beyond the enterprise and link the people, processes and technologies of the extended organization or "Interprise." AnswerThink markets its services to senior executives in organizations where business transformation and technology- enabled change can have a significant competitive impact. AnswerThink leverages its knowledge base to propose solutions to its clients' most critical and complex business problems. The Company delivers its services through multidisciplinary project teams that include professionals with both IT and business expertise. The Company's knowledge-based approach to consulting combines the knowledge and experience of its consultants with "best-practice" process solutions and a benchmarking database developed by the Hackett Group. The Company believes its highly focused service delivery model provides its customers with a lower risk of delivery and a faster time to benefit as compared to the linear, "methodology based" processes employed by many other IT consulting firms. The Company was formed in April 1997 by several former leaders of the IT consulting practice of a "Big Six" accounting firm. From the outset, the Company made operational investments to develop a comprehensive market strategy, build a business infrastructure and create sophisticated management information and service delivery systems capable of supporting a large-scale consulting and IT services business. Since its formation, AnswerThink has acquired several consulting and IT services businesses, each of which brought to the Company complementary skills and customer relationships. In addition, the Company has grown internally by recruiting approximately 200 consultants. As of April 3, 1998, the Company employed 343 consultants. The Company supports its national solution delivery organization through a network of 10 offices located in Atlanta, Boston, Chicago, Cleveland, Dallas, Iselin (NJ), Miami, New York, Philadelphia and Silicon Valley. The Company has served a broad range of clients, including Avon Products, Bell Atlantic, Florida Power & Light, International Paper and Lucent Technologies. INDUSTRY OVERVIEW In today's climate of intense global competition and accelerating technological change, companies are increasingly turning to technology-enabled solutions to improve their productivity and competitive positioning. In this environment, IT is viewed not as an isolated back office function but rather as a critical component of organizational strategy. IT deployment decisions are increasingly made on an enterprise-wide level by senior executives. The migration of technology from the back office to desktops throughout the enterprise has created a wide range of business opportunities. Data that was once collected nightly or weekly and used to analyze events retrospectively can now be deployed to manage an entire enterprise in real time. Custom- developed software that once produced reports that allowed managers to analyze what had happened is being replaced by enterprise-wide packaged software applications capable of linking manufacturing, sales, distribution and finance functions and helping decision-makers shape what will happen. This enterprise- wide software is being deployed in geographically dispersed, complicated technology environments. The multitude of different protocols, operating systems, devices and architectures makes deployment of technology solutions a difficult challenge. Companies must also continually keep pace with new developments, which often render existing equipment and internal skills obsolete. At the same time, external economic factors have forced organizations to focus on core 20 competencies and trim workforces. Accordingly, these organizations often lack the quantity or variety of IT skills necessary to design and implement comprehensive IT solutions. The shortage of skilled IT professionals and the complexity of IT solutions have pushed senior executives to increasingly rely on outside specialists to help them execute IT strategies and, as a result, demand for consulting services is expected to continue to grow rapidly. According to industry sources, the worldwide market for IT consulting and system integration services was estimated at $53.7 billion in 1996 with a projected market of $96.3 billion for 2001, a 12.4% growth rate. In addition, the domestic IT consulting and system integration service market is projected to grow from $26.0 billion in 1996 to $48.3 billion in 2001, a 13.2% growth rate. Although the market for IT services is robust, the Company believes that many buyers are investing heavily in IT solutions that are not yielding the desired benefits or that are not being implemented on time. Generally, companies who turn to IT consultants to help implement these investments choose between "tactical" solution providers and larger organizations such as the "Big Six" accounting firms that offer more comprehensive services. The Company believes that tactical solution providers which focus on limited functionality requirements (such as application development and staff augmentation) often do not address broader strategic business and IT goals that are critical to the customer and the success of the IT solutions implemented. At the same time, the Company believes that larger IT consulting firms, with their complex or fragmented organizational models, high turnover rates and use of linear "methodology-based" processes (which propose solutions only after extensive studies of a particular client's business problems), often fail to deliver the right IT solutions on time and on budget. In AnswerThink's view, companies today require strategic service providers that have a comprehensive understanding of the relevant business issues, the ability to design and implement integrated solutions that can help them meet their strategic business goals as they evolve and the skills and tools necessary to deliver solutions in a timely and cost-effective manner. THE ANSWERTHINK SOLUTION AnswerThink does more than just study problems. It identifies and answers the questions at the outset of an engagement which allow it to propose and implement solutions on time and on budget. By using its knowledge-based delivery process and employing experienced, multidisciplinary consulting teams, the Company is able to reduce both the risk of delivery and time of implementation of its projects. The Company believes this approach appeals to senior executives seeking solutions to complex business and IT problems. Key elements of AnswerThink's strategic IT services delivery approach are: . Senior Leadership and Delivery Expertise. AnswerThink's leadership team has extensive experience in providing IT consulting and system integration services. AnswerThink's executive officers and senior managers have, on average, 15 years of experience in consulting and in the delivery of IT services. The Company's practice area leaders have built strong reputations in their areas of expertise. The Company has leveraged this experience to build an organizational model, market strategy and knowledge-based service delivery process enabling the Company to deliver highly-focused, results-oriented, comprehensive IT solutions for sophisticated buyers of technology-enabled solutions. . Interprise Focus. The Company believes that success in today's business environment requires excellence in communication and collaboration, not just within the corporate enterprise, but across the network of customers, suppliers, strategic partners and others which together form the extended enterprise--what the Company refers to as the "Interprise" business model. AnswerThink provides IT solutions to help its clients succeed in this Interprise environment, which demands the assimilation and integration of data from both internal and external sources. . Multidisciplinary Solution Teams. IT service providers must understand underlying business issues so they can better design, implement and integrate effective IT solutions. AnswerThink provides solutions in the areas of process transformation and benchmarking, software package implementation and advanced technologies integration. AnswerThink delivers these solutions through multidisciplinary teams of professionals with experience in these areas that deliver solutions for each of the specific business 21 functions in an organization. These teams target finance, administration and human resources ("CFO | solutionsSM"), information technology ("CIO | solutionsSM"), sales and customer support ("Customer | solutionsSM"), and supply chain management ("Interprise Supply Chain | solutionsSM"). By assembling multidisciplinary teams of professionals for an engagement, the Company believes it can provide superior technology-enabled solutions to its clients. . Knowledge-based Delivery. AnswerThink, primarily through its Hackett Group, has developed and continuously refines a proprietary database of "best-practice" organizational solutions and benchmarks from more than 1,100 companies. This database enables AnswerThink to identify for its clients areas of strength and weakness in their organizations relative to their peers. Relevant aspects of this accumulated knowledge can be incorporated quickly into the Company's analysis for new engagements, allowing AnswerThink to provide proven and effective solutions. In addition, AnswerThink's internal information systems and corporate culture enable it to capture knowledge from previous consulting engagements and share it throughout the organization to allow AnswerThink to identify and solve the problems of other clients in future engagements. The Company has developed MindShareSM, a proprietary intranet knowledge management system that will capture, index and disseminate the combined knowledge and experiences of its consultants. GROWTH STRATEGY The Company's goal is to become a leading global provider of knowledge-based consulting and IT services. AnswerThink's strategy to achieve this goal includes the following elements: . Maintain a Culture Designed for Rapid Growth. The Company believes that its dynamic, entrepreneurial culture is particularly attractive to consultants seeking new, non-traditional work environments. The Company recognizes that to be a leading global consulting and IT services organization, it must continue to recruit and, more importantly, retain qualified and experienced professionals with the consulting and IT skills currently in high demand. Many AnswerThink consultants were previously employed at traditional consulting and IT services firms. The Company recruits and retains consultants by offering attractive base and incentive compensation packages that include equity ownership opportunities. All AnswerThink employees currently have an equity interest in the Company. . Develop and Expand Client Relationships. AnswerThink has developed a direct, high-level sales organization that encourages its sales professionals to pursue, establish and maintain close relationships with senior management of Fortune 1000 companies. Since inception, AnswerThink has provided consulting and other IT services to Fortune 1000 companies including engagements for limited types of services for a single division or business unit. With its growing service offerings, experienced management and the structure of its sales organization, the Company believes that it has a significant advantage in cross-selling additional services and solutions to its client base. A number of clients have expanded their relationship with AnswerThink both in terms of revenue and types of services purchased. In addition, the Company intends to target new clients by (i) continuing to leverage and expand the Company's direct sales force, (ii) increasing the hiring of consultants with existing client relationships and (iii) pursuing referrals from existing clients and third-party organizations including hardware partners, software partners and industry research organizations. . Leverage and Expand Scalable Infrastructure. AnswerThink's senior management team has extensive experience managing a large-scale IT services organization. Since inception, the Company has invested in the development of service delivery processes and the underlying systems to build the foundation for a global consulting and IT services company. In addition, AnswerThink has invested significant resources to capture and retain critical information by developing its knowledge management system, MindShareSM, which will enhance collaboration and communication among its employees. The Company intends to leverage and expand its infrastructure to increase the number of its consulting professionals, geographic coverage, client base and scope of engagements. . Expand Service Offerings. At its inception, the Company defined a framework of services and capabilities that it would need to become a leading global consulting and IT services company. 22 AnswerThink has systematically added service capabilities both internally and through acquisitions in several business lines, such as the addition of Oracle and PeopleSoft packaged software implementation services and the Company's development of a supply chain management implementation business unit. The Company intends to continue to add service offerings through acquisitions and additional hiring. In addition, the Company plans to continually evaluate "best-of-breed" technologies in order to provide high-impact IT solutions to keep pace with changes in technology. . Pursue Strategic Acquisitions and Partnerships. The Company has completed and intends to continue to pursue strategic acquisitions that will provide additional well-trained, high-quality professionals, new service offerings, additional industry expertise, a broader client base and an expanded geographic presence. Since inception, the Company has successfully made four significant acquisitions. In addition, the Company currently has strategic relationships with a number of business partners, including Oracle, PeopleSoft, International Business Machines Corporation ("IBM") and Netscape Corporation ("Netscape"), among others. The Company intends to expand and develop its relationships with business partners serving the IT market to benefit from joint marketing opportunities and shared technical and industry knowledge. THE ACQUISITIONS The 1997 Acquisitions . Relational Technologies, Inc. The Company acquired RTI in August 1997. As a result of the RTI acquisition, the Company provides Oracle application services to its clients for Oracle Financials, Oracle HR, Oracle Distribution and Oracle Manufacturing. The Company is also able to provide technical services such as systems selection, installation and maintenance, communications management and network consolidations of Oracle products. . The Hackett Group, Inc. The Company acquired the Hackett Group in October 1997. The Hackett Group is a nationally recognized benchmarking and best- practices firm focused on creating a proprietary database which catalogues the efficiency and effectiveness of knowledge-worker functions, such as finance, human resources, information technology and supply chain management. The Hackett Group has gathered data from more than 1,100 companies, including more than 40% of the Fortune 100. The Hackett Group's benchmark participants share cost, productivity and practices information on specific organizational functions. This data is collected into a database that allows the Hackett Group to compare its clients' performance to other companies' performance on specific criteria and to identify the most effective management strategies for change. . Delphi Partners, Inc. The Company acquired Delphi in November 1997. As a result of this acquisition, the Company is a PeopleSoft Implementation Partner and provides clients implementing PeopleSoft client/server financial, human resources and manufacturing applications with a broad range of services, including implementation management consulting, application design and development, customized end user training and documentation, process redesign and automated workflow and technology integration and support. The Legacy Acquisition . Legacy Technology, Inc. The Company acquired Legacy in May 1998. Legacy implements sophisticated data warehousing and decision support solutions for Fortune 1000 clients. Legacy provides product selection, systems architecture, database design and development services to support all phases of the project life cycle. Legacy assists customers in developing customer information warehouses, category management and marketing support systems, sales force solutions to promote technology enabled selling, as well as budgeting, costing and demand planning systems. SERVICES The Company offers its services or solutions in three principal areas: (i) "best-practice" benchmarking and business process transformation, (ii) "best- of-breed" packaged software implementation and (iii) advanced technologies integration. The Company delivers those services and solutions to its clients through the Company's 23 CFO | solutionsSM, CIO | solutionsSM, Customer | solutionsSM and Interprise Supply Chain | solutionsSM multidisciplinary teams. The Company's current consulting capabilities are summarized below. Benchmarking and Business Process Transformation. In the area of benchmarking and business process transformation, the Company works with clients to compare their performance to other companies, identify key business issues and develop and implement new processes to transform their organizations. . Benchmarking | solutionsSM. The Company, through the Hackett Group, works with large national and multinational corporations in evaluating their staff functions (such as finance, human resources, IT and supply chain management), and has compiled databases on a large number of companies in a wide variety of industries. Using these databases, the Company collects information from its clients, identifies benchmarks by which its clients can evaluate their performance on specific criteria relative to other companies and identifies the most effective strategies for specific functions in a given industry. Each benchmark is composed of the following three elements: (i) a quantitative analysis of costs, productivity, service, quality and effectiveness; (ii) an understanding of world-class best-practices; and (iii) opportunities to learn from best-practices companies. Stringent process definitions and controls enable comparisons to be made between companies with different attributes and across industries. Clients can receive a detailed, confidential evaluation of their performance measured against other benchmarks on the basis of business focus (e.g., manufacturing, service or distribution), size, organizational structure and geography. Since benchmark studies often lead to clients implementing revised IT strategies, the Company believes that it is well positioned to cross-sell its services. . Transformation | solutionsSM. The Company works with its clients to conceive, design and manage processes, organizations and systems necessary to implement technology-enabled business solutions. There are four key components to the Company's transformation solutions: Performance Assessment. The Company helps clients gain a systematic and objective understanding of the relative strengths and weaknesses of key aspects of their businesses, identify market trends and best- practices, and highlight those areas that offer the greatest opportunity for improvement. The Company works with clients to define and apply appropriate measures, and compare their performance to appropriate benchmarks. Business Redesign. The Company aids clients in defining an end-state vision of what their businesses require to achieve their primary performance objectives. Once that vision is established, AnswerThink helps clients identify and select the best strategies for achieving their objectives. AnswerThink's process redesigns generally affect all of a company's key processes, organizations, management practices, people and technology, taking full advantage of enabling technologies and reflecting both recognized best-practices and emerging trends. Migration Planning. The Company's work in the area of migration planning is focused on (i) deploying systems and infrastructure hardware and software as planned, (ii) initiating systems management and other delivery processes and (iii) initiating performance measurement and other management processes. The Company's migration planning services help clients to structure the process into a series of change initiatives and develop alternative scenarios for the staging and sequencing of those initiatives. The comparison and refinement of these scenarios on the basis of costs, benefits and risks leads to agreement on a master plan which details projects, schedules, responsibilities, funding and expected business results. Program Management. The Company establishes a single point of coordination for all initiatives contributing to the transformation process, including process redesign, organizational change, system implementation and infrastructure enhancement. AnswerThink applies proven project management disciplines, tools, techniques and systems to the management of complex transformation programs. Packaged Software Implementation. In the area of packaged software implementation, the Company works with its clients to identify and integrate "best-of-breed" solutions such as: 24 . Oracle | solutions. AnswerThink is a Business Alliance Member with Oracle, one of the world's leading suppliers of software for information management. Oracle's enterprise automation products include applications modules for financial management, supply chain management, manufacturing, project systems, human resources, and sales force automation. The Company serves as a sole source provider for procuring Oracle's packaged software, complementary hardware, and AnswerThink's related consulting and IT services. The Company's Oracle-based solutions support the full life cycle implementation of Oracle and involve project-planning, definition and management, configuration and implementation. . PeopleSoft | solutions. The Company is a PeopleSoft Implementation Partner. PeopleSoft offers a complete suite of enterprise software applications that automate business processes including finance, materials management, manufacturing, distribution, supply chain planning, accounting and human resources. PeopleSoft's offerings also include a rapid application development and reporting environment and customization toolset. The Company's PeopleSoft-based solutions support the full life cycle implementation of PeopleSoft and involve project-planning, definition and management, configuration and implementation. . Other Applications. The Company also provides comprehensive consulting and IT services supporting the full life cycle implementation, including project planning, definition and management, and application configuration and implementation, for such software applications as Baan (Aurum), Manugistics, i2 Technologies, Siebel, Point, Clarify and Scopus. Advanced Technologies Integration. The Company helps clients to achieve meaningful improvement in all aspects of their IT strategies by providing the following services: . Knowledge | solutionsSM. The Company provides consulting, design and implementation services focused on enhancing intellectual capital and knowledge resources across its clients' expanded enterprises. The Company's knowledge solutions emphasize decision support, data warehousing and knowledge management strategy and process design, content storage and navigation concepts, and related enabling technologies including groupware, collaborative tools and advanced knowledge-sharing environments. . Electronic Commerce | solutionsSM. The Company designs and develops internet, intranet and extranet solutions, with an emphasis on business- to-business digital commerce, messaging architectures, intranet enabled data warehouses, web-based transaction facilities and internet and extranet security. . Systems | solutionsSM. The Company evaluates, designs and implements complex enterprise-wide networks, large scale client/server technology, systems and network integration solutions focused on systems management and performance. . Millennium | solutionsSM. The Company designs and implements solutions to address the millennium challenge, focusing on applications assessment, Year 2000 testing and remediation strategy and active integration management. 25 As illustrated on the following chart, the Company's solutions are marketed across targeted business functions and are delivered through multidisciplinary solution teams that focus on different aspects of an organization's business and IT needs.
INTERPRISE SUPPLY CFO | SOLUTIONSSM CIO | SOLUTIONSSM CUSTOMER | SOLUTIONSSM CHAIN | SOLUTIONSSM ------------------ ------------------- ----------------------- ------------------------ BENCHMARKING AND BUSINESS PROCESS TRANSFORMATION Benchmarking | solutionsSM.... Finance/ Information Sales, Marketing and Supply-Chain Administration Management Customer Service Management, Inventory, Accounting/ Process Manufacturing HR Process Transformation | solutionsSM.. Process Redesign, Architecture, Process Redesign, Process Redesign, Migration Planning Network Migration Planning Migration Planning Applications and IT Strategy PACKAGED SOFTWARE IMPLEMENTATION Oracle | solutions............ Financials IT Support Sales and Manufacturing PeopleSoft | solutions........ and of Distribution and Other Applications............ HR Modules Packages Modules Purchasing ADVANCED TECHNOLOGIES INTEGRATION Knowledge | solutionsSM....... EIS and Enterprise Marketing and Product Demand Decision Support Knowledge Merchandising Systems and Management, and Decision Support Forecasting Enterprise Data Warehousing Electronic Web-enhanced Mail/Messaging, Sales Force Automation, Purchasing EDI Commerce | solutionsSM....... Finance and HR Intranets/Extranets Web Marketing, and Process Interactive Kiosk Web-enabled transactions Systems | solutionsSM......... _______________________________ Systems Acquisition ________________________________ Hardware Acquisition Systems Development Network Integration Millennium | solutionsSM...... ______________________________ Year 2000 Integration _______________________________ Application Assessment Renovation Strategy Program Office Test Planning and Execution
CLIENTS AND REPRESENTATIVE SOLUTIONS AnswerThink's clients consist primarily of Fortune 1000 companies and other sophisticated buyers of IT consulting services. During 1997, AnswerThink's ten most significant clients accounted for approximately 38%, and two clients accounted for approximately 13%, of net revenues. Net revenues from the Company's ten largest clients in 1997 ranged from $400,000 to $1.1 million. AnswerThink has served a broad range of clients, including the following: Avon Products, Inc. International Paper Company Bell Atlantic Corporation IVAX Corporation Bestfoods Knight Ridder, Inc. EXAR Corporation Lucent Technologies, Inc. Flexible Products Company Norrell Corporation Florida Power & Light Company Republic Industries, Inc. General Motors Corporation Starbucks Corporation Hayes Corporation Waste Management, Inc. 26 Three recent examples of the Company's significant engagements include the following: Services Company. A services company retained AnswerThink to assess and define the risks associated with enhancing and upgrading current processes and IT systems in light of the company's strategy to develop additional service offerings. After completion of the initial assessment, an expanded AnswerThink project team was engaged to develop a full strategy and architecture for the client's core PeopleSoft applications. It was critical that the client develop an IT infrastructure capable of supporting the client's planned migration to an expanded business strategy while preserving the functionality of the legacy platforms and systems used to manage its current service offerings. Working closely with the client, the team of professionals from Oracle | solutions, PeopleSoft | solutions, CFO | solutionsSM, Millennium | solutionsSM, Electronic Commerce | solutionsSM and Systems | solutionsSM identified the highest impact business areas, including branch office customer operations, payroll and pricing systems. Subsequently, this multidisciplinary team assisted in the design of a new set of processes and a new technology infrastructure to support these processes. AnswerThink's assessment helped the client view the business, technology risks and opportunities in a new light and AnswerThink advised the client on the architecture design, integration and execution of its new strategy and architecture. The design of the new integrated IT system provided the client with a comprehensive IT solution which the Company believes will result in a more flexible, reliable and robust system as well as service enhancements. Global Consumer Products Company. The Hackett Group was engaged by a global consumer products company to reengineer core finance processes worldwide and to identify opportunities for cost savings. The Hackett Group, through its benchmarking process, discovered that the client's accounting and finance organizations were performing less efficiently than those of comparable companies. Processes examined by the Hackett Group in this engagement included accounts payable, general accounting, cost and inventory accounting, forecasting and reporting. In determining appropriate strategies for improving these processes, the Hackett Group sought input from a wide array of the client's employees in ten countries in which the client operates. To address the client's weaknesses, the Hackett Group formulated a plan to improve the client's accounting and finance organization and implement technology-enabled solutions. The services initially provided by the Hackett Group included assessing the client's processes, determining appropriate objectives, outlining an implementation plan, presenting alternative solutions to the client and building consensus for change. Once these actions were taken, the Hackett Group focused on securing required resources, initiating a series of "quick win" programs, selecting software and determining appropriate controls and detailing specific recommendations for implementing its solutions. Examples of specific recommendations that were implemented include the installation of a purchasing card system, establishing electronic funds and intrabank transfer procedures, and the creation of a North American shared services center. The client has advised the Hackett Group that it expects that all of these actions will result in significant cost savings. High Tech Company. A high tech company decided to expand its product offerings and service capabilities to better respond to customer market demands. The client was experiencing problems with an ongoing enterprise systems implementation project undertaken to achieve these goals and AnswerThink was engaged to address the problems identified. Working closely with the client, a team of AnswerThink professionals from CFO | solutionsSM, CIO | solutionsSM, Oracle | solutions, Systems | solutionsSM and Interprise Supply Chain | solutionsSM performed an analysis of the client's financial, manufacturing, operations, logistics, sales and marketing functions. AnswerThink identified several weaknesses in the client's current systems as well as opportunities for improvement in the current implementation, and concluded that the client's existing applications suite could not adequately support the client's current and future business demands. AnswerThink's engagement was 27 restructured and expanded to span the enterprise. AnswerThink completed a requirements analysis for integrated enterprise applications, created a technical architecture for the enterprise and proposed a solution based on a new suite of Oracle applications to restructure the client's financial and administrative processes. AnswerThink is also assisting the client in restructuring its logistics and supply chain processes through another set of Oracle applications. AnswerThink's solution is intended to significantly shorten cycle times for the manufacturing and distribution of the client's products and to improve the client's invoice, billing and collection process. Implementation of the applications is underway. The client has advised the Company that it expects these new systems to enable it to more effectively manage its entire enterprise by improving manufacturing and billing efficiency and by reducing transaction and administrative costs. SALES AND MARKETING AnswerThink has developed a national sales force that markets the Company's consulting and IT services in major metropolitan areas. The Company's sales organization is supported by its prospect database, which includes companies and decision makers in targeted geographic markets. The extensive relationship base and reputation of the Company's senior management team is also a meaningful source of new business for AnswerThink. AnswerThink sales executives establish contact with targeted prospects to create awareness and preference for the Company. Thereafter, senior level managers are assigned to accounts as client executives to establish and maintain long-term relationships. Client executives are key sources of service advice and overall coordinators of AnswerThink's multiple service offerings to clients. AnswerThink also markets and provides its services directly through its solution teams and national office network. The Company's marketing strategy includes contributing articles to industry publications, expert source placements, speeches, analyst meetings and conferences, the creation of collateral marketing materials and the Company's Internet site (http://www.answerthink.com). This strategy is designed to strengthen the AnswerThink brand name and generate new clients. The program can be expanded and modified to take advantage of market-by-market or service-by-service opportunities as new services or markets are pursued. MANAGEMENT INFORMATION SYSTEMS The Company is currently implementing various aspects of its national service delivery infrastructure. The primary elements include a fully integrated financial and project management system and a proprietary network that is the foundation for AnswerThink's knowledge management system, MindShareSM. The Company believes that MindShareSM will significantly enhance the way clients are served by allowing the Company's knowledge-base to be shared by all of its consultants. MindShareSM is projected to be implemented nationally by mid-1998. The financial and project management systems the Company has developed are expected to provide AnswerThink with a fully integrated time and expense reporting system which will serve as the backbone for the Company's engagement management and related client billings, and drives the primary transaction information to the Company's financial reporting systems. The Company has also invested in the development of a comprehensive service delivery model which tracks how clients are handled from initial contact, to risk management assessments, to the delivery of the solution and the corresponding knowledge capture. HUMAN RESOURCES A cornerstone of the Company's strategy is to promote the loyalty and continuity of its consultants by offering packages of base and incentive compensation that it believes are significantly more attractive than those generally offered in the consulting industry. An important element of AnswerThink's compensation program will be Company-wide participation in the Stock Option Plan. See "Management--Stock Option Plan." 28 The Company's success depends in large part upon its ability to attract, develop, motivate and retain highly skilled professionals. Qualified professionals are in great demand and are likely to remain a limited resource for the foreseeable future. In connection with its hiring efforts, the Company has appointed a senior executive to lead AnswerThink's national recruiting team, which is further supported by executive search firms and AnswerThink's internal associate referral program. AnswerThink dedicates significant resources to recruiting consultants with both technology consulting and business experience. Many consultants are selected from among the largest and most successful IT services, consulting, accounting and other professional services organizations. As of April 3, 1998, the Company had 419 employees, 343 of whom were consultants. The Company is also committed to training and developing its professionals. The Company's present training strategy is solution or competency specific and in many cases is done in conjunction with the Company's "best-of-breed" technologies alliance strategy. None of the Company's employees is subject to a collective bargaining arrangement. AnswerThink has entered into nondisclosure and nonsolicitation agreements with virtually all of its personnel. Although all consultants are currently Company employees, the Company does engage consultants as independent contractors from time to time. STRATEGIC ALLIANCES The Company owns the program concept and intellectual property assets of the c.eraSM program, an industry-wide collaboration of companies aimed at providing a more efficient and comprehensive solution to the Year 2000 Issue and other enterprise mass change challenges by offering clients technology solutions, process support technologies and skilled deployment services through a single point of contact. Participants in the c.eraSM program include Peritus, Inc., Software Emancipation, Inc., INTO 2000, Inc., MatriDigm Corporation and Viasoft, Inc. AnswerThink also seeks strategic relationships with business partners to share technical and industry knowledge and pursue joint marketing opportunities. The Company has established business partner relationships with Oracle, PeopleSoft, IBM and Netscape, among others. These relationships typically allow the Company to gain access to training, product support and the technology developed by these partners. The training programs often enable Company employees to become certified in the technologies demanded by AnswerThink's clients. Establishing these relationships allows the Company to use the business partner's name and the "business partner" designation in marketing the Company's services. These relationships also facilitate the Company's pursuit of marketing opportunities with the business partners. These alliances do not require the Company to use technology developed by the business partners in implementing IT solutions for clients. Nonetheless, the Company may be retained by a client based in part upon one or more of the Company's business partner relationships. Although the Company is not obligated to resell products offered by the business partners, in the event it does so, it is sometimes entitled to purchase discounts on products purchased for resale. COMPETITION The market for consulting and IT services includes a large number of competitors and is subject to rapid change. Primary competitors include participants from a variety of market segments, including "Big Six" accounting firms, systems consulting and implementation firms, application software firms, service groups of computer equipment companies, systems integration companies, general management consulting firms and programming companies. Many competitors have significantly greater financial, technical and marketing resources and name recognition than the Company. In addition, the Company competes with its clients' internal resources, particularly where these resources represent a fixed cost to the client. Such competition may impose additional pricing pressures on the Company. See "Risk Factors--Competition." 29 The Company believes that the most significant competitive factors it faces are perceived value, breadth of services offered and price. The Company believes that its multidisciplinary, knowledge-based approach, broad and expanding framework of services and distinctive corporate culture allow it to compete favorably by delivering strategic IT solutions that meet clients' needs in an efficient manner. Other important competitive factors that the Company believes are relevant to its business include technical expertise, knowledge and experience in the industry, quality of service and responsiveness to client needs and speed in delivering IT solutions. INTELLECTUAL PROPERTY RIGHTS AnswerThink's success has resulted, in part, from its methodologies and other proprietary intellectual property rights. The Company relies upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright and trademark laws to protect its proprietary rights and the proprietary rights of third parties from whom the Company licenses intellectual property. The Company enters into confidentiality agreements with its employees and limits distribution of proprietary information. There can be no assurance that the steps taken by the Company in this regard will be adequate to deter misappropriation of proprietary information or that the Company will be able to detect unauthorized use and take appropriate steps to enforce its intellectual property rights. See "Risk Factors--Intellectual Property Rights." The Company is in the process of registering the trademarks "ANSWERTHINK" and "ANSWERTHINK CONSULTING GROUP" with the U.S. Patent and Trademark Office. The Company intends to make such other state and federal filings as the Company deems necessary and appropriate to protect its intellectual property rights. PROPERTY AnswerThink's principal executive offices currently are located at 1401 Brickell Avenue, Suite 350, Miami, Florida 33131. The Company has entered into a lease for space at 1001 Brickell Bay Drive, Suite 3000, Miami, Florida 33131, and the Company intends to move into these offices in the second quarter of 1998. The Company's lease on these premises covers 10,800 square feet and expires March 31, 2003. The Company also leases facilities in Atlanta, Boston, Chicago, Cleveland, Dallas, Iselin (NJ), Miami, New York, Philadelphia and Silicon Valley. AnswerThink anticipates that additional space will be required as its business expands and believes that it will be able to obtain suitable space as needed. LEGAL PROCEEDINGS Certain of the Company's key executives and other management employees resigned from a "Big Six" accounting firm during the first quarter of 1997. The accounting firm initiated litigation in connection with such resignations and the formation of the Company arising out of activities alleged to have constituted a breach of non-competition and non-solicitation obligations. This litigation was settled, and the Company, its key executives, certain other management employees and certain of its shareholders are subject to certain provisions contained in the Settlement Agreement among such persons and the accounting firm. The Settlement Agreement prohibits the Company from soliciting or hiring the accounting firm's employees and soliciting or servicing certain of its clients, and prohibits the accounting firm from soliciting the Company's employees, for a two-year period commencing December 31, 1996. Subsequent to the execution of the Settlement Agreement, the accounting firm asserted through legal proceedings that the Company and its executives and employees had conducted activities prohibited by the Settlement Agreement. The Company vigorously denied such assertions, and the accounting firm's claims in these respects were rejected by the court with jurisdiction over the Settlement Agreement. The Company and its executives and management believe that they can operate and grow the Company despite the limitations imposed by the Settlement Agreement. The Company, its key executives and management employees intend to continue to abide by the terms of the Settlement Agreement. See "Risk Factors--Litigation and Settlement." The Company is involved in legal proceedings, claims and litigation arising in the ordinary course of business. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the financial position or results of operations of the Company. 30 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS Set forth below is certain information as of May 1, 1998 concerning the directors and executive officers of the Company. The Company's board of directors is divided into three classes serving staggered three-year terms.
TERM AS DIRECTOR NAME AGE POSITION AND OFFICES HELD EXPIRES ---- --- ------------------------- -------- Ted A. Fernandez........ 41 President, Chief Executive Officer and 2001 Chairman Fernando Montero........ 52 Director 2001 Bruce V. Rauner......... 42 Director 2001 Allan R. Frank.......... 42 Executive Vice President, Chief Technology 2000 Officer and Director William C. Kessinger.... 32 Director 2000 Edmund R. Miller........ 42 Director 1999 Ulysses S. Knotts, III.. 42 Executive Vice President, Sales and 1999 Marketing and Director John F. Brennan......... 40 Executive Vice President, Acquisitions and Strategic Planning and Secretary Luis E. San Miguel...... 38 Executive Vice President, Finance and Chief Financial Officer
Ted A. Fernandez is a founder of the Company and has served as Chief Executive Officer, President and Chairman of its Board of Directors since inception. Mr. Fernandez served as the National Managing Partner of KPMG Peat Marwick LLP's ("KPMG's") Strategic Services Consulting, the firm's transformation and IT consulting group, from May 1994 to January 1997. Mr. Fernandez also served as a member of KPMG's Management Committee from May 1995 to January 1997. From 1979 to 1993, Mr. Fernandez held several industry, executive and client service positions with KPMG. Fernando Montero was elected to the Board of Directors in April 1998. Mr. Montero is President of Mentor Capital Corporation, which he founded in January 1998. Mr. Montero has also served as a partner of the Latin America Enterprise Fund since June 1995. From June 1987 through December 1997, Mr Montero was President of Hanseatic Corporation, a private investment firm. Mr. Montero served as Minister in the Ministry of Energy and Mines of the Republic of Peru, from August 1982 through December 1983, and as Deputy Minister from August 1980 through April 1982. From 1969 to 1978, Mr. Montero held a variety of positions with Kuhn Loeb & Co., the International Finance Corporation, Inversiones Abancay and Deltec International Group. Bruce V. Rauner has served as a member of the Company's Board of Directors since its inception. Mr. Rauner serves as managing principal of GTCR Golder Rauner, LLC ("GTCR LLC"), which together with its predecessors manages approximately $2 billion in six private equity funds. Mr. Rauner is also a director of a number of other companies, including Province Healthcare Company, Metamore Worldwide, Inc., Polymer Group, Inc., the Coinmach Corporation and Lason, Inc. Allan R. Frank is a founder of the Company and has served as Executive Vice President and Chief Technology Officer and as a member of its Board of Directors since inception. Prior to founding the Company, from May 1994 to January 1997 Mr. Frank served as the Chief Technology Officer for KPMG and as the Partner in Charge of Enabling Technologies with KPMG's Strategic Services Consulting. Mr. Frank also served on KPMG's Board of Directors from September 1994 to January 1997. Prior to 1994, Mr. Frank held several executive and client service responsibilities with KPMG. 31 William C. Kessinger has served as a member of the Board of Directors since inception. Mr. Kessinger joined GTCR LLC's predecessor entity in May 1995 and became a Principal in September 1997. Mr. Kessinger was a Principal with The Parthenon Group from July 1994 to May 1995. From August 1992 to June 1994, Mr. Kessinger attended Harvard Business School and received his MBA. Prior to that time, Mr. Kessinger served as an Associate with Prudential Asset Management Asia from August 1988 to June 1992. Mr. Kessinger is also a director of Excaliber, Inc., Global Imaging Systems, Inc., National Equipment Services, Inc., Users, Inc. and National Computer Print, Inc. Edmund R. Miller is a founder of the Company and has served as a member of the Board of Directors since inception. He is President of Miller Capital Management, Inc. ("Miller Capital"), which he founded in June 1996. From 1984 through May 1996, Mr. Miller was employed by Goldman, Sachs & Co., serving since 1988 as a Vice President in Private Client Services in the Miami office. Prior to joining Goldman, Sachs & Co., Mr. Miller spent four years as an International Tax Accountant at Price Waterhouse LLP in New York. Ulysses S. Knotts, III is a founder of the Company and has served as Executive Vice President, Sales & Marketing of the Company and as a member of its Board of Directors since inception. Prior to founding the Company, Mr. Knotts served as the Partner-in-Charge of Sales and Marketing and Enterprise Integration Services from 1995 to January 1997 and as the Partner-in-Charge of Enterprise Package Solutions from 1994 to 1995 with KPMG's Strategic Services Consulting. Prior to joining KPMG, Mr. Knotts was employed by IBM from 1980 to 1993 where he held various executive positions in the consulting and sales and marketing areas. John F. Brennan has served as Executive Vice President, Acquisitions and Strategic Planning, and as Secretary, since August 1997. Mr. Brennan was employed by Ryder System, Inc. ("Ryder"), as Vice President and Treasurer from June 1996 through August 1997. From January 1994 to June 1996, Mr. Brennan served as Assistant Controller of Operations Accounting for Ryder. Mr. Brennan held a variety of accounting and finance positions with Ryder from 1986 through 1994. Prior to joining Ryder, Mr. Brennan was a Manager with Arthur Andersen & Co. Luis E. San Miguel has served as Executive Vice President, Finance and Chief Financial Officer of the Company since inception. From 1994 through April 1997, Mr. San Miguel served as the Chief Financial Officer of KPMG's Strategic Services Consulting. Prior to joining KPMG, Mr. San Miguel spent three years with Burger King Corporation in several positions, the last of which was Director of Operations, Finance and Cash Management. The Company's executive officers are appointed annually by, and serve at the discretion of, the Board of Directors. Each executive officer is a full-time employee of the Company. There are no family relationships between any of the directors or executive officers of the Company. The Board of Directors has appointed a committee consisting of Messrs. Fernandez, Miller and Mr. Rauner or Mr. Kessinger (as chosen by GTCR) to select, by unanimous vote, three independent directors following completion of the Offering. Certain of the Company's major shareholders, including Messrs. Fernandez, Frank, Knotts and Miller and GTCR, currently are parties to a shareholders agreement containing a number of provisions regarding designations and elections for the Board of Directors. Messrs. Fernandez, Frank, Knotts and Miller and GTCR have agreed that these provisions will be suspended upon completion of the Offering. Such suspension will (i) become permanent at such time as three independent directors are appointed to the Board prior to January 1, 1999 or (ii) lapse if such directors are not appointed by such date. See "Certain Transactions--Shareholders Agreement" and "Risk Factors--Influence of Existing Shareholders." COMMITTEES OF THE BOARD OF DIRECTORS Following completion of the Offering, the Board of Directors will establish a Compensation Committee consisting of Messrs. Fernandez, Miller and Kessinger. The Compensation Committee will be responsible for determining compensation for the Company's executive officers and administering the Company's Stock Plans. 32 Mr. Fernandez will not participate in the determination of his compensation. Prior to April 1998, the Company had no separate compensation committee or other board committee performing equivalent functions with respect to determining compensation for the Company's executives, and those functions were performed by the Company's Board of Directors which included Messrs. Fernandez, Frank and Knotts. Following completion of the Offering, the Board also will establish an Audit Committee comprised of Messrs. Kessinger, Miller and Montero, which will be responsible for making recommendations concerning the engagement of independent public accountants, reviewing the plans and results of such engagement with the independent public accountants, reviewing the independence of the independent public accountants, considering the range of audit and non-audit fees and reviewing the adequacy of the Company's internal accounting controls. DIRECTOR COMPENSATION Directors who are officers or employees of the Company or any subsidiary of the Company will receive no additional compensation for serving on the Board of Directors or any of its committees. Directors who are not executive officers of the Company will receive upon initial election to the Board an option to purchase 5,000 shares of Common Stock for a purchase price equal to the market value of the underlying stock on the date of grant. Each option is expected to have a term of ten years and to vest in three equal installments beginning on the first anniversary of the date of grant, and all directors will be reimbursed for travel expenses incurred in connection with attending board and committee meetings. Directors are not entitled to additional fees for serving on committees of the Board of Directors. EXECUTIVE COMPENSATION The following table summarizes the compensation paid to or earned by the Company's Chief Executive Officer and all other executive officers of the Company whose salary and bonus for services rendered in all capacities to the Company exceeded $100,000 during the Inception Period (the period from April 23, 1997 (inception) to January 2, 1998) (the "Named Executive Officers"): SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION AWARDS ------------ ---------------- RESTRICTED STOCK ALL OTHER NAME AND PRINCIPAL POSITION(S) SALARY AWARDS(1) COMPENSATION - - ------------------------------ ------------ ---------------- ------------ Ted A. Fernandez................... $375,000 -- (2) $295,403(3) President, Chief Executive Officer and Chairman Allan R. Frank .................... 375,000 -- (2) 307,185(3) Executive Vice President and Chief Technology Officer Ulysses S. Knotts, III............. 375,000 -- (2) 216,185(3) Executive Vice President, Sales and Marketing Luis E. San Miguel................. 132,708 -- (4) -- Executive Vice President, Finance and Chief Financial Officer
- - -------- (1) In connection with the formation of the Company, each of Messrs. Fernandez, Frank, Knotts and San Miguel purchased restricted shares of Common Stock for nominal consideration deemed to be equal to the fair market value of such shares. Accordingly there was no compensation deemed to have occurred at the time of such purchase. (2) As of January 2, 1998, each of Messrs. Fernandez, Frank and Knotts held 1,400,000 shares of restricted Common Stock. No dividends have been paid and no dividends are currently expected to be paid on this restricted Common Stock. Based on a valuation study performed by an independent valuation firm, the Company has determined that the restricted Common Stock held by each of Messrs. Fernandez, Frank and Knotts had a value of $1,400,000 ($1.00 per share) on January 2, 1998. Of the 1,400,000 shares of restricted 33 Common Stock held by each of Messrs. Fernandez, Frank and Knotts, the vesting of 600,000 held by each was accelerated pursuant to certain agreements effective as of March 27, 1998, in the Company's first quarter of 1998. See "Employment Agreements" and "Certain Transactions." The remaining 800,000 shares held by each of Messrs. Fernandez, Frank and Knotts, will vest according to the following schedule: 50% will vest on April 23, 1999, 25% will vest on April 23, 2000 and 25% will vest on April 23, 2001. (3) Represents cash payments made by the Company to each of Messrs. Fernandez, Frank and Knotts relating to obligations assumed by the Company for compensation earned during the Dispute Period (the period from December 1, 1996 to the date of the Company's inception). See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations--Settlement Costs." (4) As of January 2, 1998, Mr. San Miguel held 160,000 shares of restricted Common Stock. No dividends have been paid and no dividends are currently expected to be paid on this restricted Common Stock. Based on a valuation study performed by an independent valuation firm, the Company has determined that the restricted Common Stock held by Mr. San Miguel had an aggregate value of $160,000 on January 2, 1998. The Common Stock held by Mr. San Miguel vests annually commencing on the second anniversary of the purchase of the stock at rates of approximately 25%, 25%, 31%, 13% and 6%. OPTION GRANTS The following table summarizes the options to acquire Series A Convertible Preferred granted to each of the Named Executive Officers during the Inception Period: OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS ------------------------------------------------ POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES NUMBER OF PERCENT OF OF STOCK PRICE SECURITIES TOTAL OPTIONS APPRECIATION UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(4) OPTIONS EMPLOYEES OR BASE EXPIRATION ------------------- NAME GRANTED(1) IN FISCAL YEAR(2) PRICE(3) DATE 5% 10% - - ---- ---------- ----------------- -------- ---------- --------- --------- Ted A. Fernandez........ 25,000 7.1% $6.00 10/23/97 N/A N/A Allan R. Frank.......... 25,000 7.1% $6.00 10/23/97 N/A N/A Ulysses S. Knotts, III.. 25,000 7.1% $6.00 10/23/97 N/A N/A Luis E. San Miguel...... -- N/A N/A N/A N/A N/A
- - -------- (1) On April 23, 1997, in connection with the formation of the Company, each of Messrs. Fernandez, Frank and Knotts were granted six-month options to purchase 25,000 shares of Series A Convertible Preferred. (2) Represents the number of shares of Series A Convertible Preferred underlying options granted to each of Messrs. Fernandez, Frank and Knotts as a percentage of all options granted to employees to acquire shares of Series A Convertible Preferred or shares of Common Stock assuming conversion of all shares of Convertible Preferred Stock. (3) The Board set the exercise price of $6.00 per share based on and equal to the price per share of Series A Convertible Preferred being paid by initial investors in the Company at the same time. (4) All options were exercised or expired prior to the end of the fiscal year. 34 YEAR-END OPTION TABLE The following table sets forth certain information as of January 2, 1998 with respect to stock options owned by the Named Executive Officers as of such date and for the Inception Period with respect to stock options exercised by the Named Executive Officers during such period: AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END -------------------- -------------------- SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE(1) REALIZED(1) UNEXERCISABLE UNEXERCISABLE ---- --------------- ----------- -------------------- -------------------- Ted A. Fernandez........ 16,667.5 -- 0/0 $0/$0 Allan R. Frank.......... 16,666.5 -- 0/0 0/0 Ulysses S. Knotts, III.. 16,666.5 -- 0/0 0/0 Luis E. San Miguel...... -- -- 0/0 0/0
- - -------- (1) On April 23, 1997, in connection with the formation of the Company, each of Messrs. Fernandez, Frank and Knotts were granted six-month options to purchase 25,000 shares of Series A Convertible Preferred. The exercise price for the options was $6.00 per share and was set by the Board of Directors based on the price per share of Series A Convertible Preferred being paid at the same time by initial investors in the Company. Messrs. Fernandez, Frank and Knotts exercised a portion of these options to purchase the indicated number of shares in July 1997. The Company does not believe that the fair market value of the Series A Convertible Preferred for which the options were exercised had appreciated from the fair market value of the Series A Convertible Preferred at the date of issuance. Accordingly, the Company determined that no value was realized in connection with the exercise of these options. EMPLOYMENT AGREEMENTS Effective upon completion of the Offering, each of Messrs. Fernandez, Frank and Knotts (collectively, the "Senior Executives") will enter into an employment agreement with the Company (each, a "Senior Executive Agreement"). Each such Senior Executive Agreement will replace currently existing employment agreements for the Senior Executives. Each of the Senior Executive Agreements will be for a three-year term (with an automatic renewal for one additional year on the first and each subsequent anniversary of a public offering unless either party gives contrary notice) and provide for an annual salary of $500,000 for the applicable Senior Executive, plus a bonus to be determined and paid pursuant to a bonus plan to be adopted by the Board of Directors for each fiscal year. In the event a Senior Executive is terminated by the Company without "cause" (as defined), or the Senior Executive terminates his employment with "good reason" (as defined), other than in the case of a "change in control" (as discussed below), that Senior Executive will be entitled to severance payments equaling that Senior Executive's annual salary and benefits for a one-year period from the date of termination. The Company will have the option to extend such severance payments for an additional one-year period. In the event the terminated Senior Executive finds new employment, the Company will be able to cease making or reduce the severance payments and benefits. If a Senior Executive's employment is terminated by the Company without cause or by the Senior Executive with good reason, in either case in anticipation of, in connection with or within one year after a "change in control" (as defined), his salary will be continued for two years (without offset for earnings from other employment), his benefits will be continued for two years (subject to cessation if the Senior Executive is entitled to similar benefits from a new employer) and stock options and shares of restricted stock then held by him will become fully vested. Under the terms of the Senior Executive Agreements, each of the Senior Executives will agree to preserve the confidentiality and the proprietary nature of all information relating to the Company and its business. Each Senior Executive also will agree to certain non-competition and non- solicitation provisions. 35 The Senior Management Agreements, as amended upon completion of the Offering will contain provisions affecting 800,000 shares of Common Stock held by each of the Senior Executives (the "Time Vesting Stock"), of which 50% will vest on April 23, 1999, 25% will vest on April 23, 2000 and 25% will vest on April 23, 2001, provided that if a Senior Executive's employment with the Company is terminated by the Company without cause prior to April 23, 2001, then all shares of Time Vesting Stock which have vested up to that date plus one-half of all unvested Time Vesting Stock held by such Senior Executive on such date shall be vested as of the date of such termination. Luis E. San Miguel will enter into an employment agreement with the Company upon completion of the Offering which will replace his current employment agreement with the Company. Mr. San Miguel's employment agreement will have a three-year term (with an automatic renewal for one additional year on the first and each subsequent anniversary of a public offering unless either party gives contrary notice) and provide for an annual salary of $175,000, plus a bonus pursuant to a bonus plan to be adopted by the Board of Directors for each fiscal year. In the event Mr. San Miguel is terminated by the Company without cause, or Mr. San Miguel terminates his employment with good reason, Mr. San Miguel will be entitled to a severance payment at the rate of his annual salary and benefits for a six-month period from the date of termination, which may be extended at the option of the Company for an additional six-month period. In the event Mr. San Miguel finds new employment after termination, the Company may eliminate or reduce such severance payments and benefits. In addition, the Company's employment agreement with Mr. San Miguel will contain provisions regarding confidentiality, proprietary information and work product, non-competition and non-solicitation. If Mr. San Miguel's employment is terminated by the Company without cause or by Mr. San Miguel with good reason, in either case in anticipation of, in connection with or within one year after a "change of control" (as defined), his salary will be continued for one year (without offset for earnings from other employment), his benefits will be continued for one year (subject to cessation if Mr. San Miguel is entitled to similar benefits from a new employer) and stock options and shares of restricted stock then held by him will become fully vested. Mr. San Miguel does not own any Senior Executive Restricted Stock. STOCK OPTION PLAN The Company's Stock Option Plan permits the Board of Directors, or a committee of the Board of Directors, to grant (i) options that are intended to qualify as "incentive stock options" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to employees of the Company, as well as non-qualifying options to employees and to any other individual whose participation in the Stock Option Plan is determined to be in the best interests of the Company, (ii) shares of Common Stock, subject to certain restrictions (the "Restricted Common Stock"), to the Company's employees, directors and other representatives and (iii) conditional rights to receive Restricted Common Stock in the future ("Restricted Common Stock Units"). The Stock Option Plan authorizes the issuance of up to 10,000,000 shares of Common Stock pursuant to options or as Restricted Common Stock or Restricted Common Stock Units, plus shares of Common Stock awarded under any prior stock option plan of the Company that are forfeited or otherwise terminate without the delivery of stock (subject to anti-dilution adjustments in the event of a stock split, recapitalization or similar transaction), provided that no more than 500,000 shares of Common Stock can be awarded as Restricted Common Stock. During any calendar year, the maximum number of options that may be granted to any one person is 3,000,000 and the maximum number of shares of Restricted Common Stock and Restricted Common Stock Units that may be issued to any one person is 3,000,000. The Compensation Committee will administer grants of options, which will include establishing the exercise price per share under each option and a vesting schedule for any options to purchase shares of Common Stock. The option exercise price per share for stock options granted under the Stock Option Plan may not be less than 100% of the fair market value per share of Common Stock on the date of grant of the option (or 110% of the fair market value per share of Common Stock in the case of an incentive stock option granted to an optionee beneficially owning more than 10% of the outstanding Common Stock). The maximum option term is ten years (or five years in the case of an incentive stock option granted to an optionee beneficially owning more than 10% of the outstanding Common Stock). Options may be exercised at any time after grant, except as otherwise 36 provided in the particular option agreement. There is also a $100,000 limit on the value of shares of Common Stock (determined at the time of grant) covered by incentive stock options that become exercisable by an optionee in any year. The Compensation Committee also will determine the number of shares, the purchase price per share and a vesting schedule for any shares of Restricted Common Stock or Restricted Common Stock Units that are to be issued under the Stock Option Plan. In the event a holder of Restricted Common Stock or Restricted Common Stock Units ceases to be employed by the Company for any reason, the Stock Option Plan provides that any unvested Restricted Common Stock or Restricted Common Stock Units held by such person will be forfeited immediately to the Company. The Board of Directors may amend or terminate the Stock Option Plan with respect to shares of Common Stock as to which options have not been granted or with respect to shares of Restricted Common Stock or Restricted Common Stock Units which have not been granted. 37 CERTAIN TRANSACTIONS STOCK PURCHASE AGREEMENTS AND RELATED MATTERS Purchase Agreements. The Company and the Initial Investors entered into a stock purchase agreement, dated as of April 23, 1997 (the "Purchase Agreement"), pursuant to which the Company sold 3,400,000 shares of Series A Convertible Preferred to Golder, Thoma, Cressey, Rauner Fund V, L.P. ("GTCR V"), MG Capital Partners II, L.P. ("MG"), Gator Associates, Ltd. ("Gator") and Tara Ventures, Ltd. ("Tara" and, together with Gator, the "Miller Group") (GTCR V, MG and the Miller Group are referred to collectively as the "Initial Investors"), for total aggregate consideration of $20,400,000. In July 1997, the Initial Investors converted 1,726,634 shares of Series A Convertible Preferred into 1,726,634 shares of Common Stock and subsequently received an additional 5,179,902 shares of Common Stock in respect of such shares in connection with a four-for-one split of Common Stock by the Company on July 17, 1997. The remaining 1,673,366 shares of Series A Convertible Preferred issued pursuant to the Purchase Agreement are convertible into 6,693,464 shares of Common Stock. On February 24, 1998, the Company sold an aggregate of 100,000 shares of Series A Convertible Preferred to certain of the Initial Investors and their affiliates. GTCR V, GTCR Associates V ("GTCR Associates V") and MG received an aggregate of 50,000 shares and Miller Capital received an aggregate of 50,000 shares. These 100,000 shares of Class A Preferred were sold for aggregate consideration of $600,000 and are convertible into 400,000 shares of Common Stock. GTCR is the general partner of GTCR V and a general partner in GTCR Associates V, and Mr. Miller, a director of the Company, is the president and sole stockholder of Miller Capital. Mr. Miller was general partner of Gator and controlled Tara. Both Gator and Tara have been dissolved, and investors in Gator and Tara received pro rata shares of the Company's capital stock held by each respective entity upon such dissolution. The investors in Gator and Tara included Mr. San Miguel, Mr. Miller, individually, two entities controlled by Mr. Miller, six members of Mr. Miller's immediate family, three members of Mr. Fernandez's immediate family and four members of Mr. Frank's immediate family. Bruce Rauner and William C. Kessinger, both directors of the Company, are employees of GTCR which is the general partner of GTCR V. See "Management." In connection with the Purchase Agreement, the Initial Investors, Messrs. Fernandez, Frank, Knotts and Miller and the Company, became parties to a Shareholders Agreement (the "Shareholders Agreement") and a Registration Agreement (the "Investors and Executive Registration Agreement"), and the Senior Executives, Mr. Miller and the Company became party to certain Senior Management Agreements (the "Senior Management Agreements") and certain restricted securities agreements all dated as of April 23, 1997. Shareholders Agreement. Under the Shareholders Agreement, (i) GTCR has the right to designate two members of the Board of Directors, (ii) the Miller Group has the right to designate two members of the Board of Directors, (iii) Messrs. Fernandez, Frank, Knotts and other executives party to the Agreement (the "Senior Managers") have the right to designate three directors, (iv) Mr. Miller and the directors designated by GTCR have the right, with the consultation of the Senior Managers, to designate four independent directors and (v) all parties to the Shareholders Agreement agree to vote their shares in favor of any person designated pursuant to the foregoing provisions. Messrs. Fernandez, Frank, Knotts and Miller and GTCR have agreed in a letter agreement dated as of March 15, 1998 that these provisions will be suspended temporarily upon completion of the Offering and permanently upon appointment of three additional independent directors by the unanimous vote of a committee of the Board of Directors consisting of Messrs. Fernandez, Miller and Mr. Rauner or Mr. Kessinger (as chosen by GTCR) as long as such new directors are appointed prior to January 1, 1999. If such appointments are not made prior to that date, these provisions will resume full force and effect. See "Management--Directors and Executive Officers" and "Risk Factors--Influence of Existing Shareholders." Registration Rights Agreement. Under the terms of the Investors and Executives Registration Agreement the Initial Investors, the Executives and certain other shareholders of the Company will have the right to require the Company to register their shares under the Securities Act. (Shares owned by GTCR V and MG are referred 38 to as the "GTCR Shares," and shares owned by the former shareholders of Gator and Tara are referred to as the "Miller Group Shares.") If the Company proposes to register its securities under the Securities Act, either for its own account or the account of others, these shareholders are entitled to notice of such registration and are entitled to include their shares in such registration; provided, among other conditions, that the underwriters of any offering have the right to limit the number of such shares included in such registration, subject to certain conditions. In addition, the holders of a majority of the GTCR Shares and of a majority of the Miller Group Shares may also require the Company to file under the Securities Act: (i) after the completion of a public offering of the Common Stock, an unlimited number of registrations on Form S-2 or S-3 (provided that the Company is qualified to use such forms) at the Company's expense; (ii) up to two registration statements on Form S-1 at the Company's expense; and (iii) an unlimited number of registration statements on Form S-1 at their own expense. Demand registrations under the Investors and Executives Registration Agreement must be on Form S-2 or S-3 if the Company qualifies to use either of such forms, and the Company has agreed following completion of the Offering to make demand registrations on Form S-3 available. The existence and exercise of the foregoing registration rights may hinder efforts by the Company to arrange future financing for the Company and may have an adverse effect on the market price of the Common Stock. See "Risk Factors--Shares Eligible for Future Sale; Registration Rights Agreements." Other Agreements with Directors and Named Executive Officers. The Senior Management Agreements provided for the sale of an aggregate of 1,050,000 shares of the Company's Common Stock (350,000 each) to Messrs. Fernandez, Frank and Knotts for consideration of $7,000 each, and the sale to Mr. Miller of 150,000 shares of the Company's Common Stock for consideration of $3,000. Such shares were purchased by the Senior Executives and Mr. Miller on April 23, 1997. The Senior Executives and Mr. Miller subsequently received an additional 3,600,000 shares of Common Stock in respect of such shares in connection with the four-for-one split of Common Stock by the Company on July 17, 1997. The Senior Management Agreements and the Restricted Securities Agreements provide the terms on which such shares vest and place certain restrictions on such shares. Pursuant to agreements effective as of March 27, 1998, the Company and the Board of Directors, Messrs. Fernandez, Frank, Knotts and Miller amended certain agreements to which they were parties resulting in the exchange of 600,000, 600,000, 600,000 and 300,000 unvested shares of restricted Common Stock, owned by Messrs. Fernandez, Frank, Knotts and Miller, respectively, for equal numbers of vested shares of unrestricted Common Stock. The respective Senior Management Agreements for each of Messrs. Fernandez, Frank and Knotts provide for a salary at the rate of $500,000 per year, plus bonuses. Mr. Miller's Senior Management Agreement does not provide for a salary to be paid to Mr. Miller. The Senior Management Agreement with Mr. Miller will be terminated prior to the Offering. The provisions relating to employment, salary and bonuses in Senior Management Agreements with Messrs. Fernandez, Frank and Knotts will be terminated and replaced by Senior Executive Agreements upon completion of the Offering. See "Management-- Employment Agreements." On July 22, 1997, Mr. San Miguel entered into an employment agreement and a restricted securities agreement with the Company. Under these agreements, Mr. San Miguel has a salary of $175,000 per year, and he purchased 160,000 shares of Common Stock for consideration of $800. These shares will vest over six years and are subject to certain restrictions on transfer. Mr. San Miguel's employment agreement will be terminated and replaced by a new employment agreement upon completion of the Offering. See "Management--Employment Agreements." Pursuant to options in the Senior Management Agreements, on July 10, 1997 the Company sold an aggregate of 50,000 shares of Series A Convertible Preferred to Messrs. Fernandez, Frank and Knotts for $6.00 per share. Of these 50,000 shares, 16,667.5 shares were sold to Mr. Fernandez, and 16,666.5 shares were sold to each of Messrs. Knotts and Frank. All of these shares were converted into common stock, and the Senior Executives subsequently received an additional 150,001 shares of Common Stock in respect of such shares in connection with the four-for-one split of Common Stock by the Company on July 17, 1997. See "Management--Executive Compensation." 39 Pursuant to the Purchase Agreement, the Senior Management Agreement and certain other agreements with executives of the Company, the Initial Investors and certain of the Company's executives have preemptive rights with respect to certain proposed sales of Common Stock by the Company, not including any sale in the Offering or any sales to employees of the Company pursuant to employment agreements or benefit plans. In addition, these same parties and the Company were granted certain rights of first refusal and participation rights with respect to any sales of Common Stock by the other parties to these agreements. These preemptive rights, rights of first refusal and participation rights will be terminated effective upon the Offering. The Company intends to enter into a sublease with Miller Capital whereby the Company would lease to Miller Capital a portion of the premises at its new corporate headquarters, at 1001 Brickell Bay Drive, Suite 3000, Miami, Florida. The Company and Miller Capital have reached agreement on the principal terms of this sublease, and the Company believes that the financial terms of this sublease will be comparable to those that would be obtained in an arms-length transaction. NETSOL INTERNATIONAL, INC. The Company is a party to an Alliance Agreement, dated as of December 10, 1997 (the "Alliance Agreement"), by and among the Company and NetSol International, Inc., a Florida corporation ("NetSol"). Pursuant to the Alliance Agreement, the Company will receive referrals and leads on consulting, systems integration and other projects from NetSol in both the U.S. and Latin American markets. NetSol will serve as a sales agent for the Company on projects in Latin America, and the Company will have the right of first refusal on systems integration and network integration projects in Latin America when NetSol requires subcontracting to a third party from the U.S. market. The Alliance Agreement also provides for the sharing of commissions on hardware and software procurement, applications software and consulting services. The authorized capital stock of NetSol consists of 10,000 shares of common stock, of which 6,624 are issued and outstanding. Pursuant to a stock purchase agreement, dated as of August 29, 1997 (the "NetSol Stock Purchase Agreement"), GTCR V purchased 2,206 shares of NetSol for aggregate consideration of $662,500 from NetSol's stockholders, which include Messrs. Fernandez, Frank, Knotts and Miller. Subsequent to the NetSol Stock Purchase Agreement, and assuming the exercise of options granted to certain members of NetSol's management, GTCR V will own 33.33%, and Messrs. Fernandez, Frank, Knotts and Miller will own 12.59%, 5.03%, 5.03% and 2.52% of NetSol's common stock, respectively. NetSol has provided and is expected to continue to provide the Company with such products as computer hardware and telephone systems and related procurement services. For the Inception Period, payments to NetSol for such goods and services totaled approximately $1.5 million. The Company believes that the terms on which such goods and services were acquired are comparable to those that would be obtained from a third-party vendor in arms-length transactions. In May 1998, an affiliate of GTCR V, along with affiliates of Miller Capital, proposed the recapitalization of NetSol and the restructuring of its relationship with the Company in order for NetSol to more actively pursue the systems/network integration business in the U.S. market, which is currently one of the minor components of the Company's national consulting services. In connection with the proposal, one of the Company's employees, Joseph James ("James"), who has been chiefly responsible for the Company's Systems|solutionsSM, would join NetSol as a shareholder and as chief executive officer. Although the Company intends to maintain its current level of high- end consulting in this sector notwithstanding James' departure, the Company would in effect deemphasize the lower-end, capital intensive systems/network integration business. The Company would continue to participate in this business through a 5% fully-diluted equity interest in NetSol, which it would receive in consideration for its agreement to permit James to retain a portion of his unvested restricted stock and the waiver of James' noncompetition agreement with the Company in respect of his involvement with NetSol's business. Under the proposal, Messrs. Fernandez, Knotts and Frank would receive cash for a portion of their current equity interest in NetSol and retain collectively a fully-diluted equity interest in NetSol of approximately 5%. There can be no assurance that the proposed transaction will be consummated, or that it will be consummated in the form described; the transaction is subject to definitive documentation, Board approvals and the receipt by the Company of a fairness opinion from an independent third party investment bank or appraisal/valuation firm. The Company believes that the proposed transaction, if consummated, would not have a material impact on its business, financial condition or results of operations. 40 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth certain information regarding the beneficial ownership of Common Stock as of April 3, 1998, assuming the Conversion and as adjusted to reflect the sale of 3,850,000 shares of Common Stock in this Offering: (i) by each person (or group of affiliated persons) known by the Company to be the beneficial owner of more than 5% of the outstanding Common Stock; (ii) by each of the Named Executive Officers; (iii) by each director of the Company; (iv) by all of the Company's directors and executive officers as a group; and (v) each shareholder selling shares in the Offering (each a "Selling Shareholder").
SHARES BENEFICIALLY SHARED BENEFICIALLY OWNED OWNED PRIOR TO OFFERING (1) NUMBER OF AFTER OFFERING (1) ----------------------------SHARES BEING --------------------------- NAME NUMBER PERCENT OFFERED NUMBER PERCENT - - ---- ------------- ----------------------- ------------ ---------- Ted A. Fernandez (2).... 1,466,670 4.8% -- 1,466,670 4.4% Allan R. Frank (2), (3).................... 1,534,666 5.0 -- 1,534,666 4.6 Ulysses S. Knotts, III (2).................... 1,466,666 4.8 -- 1,466,666 4.4 Luis E. San Miguel (2).. 182,664 * -- 182,664 * Bruce Rauner (4), (5)... 6,931,372 22.6 686,700(6) 6,244,672 18.7 William C. Kessinger (4), (5)............... 6,931,372 22.6 686,700(6) 6,244,672 18.7 Fernando Montero (2).... 204,000 * -- 204,000 * Golder, Thoma, Cressey, Rauner Fund V, LP (4), (5).................... 6,918,285 22.6 685,503(6) 6,232,782 18.6 GTCR V (4), (5)......... 12,087 * 1,197(7) 10,890 * Edmund R. Miller (2).... 7,463,980(8) 24.4 --(9) 7,290,000(10) 21.8 Miller Capital Management, Inc. (2)... 1,106,668(8) 3.6 -- 1,246,666(10) 3.7 Southeast Investments International, Ltd. (2).................... 226,668(8) * -- 226,668 * Southeast Investments, L.P. (2)............... 680,000(8) 2.2 -- 680,000 2.0 All directors and executive officers as a group (9 persons)...... 19,390,018 63.3 686,700(6) 18,390,018 54.9 OTHER SELLING SHAREHOLDERS - - ------------- AB Hannells Industrier (11)................... 34,000 * 34,000 -- -- BFC Holdings, Inc. (12)................... 66,864 * 66,864 -- -- Leonardo F. Brito (13).. 15,864 * 3,172 12,692 * Marc Dreier (14)........ 13,600 * 13,600 -- -- Steven L. Eber (15)..... 170,000 * 20,000 150,000 * Pippa J. Ellis (16)..... 22,664 * 8,664 14,000 * RBC Inc. (17)........... 266,000 * 133,000 133,000 * Joseph M. Salvani (18).. 34,000 * 34,000 -- -- Total Selling Shareholders........... 7,542,277 24.6 1,000,000 6,542,277 19.5
- - -------- * Less than 1%. (1) Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person has beneficial ownership of any securities as to which such person, directly or indirectly, through any contract, arrangement, undertaking, relationship or otherwise has or shares voting power and/or investment power and as to which such person has the right to acquire such voting and/or investment power within 60 days. Percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares outstanding as of such date and the number of shares as to which such person has the right to acquire voting and/or investment power within 60 days. (2) The address of each of Messrs. Fernandez, Frank, Knotts, San Miguel, Montero and Miller and Miller Capital Management, Inc., Southeast Investments International, Ltd. and Southeast Investments, LP is 1401 Brickell Avenue, Suite 350, Miami, Florida 33131. (3) Includes 68,000 shares of Common Stock with respect to which Mr. Frank has voting power pursuant to proxies granted by the beneficial owners of such shares. Mr. Frank disclaims beneficial ownership of these shares. (4) The address of each of Messrs. Rauner and Kessinger, GTCR V and GTCR Associates V is 6100 Sears Tower, Chicago, Illinois, 60606. (5) Includes shares held by GTCR V and shares held by GTCR Associates V. Messrs. Rauner and Kessinger are principals in GTCR which is the general partner of GTCR V and a general partner in GTCR Associates 41 V. Messrs. Rauner and Kessinger disclaim the beneficial ownership of the shares held by such entities except to the extent of his proportionate ownership interests therein. (6) Consists solely of shares held by GTCR V for which each of Messrs. Rauner and Kessinger disclaims beneficial ownership except to the extent of his proportionate ownership interest therein. (7) Consists solely of shares held by GTCR Associates V for which each of Messrs. Rauner and Kessinger disclaims beneficial ownership except to the extent of his proportionate ownership interest therein. (8) Includes 1,280,000 shares held by Mr. Miller individually. Also includes (i) 200,000 shares held directly by Miller Capital, which is wholly owned by Mr. Miller, (ii) 226,668 shares held directly by Southeast Investments International, Ltd., which is an investment fund managed by Miller Capital, (iii) 680,000 shares held directly by Southeast Investments, L.P., which is an investment fund managed by Miller Capital and in which Mr. Miller owns, indirectly, approximately a 39% interest, and (iv) 5,077,312 shares with respect to which Mr. Miller has voting power pursuant to proxies granted by the beneficial owners of such shares. Mr. Miller disclaims the beneficial ownership of the shares owned by Southeast Investments International, Ltd. and Southeast Investments, L.P. except to the extent of his proportionate interest therein, and Mr. Miller disclaims beneficial ownership of all shares with respect to which he has voting power pursuant to a proxy granted by the beneficial owner thereof. (9) Mr. Miller has voting power over 313,300 shares of Common Stock being sold by certain Selling Shareholders pursuant to proxies granted by such Selling Shareholders. Mr. Miller will not receive any of the proceeds from the sale of these shares. (10) Includes 140,000 shares which Miller Capital intends to purchase in the Offering. (11) The address of AB Hannells Industrier is Kvekatorpsvagen 25, Box 174, Falkenberg 31122, Sweden. (12) The address of BFC Holdings, Inc. is P.O. Box 662, Road Town, Tortola, British Virgin Islands. (13) The address of Leonardo F. Brito is 798 Crandon Boulevard, #9, Key Biscayne, Florida 33149. (14) The address of Marcel Dreier is 425 East 58th Street, Apartment 37A, New York, New York 10022. (15) The address of Steven L. Eber is 625 San Servando Avenue, Coral Gables, Florida 33143. (16) The address of Pippa J. Ellis is 14 Miller Road, Darien, Connecticut 06820. (17) The address of RBC Inc. is c/o Bank Morgan Stanley AG, Bahnhofstrasse 92, Zurich, CH-8023, Switzerland. (18) The address of Joseph M. Salvani is Unit 318, 4800 Highway A-1-A, Vero Beach, Florida 32963. DESCRIPTION OF CAPITAL STOCK The Company was incorporated as a Florida corporation on April 23, 1997. As of April 3, 1998, the Company had 23,200,041 shares of Common Stock outstanding and 255 holders of record of such Common Stock and 1,790,026 shares of convertible preferred stock outstanding and 50 holders of record of such convertible preferred stock. On May 20, 1998, the Company issued 269,166 shares of Common Stock in connection with the Legacy Acquisition. Concurrent with the Offering, each share of outstanding convertible preferred stock will be converted into four shares of Common Stock. The following is a description of the material terms of the capital stock of the Company. COMMON STOCK The Company is authorized to issue 125,000,000 shares of Common Stock, $.001 par value per share. Upon completion of the Offering, each shareholder of record will be entitled to one vote for each outstanding share of Common Stock owned by such shareholder on every matter properly submitted to the shareholders for their vote. Subject to the dividend rights of holders of the Company's preferred stock, par value $.001 per share ("Preferred Stock"), holders of Common Stock are entitled to any dividend declared by the Board of Directors out of funds legally available for such purpose, and, after the payment of liquidation preferences to all holders of Preferred Stock, holders of Common Stock are entitled to receive on a pro rata basis all remaining assets of the Company available for distribution to the shareholders in the event of the liquidation, dissolution, or winding up 42 of the Company. Holders of Common Stock do not have any preemptive right to become subscribers or purchasers of additional shares of any class of the Company's capital stock. PREFERRED STOCK The Company's Articles of Incorporation, as amended, allow the Company to issue without shareholder approval Preferred Stock having rights senior to those of the Common Stock. As of the closing of the Offering, no shares of Preferred Stock will be outstanding. Thereafter, the Board of Directors is authorized, without further shareholder approval, to issue up to 1,250,000 shares of Preferred Stock in one or more series and to fix the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each such series and to fix the qualifications, limitations or restrictions thereof. The issuance of Preferred Stock may have the effect of delaying or preventing a change in control of the Company. The issuance of Preferred Stock could decrease the amount of earnings and assets available for distribution to the holders of Common Stock or could adversely affect the rights and powers, including voting rights, of the holders of the Common Stock. In certain circumstances, such issuance could have the effect of decreasing the market price of the Common Stock. The Company currently has no plans to issue any shares of Preferred Stock. The Company currently has the authority to issue up to 3,600,000 shares of Series A Convertible Preferred, of which 1,773,360 shares will be outstanding immediately prior to the Offering, and up to 50,000 shares of Series B Convertible Preferred, of which 16,666 shares will be outstanding immediately prior to the Offering. Upon the signing of the underwriting agreement relating to the Offering, the Conversion will occur whereby all outstanding shares of Series A Convertible Preferred and Series B Convertible Preferred will automatically be converted into shares of Common Stock on a four-for-one basis. As of such time, the Company no longer will have authority to issue shares of convertible preferred stock, and the Company's authorized capital will consist only of 125,000,000 shares of Common Stock and 1,250,000 shares of Preferred Stock. LIMITATION OF LIABILITY AND INDEMNIFICATION To the fullest extent permitted by the Florida Business Corporation Act (the "Florida Act"), the Company's Articles of Incorporation provide that directors of the Company shall not be personally liable to the Company or its shareholders for monetary damages for breach of fiduciary duty as a director. Generally, the Florida Act permits indemnification of a director or officer upon a determination that he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The Articles of Incorporation and Bylaws of the Company provide for the indemnification of the Company's directors and officers and any person who is or was serving at the request of the Company as a director, officer, employee, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, including service with respect to an employee benefit plan to the fullest extent authorized by, and subject to the conditions set forth in the Florida Act against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA taxes, excise taxes, or penalties, charges, expenses and amounts paid or to be paid in settlement) , except that the Company will indemnify a director or officer in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Company's Board of Directors. The indemnification provided under the Bylaws includes the right to be paid by the Company the expenses (including attorneys' fees) in advance of any proceeding for which indemnification may be had in advance of its final disposition, provided that the payment of such expenses (including attorneys' fees) incurred by a director or officer in advance of the final disposition of a proceeding may be made only upon delivery to the Company of an undertaking by or on behalf of such director or officer to repay all amounts so paid in advance if it is ultimately determined that such director or officer is not entitled to be indemnified. Pursuant to the Bylaws, if a claim for indemnification is not paid by the Company within 60 days after a written claim has been received by the Company, the claimant may at any time thereafter bring an action 43 against the Company to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant will be entitled to be paid also the expense of prosecuting such action. Under the Articles of Incorporation, the Company has the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against such person or incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of the Florida Act. The Company maintains director and officer liability insurance on behalf of its directors and officers. CERTAIN ANTI-TAKEOVER EFFECTS The Company's Articles of Incorporation and Bylaws contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the Company's Board of Directors and in the policies formulated by the Board of Directors. In addition certain provisions of Florida law may hinder or delay an attempted takeover of the Company other than through negotiation with the Board of Directors. These provisions could have the effect of discouraging certain attempts to acquire the Company or remove incumbent management even if some or a majority of the Company's shareholders were to deem such an attempt to be in their best interest, including attempts that might result in the shareholders' receiving a premium over the market price for the shares of Common Stock held by shareholders. Classified Board of Directors; Removal; Vacancies. The Articles of Incorporation provide that the Board of Directors is divided into three classes of directors serving staggered three-year terms. The classification of directors has the effect of making it more difficult for shareholders to change the composition of the Board of Directors in a relatively short period of time. The Articles of Incorporation further provides that directors may be removed only for cause and then only by the affirmative vote of the holders of at least two-thirds of the entire voting power of all the then-outstanding shares of stock of the Company entitled to vote generally in the election of directors, voting together as a single class. In addition, vacancies and newly created directorships resulting from any increase in the size of the Board of Directors may be filled only by the affirmative vote of a majority of the directors then in office (even if such directors do not constitute a quorum) or by a sole remaining director. The foregoing provisions could prevent shareholders from removing incumbent directors without cause and filling the resulting vacancies with their own nominees. Advance Notice Provisions for Shareholder Proposals and Shareholder Nominations of Directors. The Bylaws establish an advance notice procedure with regard to the nomination, other than by the Board of Directors, of candidates for election to the Board of Directors and with regard to certain matters to be brought before an annual meeting of shareholders of the Company. For nominations and other business to be brought properly before an annual meeting by a shareholder, the shareholder must deliver notice to the Company not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting. Separate provisions based on public notice by the Company specify how this advance notice requirement operates in the event that the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date. The shareholder's notice must set forth certain specified information regarding the shareholder and its holdings, as well as certain background information regarding any director nominee (together with such person's written consent to being named as a nominee and to serving as a director if elected) and a brief description of any business desired to be brought before the meeting, the reasons for conducting the business at the meeting and any material interest of the shareholder in the business proposed. In the case of a special meeting of shareholders called for the purpose of electing directors, nominations by a shareholder may be made only by delivery of notice to the Company no later than the tenth day following the day on which public announcement of the special meeting is made. Although the Bylaws do not give the Company's Board of Directors any power to approve or disapprove shareholder nominations for the election of directors or any other business desired by shareholders to be conducted at an annual meeting, the Bylaws (i) may have the effect of precluding a nomination for the election of directors or precluding the conduct of certain business at a particular 44 meeting if the proper procedures are not followed or (ii) may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the Company, even if the conduct of such solicitation or such attempt might be beneficial to the Company and its shareholders. Special Shareholders' Meetings. Under the Articles of Incorporation and the Bylaws, special meetings of the shareholders, unless otherwise prescribed by statute, may be called only (i) by the Board of Directors or by the Chairman or President of the Company or (ii) by shareholders of the Company upon the written request of the holders of at least 80% of the securities of the Company outstanding and entitled to vote generally in the election of directors. Limitations on Shareholder Action by Written Consent. The Articles of Incorporation also provide that any action required or permitted to be taken at a shareholders' meeting may be taken without a meeting, without prior notice and without a vote, if the action is taken by persons who would be entitled to vote at a meeting and who hold shares having voting power equal to not less than the greater of (a) 80% of the voting power of all shares of each class or series entitled to vote on such action or (b) the minimum number of votes of each class or series that would be necessary to authorize or take the action at a meeting at which all shares of each class or series entitled to vote were present and voted. Provisions of Florida Law. In addition to the foregoing provisions of the Articles of Incorporation and the Bylaws, the Company has also elected to be subject to the "affiliated transaction" provision of the Florida Act. This provision prohibits a publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an "interested shareholder" unless (i) in addition to any affirmative vote required by any other section of the Florida Act or by the Articles of Incorporation of the corporation, the transaction is approved by two-thirds of the corporation's outstanding voting shares other than the shares beneficially owned by the interested shareholder, (ii) the transaction is approved by a majority of the disinterested directors, (iii) the interested shareholder has been the beneficial owner of at least 80% of the corporation's outstanding voting shares for at least five (5) years preceding the date of the transaction, or (iv) the interested shareholder is the beneficial owner of at least 90% of the outstanding voting shares of the corporation, exclusive of shares acquired directly from the corporation in a transaction not approved by a majority of the disinterested directors. The term "interested shareholder" is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation's outstanding voting shares. These provisions could have the effect of delaying, deferring or preventing a change in control of the Company or reducing the price that certain investors might be willing to pay in the future for shares of Common Stock. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is BankBoston, N.A. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have 33,479,311 shares of Common Stock outstanding (assuming no exercise of outstanding options). Of these shares, the 3,850,000 shares (4,427,500 shares if the Underwriters' over-allotment option is exercised in full) to be sold in the Offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased by affiliates of the Company, as that term is defined in Rule 144 under the Securities Act ("Affiliates"), may generally only be sold in compliance with the limitations of Rule 144 described below. The remaining 29,629,311 shares of Common Stock outstanding upon completion of the Offering are deemed "Restricted Shares" under Rule 144. 45 SALES OF RESTRICTED SHARES None of the Restricted Shares will be eligible for sale in the public market on the date of this Prospectus. Following the period ending 180 days after the date of this Prospectus, 18,804,005 shares of Common Stock will be eligible for sale in the public market subject to Rule 144 under the Securities Act. See "--Lock-up Agreements." In general, under Rule 144, a person (or persons whose shares are aggregated), including an Affiliate, who has beneficially owned Restricted Shares for at least one year is entitled to sell, within any three-month period, a number of such shares that does not exceed the greater of (i) one percent of the then outstanding shares of Common Stock (approximately 334,793 shares immediately after the Offering) or (ii) the average weekly trading volume in the Common Stock on the Nasdaq National Market during the four calendar weeks preceding the date on which notice of such sale is filed, provided certain requirements concerning availability of public information, manner of sale and notice of sale are satisfied. In addition, Affiliates must comply with the restrictions and requirements of Rule 144, other than the one- year holding period requirement, in order to sell shares of Common Stock which are not restricted securities. Under Rule 144(k), a person who is not an affiliate and has not been an Affiliate for at least three months prior to the sale and who has beneficially owned Restricted Shares for at least two years may resell such shares without compliance with the foregoing requirements. In meeting the one and two years holding periods described above, a holder of Restricted Shares can include the holding periods of a prior owner who was not an Affiliate. The one and two year holding periods described above do not begin to run until the full purchase price or other consideration is paid by the person acquiring the Restricted Shares from the issuer or an Affiliate. OPTIONS AND WARRANT At April 3, 1998, 1,367,169 shares of Common Stock were issuable pursuant to outstanding options. None of these options are currently exercisable, and none will be exercisable, prior to May 27, 1999. Following the Offering, the Company intends to file one or more registration statements on Form S-8 under the Securities Act to register approximately 10,750,000 shares of Common Stock issued as subject to outstanding stock options or reserved for issuance under the Company's Stock Plans. The Company also has reserved 37,500 shares for issuance upon exercise of a warrant outstanding and exercisable as of April 3, 1998. In the event the warrant is exercised during the period ending 180 days after the date of this Prospectus, the shares issued upon exercise of the warrant will not be eligible for sale in the public market during such period but will be eligible for sale in the public market upon completion of such period subject to Rule 144 under the Securities Act. LOCK-UP AGREEMENTS Each of the Company, the Selling Shareholders, the directors, executive officers and certain other shareholders of the Company have agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, as defined, it will not, during the period ending 180 days after the date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership or the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The restrictions described in this paragraph do not apply to (v) the sale of Shares to the Underwriters, (w) the issuance by the Company of 269,166 shares of Common Stock to the stockholders of Legacy in connection with the Legacy Acquisition, (x) the issuance by the Company of shares of Common Stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this Prospectus of which the Underwriters have been advised in writing, (y) the grant by the Company of (A) options to purchase shares of Common Stock in connection with the Legacy Acquisition and (B) options to employees in the ordinary course of business consistent with past practice, provided that no such options shall become exercisable during the 180-day period, or (z) transactions by any person other than the Company relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the Offering. 46 REGISTRATION RIGHTS Following the Offering, holders of 20,661,757 shares of Common Stock will have the right to require the Company to register such shares under the Securities Act pursuant to terms and conditions of registration agreements with the Company. See "Certain Transactions." The existence and exercise of the foregoing registration rights may hinder efforts by the Company to arrange the financing for the Company and may have an adverse effect on the market price of the Common Stock. See "Risk Factors--Shares Eligible for Future Sales; Registration Rights Agreements." 47 UNDERWRITERS Under the terms and subject to the conditions contained in an Underwriting Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters named below for whom Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, NationsBanc Montgomery Securities LLC and the Robinson-Humphrey Company, LLC are acting as Representatives, have severally agreed to purchase, and the Company and the Selling Shareholders have agreed to sell to them, severally, the respective number of shares of Common Stock set forth opposite the names of such Underwriters below.
NUMBER OF UNDERWRITER SHARES ----------- --------- Morgan Stanley & Co. Incorporated..................................... Donaldson, Lufkin & Jenrette Securities Corporation................... NationsBanc Montgomery Securities LLC................................. The Robinson-Humphrey Company, LLC.................................... ---- Total............................................................... ====
The Underwriting Agreement provides that the obligations of the several Underwriters to pay for and accept delivery of the shares of Common Stock offered hereby are subject to the approval of certain legal matters by their counsel and to certain other conditions. The Underwriters are obligated to take and pay for all of the shares of Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters initially propose to offer part of the shares of Common Stock directly to the public at the public offering price set forth on the cover page hereof and part to certain dealers at a price that represents a concession not in excess of $ a share under the public offering price. Any Underwriter may allow, and such dealers may reallow, a concession not in excess of $ a share to other Underwriters or to certain dealers. After the initial offering of the shares of Common Stock, the offering price and other selling terms may from time to time be varied by the Representative. The Company and certain Selling Shareholders have granted to the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase up to an aggregate of 577,500 additional shares of Common Stock at the public offering price set forth on the cover page hereof, less underwriting discounts and commissions. The Underwriters may exercise such option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of Common Stock offered hereby. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional shares of Common Stock as the number set forth next to such Underwriter's name in the preceding table bears to the total number of shares of Common Stock set forth next to the names of all Underwriters in the preceding table. The Underwriters have informed the Company that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of Common Stock offered by them. The Company and the Selling Shareholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act. The Common Stock has been approved for listing on the Nasdaq National Market under the symbol "ANSR." Each of the Company, the Selling Shareholders, the directors, executive officers and certain other shareholders of the Company have agreed that, without the prior written consent of Morgan Stanley on behalf of the Underwriters, it will not, during the period ending 180 days after the date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any 48 option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership or the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The restrictions described in this paragraph do not apply to (v) the sale of Shares to the Underwriters, (w) the issuance by the Company of 269,166 shares of Common Stock to the stockholders of Legacy in connection with the Legacy Acquisition, (x) the issuance by the Company of shares of Common Stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this Prospectus of which the Underwriters have been advised in writing, (y) the grant by the Company of (A) options to purchase shares of Common Stock in connection with the Legacy Acquisition and (B) options to employees in the ordinary course of business consistent with past practice, provided that no such options shall become exercisable during the 180-day period, or (z) transactions by any person other than the Company relating to shares of Common Stock or other securities acquired in open market transactions after the completion of the Offering. In order to facilitate the Offering of the Common Stock, the Underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the Common Stock. Specifically, the Underwriters may overallot in connection with the Offering, creating a short position in the Common Stock for their own account. In addition, to cover overallotments or to stabilize the price of the Common Stock, the Underwriters may bid for, and purchase, shares of Common Stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an Underwriter or a dealer for distributing the Common Stock in the Offering, if the syndicate repurchases previously distributed Common Stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common Stock above independent market levels. The Underwriters are not required to engage in these activities and may end any of these activities at any time. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price will be determined by negotiations between the Company and the Underwriters. Among the factors to be considered in determining the initial public offering price will be the future prospects of the Company and its industry in general, sales, earnings and certain other financial and operating information of the Company in recent periods, and the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of the Company. The estimated initial public offering price range set forth on the cover page of this Prospectus is subject to change as a result of market conditions and other factors. At the request of the Company, the Underwriters have reserved for sale, at the initial offering price, up to 231,000 shares offered hereby for directors, officers, employees, business associates and related persons of the Company. The number of shares of Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved Shares. Any reserved shares which are not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. 49 LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters in connection with the Offering will be passed upon for the Underwriters by Ropes & Gray, Boston, Massachusetts. EXPERTS The financial statements of AnswerThink Consulting Group, Inc., Delphi Partners, Inc., The Hackett Group, Inc., Relational Technologies, Inc. and Legacy Technology, Inc. included elsewhere in this Prospectus have been included herein in reliance on the reports of Coopers & Lybrand L.L.P., independent accountants, given on the authority of that firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act, of which this Prospectus is a part, with respect to the Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement, and reference is made to the Registration Statement for further information with respect to the Company and the Common Stock offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents and when any such document is an exhibit to the Registration Statement, each such statement is qualified in its entirety by reference to the copy of such document filed with the Commission. The Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and the Commission's Regional Offices at 75 Park Place, Room 1288, New York, New York 10017, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60621-2511, and copies may be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement, including all exhibits and schedules, and such reports and other information may also be accessed electronically by means of the Commission's site on the World Wide Web, at http://www.sec.gov. 50 INDEX TO FINANCIAL STATEMENTS
PAGE ---- FINANCIAL STATEMENTS OF ANSWERTHINK CONSULTING GROUP, INC. Report of Independent Certified Public Accountants...................... F-2 Consolidated Balance Sheets as of January 2, 1998 and April 3, 1998 (unaudited)............................................................ F-3 Consolidated Statements of Operations for the Period April 23, 1997 (date of inception) through January 2, 1998 and Quarter Ended April 3, 1998 (unaudited)....................................................... F-4 Consolidated Statements of Shareholders' Equity for the Period April 23, 1997 (date of inception) through January 2, 1998 and Quarter Ended April 3, 1998 (unaudited) ............................................. F-5 Consolidated Statements of Cash Flows for the Period April 23, 1997 (date of inception) through January 2, 1998 and Quarter Ended April 3, 1998 (unaudited)....................................................... F-6 Notes to Financial Statements........................................... F-7 FINANCIAL STATEMENTS OF DELPHI PARTNERS, INC. Report of Independent Accountants....................................... F-16 Balance Sheets as of October 24, 1997 and December 31, 1996............. F-17 Statements of Operations for the Period January 1, 1997 through October 24, 1997 and for the Years Ended December 31, 1995 and 1996............ F-18 Statements of Stockholders' Equity for the Period from January 1, 1997 through October 24, 1997 and for the Years Ended December 31, 1995 and 1996................................................................... F-19 Statements of Cash Flows for the period January 1, 1997 through October 24, 1997 and for the Years ended December 31, 1996 and 1995............ F-20 Notes to Financial Statements........................................... F-21 FINANCIAL STATEMENTS OF THE HACKETT GROUP, INC. Report of Independent Accountants....................................... F-24 Balance Sheets as of September 30, 1997 and December 31, 1996........... F-25 Statements of Operations for the Period January 1, 1997 through September 30, 1997 and for the Years Ended December 31, 1996 and 1995.. F-26 Statements of Stockholder's Equity for the Period January 1, 1997 through September 30, 1997 and for the Years Ended December 31, 1996 and 1995............................................................... F-27 Statements of Cash Flows for the Period January 1, 1997 through September 30, 1997 and for the Years Ended December 31, 1996 and 1995.. F-28 Notes to Financial Statements........................................... F-29 FINANCIAL STATEMENTS OF RELATIONAL TECHNOLOGIES, INC. Report of Independent Accountants....................................... F-32 Balance Sheets as of July 31, 1997 and December 31, 1996................ F-33 Statements of Operations for the Period January 1, 1997 through July 31, 1997 and for the Year Ended December 31, 1996.......................... F-34 Statements of Stockholders' Equity for the Period January 1, 1997 through July 31, 1997 and for the Year Ended December 31, 1996......... F-35 Statements of Cash Flows for the Period January 1, 1997 through July 31, 1997 and for the Year Ended December 31, 1996.......................... F-36 Notes to Financial Statements........................................... F-37 FINANCIAL STATEMENTS OF LEGACY TECHNOLOGY, INC. Report of Independent Accountants....................................... F-41 Balance Sheets as of December 31, 1997 and March 31, 1998 (unaudited)... F-42 Statements of Operations for the Year Ended December 31, 1997 and Three Months Ended March 31, 1998 (unaudited) ............................................ F-43 Statements of Stockholders' Equity for the Year Ended December 31, 1997 and Three Months Ended March 31, 1998 (unaudited)............................................. F-44 Statements of Cash Flows for the Year Ended December 31, 1997 and Three Months Ended March 31, 1998 (unaudited)............................................. F-45 Notes to Financial Statements........................................... F-46 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Basis of Presentation................................................... PF-1 Unaudited Pro Forma Consolidated Balance Sheet as of April 3, 1998...... PF-2 Notes to Unaudited Pro Forma Consolidated Balance Sheet................. PF-3 Unaudited Pro Forma Consolidated Statement of Operations for the Period April 23, 1997 (date of inception) through January 2, 1998............. PF-4 Notes to Unaudited Pro Forma Consolidated Statement of Operations....... PF-5 Unaudited Pro Forma Consolidated Statement of Operations for the Quarter Ended April 3, 1998.................................................... PF-6 Notes to Unaudited Pro Forma Consolidated Statement of Operations....... PF-7
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of AnswerThink Consulting Group, Inc. Miami, Florida We have audited the accompanying consolidated balance sheet of AnswerThink Consulting Group, Inc. and subsidiaries as of January 2, 1997, and the related consolidated statements of operations, shareholders' equity, and cash flows for the period ended April 23, 1997 (date of inception) through January 2, 1998. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AnswerThink Consulting Group, Inc. and subsidiaries as of January 2, 1997 and the consolidated results of their operations and their cash flows for the period April 23, 1997 (date of inception) through January 2, 1998, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Miami, Florida March 12, 1998, except for Note 11, as to which the date is May 12, 1998 F-2 ANSWERTHINK CONSULTING GROUP, INC. CONSOLIDATED BALANCE SHEETS ASSETS
AS OF AS OF JANUARY 2, 1998 APRIL 3, 1998 --------------- ------------- Current assets: (UNAUDITED) Cash and cash equivalents...................... $ 3,173,262 $ 3,944,221 Accounts receivable and unbilled revenue, net.. 10,157,720 14,010,003 Prepaid expenses and other current assets...... 412,388 631,898 ----------- ----------- Total current assets......................... 13,743,370 18,586,122 Property and equipment, net...................... 2,495,295 2,382,023 Other assets..................................... 467,370 1,979,198 Goodwill, net.................................... 11,943,610 14,893,924 ----------- ----------- Total assets................................. $28,649,645 $37,841,267 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............................... $ 1,437,292 $ 1,823,813 Accrued expenses and other liabilities......... 4,126,254 6,562,561 Notes payable to shareholders, current portion....................................... -- 5,950,000 ----------- ----------- Total current liabilities.................... 5,563,546 14,336,374 ----------- ----------- Obligations under capital leases................. -- 324,048 Borrowings under revolving credit facility ...... 8,150,000 7,500,000 Notes payable to shareholders.................... 4,050,000 1,896,000 ----------- ----------- Total long-term liabilities.................. 12,200,000 9,720,048 ----------- ----------- Total liabilities............................ 17,763,546 24,056,422 ----------- ----------- Commitments and contingencies Convertible preferred stock ..................... 10,040,196 11,140,191 ----------- ----------- Shareholders' equity: Preferred stock, $.001 par value, 1,250,000 authorized, none issued and outstanding....... -- -- Common stock, $.001 par value, authorized 125,000,000 shares; issued and outstanding: 23,378,592 shares at January 2, 1998; 23,200,041 shares at April 3, 1998............ 23,379 23,200 Additional paid-in capital..................... 13,569,279 55,779,486 Unearned compensation--restricted stock........ (656,303) (1,614,407) Accumulated deficit............................ (12,090,452) (51,543,625) ----------- ----------- Total shareholders' equity................... 845,903 2,644,654 ----------- ----------- Total liabilities and shareholders' equity... $28,649,645 $37,841,267 =========== ===========
The accompanying notes are an integral part of the consolidated financial statements. F-3 ANSWERTHINK CONSULTING GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE PERIOD APRIL 23, 1997 (DATE OF INCEPTION) QUARTER ENDED THROUGH JANUARY 2, 1998 APRIL 3, 1998 ------------------------ ------------- (UNAUDITED) Net revenues............................ $ 14,848,172 $ 18,531,770 Costs and expenses: Project personnel and expenses........ 13,333,921 11,193,806 Selling, general and administrative... 8,084,558 5,654,019 Compensation related to vesting of restricted shares.................... -- 40,843,400 Settlement costs...................... 1,902,608 -- In-process research and development technology........................... 4,000,000 -- ------------ ------------ Total costs and operating expenses.. 27,321,087 57,691,225 ------------ ------------ Loss from operations.................. (12,472,915) (39,159,455) Other income (expense): Interest income....................... 498,018 28,047 Interest expense...................... (115,555) (321,765) ------------ ------------ Net loss................................ $(12,090,452) $(39,453,173) ============ ============ Net loss per common share--basic and diluted................................ $ (1.91) $ (3.86) ============ ============ Weighted average common shares outstanding............................ 6,342,319 10,226,330
The accompanying notes are an integral part of the consolidated financial statements. F-4 ANSWERTHINK CONSULTING GROUP, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE PERIOD APRIL 23, 1997 (DATE OF INCEPTION) THROUGH JANUARY 2, 1998 AND FOR THE QUARTER ENDED APRIL 3, 1998
UNEARNED COMMON STOCK ADDITIONAL COMPENSATION TOTAL ------------------- PAID-IN RESTRICTED ACCUMULATED SHAREHOLDERS' SHARES AMOUNT CAPITAL STOCK DEFICIT EQUITY ---------- ------- ----------- ------------ ------------ ------------- Balance, April 23, 1997................... -- $ -- $ -- $ -- $ -- $ -- Issuance of 13,734,850 shares of restricted common stock........... 13,734,850 13,735 757,879 (702,447) -- 69,167 Conversion of 1,826,634 shares of Class A preferred stock to common stock .......... 7,306,536 7,307 10,952,497 -- -- 10,959,804 Issuance of 2,337,206 shares of restricted common stock for business acquisitions.. 2,337,206 2,337 1,858,903 -- -- 1,861,240 Amortization of deferred compensation expense... -- -- -- 46,144 -- 46,144 Net loss................ -- -- -- -- (12,090,452) (12,090,452) ---------- ------- ----------- ----------- ------------ ------------ Balance, January 2, 1998................... 23,378,592 23,379 $13,569,279 $ (656,303) $(12,090,452) $ 845,903 Issuance of 25,100 shares of restricted common stock (unaudited) ........... 25,100 25 101 -- -- 126 Purchase and retirement of restricted common stock (unaudited) ..... (203,651) (204) (814) -- -- (1,018) Restricted shares vested (unaudited)............ -- -- 42,210,920 (1,045,440) -- 41,165,480 Amortization of deferred compensation expense (unaudited)............ -- -- -- 87,336 -- 87,336 Net loss (unaudited).... -- -- -- -- (39,453,173) (39,453,173) ---------- ------- ----------- ----------- ------------ ------------ Balance at April 3, 1998 (unaudited) ........... 23,200,041 $23,200 $55,779,486 $(1,614,407) $(51,543,625) $ 2,644,654 ========== ======= =========== =========== ============ ============
The accompanying notes are an integral part of the consolidated financial statements. F-5 ANSWERTHINK CONSULTING GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD APRIL 23, 1997 (DATE OF INCEPTION) THROUGH QUARTER ENDED JANUARY 2, 1998 APRIL 3, 1998 ------------------ ------------- Cash flows from operating activities: (UNAUDITED) Net loss.................................... $(12,090,452) $(39,453,173) Adjustments to reconcile net loss to net cash used in operating activities: Compensation charge related to vesting in restricted shares........................ -- 40,843,400 In-process research and development technology............................... 4,000,000 -- Depreciation and amortization............. 462,073 593,126 Changes in assets and liabilities, net of effects from acquisitions: Increase in accounts receivable and unbilled revenue.................................... (4,481,152) (3,852,283) Increase in prepaid expenses and other current and non-current assets............. (736,166) (414,997) Increase in accounts payable................ 825,545 386,521 Increase in accrued expenses and other liabilities................................ 784,906 1,864,872 ------------ ------------ Net cash used in operating activities... (11,235,246) (32,534) ------------ ------------ Cash flows from investing activities: Purchase of property and equipment.......... (2,089,249) (583,552) Sale of property and equipment under sale/leaseback arrangement................. -- 456,041 Cash used in acquisition of businesses, net of cash acquired........................... (12,728,991) -- ------------ ------------ Cash used in investing activities....... (14,818,240) (127,511) ------------ ------------ Cash flows from financing activities: Proceeds from issuance of common stock...... 76,748 126 Proceeds from repurchase of common stock.... -- (1,018) Proceeds from issuance of Class A, convertible preferred stock................ 21,000,000 1,099,995 Proceeds from revolving credit facility..... 8,150,000 1,500,000 Repayment of revolving credit facility...... -- (2,150,000) Proceeds from capital lease obligation...... -- 481,901 ------------ ------------ Net cash provided by financing activities............................. 29,226,748 931,004 ------------ ------------ Net increase in cash and cash equivalents..... 3,173,262 770,959 Cash and cash equivalents at beginning of period....................................... -- $ 3,173,262 ------------ ------------ Cash and cash equivalents at end of period.... $ 3,173,262 $ 3,944,221 ============ ============ Supplemental disclosure of cash flows informa- tion: Cash paid for interest...................... $ -- $ 224,050 Cash paid for income taxes.................. $ -- $ --
The accompanying notes are an integral part of the consolidated financial statements. F-6 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: Nature of Business AnswerThink Consulting Group, Inc. (the "Company") is a rapidly growing provider of knowledge-based consulting and information technology ("IT") services to Fortune 1000 companies and other sophisticated buyers. The Company addresses its clients' strategic business needs by offering a wide range of integrated services or solutions, including benchmarking, process transformation, software package implementation, electronic commerce, decision support technology, technology architecture and integration and Year 2000 solutions. Organization On April 23, 1997, the Company and the initial investors in the Company (the "Initial Investors") entered into a stock purchase agreement (the "Stock Purchase Agreement") pursuant to which the Company sold 3,400,000 shares to the Initial Investors of the Company's Class A Convertible Preferred Stock (the "Class A Preferred Stock"). Such shares of Class A Preferred Stock were sold at $6.00 per share, for total proceeds of $20.4 million. In May 1997, certain senior executives of the Company purchased an additional 100,000 shares of Class A Preferred Stock at $6.00 per share. Each share of Class A Preferred Stock is convertible into four shares of the Company's Common Stock (the "Common Stock"). Pursuant to the Stock Purchase Agreement, certain of the Initial Investors had the option to purchase from the Company an additional 100,000 shares of Class A Preferred Stock at $6.00 per share which shares were purchased on February 24, 1998. Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation The Consolidated Financial Statements include AnswerThink Consulting Group, Inc. and its subsidiaries. All material intercompany accounts and transactions have been eliminated. Interim Financial Statements The consolidated financial statements for the quarter ended April 3, 1998, and all related footnote information for the quarter, are unaudited, and reflects all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, operating results and cash flows for the interim period. The results of operation for the quarter ended April 3, 1998 are not necessarily indicative of the results to be achieved for the 1998 fiscal year. Revenue Recognition The Company recognizes revenues as work is performed on a contract by contract basis, adjusted for any anticipated losses in the period in which any such losses are identified. To date, the Company has not experienced any material losses. Out-of-pocket expenses are reimbursed by clients and are offset against expenses incurred. Net Loss Per Common Share Basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the period. The calculation includes only the vested portion of common F-7 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) shares issued to employees under employment agreements and does not include shares which have not yet vested. The calculation also does not include shares which vest only if certain future events occur. Accordingly, common shares outstanding for per share purposes, is significantly lower than actual shares issued and outstanding. Loss per share assuming dilution is computed by dividing net loss by the weighted average number of common shares outstanding, increased by assumed conversion of other potentially dilutive securities during the period. Potentially dilutive shares, as of January 2, 1998 and April 3, 1998, which have not been included in the diluted per share calculation include 8,901,652 and 9,797,442 unvested shares, respectively under the employment agreements and 8,928,404 and 6,881,742 shares, respectively from assumed conversion of convertible preferred stock because their effects would be anti-dilutive due to the loss incurred by the Company. Accordingly, for the periods presented, diluted net loss per common share is the same as basic net loss per common share. Fiscal Year The Company's fiscal year ends on the Friday closest to December 31. The fiscal year for the Company will generally consist of a 52-week period. Fiscal year 1997 ended on January 2, 1998. References to a year in these financial statements relate to a fiscal year rather than a calendar year. Cash and Cash Equivalents The Company considers all short-term investments with maturities of three months or less when purchased to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the F.D.I.C. insurance limits. The Company has not experienced any loss to date on these investments. Property and Equipment, Net Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful life of the assets ranging from three to five years. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are capitalized. The carrying amount of assets sold or retired and related accumulated depreciation are removed from the accounts in the year of disposal and any resulting gains or losses are included in the statement of operations. Intangible Assets Goodwill, related to the acquisitions, is being amortized over 15 years on a straight-line basis. The Company recorded amortization expense of $137,729 for the period April 23, 1997 (date of inception) through January 2, 1998. The carrying value of goodwill is subject to periodic review of realizability. Income Taxes The Company records income taxes using the liability method. Under this method, the Company records deferred taxes based on temporary taxable and deductible differences between the tax bases of the Company's assets and liabilities and their financial reporting bases. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized. Concentration of Credit Risk The Company provides its services primarily to Fortune 1000 companies and other sophisticated buyers of IT consulting services. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses. Such losses have been insignificant. During the period April 23, 1997 (date of inception) through January 2, 1998, two customers accounted for approximately 13% of net revenues. F-8 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement is effective for financial statements for periods beginning after December 15, 1997. Management believes that this standard will not result in significantly greater disclosure than what is already contained in these financial statements. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. In light of the Company's formation during the current year, management is evaluating the requirements of this standard and its applicability to the Company. 2. ACQUISITIONS AND INVESTING ACTIVITIES: On August 1, 1997, the Company acquired Relational Technologies, Inc., ("RTI") an Atlanta, Georgia, based information technology consulting and Oracle software implementation company for 1,220,700 restricted shares of Common Stock issued to RTI's stockholders valued at approximately $610,000. On October 13, 1997, the Company acquired all of the outstanding shares of The Hackett Group, Inc. ("Hackett") an Ohio based consulting firm specializing in benchmarking and process transformation primarily to Fortune 500 companies. The original purchase price payable to the sole stockholder of Hackett consisted of approximately $6,500,000 in cash, a $5,143,000 promissory note and 444,000 restricted shares of Common Stock valued at approximately $355,000. The note and the restricted shares are subject to certain earn-out provisions. The note is payable in three separate installments. As of January 2, 1998, the Company had recorded $3,750,000 bearing interest at a rate of 12% per annum, for additional purchase consideration under the promissory note due to the seller on March 31, 1998 based on achievement of earnings targets for 1997. The second installment obligation of $497,000 is due March 31, 1999, and the third installment obligation of $896,000 is due March 31, 2000. The obligations for the second and third installment payments bear interest at a rate of 8% per annum. A significant portion of the purchase price for the Hackett acquisition was allocated to in-process research and development technology, resulting in a $4,000,000 charge to the Company's operations in the quarter ended January 2, 1998. These charges were valued using a risk adjusted cash flow model, under which projected income and expenses attributable to the purchased technology were identified, and potential income streams were discounted for risks and uncertainties, including the stage of development of the technology, viability of target markets, rapidly changing nature of the industry and other factors. On November 12, 1997, the Company acquired all of the outstanding shares of Delphi Partners, Inc. ("Delphi") for approximately $7,400,000 in cash plus 560,000 restricted shares of Common Stock valued at $840,000. The sellers are also entitled to contingent consideration of up to a maximum of $2,500,000 to be paid by April 30, 1999 based on the achievement of certain pre-tax profit targets as defined. Delphi is an information systems consulting services firm focused primarily on applications developed by PeopleSoft, Inc. All the acquisitions made by the Company have been accounted for using the purchase method of accounting. Accordingly, the results of operations of the acquired companies are included in the Company's consolidated results of operations from the respective dates of acquisition. Contingent consideration, to the extent earned, will be recorded as additional goodwill. F-9 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The aggregate consideration for the Company's acquisitions has been allocated to the assets and liabilities acquired based upon their respective fair values. The components of the purchase price allocation, including fees and expenses, are as follows: Fair value of net assets acquired (primarily accounts receivable) excluding cash acquired......................... $ 2,258,892 Goodwill..................................................... 12,081,339 In-process research and development technology............... 4,000,000 Common Stock issued.......................................... (1,861,240) Note payable-earned additional purchase consideration........ (3,750,000) ----------- Cash used in acquisitions of businesses, net of cash ac- quired...................................................... $12,728,991 ===========
The following information presents the unaudited pro forma condensed results of operations for the period April 23, 1997 (date of inception) through January 2, 1998 as if the Company's acquisitions of RTI, Hackett and Delphi had occurred on April 23, 1997. The pro forma adjustments include additional amortization and interest expense in the amount of approximately $362,000 and $420,000, respectively. The pro forma results are presented for informational purposes only and are not necessarily indicative of the future results of operations of the Company or the results of operations of the Company had the acquisitions occurred on April 23, 1997.
PRO FORMA RESULTS OF OPERATIONS ----------------- Net revenues............................................... $ 28,816,510 Net loss................................................... $(11,102,240) Net loss per common share--basic and diluted............... $ (0.73)
3. PROPERTY AND EQUIPMENT: Property and equipment consists of the following as of January 2, 1998 and April 3, 1998:
JANUARY 2, APRIL 3, 1998 1998 ---------- ----------- (UNAUDITED) Equipment........................................... $2,446,319 $ 2,555,225 Furniture and fixtures.............................. 235,257 226,084 Leasehold improvements.............................. 51,375 51,375 ---------- ----------- Total cost........................................ 2,732,951 2,832,684 Less accumulated depreciation....................... (237,656) (450,661) ---------- ----------- $2,495,295 $ 2,382,023 ========== ===========
4. ACCRUED EXPENSES AND OTHER LIABILITIES: Accrued expenses and other liabilities consists of the following as of January 2, 1998 and April 3, 1998:
JANUARY 2, APRIL 3, 1998 1998 ---------- ----------- (UNAUDITED) Accrued payroll and payroll related expenses.......... $3,019,519 $5,508,937 Other accrued expenses................................ 1,106,735 1,053,624 ---------- ---------- $4,126,254 $6,562,561 ========== ==========
F-10 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5. BORROWINGS UNDER REVOLVING CREDIT FACILITY: On November 7, 1997, the Company entered into an agreement, as amended with BankBoston, N.A. ("BankBoston") for a $10 million revolving credit facility (the "Credit Facility"), maturing on November 7, 2000. The Company's obligation under the Credit Facility is collateralized by all of the assets of the Company. The Credit Facility may be increased to $20 million if certain future earnings and performance criteria are satisfied. The total amount outstanding as of January 2, 1998 and April 3, 1998 was $8,150,000 and $7,500,000, respectively at varying rates, principally LIBOR plus 2.25-3.25% (weighted average 8.5% rate at January 2, 1998 and April 3, 1998). The Credit Facility contains, among other things, the maintenance of certain financial covenants such as minimum levels of earnings, minimum liquidity ratios, and debt as a percentage of cash flow. Pursuant to the Credit Facility, BankBoston was granted an option to purchase up to 16,666 shares of Class B Preferred Stock. See Note 10. 6. NOTES PAYABLE TO SHAREHOLDERS: Notes payable to shareholders consists of the following as of January 2, 1998 and April 3, 1998:
AS OF JANUARY 2, APRIL 3, 1998 1998 ---------- ----------- (UNAUDITED) Notes payable-earned additional purchase consideration............ $3,750,000 $5,143,000 Other notes payable....... 300,000 2,703,000 ---------- ---------- Total notes payable to shareholders........... 4,050,000 7,846,000 Less current portion.... -- 5,950,000 ---------- ---------- Long-term portion....... $4,050,000 $1,896,000 ========== ==========
The Company issued a note for $5,143,000 payable to Gregory P. Hackett in connection with the Company's purchase of Hackett. Payment of the note is contingent on achievement of earnings targets as defined. As of January 2, 1998, $3,750,000 had been earned by Mr. Hackett. The note bears interest at 12%. See Note 14. The Company has two notes amounting to $300,000 payable to the two former principals of Delphi. The notes bear interest at 6% per annum with principal and accrued interest due on March 31, 1999. 7. LEASE COMMITMENTS: The Company and its subsidiaries have operating lease agreements for its premises that expire on various dates through 2004. The operating lease agreements for premises are subject to escalation. Rent expense for the period April 23, 1997 (date of inception) through January 2, 1998, was approximately $300,000. Minimum future lease commitments under noncancelable operating leases in effect at January 2, 1998, are presented as follows: 1998............................................................. $ 920,000 1999............................................................. 1,064,000 2000............................................................. 992,000 2001............................................................. 906,000 2002............................................................. 912,000 Thereafter....................................................... 658,000 ---------- Total minimum lease payments................................... $5,452,000 ==========
F-11 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 8. INCOME TAXES: The Company generated a loss for financial reporting purposes of approximately $12.1 million and $39.5 million for the period April 23, 1997 (date of inception) through January 2, 1998 and the quarter ended April 3, 1998, respectively. The temporary differences between the loss for financial reporting purposes and the loss for tax purposes arise primarily from differences in the lives of depreciable assets and the accrual of certain expenses for financial reporting purposes that are not allowable deductions for tax purposes until the year they are paid. The amounts of those temporary differences as of January 2, 1998 and April 3, 1998 are not significant. The Net Operating Loss ("NOL") for tax purposes differs from the NOL for financial reporting purposes due to the write-off of acquired in-process research and development technology and the amortization of goodwill and, for the quarter ended April 3, 1998, the non-deductibility for income tax purposes of the approximate $40.8 million expense relating to vesting of restricted shares. For the period April 23, 1997 (date of inception) through January 2, 1998 and for the quarter ended April 3, 1998, the Company generated a net operating loss of $8.0 million and taxable income of $1.5 million, respectively. During the quarter ended April 3, 1998, the Company utilized net operating loss carryforwards of $1.5 million to offset taxable income. Consequently, a future tax benefit of $3.2 million and $2.6 million comprised fully of net operating losses are required to be recognized at January 2, 1998 and the quarter ended April 3, 1998, respectively, to the extent that realization of such benefit is more likely than not. In light of the recent organization of the Company and the loss experienced for the period ended January 2, 1998, a valuation allowance has been established for the entire deferred tax asset attributed to the net operating loss carryforward at January 2, 1998 and April 3, 1998, respectively. The net operating loss carryforward will expire on December 31, 2013. 9. RESTRICTED STOCK AND STOCK OPTIONS: As of January 2, 1998, the Company has sold an aggregate of 13,734,850 restricted shares to employees of the Company at nominal purchase prices per share. Each employee executed an employment agreement or a restricted stock agreement with the Company providing for, among other things, the manner in which restricted shares will vest. In general, a certain percentage of restricted shares will begin to vest upon the second anniversary from the purchase date of such shares and will become fully vested either by the fourth or sixth anniversary from the purchase date so long as the holder remains an employee. In connection with the formation of the Company, certain of the Company's employees and one director received 3,520,000 restricted shares of Common Stock subject to performance vesting criteria. The Company recorded a charge of approximately $40.8 million relating to the accelerated vesting of these restricted shares pursuant to agreements dated as of March 27, 1998 by and among the relevant stockholders, the Company and its Board of Directors which accelerated, the vesting of 3,320,000 shares (the remaining 200,000 were cancelled) in the first quarter of 1998 based on the Company's results to date and the expectation of completion of the Offering during the second quarter of 1998. There are no additional restricted shares outstanding that are subject to performance criteria for vesting. Shares of restricted stock are issued to employees and other representatives of acquired companies. Employees vest in these shares over periods up to five years and, in certain cases, upon achieving certain revenue targets. The market value of the restricted stock at the time of grant is recorded as unearned compensation in a separate component of stockholders' equity and amortized as compensation expense ratably over the vesting periods. At January 2, 1998, 931,650 shares of such restricted stock had been issued. F-12 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) As of January 2, 1998, the Company has granted options to purchase an aggregate of 707,906 shares of Common Stock to employees at an exercise price of $2.50 per share which was at or above the estimated market price of the Common Stock at the dates of grants. Options granted will be exercisable in accordance with the terms specified in each option agreement entered into between the Company and each optionee. As long as the optionee remains an employee, all such options become exercisable in increments of 50%, 25%, and 25% on the second, third and fourth anniversary of the date of issuance thereof, respectively. In accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company is required to disclose pro forma net income (loss) information as if compensation expense related to the fair value of the options granted had been included in earnings (losses). The fair value of option grants is estimated using the Black-Scholes option pricing model with the following assumptions used for the 1997 grants: a ten-year expected life, a volatility factor of zero, a risk-free interest rate of 6.0% and no dividend payments. The weighted average remaining life of the options granted at January 2, 1998 is 9.7 years. In light of the loss experienced during the year and that the current year is the first year of operations, the Company's options had essentially no value. Had the fair value method of accounting been applied to the Company's stock options, the Company's net loss and loss per share, on a pro forma basis, would not be materially different from the net loss and loss per share reported. 10. CONVERTIBLE PREFERRED STOCK: Holders of Class A Convertible Preferred Stock are entitled to a $6.00 liquidation preference per share in the event of liquidation, dissolution or winding up of the Company. Each share of Class A Convertible Preferred Stock is convertible on a four-for-one basis to Common Stock and is entitled to non- cumulative dividends if and when declared by the Board of Directors. Holders of Class A Convertible Preferred Stock have certain redemption rights defined in the Amended and Restated Articles of Incorporation but do not have preemptive rights. To the extent not redeemed or converted, remaining shares of the Class A Convertible Preferred Stock will be redeemed at their liquidation value on April 22, 2004. On March 5, 1998, the Company issued 16,666 shares of Class B Convertible Preferred Stock with a liquidation value of $30.00 per share to an affiliate of BankBoston at a price of $30.00 per share. Each share of Class B Convertible Preferred Stock is convertible into four shares of Common Stock. The Class B Convertible Preferred Stock contains the same redemption provisions as the Class A Convertible Preferred Stock. 11. SHAREHOLDERS' EQUITY: On May 5, 1998, the Company declared a one-for-two reverse stock split of all of the Company's outstanding shares of capital stock (the "Reverse Stock Split") and on May 12, 1998 amended its Articles of Incorporation to increase the Company's authorized Common Stock to 125,000,000 shares. Accordingly, all share and per share amounts for all periods presented have been retroactively adjusted to give effect to the Reverse Stock Split and the shareholders' equity has been restated to reflect the capital structure of the Company following the amendments of the Articles of Incorporation. 12. SETTLEMENT COSTS: Certain of the Company's key executives and other management employees resigned from a "Big Six" accounting firm during the first quarter of 1997. The accounting firm initiated litigation in connection with such resignations and the formation of the Company arising out of activities alleged to have constituted a breach of non-competition and non-solicitation obligations. This litigation was settled, and the Company, its key F-13 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) executives, certain other management employees and certain of its shareholders are subject to certain provisions contained in the settlement agreement. Settlement costs consist primarily of payments to certain key executives and certain other management employees of the Company relating to the obligations assumed by the Company for compensation earned during the period from December 1, 1996 to the date of the Company's inception by such employees and legal fees incurred in connection with the ensuing litigation. 13. LITIGATION: The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the financial position or results of operations of the Company. 14. RELATED PARTY TRANSACTION: The Company purchases most of its computer hardware and software from a distributor that is owned in part by three senior executives and directors of the Company. During the year, the Company purchased approximately $1.5 million from this distributor. On March 12, 1998, the Company entered into an amendment with the sole stockholder of Hackett to waive the earn-out provisions and to extend the due date on the $3,750,000 note obligation owed to such stockholder from March 31, 1998 to the earlier of the completion of a public offering of shares by the Company or January 15, 1999. In connection with such amendment, the Company recorded additional goodwill amounting to $3.1 million. 15. SUBSEQUENT EVENTS (UNAUDITED): Legacy Acquisition On April 25, 1998, the Company entered into an agreement to acquire Legacy Technology, Inc. ("Legacy"), a Massachusetts based provider of decision support and data warehouse solutions to Fortune 1000 companies. The Company completed this acquisition on May 20, 1998. The terms of the acquisition provide for consideration of 269,166 shares of Common Stock and a $2.6 million in promissory notes. The promissory notes will be payable over a 12-month period commencing October 1, 1998 or, if earlier 20 days after the Company completes a public offering of its Common Stock. The stockholders of Legacy will also receive up to $1.3 million in additional consideration, half of which will be in the form of cash and half of which will be in the form of shares of Common Stock, upon the achievement of certain revenue and pre-tax profit targets related to the performance of Legacy during the 12-month period ended April 30, 1999, which will be recorded when earned as additional goodwill. F-14 ANSWERTHINK CONSULTING GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Stock Option Plan On May 5, 1998, the Company adopted a stock option plan (the "Stock Option Plan") that provides for grants of (i) options that are intended to qualify as "incentive stock options" to employees as well as non-qualifying options to individuals whose participation in the plan is determined to be in the best interest of the Company, (ii) shares of Common Stock subject to certain restrictions, and (iii) conditional rights to receive restricted Common Stock in the future. The Stock Option Plan authorizes the issuance of up to 10,000,000 shares of Common Stock pursuant to options or as Restricted Common Stock or Restricted Common Stock Units, plus shares of Common Stock awarded under any prior stock option plan of the Company that are forfeited or otherwise terminate without the delivery of stock. The option exercise price per share for stock options granted under the Stock Option Plan may not be less than 100% of the fair market value per share of Common Stock on the date of grant of the option (or 110% of the fair market value per share of Common Stock in the case of an incentive stock option granted to an optionee beneficially owning more than 10% of the outstanding Common Stock). The maximum option term is ten years (or five years in the case of an incentive stock option granted to an optionee beneficially owning more than 10% of the outstanding Common Stock). F-15 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Delphi Partners, Inc. Marlton, New Jersey We have audited the accompanying balance sheets of Delphi Partners, Inc. as of October 24, 1997 and December 31, 1996, and the related statements of operations, stockholders' equity, and cash flows for the period January 1, 1997 through October 24, 1997 and for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Delphi Partners, Inc. as of October 24, 1997 and December 31, 1996 and the results of its operations and its cash flows for the period January 1, 1997 through October 24, 1997 and for the years ended December 31, 1996 and 1995, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Miami, Florida February 27, 1998 F-16 DELPHI PARTNERS, INC. BALANCE SHEETS OCTOBER 24, 1997 AND DECEMBER 31, 1996
AS OF ------------------------ OCTOBER 24, DECEMBER 31, 1997 1996 ----------- ------------ ASSETS Current assets: Cash and cash equivalents........................... $ 960,402 $ 270,325 Accounts receivable and unbilled revenue............ 2,681,315 2,693,499 Prepaid expenses and other current assets........... 47,989 12,796 ---------- ---------- Total current assets.............................. 3,689,706 2,976,620 Property and equipment, net........................... 275,650 160,445 Other assets.......................................... 18,228 10,725 ---------- ---------- Total assets...................................... $3,983,584 $3,147,790 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................... $ 407,083 $ 351,452 Accrued expenses.................................... 1,311,046 818,072 Deferred income taxes............................... 91,200 91,200 ---------- ---------- Total current liabilities......................... 1,809,329 1,260,724 Notes payable to stockholders......................... 300,000 -- Long-term portion of capital leases................... 39,707 -- ---------- ---------- Total liabilities................................. 2,149,036 1,260,724 ---------- ---------- Stockholders' equity: Common stock, $.01 par value, authorized 30,000 shares; issued and outstanding 20,000 and 100 shares at October 24, 1997 and December 31, 1996, respectively....................................... 200 1 Additional paid-in capital.......................... 9,800 9,999 Retained earnings................................... 1,824,548 1,877,066 ---------- ---------- Total stockholders' equity........................ 1,834,548 1,887,066 ---------- ---------- Total liabilities and stockholders' equity........ $3,983,584 $3,147,790 ========== ==========
The accompanying notes are an integral part of the financial statements. F-17 DELPHI PARTNERS, INC. STATEMENTS OF OPERATIONS FOR THE PERIOD JANUARY 1, 1997 THROUGH OCTOBER 24, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1997 1996 1995 ---------- ---------- ---------- Net revenues................................... $9,773,836 $7,843,972 $3,158,812 Costs and expenses: Project personnel and expenses............... 4,429,935 3,981,245 1,642,405 Selling, general and administrative.......... 4,666,891 2,684,245 1,219,560 ---------- ---------- ---------- Total costs and operating expenses......... 9,096,826 6,665,490 2,861,965 ---------- ---------- ---------- Income from operations......................... 677,010 1,178,482 296,847 Interest income.............................. -- 25,225 3,058 ---------- ---------- ---------- Income before income taxes..................... 677,010 1,203,707 299,905 Provision for income taxes..................... 99,275 67,131 17,600 ---------- ---------- ---------- Net income..................................... $ 577,735 $1,136,576 $ 282,305 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. F-18 DELPHI PARTNERS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIOD JANUARY 1, 1997 THROUGH OCTOBER 24, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
COMMON ADDITIONAL STOCK COMMON PAID-IN RETAINED SHARES STOCK CAPITAL EARNINGS TOTAL ------ ------ ---------- ---------- ---------- Balance as of December 31, 1994........................ 100 $ 1 $9,999 $ 458,185 $ 468,185 Net income................... -- -- -- 282,305 282,305 ------ ---- ------ ---------- ---------- Balance as of December 31, 1995........................ 100 1 9,999 740,490 750,490 Net income................... -- -- -- 1,136,576 1,136,576 ------ ---- ------ ---------- ---------- Balance as of December 31, 1996........................ 100 1 9,999 1,877,066 1,887,066 Net income................... -- -- -- 577,735 577,735 Stockholders' distributions.. -- -- -- (630,253) (630,253) Two hundred-for-one stock split....................... 19,900 199 (199) -- -- ------ ---- ------ ---------- ---------- Balance as of October 24, 1997........................ 20,000 $200 $9,800 $1,824,548 $1,834,548 ====== ==== ====== ========== ==========
The accompanying notes are an integral part of the financial statements. F-19 DELPHI PARTNERS, INC. STATEMENTS OF CASH FLOWS FOR THE PERIOD JANUARY 1, 1997 THROUGH OCTOBER 24, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1997 1996 1995 ---------- ----------- --------- Cash flows from operating activities: Net income............................... $ 577,735 $ 1,136,576 $ 282,305 ---------- ----------- --------- Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization.......... 81,848 47,652 27,361 Deferred income taxes.................. -- 54,800 10,200 Changes in assets and liabilities: Decrease (increase) in accounts receivable and unbilled revenue....... 12,184 (1,750,925) (346,882) (Increase) decrease in prepaid expenses and other current assets.............. (35,193) 1,627 (8,898) Increase in other assets............... (7,503) (8,525) -- Increase in accounts payable........... 55,631 231,597 81,247 Increase in accrued expenses........... 492,974 597,171 132,345 ---------- ----------- --------- Total adjustments.................... 599,941 (826,603) (104,627) ---------- ----------- --------- Net cash flows provided by operations........................ 1,177,676 309,973 177,678 ---------- ----------- --------- Cash flows from investing activities: Purchases of property and equipment...... (157,346) (98,499) (119,053) ---------- ----------- --------- Net cash flows used in investing activities........................ (157,346) (98,499) (119,053) ---------- ----------- --------- Cash flows from financing activities Stockholders' distributions.............. (630,253) -- -- Stockholders' advances................... 300,000 -- (4,295) ---------- ----------- --------- Net cash flows used in financing activities........................ (330,253) -- (4,295) ---------- ----------- --------- Net increase in cash and cash equivalents.. 690,077 211,474 54,330 Cash and cash equivalents at beginning of year...................................... 270,325 58,851 4,521 ---------- ----------- --------- Cash and cash equivalents at end of year... $ 960,402 $ 270,325 $ 58,851 ========== =========== ========= Supplemental disclosure of cash flows information: Cash paid for interest................... $ 295 $ 65 $ 211 Cash paid for taxes...................... $ 29,935 $ 3,895 $ 3,600 Non cash purchases of property and equipment recorded as capital leases.... $ 39,707 $ -- $ --
The accompanying notes are an integral part of the financial statements. F-20 DELPHI PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: Nature of Business Delphi Partners, Inc. ("the Company") is a specialist software consulting firm, offering a broad range of consulting and related training services to clients implementing client/server human resources and financial applications. Its primary service offering is the implementation of PeopleSoft software. The Company provides its services to clients in a broad range of industries including high technology, retail, and consumer and industrial products. Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes The Company has elected to be taxed as an S corporation under the provisions of the Internal Revenue Code. Under those provisions, the Company does not pay federal income taxes on its taxable income. The stockholders reflect on their individual federal income tax returns their respective share of the Company's taxable income or loss subject to statutory limitations. The Company accounts for state income taxes (in those states which do not recognize S-Corporation status) in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" which requires the use of the "liability method" of accounting for income taxes. Accordingly, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse. Current income taxes are based on the year's income taxable for state income tax reporting purposes. Revenue Recognition The Company derives substantially all of its revenues from information technology and management consulting, software development and implementation, and package software evaluation and implementation services. Revenues from management consulting and package software evaluation and implementation services are recognized as the service is provided, principally on a time and material basis. Losses on projects in progress are recognized when known. Net revenues exclude reimbursable expenses charged to clients. Fiscal Year The Company's fiscal year ends on the Friday closest to December 31. The fiscal year for the Company will generally consist of a 52-week period. References to a year in these financial statements relate to a fiscal year rather than a calendar year. Cash and Cash Equivalents The Company considers all short-term investments with maturities of three months or less when purchased to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the F.D.I.C. insurance limits. The Company has not experienced any loss to date on these investments. Property and Equipment, Net Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful life of the assets of five years. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are F-21 DELPHI PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) capitalized. The carrying amounts of assets sold or retired and related accumulated depreciation are removed from the accounts in the year of disposal and any gains or losses are included in the statement of operations. Concentration of Credit Risk The Company provides its services primarily to Fortune 1000 companies and other sophisticated buyers of IT consulting services. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses to the extent they are identified. Such losses have been insignificant and are within management's expectations. Three, six and seven major customers comprised approximately 25%, 53% and 65% of net revenues for the period January 1, 1997 through October 24, 1997 and for the years ended December 31, 1996 and 1995, respectively. Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No. 130 and No. 131 and their applicability to the Company. See Note 9. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following as of October 24, 1997 and December 31, 1996:
OCTOBER 24, DECEMBER 31, 1997 1996 ----------- ------------ Furniture and equipment............................. $ 434,801 $237,748 Less accumulated depreciation....................... (159,151) (77,303) --------- -------- $ 275,650 $160,445 ========= ======== 3. NOTES PAYABLE TO STOCKHOLDERS: The Company has two notes amounting to $300,000 payable to its principal stockholders who are also current employees. The notes bear interest at 6% per annum with principal and accrued interest due on March 31, 1999. 4. PROVISION FOR TAXES: The provision for state taxes consists of the following for the period January 1, 1997 through October 24, 1997 and for the years ended December 31, 1996 and 1995: 1997 1996 1995 ------- --------- -------- Current..................................... $99,275 $ 12,331 $ 7,400 ======= ========= ======== Deferred.................................... $ -- $ 54,800 $ 10,200 ======= ========= ========
F-22 DELPHI PARTNERS, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. LEASE COMMITMENTS: The Company has two operating lease agreements for premises. One expires on March 31, 2000 and the other is month-to-month. The operating lease agreement is subject to real estate escalation and reimbursement of operating costs. Rent expense for the period January 1, 1997 through October 24, 1997 and for the years ended December 31, 1996 and 1995 was approximately $90,000, $72,000 and $31,000, respectively. Minimum future lease commitments under the noncancelable operating lease in effect at October 24, 1997, is presented as follows: 1998............................................................... $ 69,003 1999............................................................... 52,773 2000............................................................... 13,332 -------- Total minimum lease payments..................................... $135,108 ========
6. ACCRUED EXPENSES: Accrued expenses consists of the following as of October 24, 1997 and December 31, 1996:
OCTOBER 24, DECEMBER 31, 1997 1996 ----------- ------------ Accrued payroll and payroll related expenses....... $1,117,263 $765,472 State income taxes payable......................... 75,729 6,331 Profit sharing plan payable........................ 55,059 45,700 Other.............................................. 62,995 569 ---------- -------- $1,311,046 $818,072 ========== ========
7. PROFIT SHARING PLAN: On January 1, 1996, the Company adopted a 401(K) plan (the "Plan") which covers substantially all of its employees. Under the Plan, the Company matches 25% of the employee contributions up to a maximum of $1,000 per year and may contribute an additional discretionary amount. The Company contributed $61,376 for the period January 1, 1997 through October 24, 1997 and $45,700 for the year ended December 31, 1996. 8. COMMON STOCK: On April 30, 1997, the directors of the Company increased the number of authorized shares of common stock from 100 shares to 20,000 shares, and in connection with such amendment, effected a 200 for 1 split of each share of the outstanding common stock. 9. SUBSEQUENT EVENT: On November 12, 1997, the Company agreed to be acquired by AnswerThink Consulting Group, Inc. ("AnswerThink"). Under the terms of that transaction, AnswerThink acquired all of the outstanding stock of the Company in exchange for cash and AnswerThink stock. F-23 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholder of The Hackett Group, Inc. Hudson, Ohio We have audited the accompanying balance sheets of The Hackett Group, Inc. as of September 30, 1997 and December 31, 1996, and the related statements of operations, stockholder's equity, and cash flows for the period January 1, 1997 through September 30, 1997 and for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Hackett Group, Inc. as of September 30, 1997 and December 31, 1996 and the results of its operations and its cash flows for the period January 1, 1997 through September 30, 1997 and for the years ended December 31, 1996 and 1995, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Miami, Florida February 27, 1998 F-24 THE HACKETT GROUP, INC. BALANCE SHEETS
AS OF -------------------------- SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ ASSETS Current assets: Cash and cash equivalents......................... $ 3,118,511 $ 240,532 Accounts receivable and unbilled revenue.......... 1,368,626 1,097,129 Prepaid expenses and other current assets......... -- 25,000 ----------- ---------- Total current assets............................ 4,487,137 1,362,661 Property and equipment, net......................... 419,545 447,538 Other assets........................................ 1,596 1,088 ----------- ---------- Total assets.................................... $ 4,908,278 $1,811,287 =========== ========== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable.................................. $ 115,676 $ 13,511 Accrued expenses and other current liabilities.... 2,096,212 240,346 Deferred revenue.................................. 300,000 140,000 ----------- ---------- Total current liabilities....................... 2,511,888 393,857 ----------- ---------- Commitments and contingencies Stockholder's equity: Common stock, no par value, authorized 750 shares; issued and outstanding 100 shares at September 30, 1997 and December 31, 1996................... 10,000 10,000 Retained earnings................................. 2,386,390 1,407,430 ----------- ---------- Total stockholder's equity...................... 2,396,390 1,417,430 ----------- ---------- Total liabilities and stockholder's equity...... $ 4,908,278 $1,811,287 =========== ==========
The accompanying notes are an integral part of the financial statements. F-25 THE HACKETT GROUP, INC. STATEMENTS OF OPERATIONS FOR THE PERIOD JANUARY 1, 1997 THROUGH SEPTEMBER 30, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1997 1996 1995 ---------- ---------- ---------- Net revenues................................. $6,453,588 $6,119,195 $7,648,257 Costs and expenses: Project personnel and expenses............. 4,225,353 4,774,989 5,008,046 Selling, general and administrative........ 870,988 1,528,048 1,661,703 ---------- ---------- ---------- Total costs and operating expenses......... 5,096,341 6,303,037 6,669,749 ---------- ---------- ---------- Income (loss) from operations................ 1,357,247 (183,842) 978,508 Interest income............................ 78,713 70,170 81,544 ---------- ---------- ---------- Net income (loss)............................ $1,435,960 $ (113,672) $1,060,052 ========== ========== ==========
The accompanying notes are an integral part of the financial statements. F-26 THE HACKETT GROUP, INC. STATEMENTS OF STOCKHOLDER'S EQUITY FOR THE PERIOD JANUARY 1, 1997 THROUGH SEPTEMBER 30, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
COMMON STOCK COMMON RETAINED SHARES STOCK EARNINGS TOTAL ------ -------- ----------- ----------- Balance as of December 31, 1994...... 100 $ 10,000 $ 660,111 $ 670,111 Stockholder's distributions.......... -- -- (199,061) (199,061) Net income........................... -- -- 1,060,052 1,060,052 --- -------- ----------- ----------- Balance as of December 31, 1995...... 100 10,000 1,521,102 1,531,102 Net loss............................. -- -- (113,672) (113,672) --- -------- ----------- ----------- Balance as of December 31, 1996...... 100 10,000 1,407,430 1,417,430 Stockholder's distributions.......... -- -- (457,000) (457,000) Net income........................... -- -- 1,435,960 1,435,960 --- -------- ----------- ----------- Balance as of September 30, 1997..... 100 $ 10,000 $ 2,386,390 $ 2,396,390 === ======== =========== ===========
The accompanying notes are an integral part of the financial statements. F-27 THE HACKETT GROUP, INC. STATEMENTS OF CASH FLOWS FOR THE PERIOD JANUARY 1, 1997 THROUGH SEPTEMBER 30, 1997 AND FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1997 1996 1995 ---------- --------- ---------- Cash flows from operating activities: Net income (loss).......................... $1,435,960 $(113,672) $1,060,052 ---------- --------- ---------- Adjustments to reconcile net income (loss) to net cash provided by operations: Depreciation and amortization............. 85,348 83,015 52,705 Changes in assets and liabilities: (Increase) decrease in accounts receivable and unbilled revenue..................... (271,497) 99,955 (739,094) Decrease (increase) in prepaid expenses and other current and non-current assets................................... 24,492 (25,600) 119 Increase in accounts payable.............. 102,165 98,611 -- Increase (decrease) in accrued expenses and other current liabilities............ 1,398,866 (12,841) (37,158) Increase in deferred revenue.............. 160,000 140,000 -- ---------- --------- ---------- Total adjustments....................... 1,499,374 383,140 (723,428) ---------- --------- ---------- Net cash flows provided by operations... 2,935,334 269,468 336,624 ---------- --------- ---------- Cash flows from investing activities: Purchases of property and equipment........ (57,355) (124,788) (165,086) ---------- --------- ---------- Net cash flows used in investing activities............................. (57,355) (124,788) (165,086) ---------- --------- ---------- Cash flows from financing activities: Stockholder's distributions................ -- -- (199,061) ---------- --------- ---------- Net cash flows used in financing activities............................. -- -- (199,061) ---------- --------- ---------- Net increase (decrease) in cash and cash equivalents................................ 2,877,979 144,680 (27,523) Cash and cash equivalents at beginning of period..................................... 240,532 95,852 123,375 ---------- --------- ---------- Cash and cash equivalents at end of period.. $3,118,511 $ 240,532 $ 95,852 ========== ========= ========== Supplemental disclosure of cash flows information: Cash paid for interest.................... $ -- $ -- $ -- Cash paid for taxes....................... $ -- $ -- $ -- Non cash stockholder's distributions...... $ 457,000 $ -- $ --
The accompanying notes are an integral part of the financial statements. F-28 THE HACKETT GROUP, INC. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: Nature of Business The Hackett Group, Inc. (the "Company") is a consulting firm, principally focused on providing benchmarking and business process redesign services in the finance and human resources functional areas. The Company provides its services mostly to Fortune 500 companies located in the United States and Canada. Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company derives substantially all of its revenues from benchmarking and management consulting. Revenues are recognized as the service is provided, principally on a fixed fee basis. Losses on projects in progress are recognized when known. Net revenues exclude reimbursable expenses charged to clients. Deferred revenue arises whenever clients pay the Company in advance of services provided. Cash and Cash Equivalents The Company considers all short-term investments with maturities of three months or less when purchased to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the F.D.I.C. insurance limits. The Company has not experienced any loss to date on these investments. Property and Equipment, Net Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful life of the assets of five years. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are capitalized. The carrying amounts of assets sold or retired and related accumulated depreciation are eliminated in the year of disposal and the resulting gains and losses are included in income. Income Taxes The Company has elected to be taxed as an S corporation under the provisions of the Internal Revenue Code. Under those provisions, the Company does not pay federal income taxes on its taxable income. The stockholder reflects on his individual federal income tax return the Company's taxable income or loss subject to statutory limitations. Concentration of Credit Risk The Company provides its services primarily to Fortune 500 companies. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses to the extent they are identified. Such losses have been insignificant and are within management's expectations. Six, five and six major customers comprised approximately 53%, 41% and 57% of net revenues for the period January 1, 1997 through September 30, 1997 and for the years ended December 31, 1996 and 1995, respectively. F-29 THE HACKETT GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No. 130 and No. 131 and their applicability to the Company. (See Note 6). 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following as of September 30, 1997 and December 31, 1996:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Equipment........................................ $ 595,512 $ 541,157 Furniture and fixtures........................... 111,413 108,413 Leasehold improvements........................... 23,049 23,049 --------- --------- Total cost....................................... 729,974 672,619 Less accumulated depreciation.................... (310,429) (225,081) --------- --------- $ 419,545 $ 447,538 ========= ========= 3. LEASE COMMITMENTS: The Company has an operating lease agreement for its premises that expires in September 2000. The future minimum rental is currently $8,317 per month and is subject to an annual adjustment based on the Consumer Price Index which will be capped between 3% and 6%. The Company subleases a portion of its premises at $1,425 per month, subject to the same increases as the Company's lease and during the same term. The Company has also entered into two operating leases for office equipment. Rent expense for the period January 1, 1997 through September 30, 1997 and for the years ended December 31, 1996 and 1995 was $90,054, $80,505 and $50,528, respectively. Minimum future lease and sublease commitments under noncancelable operating leases in effect at September 30, 1997, are presented as follows: LEASES SUBLEASE ------------- ------------ 1998............................................. $109,211 $ 17,789 1999............................................. 107,901 18,323 2000............................................. 73,666 12,457 2001............................................. 240 -- --------- --------- Total minimum lease and sublease payments...... $291,018 $ 48,569 ========= =========
F-30 THE HACKETT GROUP, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 4. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: Accrued expenses and other current liabilities consist of the following as of September 30, 1997 and December 31, 1996:
SEPTEMBER 30, DECEMBER 31, 1997 1996 ------------- ------------ Accrued payroll and payroll-related expenses.... $1,623,000 $233,401 Shareholder distribution........................ 457,000 -- Other accrued expenses.......................... 16,212 6,945 ---------- -------- $2,096,212 $240,346 ========== ========
5. PROFIT SHARING PLAN: The Company maintains a 401(K) and profit sharing plan (the "Plan") which covers substantially all of its employees. Under the Plan, employees may contribute up to 15% of their compensation through salary deferrals. The Company matches such contributions on a discretionary basis. The Company did not record any expense relating to profit sharing for the period January 1, 1997 through September 30, 1997. The Company recorded an expense in the amount of $212,379 and $87,589 for the years ended December 31, 1996 and 1995, respectively. 6. SUBSEQUENT EVENT: On October 13, 1997, the Company agreed to be acquired by AnswerThink Consulting Group, Inc. ("AnswerThink"). Under the terms of that transaction, AnswerThink acquired all of the outstanding stock of the Company in exchange for cash and AnswerThink stock. F-31 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Relational Technologies, Inc. Norcross, Georgia We have audited the accompanying balance sheets of Relational Technologies, Inc. as of July 31, 1997 and December 31, 1996, and the related statements of operations, stockholders' equity, and cash flows for the period January 1, 1997 through July 31, 1997 and for the year ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Relational Technologies, Inc. as of July 31, 1997 and December 31, 1996 and the results of its operations and its cash flows for the period January 1, 1997 through July 31, 1997 and for the year ended December 31, 1996, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Miami, Florida February 27, 1998 F-32 RELATIONAL TECHNOLOGIES, INC. BALANCE SHEETS JULY 31, 1997 AND DECEMBER 31, 1996
AS OF ----------------------- JULY 31, DECEMBER 31, 1997 1996 ---------- ------------ ASSETS Current assets: Cash and cash equivalents............................ $ 157,195 $ -- Accounts receivable and unbilled revenue............. 1,643,528 879,738 Other current assets................................. 70,049 52,821 ---------- ---------- Total current assets............................... 1,870,772 932,559 Property and equipment, net............................ 57,574 55,776 Other assets........................................... 11,287 8,910 Goodwill, net of amortization of $72,076 and $50,140, respectively.......................................... 490,000 511,936 ---------- ---------- Total assets....................................... $2,429,633 $1,509,181 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Cash overdraft....................................... $ -- $ 115,562 Accounts payable..................................... 89,666 146,029 Accrued expenses and other current liabilities....... 1,262,572 368,448 Line of credit....................................... -- 26,073 Long-term debt, current portion...................... -- 33,642 Deferred revenue..................................... 155,775 38,000 ---------- ---------- Total current liabilities.......................... 1,508,013 727,754 Long-term debt and note payable to stockholder....... -- 206,008 ---------- ---------- Total liabilities.................................. 1,508,013 933,762 ---------- ---------- Stockholders' equity: Common stock, no par value, authorized 1,000,000 shares; issued and outstanding 100,000 shares at July 31, 1997 and December 31, 1996................. 100,000 100,000 Retained earnings.................................... 821,620 475,419 ---------- ---------- Total stockholders' equity......................... 921,620 575,419 ---------- ---------- Total liabilities and stockholders' equity......... $2,429,633 $1,509,181 ========== ==========
The accompanying notes are an integral part of the financial statements. F-33 RELATIONAL TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS FOR THE PERIOD JANUARY 1, 1997 THROUGH JULY 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1996
1997 1996 ---------- ---------- Net revenues............................................ $4,529,401 $4,378,789 Costs and expenses: Project personnel and expenses........................ 2,392,033 2,421,739 Selling, general and administrative................... 1,200,111 1,199,926 ---------- ---------- Total costs and operating expenses.................... 3,592,144 3,621,665 ---------- ---------- Income from operations.................................. 937,257 757,124 Interest expense........................................ (60,312) (111,289) ---------- ---------- Income before income taxes.............................. 876,945 645,835 Provision for income taxes.............................. -- (251,889) ---------- ---------- Net income.............................................. $ 876,945 $ 393,946 ========== ==========
The accompanying notes are an integral part of the financial statements. F-34 RELATIONAL TECHNOLOGIES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE PERIOD JANUARY 1, 1997 THROUGH JULY 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1996
COMMON COMMON RETAINED STOCK SHARES STOCK EARNINGS TOTAL ------------ --------- --------- --------- Balance as of December 31, 1995... 100,000 $ 100,000 $ 81,473 $ 181,473 Net income........................ -- -- 393,946 393,946 ------- --------- --------- --------- Balance as of December 31, 1996... 100,000 100,000 475,419 575,419 Net income........................ -- -- 876,945 876,945 Stockholders' distributions....... -- -- (530,744) (530,744) ------- --------- --------- --------- Balance as of July 31, 1997....... 100,000 $ 100,000 $ 821,620 $ 921,620 ======= ========= ========= =========
The accompanying notes are an integral part of the financial statements. F-35 RELATIONAL TECHNOLOGIES, INC. STATEMENTS OF CASH FLOWS FOR THE PERIOD JANUARY 1, 1997 THROUGH JULY 31, 1997 AND FOR THE YEAR ENDED DECEMBER 31, 1996
1997 1996 --------- --------- Cash flows from operating activities: Net income.............................................. $ 876,945 $ 393,946 --------- --------- Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization......................... 54,805 78,149 Changes in assets and liabilities: Increase in accounts receivable and unbilled revenue.. (763,790) (486,874) Increase in other current assets...................... (17,228) (14,868) Decrease in accounts payable.......................... (56,363) (5,408) Increase in accrued expenses and other current liabilities.......................................... 712,061 278,857 Increase (decrease) in deferred revenue............... 117,775 (9,725) Increase in other assets.............................. (2,377) (8,910) --------- --------- Total adjustments.................................... 44,883 (168,779) --------- --------- Net cash flows provided by operations.................... 921,828 225,167 --------- --------- Cash flows from investing activities: Purchases of property and equipment..................... (34,667) (69,813) --------- --------- Net cash flows used in investing activities.......... (34,667) (69,813) --------- --------- Cash flows from financing activities: Stockholders' distributions............................. (348,681) -- Proceeds from issuance of long-term debt................ -- 250,000 Principal payments on long-term debt.................... (239,650) (10,350) Decrease in bank line of credit......................... (26,073) (110,854) Payments under earn-out termination agreement........... -- (360,000) --------- --------- Net cash flows used in financing activities.............. (614,404) (231,204) --------- --------- Net increase (decrease) in cash and cash equivalents..... 272,757 (75,850) Cash and cash equivalents at beginning of period......... (115,562) (39,712) --------- --------- Cash and cash equivalents at end of period............... $ 157,195 $(115,562) ========= ========= Supplemental disclosure of cash flows information: Cash paid for interest................................ $ 60,312 $ 111,289 Cash paid for taxes................................... $ -- $ 336,000 Non cash stockholders' distributions.................. $ 182,063 $ --
The accompanying notes are an integral part of the financial statements. F-36 RELATIONAL TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: Nature of Business Relational Technologies, Inc. ("the Company") is a nationwide provider of a wide range of technology consulting services. Its primary offerings are: Management Consulting (business process reengineering, technology assessments and financial modeling), Oracle software package implementation, Technical Services (customization, product development, RDBMS, and Unix), and IS facilities management. The Company provides its services to clients in a broad range of industries including high technology, consumer and industrial products, diversified services and government. Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition The Company derives substantially all of its revenues from information technology and management consulting, software development and implementation, and package software evaluation and implementation services. Revenues from management consulting and package software evaluation and implementation services are recognized as the service is provided, principally on a time and material basis. Losses on projects in progress are recognized when known. Net revenues exclude reimbursable expenses charged to clients. Deferred revenue arises whenever clients pay the Company in advance of services provided. Cash and Cash Equivalents The Company considers all short-term investments with maturities of three months or less when purchased to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the F.D.I.C. insurance limits. The Company has not experienced any loss to date on these investments. Property and Equipment, Net Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful life of the assets ranging from 3 to 7 years. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are capitalized. The carrying amounts of assets sold or retired and related accumulated depreciation are removed from the accounts in the year of disposal and any resulting gains or losses are included in the statement of operations. Intangible Assets Goodwill, related to the acquisition of the Company during 1995, is being amortized over fifteen years on a straight-line basis. The Company recorded amortization expense of $21,936 and $37,605 for the period January 1, 1997 through July 31, 1997 and for the year ended December 31, 1996, respectively. The carrying value of goodwill is subject to periodic review of realizability. F-37 RELATIONAL TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Income Taxes On January 1, 1997, the Company elected to be taxed as an S corporation under the provisions of the Internal Revenue Code. Under those provisions, the Company does not pay federal income taxes on its taxable income. The stockholders will reflect on their individual income tax returns their respective share of the Company's taxable income or loss subject to statutory limitations. Concentration of Credit Risk The Company provides its services primarily to Fortune 1000 companies. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses to the extent they are identified. Such losses have been insignificant and are within management's expectations. Nine and seven major customers comprised approximately 83% and 74% of net revenues for the period January 1, 1997 through July 31, 1997 and for the year ended December 31, 1996, respectively. Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No. 130 and No. 131 and their applicability to the Company. (See Note 8). F-38 RELATIONAL TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following as of July 31, 1997 and December 31, 1997:
JULY 31, DECEMBER 31, 1997 1996 -------- ------------ Computer equipment.................................... $125,453 $92,761 Software.............................................. 15,116 15,116 Furniture and leasehold improvements.................. 4,611 2,636 -------- ------- Total cost.......................................... 145,180 110,513 Less accumulated depreciation......................... (87,606) (54,737) -------- ------- $ 57,574 $55,776 ======== =======
3. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES: Accrued expenses and other current liabilities consists of the following as of July 31, 1997 and December 31, 1996:
JULY 31, DECEMBER 31, 1997 1996 ---------- ------------ Accrued payroll and payroll related expenses......... $ 749,853 $295,482 Other accrued expenses............................... 330,656 72,966 Stockholder distribution............................. 182,063 -- ---------- -------- $1,262,572 $368,448 ========== ========
4. DEBT: The Company has a $700,000 bank line of credit which bears interest at the prime rate and expires on August 31, 1997. The line of credit is collateralized by the personal assets of a stockholder of the Company. As of July 31, 1997 and December 31, 1996, the Company had a balance outstanding of $0 and $26,073, respectively. The Company had a $200,000 note payable to a stockholder which bore interest at 12% per annum with a maturity date of February 28, 1998. The terms of the note required monthly interest payments with the principal balance due at maturity. The note was collateralized by the accounts receivable of the Company. The note was paid during 1997. The Company had a $50,000 note payable to an unaffiliated lender which bore interest at 12% per annum. The terms of the note required monthly installments of principal and interest through the maturity date of March 1, 1998. The note was collateralized by the accounts receivable of the Company. The principal balance as of December 31, 1996 was $39,650. The note was paid during 1997. Maturities of long-term debt as of December 31, 1996 is presented as follows: Total debt......................................................... $239,650 Less current portion............................................... (33,642) -------- Long-term portion.................................................. $206,008 ========
F-39 RELATIONAL TECHNOLOGIES, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 5. LEASE COMMITMENTS: The Company has operating lease agreements for premises and equipment that expire on various dates through March, 2000. The operating lease agreements for premises are subject to escalation. Rent expense for the period January 1, 1997 through July 31, 1997 and for the year ended December 31, 1996 was $66,401 and $99,833, respectively. Minimum future lease commitments under noncancelable operating leases in effect at July 31, 1997 are presented as follows: 1998................................................................ $37,653 1999................................................................ 15,045 2000................................................................ 3,825 ------- Total minimum lease payments...................................... $56,523 =======
6. PROFIT SHARING PLAN: The Company maintains a 401(K) plan (the "Plan") which covers substantially all of its employees. Under the Plan, employer contributions are discretionary. There were no contributions to the Plan for the period January 1, 1997 through July 31, 1997 and for the year ended December 31, 1996, contributions totaled $30,000. 7. EARN-OUT TERMINATION AGREEMENT: The asset purchase agreement dated September 1, 1995 between the current stockholders and the prior owners of the Company, contained earn-out provisions as a part of the purchase price. On January 25, 1996, an agreement was reached with the seller to settle future payments under the agreement for a sum of $360,000. The amount due was accrued as of December 31, 1995, and was paid during the first quarter of 1996. 8. SUBSEQUENT EVENT: On August 1, 1997, the Company agreed to be acquired by AnswerThink Consulting Group, Inc. ("AnswerThink"). Under the terms of that transaction, AnswerThink acquired all of the outstanding stock of the Company in exchange for AnswerThink stock. F-40 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Legacy Technology, Inc. Burlington, Massachusetts We have audited the accompanying balance sheet of Legacy Technology, Inc. as of December 31, 1997, and the related statement of operations, stockholders' equity, and cash flows for the year then ended. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Legacy Technology, Inc. as of December 31, 1997 and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Miami, Florida February 27, 1998 F-41 LEGACY TECHNOLOGY, INC. BALANCE SHEETS
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents........................... $ 151,292 $ 44,687 Accounts receivable and unbilled revenue, net....... 1,024,103 683,027 Prepaid expenses and other current assets........... 59,535 83,558 ---------- -------- Total current assets.............................. 1,234,930 811,272 Property and equipment, net........................... 148,150 123,150 Deferred income taxes................................. 39,568 36,271 ---------- -------- Total assets...................................... $1,422,648 $970,693 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................... $ 114,237 $240,222 Accounts payable and payroll-related expenses....... 440,479 416,852 Taxes payable....................................... 100,431 97,134 Long-term debt, current portion..................... 5,356 5,546 Stockholder note payable............................ 33,000 33,000 Deferred revenue.................................... 501,778 -- ---------- -------- Total current liabilities......................... 1,195,281 792,754 Long-term debt, less current portion.................. 4,375 3,753 ---------- -------- Total liabilities................................. 1,199,656 796,507 ---------- -------- Commitments and contingencies......................... Stockholders' equity: Common stock, no par value, 200,000 shares authorized; 106,800 shares issued and outstanding.. 3,500 3,500 Retained earnings................................... 219,492 170,686 ---------- -------- Total stockholders' equity........................ 222,992 174,186 ---------- -------- Total liabilities and stockholders' equity........ $1,422,648 $970,693 ========== ========
The accompanying notes are an integral part of the financial statements. F-42 LEGACY TECHNOLOGY, INC. STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FOR THE THREE DECEMBER 31, MONTHS ENDED 1997 MARCH 31, 1998 ------------ -------------- (UNAUDITED) Net revenues........................................ $5,197,329 $1,332,263 Costs and expenses: Project personnel and expenses.................... 2,686,646 699,033 Selling, general and administrative............... 2,567,597 680,016 ---------- ---------- Total costs and operating expenses................ 5,254,243 1,379,049 ---------- ---------- Loss from operations................................ (56,914) (46,786) Other income (expense): Interest and other income......................... 6,404 1,800 Interest expense.................................. (12,698) (3,820) ---------- ---------- Loss before income taxes............................ (63,208) (48,806) Income tax benefit.................................. 6,081 -- ---------- ---------- Net loss............................................ $ (57,127) $ (48,806) ========== ==========
The accompanying notes are an integral part of the financial statements. F-43 LEGACY TECHNOLOGY, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK COMMON RETAINED SHARES STOCK EARNINGS TOTAL ------- ------ -------- -------- Balance as of December 31, 1996............. 106,800 $3,500 $276,619 $280,119 Net loss.................................... -- -- (57,127) (57,127) ------- ------ -------- -------- Balance as of December 31, 1997............. 106,800 $3,500 $219,492 $222,992 Net loss (unaudited)........................ -- -- (48,806) (48,806) ------- ------ -------- -------- Balance as of March 31, 1998 (unaudited).... 106,800 $3,500 $170,686 $174,186 ======= ====== ======== ========
The accompanying notes are an integral part of the financial statements. F-44 LEGACY TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS
FOR THE FOR THE THREE YEAR ENDED MONTHS ENDED DECEMBER 31, MARCH 31, 1997 1998 ------------ ------------- (UNAUDITED) Cash flows from operating activities: Net loss........................................... $ (57,127) $ (48,806) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization..................... 151,462 25,000 Deferred income taxes............................. (106,512) 3,297 Changes in assets and liabilities: Decrease in accounts receivable and unbilled revenue.......................................... 195,446 341,076 Increase in prepaid expenses and other current assets........................................... (28,630) (24,023) Increase in accounts payable...................... 55,173 125,985 Increase (decrease) in accrued payroll and payroll-related expenses......................... 215,722 (23,627) Increase (decrease) in taxes payable.............. 100,431 (3,297) Decrease in deferred revenue...................... (234,722) (501,778) --------- --------- Net cash provided by (used in) operating activities..................................... 291,243 (106,173) --------- --------- Cash flows from investing activities: Purchase of property and equipment................. (134,905) -- --------- --------- Net cash used in investing activities........... (134,905) -- --------- --------- Cash flows from financing activities: Stockholder advances............................... 33,000 -- Repayment of long-term debt........................ (90,123) (432) --------- --------- Net cash used in financing activities........... (57,123) (432) --------- --------- Net increase (decrease) in cash and cash equivalents........................................ 99,215 (106,605) Cash and cash equivalents at beginning of period.... 52,077 151,292 --------- --------- Cash and cash equivalents at end of period.......... $ 151,292 $ 44,687 ========= ========= Supplemental disclosure of cash flows information: Cash paid for interest............................. $ 12,698 $ 3,820 ========= =========
The accompanying notes are integral part of the financial statements. F-45 LEGACY TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES: Nature of Business Legacy Technology, Inc. (the "Company") is engaged in all facets of computer consulting, primarily in the development of data warehouses and decision support systems. Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Statements The consolidated financial statements for the three-month period ended March 31, 1998, and all related footnote information for the quarter, are unaudited, and reflect all normal and recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position, operating results and cash flows for the interim period. The results of operation for the three-month period ended March 31, 1998 are not necessarily indicative of the results to be achieved for the 1998 fiscal year. Revenue Recognition The Company derives substantially all of its revenues from information technology and management consulting, software development and implementation, and package software evaluation and implementation services. Revenues from management consulting and package software evaluation and implementation services are recognized as the service is provided, principally on a time and material basis. Losses on projects in progress are recognized when known. Net revenues exclude reimbursable expenses charged to clients. Deferred revenue arises whenever clients pay the Company in advance of services provided. Cash and Cash Equivalents The Company considers all short-term investments with maturities of three months or less when purchased to be cash equivalents. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the F.D.I.C. insurance limits. The Company has not experienced any loss to date on these investments. Property and Equipment, Net Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful life of the assets ranging from 3 to 7 years. During 1997, the Company evaluated the estimated useful life used for its computer equipment and adjusted depreciation expense accordingly by approximately $100,000. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are capitalized. The carrying amounts of assets sold or retired and related accumulated depreciation are removed from the accounts in the year of disposal and any resulting gains or losses are included in the statement of operations. Income Taxes The Company records income taxes using the liability method. Under this method, the Company records deferred taxes based on temporary taxable and deductible differences between the tax bases of the Company's assets and liabilities and their financial reporting bases. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized. F-46 LEGACY TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Concentration of Credit Risk The Company provides its services primarily to Fortune 1000 companies and other sophisticated buyers of IT consulting services. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses to the extent they are identified. Such losses have been insignificant and are within management's expectations. During the year ended December 31, 1997, five customers accounted for approximately 70% of net revenues. Recent Accounting Pronouncements In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. This statement is effective for fiscal years beginning after December 15, 1997. In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information" which establishes standards for public business enterprises to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. This statement is effective for financial statements for periods beginning after December 15, 1997. Management is currently evaluating the requirements of SFAS No. 130 and No. 131 and their applicability to the Company. 2. PROPERTY AND EQUIPMENT: Property and equipment consists of the following as of December 31, 1997 and March 31, 1998:
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Equipment........................................... $ 408,484 $408,484 Furniture and fixtures.............................. 25,972 25,972 --------- -------- Total cost........................................ 434,456 434,456 Less accumulated depreciation....................... (286,306) (311,306) --------- -------- $ 148,150 $123,150 ========= ========
3. DEBT: Debt is comprised of the following as of December 31, 1997 and March 31, 1998:
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Note payable to a bank, monthly installments of $513 of principal and interest at 9.9%, due August 1999, collateralized by Company assets............ $ 9,731 $ 9,299 Less current portion............................ (5,356) (5,546) ------- ------- Long-term portion............................... $ 4,375 $ 3,753 ======= =======
F-47 LEGACY TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 4. INCOME TAXES: The tax effects of significant items comprising the Company's net deferred tax asset as of December 31, 1997 and March 31, 1998 are as follows:
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Deferred tax assets Credits........................................... $27,379 $ -- Unearned revenue.................................. 188,819 -- Section 481 adjustment............................ -- 36,271 ------- ------- 216,198 36,271 Less: Valuation allowance....................... -- -- ------- ------- Total deferred tax asset........................ 216,198 36,271 ------- ------- Deferred tax liabilities Accrual to cash adjustment........................ 176,630 -- ------- ------- Total deferred tax liability.................... 176,630 -- ------- ------- Total, net...................................... $39,568 $36,271 ======= =======
The provision for income taxes consists of the following:
DECEMBER 31, MARCH 31, 1997 1998 ------------ ----------- (UNAUDITED) Current Federal........................................... $ 85,752 $(2,815) State............................................. 14,679 (482) --------- ------- 100,431 (3,297) --------- ------- Deferred Federal........................................... (90,944) 2,815 State............................................. (15,568) 482 --------- ------- (106,512) 3,297 --------- ------- $ (6,081) $ -- ========= =======
5. LEASE COMMITMENTS: The Company has two operating lease agreements for its premises that expire March 30, 2000 and May 30, 2000, respectively. The operating lease agreements are subject to escalation. Rent expense for the year ended December 31, 1997 and the three-month period ended March 31, 1998 was approximately $157,000 and $67,000, respectively. F-48 LEGACY TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Minimum future lease commitments under the operating leases in effect at December 31, 1997, is presented as follows: 1998................................................................ $177,325 1999................................................................ 180,056 2000................................................................ 49,819 -------- Total minimum lease payments...................................... $407,200 ========
F-49 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following Unaudited Pro Forma Combined Balance Sheet of the Company at April 3, 1998 has been prepared to give effect to the acquisition of Legacy Technology, Inc. (the "Legacy Acquisition") that was expected to close during the second quarter as if it had occurred on April 3, 1998. On May 20, 1998, the Legacy Acquisition was completed on terms substantially similar to those assumed in the Pro Forma Consolidated Financial Information. Accordingly, the changes from the definitive agreement to the final agreement have not been reflected in the accompanying Pro Forma Financial Information as such amounts would not have a material impact on the results presented. The Unaudited Pro Forma Combined Balance Sheet is also adjusted to reflect the Offering and the application of the net proceeds therefrom, including the repayment of indebtedness as if the Offering had occurred on April 3, 1998. The following Unaudited Pro Forma Consolidated Statement of Operations of the Company for the period April 23, 1997 (date of inception) through January 2, 1998 have been prepared to give effect to (i) the acquisitions of Relational Technologies, Inc., The Hackett Group, Inc. and Delphi Partners, Inc. on August 1, 1997, October 13, 1997 and November 12, 1997, respectively (the "1997 Acquisitions") (ii) the Legacy Acquisition, and (iii) the Conversion (the "Conversion") into a total of 7,160,104 shares of Common Stock of all of the Company's outstanding shares of Class A Convertible Preferred Stock and Class B Convertible Preferred Stock concurrent with the Offering, (iv) the sale of 2,850,000 Shares of Common Stock by the Company and the application of the net proceeds therefrom, as if such transactions had occurred as of April 23, 1997. The following Unaudited Pro Forma Consolidated Statement of Operations of the Company for the quarter ended April 3, 1998, give effect to (i) the Legacy Acquisition, (ii) the Conversion and (iii) the sale of 2,850,000 shares of Common Stock by the Company and the application of the net proceeds therefrom, as if such transactions had occurred as of April 23, 1997. Under the terms of certain earn-out provisions contained in their respective purchase agreements, the sellers of The Hackett Group, Inc., Delphi Partners, Inc. and Legacy Technology, Inc. may be entitled to additional consideration. In March 1998, the Company waived the earnout provisions in The Hackett Group, Inc. purchase agreement and recorded additional goodwill of $3,100,000. The maximum amount that can be earned by the sellers of Delphi Partners, Inc. and Legacy Technology, Inc., which has not already been recorded in the Company's financial statements, is $2,500,000 and $1,300,000, respectively. The additional goodwill recorded by the Company in connection with the acquisition of The Hackett Group, Inc., combined with the maximum amount of additional goodwill which could be recorded by the Company in connection with the acquisition of Delphi Partners, Inc. and Legacy Technology, Inc. would increase the Company's annual amortization expense by approximately $460,000. The Unaudited Pro Forma Consolidated Financial Information is not indicative of the results that would have occurred if the transactions had occurred on the dates indicated or which may be realized in the future. The Unaudited Pro Forma Consolidated Financial Information should be read in conjunction with the historical financial statements of the companies acquired in connection with the 1997 Acquisitions and the Legacy Acquisition and the Company's Consolidated Financial Statements and the notes thereto included elsewhere in this Prospectus. PF-1 ANSWERTHINK CONSULTING GROUP, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET APRIL 3, 1998
LEGACY PRO FORMA HISTORICAL ACQUISITION ADJUSTMENTS PRO FORMA OFFERING PRO FORMA (A) (B) (C) COMBINED ADJUSTMENTS REFERENCE AS ADJUSTED ------------ ----------- ----------- ------------ ----------- --------- ------------ ASSETS Cash and cash equivalents............ $ 3,944,221 $ 44,687 $ -- $ 3,988,908 $19,536,500 (D)(E)(F) $ 23,525,408 Accounts receivable and unbilled revenue, net.. 14,010,003 683,027 -- 14,693,030 -- 14,693,030 Prepaid expenses and other current assets... 631,898 83,558 -- 715,456 -- 715,456 ------------ -------- ----------- ------------ ----------- ------------ Total current assets... 18,586,122 811,272 -- 19,397,394 19,536,500 38,933,894 Property and equipment, net.................... 2,382,023 123,150 -- 2,505,173 -- 2,505,173 Other assets............ 1,979,198 36,271 -- 2,015,469 -- 2,015,469 Goodwill, net........... 14,893,924 -- 5,825,814 20,719,738 -- 20,719,738 ------------ -------- ----------- ------------ ----------- ------------ Total assets........... $ 37,841,267 $970,693 $ 5,825,814 $ 44,637,774 $19,536,500 $ 64,174,274 ============ ======== =========== ============ =========== ============ LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable........ $ 1,823,813 $337,356 $ -- $ 2,161,169 $ -- $ 2,161,169 Accrued expenses and other liabilities...... 6,562,561 416,852 -- 6,979,413 -- 6,979,413 Notes payable to shareholders, current portion................ 5,950,000 33,000 2,770,000 8,753,000 (6,520,000) (F) 2,233,000 ------------ -------- ----------- ------------ ----------- ------------ Total current liabilities........... 14,336,374 787,208 2,770,000 17,893,582 (6,520,000) 11,373,582 ------------ -------- ----------- ------------ ----------- ------------ Obligations under capital leases......... 324,048 -- -- 324,048 -- 324,048 Borrowings under revolving credit facility............... 7,500,000 9,299 -- 7,509,299 (7,500,000) (E) 9,299 Notes payable to shareholders........... 1,896,000 -- -- 1,896,000 -- 1,896,000 ------------ -------- ----------- ------------ ----------- ------------ Total long-term liabilities........... 9,720,048 9,299 -- 9,729,347 (7,500,000) 2,229,347 ------------ -------- ----------- ------------ ----------- ------------ Convertible preferred stock.................. 11,140,191 -- (11,140,191) -- -- -- ------------ -------- ----------- ------------ ----------- ------------ Common stock............ 23,200 3,500 3,929 30,629 2,850 (D) 33,479 Additional paid-in capital................ 55,779,486 -- 14,362,762 70,142,248 33,553,650 (D) 103,695,898 Unearned compensation-- restricted stock....... (1,614,407) -- -- (1,614,407) -- (1,614,407) Accumulated deficit..... (51,543,625) 170,686 (170,686) (51,543,625) -- (51,543,625) ------------ -------- ----------- ------------ ----------- ------------ Total shareholders' equity................ 2,644,654 174,186 14,196,005 17,014,845 33,556,500 50,571,345 ------------ -------- ----------- ------------ ----------- ------------ Total liabilities and shareholders' equity.. $ 37,841,267 $970,693 $ 5,825,814 $ 44,637,774 $19,536,500 $ 64,174,274 ============ ======== =========== ============ =========== ============
See accompanying notes to Unaudited Pro Forma Consolidated Balance Sheet PF-2 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET A. Represents the historical consolidated balance sheet of the Company as of April 3, 1998. B. Represents the Legacy Acquisition for which a definitive agreement was executed in April, 1998 and which was expected to close during the second quarter. C. Represents the adjustment to record the purchase price of the Legacy Acquisition. The purchase price consists of a $2.8 million promissory note and 269,166 shares of Common Stock at an assumed value of $3,230,000. Also represents the Conversion of all convertible preferred stock into common stock at a four-to-one conversion rate. D. Assumes receipt of net proceeds of $33,556,500 ($37,050,000 less $3,493,500 in issuance and Offering costs) from the Offering and assumes the Underwriters' over-allotment option is not exercised. E. Assumes repayment of all outstanding bank debt with the Offering proceeds. The debt is scheduled for repayment with a balloon payment due on November 7, 2000. The interest rate on the debt is at varying rates, principally LIBOR plus 2.25-3.25%. F. Assumes repayment of short-term debt owed to the sole stockholder in connection with the Company's purchase of The Hackett Group, Inc. As of January 2, 1998, $3,750,000 is payable on the earlier of March 31, 1999 or the date the Company completes an initial public offering of its stock. The note bears interest at 12%. The remaining Hackett Group stockholder notes are scheduled to be paid on March 31, 1999. Also assumes repayment of debt amounting to $2,770,000 owed to the Legacy stockholders in connection with the Legacy Acquisition. The short-term note is payable upon the earlier of the completion of an initial public offering of the Company's Common Stock or over a 12-month period commencing on October 1, 1998 and bears interest at a rate of 6%. PF-3 ANSWERTHINK CONSULTING GROUP, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE PERIOD APRIL 23, 1997 (DATE OF INCEPTION) THROUGH JANUARY 2, 1998
HISTORICAL PRO FORMA -------------------------------------- -------------------------- LEGACY LEGACY THE COMPANY ACQUISITIONS ACQUISITION ACQUISITION ACQUISITION OFFERING (A) (B) (C) ADJUSTMENTS ADJUSTMENTS PRO FORMA ADJUSTMENTS ------------ ------------ ----------- ----------- ----------- ------------ ----------- Net revenues..... $ 14,848,172 $13,968,338 $5,197,329 $ -- $ -- $ 34,013,839 $ -- Costs and expenses: Project personnel and expenses....... 13,333,921 6,668,208 2,686,646 -- -- 22,688,775 -- Selling, general and administrative.. 8,084,558 5,558,301 2,567,597 362,390(D) 285,000(D) 16,857,846 -- Settlement costs.......... 1,902,608 -- -- -- -- 1,902,608(E) -- In-process research and development technology..... 4,000,000 -- -- -- -- 4,000,000(F) -- ------------ ----------- ---------- --------- --------- ------------ -------- Total costs and operating expenses....... 27,321,087 12,226,509 5,254,243 362,390 285,000 45,449,229 -- ------------ ----------- ---------- --------- --------- ------------ -------- Income (loss) from operations...... (12,472,915) 1,741,829 (56,914) (362,390) (285,000) (11,435,390) Other income (expense): Interest income (expense), net............ 382,463 28,437 (6,294) (419,664)(G) (176,588)(G) (191,646) 711,807(H) Income tax benefit........ -- -- 6,081 -- -- 6,081 -- ------------ ----------- ---------- --------- --------- ------------ -------- Net income (loss) (I)............. $(12,090,452) $ 1,770,266 $ (57,127) $(782,054) $(461,588) $(11,620,955) $711,807 ============ =========== ========== ========= ========= ============ ======== Net loss per common share-- basic and diluted......... $ (1.91) $ (0.80) ============ ============ Weighted average common shares outstanding..... 6,342,319 14,596,917 PRO FORMA AS ADJUSTED --------------- Net revenues..... $ 34,013,839 Costs and expenses: Project personnel and expenses....... 22,688,775 Selling, general and administrative.. 16,857,846 Settlement costs.......... 1,902,608 In-process research and development technology..... 4,000,000 --------------- Total costs and operating expenses....... 45,449,229 --------------- Income (loss) from operations...... (11,435,390) Other income (expense): Interest income (expense), net............ 520,161 Income tax benefit........ 6,081 --------------- Net income (loss) (I)............. $(10,909,148) =============== Net loss per common share-- basic and diluted......... $ (0.70) =============== Weighted average common shares outstanding..... 15,675,379(J)
See accompanying notes to Unaudited Pro Forma Consolidated Statement of Operations. PF-4 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS A. Represents the historical consolidated statement of operations of the Company for the period April 23, 1997 (date of inception) through January 2, 1998. B. Represents the historical consolidated statement of operations of the 1997 Acquisitions from April 23, 1997 (date of inception) until such 1997 Acquisitions were completed by the Company. C. Represents the historical statement of operations of Legacy Technology, Inc. from April 23, 1997 through January 2, 1998. D. Adjusts goodwill amortization expense to reflect the allocation of the purchase price for each of the 1997 Acquisitions and the Legacy Acquisition beginning on April 23, 1997 using a 15-year life. On August 1, 1997, the Company acquired Relational Technologies, Inc. in exchange for 1,220,700 restricted shares of Common Stock valued at approximately $610,000. On October 13, 1997, the Company acquired The Hackett Group, Inc., for $6,500,000 in cash, 444,000 restricted shares of Common Stock valued at approximately $355,000 and a $5,143,000 promissory note which is subject to certain earn-out provisions. As of January 2, 1998, the Company had recorded $3,750,000 of the note as additional purchase consideration. Also, on November 12, 1997, the Company acquired Delphi Partners, Inc. for $7,400,000 in cash, 560,000 restricted shares of Common Stock valued at approximately $840,000 and contingent consideration up to a maximum of $2,500,000 based on the achievement of certain pre-tax profit targets. As of January 2, 1998, the Company had not recorded any additional consideration under this earn-out. In April, 1998, the Company executed a definitive agreement to acquire Legacy Technology, Inc. for a $2,770,000 promissory note, payable on the date the Company completes a public offering of its Common Stock, or, over a 12-month period commencing October 1, 1998, 269,166 restricted shares of common stock valued at approximately $3,230,000 and contingent consideration up to a maximum of $1,300,000 based on achievement of certain revenue and pre-tax profit targets. E. Settlement costs consist primarily of payments to certain key executives and certain other management employees of the Company relating to the obligations assumed by the Company for compensation earned by such employees during the Dispute Period and legal fees incurred in connection with the ensuing litigation. Management believes that the majority of these costs are non-recurring. F. Represents an unusual charge for in-process research and development relating to the acquisition of The Hackett Group, Inc. G. Adjustment to interest as if debt incurred in connection with the 1997 Acquisitions and the Legacy Acquisition was outstanding for the period April 23, 1997 (date of inception) through January 2, 1998. Approximately $750,000 of debt was incurred in connection with the purchase of The Hackett Group, Inc., an additional $7.4 million of debt was incurred in connection with the purchase of Delphi Partners, Inc. and $2.77 million of debt expected to be incurred in connection with the Legacy Acquisition. The interest rate on the debt is variable but was assumed to be approximately 8.5% for purposes of the pro forma adjustment which represents the weighted average interest rate on the debt as of April 3, 1998. H. Upon the closing of the Offering, the Company will repay all outstanding debt except certain notes payable to shareholders in the amount of $300,000 which are payable on March 31, 1999 and which were assumed as part of the Delphi Partners, Inc. acquisition. Interest expense has been adjusted to reflect the use of a portion of the Offering proceeds to repay the outstanding debt. The debt that will be repaid is comprised of $8.2 million outstanding under the Company's revolving credit facility with BankBoston, N.A., a $3.75 million promissory note payable to the sole stockholder of The Hackett Group, Inc. based on the achievement of earnings targets for 1997, and a $2.77 million promissory note payable to the stockholders of Legacy Technology, Inc. I. No income tax provision is required due to the Company's current tax loss and the inability of the Company to currently use the benefits of its loss carryforward. J. Pro forma loss per share has been calculated based upon 15,675,379 shares outstanding. This represents the sum of the total shares outstanding on a pro forma basis prior to the Offering (14,596,917 shares) and the number of shares required to be sold in the Offering (1,078,462 shares) to repay debt and amounts due to shareholders ($14,020,000). PF-5 ANSWERTHINK CONSULTING GROUP, INC. UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE QUARTER ENDED APRIL 3, 1998
HISTORICAL ------------------------- PRO FORMA LEGACY LEGACY PRO FORMA THE COMPANY ACQUISITION ACQUISITION OFFERING AS (A) (B) ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED ------------ ----------- ----------- ------------ ----------- ------------ Net revenues............ $ 18,531,770 $1,332,263 $ -- $ 19,864,033 $ -- $ 19,864,033 Costs and expenses: Project personnel and expenses.............. 11,193,806 699,033 -- 11,892,839 -- 11,892,839 Selling, general and administrative........ 5,654,019 680,016 95,000(C) 6,429,035 -- 6,429,035 Compensation related to vesting of restricted shares................ 40,843,400 -- -- 40,843,400 -- 40,843,400 ------------ ---------- --------- ------------ -------- ------------ Total costs and operat- ing expenses.......... 57,691,225 1,379,049 95,000 59,165,274 -- 59,165,274 ------------ ---------- --------- ------------ -------- ------------ Income (loss) from oper- ations................. (39,159,455) (46,786) (95,000) (39,301,241) (39,301,241) Other income (expense): Interest income (ex- pense), net........... (293,718) (2,020) (58,863)(D) (354,601) 380,628(E) 26,027 ------------ ---------- --------- ------------ -------- ------------ Net loss (F)............ $(39,453,173) $ (48,806) $(153,863) $(39,655,842) $380,628 $(39,275,214) ============ ========== ========= ============ ======== ============ Net loss per common share--basic and dilut- ed..................... $ (3.86) $ (2.28 ) $ (2.13) ============ ============ ============ Weighted average common shares outstanding..... 10,226,330 17,377,239 18,455,701(G)
See accompanying notes to Unaudited Pro Forma Consolidated Statement of Operations PF-6 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS A. Represents the historical consolidated statement of operations of the Company for the first quarter of fiscal year 1998. B. Represents the historical consolidated statement of operations of Legacy Technology, Inc. for the first quarter of fiscal 1998. C. Adjusts goodwill amortization expense to reflect the allocation of the purchase price for the Legacy Acquisition for the first quarter using a 15- year life. D. Adjustment to interest expense as if debt incurred in connection with the Legacy Acquisition was outstanding for the first quarter. The interest rate on the debt was assumed to be 8.5% for purposes of the pro forma adjustment which represents the interest rate on the debt for the first quarter. E. Upon the closing of the Offering, the Company will retire all outstanding debt except certain notes payable to shareholders totaling $4,096,000. Notes in the amount of $303,000 were assumed as part of the Delphi Partners, Inc. acquisition and are payable on March 31, 1999. The remaining $3,793,000 relates to payments due to the stockholder and employees of the Hackett Group in connection with the subsequent amendments to the purchase and employment agreements. Of the $3,793,000 in notes, $1,897,000 is payable on March 31, 1999 and $1,896,000 is payable on March 31, 2000. The Company will also assume $33,000 of notes payable as part of the Legacy Acquisition. Interest expense has been adjusted to reflect the use of a portion of the Offering proceeds to retire the debt. F. No income tax provision is required due to the Company's current tax loss and the inability of the Company to currently use the benefits of its loss carryforward. G. Pro forma loss per share has been calculated based upon 18,455,701 shares outstanding. This represents the sum of the total shares outstanding on a pro forma basis prior to the Offering (17,377,239 shares) and the number of shares required to be sold in the Offering (1,078,462 shares) to repay debt and amounts due to shareholders ($14,020,000). PF-7 [BACK COVER OF PROSPECTUS] [LOGO OF ACG APPEARS HERE] PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth all fees and expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale of the Common Stock being registered. All amounts shown are estimates except for the registration fee and the NASD filing fee.
AMOUNT -------- Securities and Exchange Commission registration fee................ $ 20,650 NASD filing fee.................................................... 7,500 Nasdaq National Market fee......................................... 90,000 Blue sky qualification fees and expenses........................... 5,000 Accounting fees and expenses....................................... 325,000 Legal fees and expenses............................................ 375,000 Transfer agent and registrar fees.................................. 10,000 Miscellaneous expenses............................................. 66,850 -------- Total............................................................ $900,000 ========
-------- * To be provided supplementally. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Articles of Incorporation and Bylaws of the Registrant provide for the indemnification of the Registrant's directors and officers to the fullest extent authorized by, and subject to the conditions set forth in the Florida Business Corporation Act (the "Florida Act") against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA taxes, excise taxes or penalties, charges, expenses and amounts paid or to be paid in settlement), except that the Registrant will indemnify a director or officer in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Registrant's Board of Directors. The indemnification provided under the Bylaws includes the right to be paid by the Registrant the expenses (including attorneys' fees) in advance of any proceeding for which indemnification may be had in advance of its final disposition, provided that the payment of such expenses (including attorneys' fees) incurred by a director or officer in advance of the final disposition of a proceeding may be made only upon delivery to the Registrant of an undertaking by or on behalf of such director or officer to repay all amounts so paid in advance if it is ultimately determined that such director or officer is not entitled to be indemnified. Pursuant to the Bylaws, if a claim for indemnification is not paid by the Registrant within 60 days after a written claim has been received by the Registrant, the claimant may at any time thereafter bring an action against the Registrant to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant will be entitled to be paid also the expense of prosecuting such action. Generally, the Florida Act permits indemnification of a director or officer upon a determination that he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to belive his or her conduct was unlawful. Under the Articles of Incorporation, the Registrant has the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Registrant, or is or was serving at the request of the Registrant as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability asserted against such person or incurred by such person in any such capacity, or arising out of such person's status as such, II-1 whether or not the Registrant would have the power to indemnify such person against such liability under the provisions of the Florida Act. The Registrant maintains director and officer liability insurance on behalf of its directors and officers. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES The share numbers below do not reflect the Reverse Stock Split described in the Prospectus: (a) On April 23, 1997, in connection with the formation of the Registrant, the Registrant issued 2,400,000 common shares, par value $.01 per share ("Common Stock") to Ted A. Fernandez, the Registrant's President, Chief Executive Officer and Chairman, Allan R. Frank, the Registrant's Chief Technology Officer and a director, Ulysses S. Knotts, III, the Registrant's Executive Vice President, Sales and Marketing and a director, and Edmund R. Miller, a director of the Company, as the initial shareholders of the Registrant pursuant to an agreement (each, a "Senior Executive Agreement") entered into with each of such persons. Such shares were sold at par ($.01 per share) for an aggregate consideration of $2,400. These shares were issued without registration under the Securities Act of 1993, as amended (the "Securities Act") in reliance upon an exemption from registration under Section 4(2) thereof ("Section 4(2)"). (b) The Registrant sold to Golder, Thoma, Cressey, Rauner Fund V, L.P. ("GTCR V"), MG Capital Partners II, L.P. ("MG"), Gator Associates, Ltd. ("Gator"), Tara Ventures, Ltd. ("Tara," and together with Gator, the "Miller Group") (GTCR V, MG and the Miller Group are sometimes referred to herein collectively as the "Initial Investors"), pursuant to a purchase agreement, dated as of April 23, 1997, a total of 6,800,000 shares of Class A Convertible Preferred Stock of the Registrant, par value $.01 per share (the "Class A Preferred Stock"), at a purchase price of $3.00 per share for an aggregate consideration of $20,400,000. At the time of issuance, each share of Class A Preferred Stock was convertible into one share of Common Stock. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). (c) On July 10, 1997, Messrs. Fernandez, Frank and Knotts and three other employees of the Registrant exercised options to acquire to total of 200,000 shares of Class A Preferred Stock at an exercise of $3.00 per share for an aggregate consideration of $600,000. These shares of Class A Preferred Stock were issued without registration under the Securities Act in reliance on an exemption contained in Section 4(2). Messrs. Fernandez, Frank and Knotts and those three other employees immediately converted these 200,000 shares of Class A Preferred Stock and received in exchange therefor a total of 200,000 shares of Common Stock. These shares of Common Stock were issued without registration under the Securities Act in reliance on an exemption contained in Section 3(a)(9) thereof ("Section 3(a)(9)"). (d) Also on July 10, 1997, the Initial Investors converted a portion of the Class A Preferred Stock owned by them and received in exchange therefor a total of 3,453,268 shares of Common Stock. These shares were issued without registration under the Securities Act in reliance on an exemption contained in Section 3(a)(9). (e) On July 11, 1997 pursuant to employment-related agreements entered into with three employees of the Registrant, the Registrant issued to such employees a total of 1,900,000 shares of Common Stock at a purchase price of $.01 per share for an aggregate consideration of $1,900. These shares were issued without registration under the Securities Act in reliance on an exemption from registration under Section 4(2). (f) Effective as of July 17, 1997, the Registrant amended its Articles of Incorporation to increase the number of authorized shares of Common Stock to 100,000,000 and to change the par value of the Common Stock and the Class A Preferred Stock to $.001 per share. As a result of the split of the Common Stock, each share of Class A Preferred Stock was convertible into four shares of Common Stock as of July 17, 1997. Also on July 17, 1997, the Registrant declared a four-for-one stock split of Common Stock and issued 23,859,804 shares of Common Stock to the holders of Common Stock as of such date. These shares were issued without registration under the Securities Act in reliance on an exemption contained in Section 3(a)(9). II-2 (g) On July 31, 1997 pursuant to an employment-related agreement entered into with John F. Brennan, the Registrant's Executive Vice President, Acquisitions and Strategic Planning, the Registrant issued 280,000 shares to Mr. Brennan at a purchase price of $.0025 per share for an aggregate consideration of $700. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). (h) On August 1, 1997, in connection with the merger Relational Technologies, Inc. ("RTI") into the Registrant, the Registrant issued 2,441,400 shares of Common Stock to the eight former shareholders of RTI in exchange for (i) all of the issued and outstanding capital stock of RTI and (ii) with respect to 996,500 of such shares, for additional consideration in the amount of $.0025 per share for an aggregate consideration of $2,491.25. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). (i) In October 1997, the Registrant issued 888,000 shares of Common Stock to the sole former shareholder of The Hackett Group, Inc. (the "Hackett Group") at a purchase price of $.0025 per share for an aggregate consideration of $2,220 in connection with the acquisition by the Registrant of Hackett Group. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). (j) Also in October 1997, the Registrant issued a total of 484,000 shares of Common Stock to six employees of the Hackett Group at a purchase price of $.0025 per share for an aggregate consideration of $1,210 pursuant to employment agreements entered into with each of such persons in connection with the acquisition by the Registrant of Hackett Group. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). (k) Also in October 1997, the Registrant issued 80,000 shares of Common Stock to two individuals pursuant to a financial services agreement among the Registrant and such persons in exchange for (i) financial advisory services rendered to the Registrant by such persons in connection with the acquisition of the Hackett Group and (ii) payment of a purchase price of $.0025 per share for an aggregate consideration of $200. These shares were issued without registration under the Securities Act in reliance upon an exception from registration under Section 4(2). (l) On November 12, 1997, the Registrant issued a total of 1,120,000 shares of Common Stock to eight former shareholders of Delphi Partners, Inc. ("Delphi") at a purchase price of $.0025 per share for an aggregate consideration of $2,800 in connection with the acquisition by the Registrant of Delphi which became a wholly owned subsidiary of the Registrant as of such date. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). (m) Also on November 12, 1997, the Registrant issued 7,500 shares of Common Stock to a financial advisory firm in exchange for (i) financial advisory services rendered to the Registrant by such firm in connection with the acquisition of Delphi and (ii) payment of a purchase price of $.0025 per share for an aggregate consideration of $18.75. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). (n) On February 24, 1998, the Registrant issued to GTCR V, MG, GTCR Associates V, ("GTCR Associates") and Miller Capital Management, Inc., ("Miller Capital"), a total of 200,000 shares of Class A Preferred Stock at a purchase price of $3.00 per share for an aggregate consideration of $600,000 pursuant to a purchase agreement among the Registrant and such persons. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). II-3 (o) On March 5, 1998, the Registrant issued 33,333 shares of Class B Convertible Preferred Stock, par value $.001 per share (the "Class B Preferred Stock" and, together with the Class A Preferred Stock, the "Convertible Preferred Stock"), to FSC Corp., a Massachusetts corporation and an affiliate of BankBoston, N.A. ("FSC"), at a purchase price of $15.00 per share for an aggregate consideration of $499,995. Each share of Class B Preferred Stock is convertible into four shares of Common Stock. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2) of the Securities Act. (p) On March 27, 1998, the Registrant issued 6,640,000 shares of fully vested Common Stock in exchange for 6,640,000 shares of Common Stock which previously had been issued to certain of the Registrant's directors and employees (including Messrs. Fernandez, Frank, Knotts, Brennan and Miller) and which were subject to certain vesting requirements. These shares were issued without registration under the Securities Act in reliance on an exception confirmed in Section 3(a)(9). Also on March 27, 1998, the Registrant canceled 400,000 shares of Common Stock which had previously been issued to certain employees of the Registrant. (q) Between July 22, 1997 and April 3, 1998, pursuant to employment agreements and restricted stock agreements, the Registrant issued a total of 9,732,412 shares of Common Stock at a purchase price of $.0025 per share to certain of its employees for an aggregate consideration of $24,331.03. The Registrant subsequently repurchased 46,300 of these shares at a purchase price of $.0025 per share for a total purchase price of $115.75. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 3(b) thereof and Rule 504 of Regulation D promulgated thereunder. (r) On May 5, 1998, the Registrant declared a one-for-two reverse stock split of all of its capital stock.As a result of this stock split, all shares of the Registrant's Common Stock, Class A Preferred Stock and Class B Preferred Stock were exchanged for one-half the number of such shares outstanding of each respective class prior to the stock split, excluding fractional shares resulting from such stock split, which will be redeemed by the Registrant for cash. These shares were issued without registration under the Securities Act in reliance on an exemption contained in Section 3(a)(9). (s) On May 20, 1998, the Registrant issued 269,166 shares of Common Stock to the former stockholders of Legacy Technology, Inc. ("Legacy") in connection with the Registrant's acquisition of Legacy. These shares were issued without registration under the Securities Act in reliance upon an exemption from registration under Section 4(2). Each of the foregoing transactions was, or will be, effected without an underwriter. II-4 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits 1.1+ Form of Underwriting Agreement 3.1+ Second Amended and Restated Articles of Incorporation of the Registrant 3.2 Form of Amended and Restated Bylaws of the Registrant 5.1 Opinion of Hogan & Hartson L.L.P. 9.1+ Shareholders Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, the Miller Group, Messrs. Fernandez, Frank, Knotts and Miller and certain other shareholders of the Registrant parties thereto 9.2+ Amendment No. 1 to Shareholders Agreement dated February 24, 1998 9.3+ Letter Agreement dated as of March 15, 1998 to amend Shareholders Agreement 9.4+ Form of Restricted Securities Agreement dated April 23, 1997 among the Initial Investors and each of Messrs. Fernandez, Frank, Knotts and Miller 10.1+ Purchase Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, Gator and Tara 10.2+ Series A Preferred Stock Purchase Agreement dated February 24, 1998 among the Registrant, GTCR V, GTCR Associates and Miller Capital 10.3+ Stock Purchase Agreement dated March 5, 1998 between the Registrant and FSC 10.4 Second Amended and Restated Registration Rights Agreement dated as of May 5, 1998 among the Registrant, GTCR V, MG, GTCR Associates, Miller Capital, FSC, Messrs. Fernandez, Frank, Knotts and Miller and certain other shareholders of the Registrant named therein 10.5 Second Amended and Restated Registration Rights Agreement dated as of May 5, 1998 among the Registrant and the eight former shareholders of RTI 10.6+ Revolving Credit Agreement dated as of November 7, 1997 among the Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as agent 10.7+ Agreement and Plan of Merger dated as of August 1, 1997 among the Registrant, RTI and all of the shareholders of RTI 10.8+ Stock Purchase Agreement dated as of October 13, 1997 by and between the Registrant and Gregory P. Hackett relating to the acquisition of Hackett Group 10.9+ Amendment No. 1 dated March 12, 1998 to Stock Purchase Agreement dated as of October 13, 1997 by and between the Registrant and Gregory P. Hackett relating to the acquisition of Hackett Group 10.10+ Stock Purchase Agreement dated as of November 12, 1997 by and between the Registrant and the shareholders of Delphi relating to the acquisition of Delphi 10.11+ Registrant's 1998 Stock Option and Incentive Plan 10.12+ Form of Senior Management Agreement dated April 23, 1997 between the Registrant and each of Messrs. Fernandez, Frank and Knotts 10.13+ Senior Management Agreement dated April 23, 1997 between the Registrant and Mr. Miller 10.14 Form of Employment Agreement to be entered into between the Registrant and each of Messrs. Fernandez, Frank and Knotts 10.15+ Employment Agreement dated July 22, 1997 between the Registrant and Mr. San Miguel 10.16+ Restricted Stock Agreement dated July 22, 1997 between the Registrant and Mr. San Miguel 10.17 Form of Employment Agreement to be entered into between the Registrant and Mr. San Miguel 10.18+ Confidential Settlement Agreement dated as of May 21, 1998 between KPMG Peat Marwick LLP, on the one hand, and the Registrant, certain officers and employees of the Registrant, Mr. Miller and Miller Capital, on the other 10.19 Amendment No. 2 dated as of May 5, 1998 to Purchase Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, Gator and Tara 10.20+ Amendment No. 2 dated as of May 5, 1998 to Stock Purchase Agreement dated March 5, 1998 between the Registrant and FSC 10.21 Amendment No. 2 dated as of May 5, 1998 to Agreement and Plan of Merger dated as of August 1, 1997 among the Registrant, RTI and all of the shareholders of RTI 10.22+ Amendment to certain Senior Management Agreements dated March 27, 1998, among the Company, the Board of Directors and each of Messrs. Fernandez, Frank, Knotts and Miller 10.23 Agreement and Plan of Merger among the Registrant, the Registrant Acquisition Sub, Legacy and the shareholders of Legacy 10.24+ First Amendment to Revolving Credit Agreement dated as of April 3, 1998, by and among the Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as agent 10.25 Second Amendment to Revolving Credit Agreement dated as of May 20, 1998 by and among the Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as agent 10.26 Amendment No. 1 dated as of May 18, 1998 to Agreement and Plan of Merger among the Registrant, the Registrant Acquisition Sub, Legacy and the Shareholders of Legacy 10.27 Form of Termination of Senior Management Agreement by and among the Registrant, Mr. Miller and the Board of Directors 10.28 Form of Second Amendment to Certain Senior Management Agreements among the Company, the Board of Directors and each of Messrs. Fernandez, Frank and Knotts 21.1+ Subsidiaries of the Registrant 23.1 Consent of Coopers & Lybrand L.L.P. (Registrant's financial statements) 23.2 Consent of Coopers & Lybrand L.L.P. (financial statements of Delphi, Hackett Group, RTI and Legacy) 23.3+ Form of Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1) 24.1 Power of Attorney (see page II-8) 27.1+ Financial Data Schedule (period April 23, 1997 to January 2, 1998) 27.2+ Financial Data Schedule (period January 2, 1998 to April 3, 1998)
- - -------- + Previously filed. * To be filed by amendment. II-5 (b) Financial Statement Schedules Schedules have been omitted because the information required to be set forth therein is not applicable or is included elsewhere in the Financial Statements or the notes thereto. ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as may be required by the underwriter to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 14 of this Registration Statement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on the 22nd day of May, 1998. ANSWERTHINK CONSULTING GROUP, INC. By: /s/ Ted A. Fernandez ---------------------------------- Ted A. Fernandez President, Chief Executive Officer and Chairman II-7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ted A. Fernandez and Luis E. San Miguel, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, from such person and in each person's name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement or any Registration Statement relating to this Registration Statement under Rule 462 and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. NAME TITLE DATE ---- ----- ---- /s/ Ted A. Fernandez President, Chief May 22, 1998 - - ------------------------------------- Executive Officer and TED A. FERNANDEZ Chairman (Principal Executive Officer) /s/ Luis E. San Miguel Executive Vice May 22, 1998 - - ------------------------------------- President, Finance LUIS E. SAN MIGUEL and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Allan R. Frank Executive Vice May 22, 1998 - - ------------------------------------- President, Chief ALLAN R. FRANK Technology Officer and Director /s/ Ulysses S. Knotts, III Executive Vice May 22, 1998 - - ------------------------------------- President, Sales and ULYSSES S. KNOTTS, III Marketing and Director /s/ Fernando Montero Director May 22, 1998 - - ------------------------------------- FERNANDO MONTERO /s/ Edmund R. Miller Director May 22, 1998 - - ------------------------------------- EDMUND R. MILLER /s/ Bruce Rauner Director May 22, 1998 - - ------------------------------------- BRUCE RAUNER /s/ William C. Kessinger Director May 22, 1998 - - ------------------------------------- WILLIAM C. KESSINGER
II-8 EXHIBIT INDEX 1.1+ Form of Underwriting Agreement 3.1+ Second Amended and Restated Articles of Incorporation of the Registrant 3.2 Form of Amended and Restated Bylaws of the Registrant 5.1 Opinion of Hogan & Hartson L.L.P. 9.1+ Shareholders Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, the Miller Group, Messrs. Fernandez, Frank, Knotts and Miller and certain other shareholders of the Registrant parties thereto 9.2+ Amendment No. 1 to Shareholders Agreement dated February 24, 1998 9.3+ Letter Agreement dated as of March 15, 1998 to amend Shareholders Agreement 9.4+ Form of Restricted Securities Agreement dated April 23, 1997 among the Initial Investors and each of Messrs. Fernandez, Frank, Knotts and Miller 10.1+ Purchase Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, Gator and Tara 10.2+ Series A Preferred Stock Purchase Agreement dated February 24, 1998 among the Registrant, GTCR V, GTCR Associates and Miller Capital 10.3+ Stock Purchase Agreement dated March 5, 1998 between the Registrant and FSC 10.4 Second Amended and Restated Registration Rights Agreement dated as of May 5, 1998 among the Registrant, GTCR V, MG, GTCR Associates, Miller Capital, FSC, Messrs. Fernandez, Frank, Knotts and Miller and certain other shareholders of the Registrant named therein 10.5 Second Amended and Restated Registration Rights Agreement dated as of May 5, 1998 among the Registrant and the eight former shareholders of RTI 10.6+ Revolving Credit Agreement dated as of November 7, 1997 among the Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as agent 10.7+ Agreement and Plan of Merger dated as of August 1, 1997 among the Registrant, RTI and all of the shareholders of RTI 10.8+ Stock Purchase Agreement dated as of October 13, 1997 by and between the Registrant and Gregory P. Hackett relating to the acquisition of Hackett Group 10.9+ Amendment No. 1 dated March 12, 1998 to Stock Purchase Agreement dated as of October 13, 1997 by and between the Registrant and Gregory P. Hackett relating to the acquisition of Hackett Group 10.10+ Stock Purchase Agreement dated as of November 12, 1997 by and between the Registrant and the shareholders of Delphi relating to the acquisition of Delphi 10.11+ Registrant's 1998 Stock Option and Incentive Plan 10.12+ Form of Senior Management Agreement dated April 23, 1997 between the Registrant and each of Messrs. Fernandez, Frank and Knotts 10.13+ Senior Management Agreement dated April 23, 1997 between the Registrant and Mr. Miller 10.14 Form of Employment Agreement to be entered into between the Registrant and each of Messrs. Fernandez, Frank and Knotts 10.15+ Employment Agreement dated July 22, 1997 between the Registrant and Mr. San Miguel 10.16+ Restricted Stock Agreement dated July 22, 1997 between the Registrant and Mr. San Miguel 10.17 Form of Employment Agreement to be entered into between the Registrant and Mr. San Miguel 10.18+ Confidential Settlement Agreement dated as of May 21, 1998 between KPMG Peat Marwick LLP, on the one hand, and the Registrant, certain officers and employees of the Registrant, Mr. Miller and Miller Capital, on the other 10.19 Amendment No. 2 dated as of May 5, 1998 to Purchase Agreement dated April 23, 1997 among the Registrant, GTCR V, MG, Gator and Tara 10.20+ Amendment No. 2 dated as of May 5, 1998 to Stock Purchase Agreement dated March 5, 1998 between the Registrant and FSC 10.21 Amendment No. 2 dated as of May 5, 1998 to Agreement and Plan of Merger dated as of August 1, 1997 among the Registrant, RTI and all of the shareholders of RTI 10.22+ Amendment to certain Senior Management Agreements dated March 27, 1998, among the Company, the Board of Directors and each of Messrs. Fernandez, Frank, Knotts and Miller 10.23 Agreement and Plan of Merger among the Registrant, Registrant Acquisition Sub, Legacy and the shareholders of Legacy 10.24+ First Amendment to Revolving Credit Agreement dated as of April 3, 1998, by and among the Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as agent 10.25 Second Amendment to Revolving Credit Agreement dated as of May 20, 1998 by and among the Registrant, BankBoston, N.A. and certain other lenders party thereto and BankBoston, N.A. as agent 10.26 Amendment No. 1 dated as of May 18, 1998 to Agreement and Plan of Merger among the Registrant, the Registrant Acquisition Sub, Legacy and the Shareholders of Legacy 10.27 Form of Termination of Senior Management Agreement by and among the Registrant, Mr. Miller and the Board of Directors 10.28 Form of Second Amendment to Certain Senior Management Agreements among the Company, the Board of Directors and each of Messrs. Fernandez, Frank and Knotts 21.1+ Subsidiaries of the Registrant 23.1 Consent of Coopers & Lybrand L.L.P. (Registrant's financial statements) 23.2 Consent of Coopers & Lybrand L.L.P. (financial statements of Delphi, Hackett Group, RTI and Legacy) 23.3+ Form of Consent of Hogan & Hartson L.L.P. (included in Exhibit 5.1) 24.1 Power of Attorney (see page II-8) 27.1+ Financial Data Schedule (period April 23, 1997 to January 2, 1998) 27.2+ Financial Data Schedule (period January 2, 1998 to April 3, 1998)
- - -------- + Previously filed. * To be filed by amendment. EX-3.2 2 EXHIBIT 3.2 Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF ANSWERTHINK CONSULTING GROUP, INC. 1. OFFICES 1.1. REGISTERED OFFICE AND AGENT The registered office of the Corporation shall be as designated from time to time by the appropriate filing by the Corporation in the office of the Secretary of State of the State of Florida. 1.2. OTHER OFFICES The Corporation may also have offices at such other places, both within and without the State of Florida, as the Board of Directors of the Corporation (the "BOARD") may from time to time determine or as the business of the Corporation may require. 2. MEETINGS OF SHAREHOLDERS 2.1. PLACE OF MEETINGS All meetings of the shareholders shall be held at such place as may be fixed from time to time by the Board, the Chairman or the President. 2.2. ANNUAL MEETINGS (a) The Corporation shall hold annual meetings of shareholders, commencing with the year 1999, on such date and at such time as shall be designated from time to time by the Board, the Chairman or the President. At each annual meeting, the shareholders shall elect by a plurality vote (as provided in SECTION 2.9 hereof) directors to succeed those whose terms expire at the time of the annual meeting. The nomination of persons for election to the Board and the proposal of any other business to be transacted at an annual meeting may be made only (i) by or at the direction of the Board or (ii) by any shareholder of record who gives notice in accordance with the procedures set forth in paragraph (b) of this SECTION 2.2 and who is a shareholder of record both on the date of giving such notice and on the record date for the determination of shareholders entitled to vote at such annual meeting; only persons thereby nominated shall be eligible to serve as directors and only business thereby proposed shall be transacted at an annual meeting. The presiding officer of the annual meeting shall determine whether a nomination or any proposal of business complies or complied with this SECTION 2.2. (b) For nominations and other business to be brought properly before an annual meeting by a shareholder pursuant to clause (ii) of paragraph (a) of this SECTION 2.2, the shareholder must deliver notice to the Secretary of the Corporation at the principal executive offices of the Corporation in accordance with this SECTION 2.2(B). The notice must be received by the Secretary not less than 60 days nor more than 90 days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the -------- ------- date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, the shareholder must so deliver the notice not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 60th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made; provided further, however, that in the event -------- ------- ------- that the number of directors to be elected to the Board is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board made by the Corporation at least 70 days prior to the first anniversary of the preceding annual meeting, with respect to nominees for any new position created by the increase, the shareholder must so deliver the notice not later than the close of business on the tenth day following the day on which such public announcement is first made. The shareholder's notice must set forth: (i) as to each person whom the shareholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Section 14(a) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules and regulations thereunder (together with such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected), whether or not the Corporation is then subject to Section 14(a) and such rules and regulations; (ii) as to any other business that the shareholder proposes to transact at the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting the business at the meeting and any material interest in the business of the shareholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, the name and address of the shareholder, as they appear on the Corporation's books, and of such beneficial - 2 - owner, the class and number of shares of the Corporation that are owned beneficially and of record by such shareholder and such beneficial owner and a representation that the shareholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting. For purposes of this SECTION 2.2 and SECTION 2.3 hereof, a "public announcement" means disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable news service, in a document publicly filed with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act (or their successor provisions), or in a notice of meeting or proxy statement mailed generally to the Corporation's shareholders. In giving notice under this SECTION 2.2, a shareholder must also comply with state law and the Exchange Act (and the rules and regulations thereunder). Nothing in this SECTION 2.2 shall be deemed to affect the rights of a shareholder to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 (or its successor provision) under the Exchange Act. 2.3. SPECIAL MEETINGS Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called only by the Board, the Chairman or the President or by the shareholders as set forth in the Corporation's Articles of Incorporation (as amended and amended and restated from time to time, the "ARTICLES OF INCORPORATION"). Business transacted at any special meeting of shareholders shall be limited to the purposes stated in the notice relating to such meeting (or to the purposes for which the meeting is called if such notice is waived or is not required as provided in the Florida Business Corporation Act (the "FLORIDA BUSINESS CORPORATION ACT") or these Bylaws). In the case of a special meeting of shareholders called for the purpose of electing directors, nominations may be made only (i) by or at the direction of the Board or (ii) by any shareholder of record who delivers to the Secretary, no later than the tenth day following the day on which public announcement of the special meeting is made, a notice that complies with and is delivered in accordance with SECTION 2.2(B) above. 2.4. NOTICE OF MEETINGS Written notice of any meeting of shareholders, stating the place, date and hour of the meeting, and (if it is a special meeting) the purpose or purposes for which the meeting is called, shall be given to each shareholder entitled to vote at such meeting not less than ten nor more than 60 days before the date of the meeting (except to the extent that such notice is waived or is not required as provided in the Florida Business Corporation Act or these Bylaws). Such notice shall be given in - 3 - accordance with, and shall be deemed effective as set forth in, Section 687.084 (or any successor section) of the Florida Business Corporation Act. 2.5. WAIVERS OF NOTICE Whenever the giving of any notice is required by statute, the Articles of Incorporation or these Bylaws, a waiver thereof, in writing and delivered to the Corporation, signed by the person or persons entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance of a shareholder at a meeting shall constitute a waiver of notice (1) of such meeting, except when the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting, and (2) (if it is a special meeting) of consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter at the beginning of the meeting. 2.6. LIST OF SHAREHOLDERS After the record date for a meeting of shareholders has been fixed, at least ten days before such meeting, the officer or other agent of the Corporation who has charge of the stock ledger of the Corporation shall make a list of all shareholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place in the city where the meeting is to be held, which place is to be specified in the notice of the meeting, or at the place where the meeting is to be held. Such list shall also, for the duration of the meeting, be produced and kept open to the examination of any shareholder who is present at the time and place of the meeting. 2.7. QUORUM AT MEETINGS Shareholders may take action on a matter at a meeting only if a quorum exists with respect to that matter. Except as otherwise provided by statute or by the Articles of Incorporation, a quorum shall exist if there are present in person or represented by proxy the holders of a majority of the shares entitled to vote at the meeting. Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. Once a share is represented for any purpose at a meeting (other than solely to object (1) to holding the meeting or transacting - 4 - business at the meeting or (2) (if it is a special meeting) to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice), it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for the adjourned meeting. The holders of a majority of the voting shares represented at a meeting, whether or not a quorum is present, may adjourn such meeting from time to time. 2.8. VOTING AND PROXIES Unless otherwise provided in the Florida Business Corporation Act or in the Articles of Incorporation, and subject to the other provisions of these Bylaws, each shareholder shall be entitled to one vote on each matter, in person or by proxy, for each share of the Corporation's capital stock that has voting power and that is held by such shareholder. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed appointment of proxy shall be irrevocable if the appointment form states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. 2.9. REQUIRED VOTE When a quorum is present at any meeting of shareholders, all matters shall be determined, adopted and approved by the affirmative vote (which need not be by ballot) of the holders of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote with respect to the matter, unless the proposed action is one upon which, by express provision of statutes or of the Articles of Incorporation, a different vote is specified and required, in which case such express provision shall govern and control with respect to that vote on that matter. Where a separate vote by a class or classes is required, the affirmative vote of the holders of a majority of the shares of such class or classes present in person or represented by proxy at the meeting shall be the act of such class. Notwithstanding the foregoing, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. 2.10. INSPECTORS Prior to any meeting of shareholders, the Board or the President shall appoint one or more inspectors to act at such meeting and make a written report thereof and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at the - 5 - meeting of shareholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall ascertain the number of shares outstanding and the voting power of each, determine the shares represented at the meeting and the validity of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. The inspectors may appoint or retain other persons to assist them in the performance of their duties. The date and time of the opening and closing of the polls for each matter upon which the shareholders will vote at a meeting shall be announced at the meeting. No ballot, proxy or vote, nor any revocation thereof or change thereto, shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted therewith, any information provided by a shareholder who submits a proxy by telegram, cablegram or other electronic transmission from which it can be determined that the proxy was authorized by the shareholder, ballots and the regular books and records of the Corporation, and they may also consider other reliable information for the limited purposes of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons that represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the shareholder holds of record. If the inspectors consider other reliable information for such purpose, they shall, at the time they make their certification, specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors' belief that such information is accurate and reliable. 3. DIRECTORS 3.1. POWERS The business and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things, subject to any limitation set forth in the Articles of Incorporation or as otherwise may be provided in the Florida Business Corporation Act. - 6 - 3.2. NUMBER AND ELECTION Within the limits set forth in the Articles of Incorporation, the number of directors shall be determined by resolution of the Board. The directors shall be elected at the annual meeting of the shareholders in accordance with the Articles of Incorporation. Vacancies on the Board shall be filled in accordance with the Articles of Incorporation. Once elected or chosen pursuant to the Articles of Incorporation, a director shall hold office until the director's successor is elected and qualified or until the director dies, resigns or is removed; provided, however, that if the Board decreases the number ----------------- of directors constituting the Board and designates a particular directorship to be eliminated due to the decrease, a director in the eliminated directorship shall cease to hold office after the next election of such directorship, unless the director is nominated and elected to another directorship on the Board. 3.3. MEETINGS 3.3.1. REGULAR MEETINGS Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board. 3.3.2. SPECIAL MEETINGS Special meetings of the Board may be called by the Chairman or President on one day's notice to each director, either personally or by telephone, express delivery service (so that the scheduled delivery date of the notice is at least one day in advance of the meeting), telegram or facsimile transmission, and on five days' notice by mail (effective upon deposit of such notice in the mail). The notice need not describe the purpose of a special meeting. 3.3.3. TELEPHONE MEETINGS Members of the Board may participate in a meeting of the Board by any communication by means of which all participating directors can simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting. 3.3.4. ACTION WITHOUT MEETING Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents describing - 7 - the action taken, signed by each director, and delivered to the Corporation for inclusion in the minute book. 3.3.5. WAIVER OF NOTICE OF MEETING A director may waive any notice required by statute, the Articles of Incorporation or these Bylaws before or after the date and time stated in the notice. Except as set forth below, the waiver must be in writing, signed by the director entitled to the notice, and delivered to the Corporation for inclusion in the minute book. Notwithstanding the foregoing, a director's attendance at or participation in a meeting waives any required notice to the director of the meeting unless the director at the beginning of the meeting objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. 3.4. QUORUM AND VOTE AT MEETINGS At all meetings of the Board, a quorum of the Board consists of a majority of the total number of directors comprising the full Board as established pursuant to SECTION 3.2 of these Bylaws. The vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board, except as may be otherwise specifically provided by statute or by the Articles of Incorporation or by these Bylaws. 3.5. COMMITTEES OF DIRECTORS The Board may designate one or more committees, each committee to consist of two or more directors who serve at the pleasure of the Board. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If a member of a committee is absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by unanimous vote, appoint another member of the Board to act at the meeting in the place of such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, and to the extent permitted by law and the Articles of Incorporation, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers that may require that such seal be affixed. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board. Each committee shall keep regular minutes of its meetings and report - 8 - the same to the Board, when required. Unless otherwise specified in the Board resolution appointing the Committee, all provisions of the Florida Business Corporation Act and these Bylaws relating to meetings, action without meetings, notice (and waiver thereof) and quorum and voting requirements of the Board apply, as well, to such committees and their members. 3.6. COMPENSATION OF DIRECTORS The Board shall have the authority to fix the compensation of directors. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 4. OFFICERS 4.1. POSITIONS The officers of the Corporation shall be a Chairman, a President and a Secretary, and such other officers as the Board (or an officer authorized by the Board) from time to time may appoint, including a Treasurer, one or more Vice Presidents (any of whom may be designated Senior Vice President or Executive Vice President), Assistant Secretaries and Assistant Treasurers. Each such officer shall exercise such powers and perform such duties as shall be set forth below and such other powers and duties as from time to time may be specified by the Board or by any officer(s) authorized by the Board to prescribe the duties of such other officers. Any number of offices may be held by the same person, except that in no event shall the President and the Secretary be the same person. Each of the Chairman, President and/or any Vice President may execute bonds, mortgages, contracts and other instruments and documents under the seal of the Corporation, if required, except where required or permitted by law to be otherwise executed and except where the execution thereof shall be expressly delegated by the Board to some other officer or agent of the Corporation. 4.2. CHAIRMAN The Chairman shall (when present and unless otherwise provided by resolution of the Board or delegated by the Chairman) preside at all meetings of the Board and shareholders, and shall ensure that all orders and resolutions of the Board and shareholders are carried into effect. - 9 - 4.3. PRESIDENT The President shall be the Chief Executive Officer of the Corporation and shall have full responsibility and authority for management of the operations of the Corporation and shall have and perform such other duties as may be prescribed by the shareholders, the Board or the Executive Committee (if any). 4.4. VICE PRESIDENT In the absence of the President or in the event of the President's inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. Unless the order is otherwise designated, an Executive Vice President shall come in order before any Senior Vice President and any Vice President, and a Senior Vice President shall come in order before any Vice President. 4.5. SECRETARY The Secretary shall have responsibility for preparation of minutes of meetings of the Board and of the shareholders and for authenticating records of the Corporation. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board. The Secretary or an Assistant Secretary may also attest all instruments signed by any other officer of the Corporation. 4.6. ASSISTANT SECRETARY The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of the Secretary's inability or refusal to act, perform the duties and exercise the powers of the Secretary. 4.7. TREASURER The Treasurer, if one is appointed, shall have responsibility for the custody of the corporate funds and securities and shall see to it that full and accurate accounts of receipts and disbursements are kept in books belonging to the Corporation. The Treasurer, if one is appointed, shall render to the Chairman, the - 10 - President and the Board, upon request, an account of all financial transactions and of the financial condition of the Corporation. 4.8. ASSISTANT TREASURER The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of the Treasurer's inability or refusal to act, perform the duties and exercise the powers of the Treasurer. 4.9. TERM OF OFFICE The officers of the Corporation shall hold office until their successors are chosen and qualify or until their earlier resignation or removal. Any officer may resign at any time upon written notice to the Corporation. Any officer elected or appointed by the Board may be removed at any time, with or without cause, by the affirmative vote of a majority of the Board. 4.10. COMPENSATION The compensation of officers of the Corporation shall be fixed by the Board or by any officer(s) authorized by the Board to prescribe the compensation of such other officers. 4.11. FIDELITY BONDS The Corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 5. CAPITAL STOCK 5.1. CERTIFICATES OF STOCK; UNCERTIFICATED SHARES The shares of the Corporation shall be represented by certificates, provided that the Board may provide by resolution that some or all of any or all classes or series of the Corporation's stock be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board, every holder of stock represented by certificates, and upon request every holder of uncertificated shares, shall be entitled to have a certificate - 11 - (representing the number of shares registered in certificate form) signed in the name of the Corporation by the Chairman, President or any Vice President, and by the Treasurer, Secretary or any Assistant Treasurer or Assistant Secretary of the Corporation. Any or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar whose signature or facsimile signature appears on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 5.2. LOST CERTIFICATES The Board, Chairman, President or Secretary may direct a new certificate of stock to be issued in place of any certificate theretofore issued by the Corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming that the certificate of stock has been lost, stolen or destroyed. When authorizing such issuance of a new certificate, the Board or any such officer may, as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner's legal representative, to advertise the same in such manner as the Board or such officer shall require and/or to give the Corporation a bond or indemnity, in such sum or on such terms and conditions as the Board or such officer may direct, as indemnity against any claim that may be made against the Corporation on account of the certificate alleged to have been lost, stolen or destroyed or on account of the issuance of such new certificate or uncertificated shares. 5.3. RECORD DATE 5.3.1. ACTIONS BY SHAREHOLDERS In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 days nor less than ten days before the date of such meeting. If no record date is fixed by the Board, the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting, unless the Board fixes a new record date for the adjourned meeting. - 12 - 5.3.2. PAYMENTS In order that the Corporation may determine the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. 5.4. SHAREHOLDERS OF RECORD The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to receive notifications, to vote as such owner and to exercise all the rights and powers of an owner. The Corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise may be provided by the Florida Business Corporation Act. 6. INDEMNIFICATION; INSURANCE 6.1. AUTHORIZATION OF INDEMNIFICATION Each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether by or in the right of the Corporation or otherwise (a "PROCEEDING"), by reason of the fact that he or she is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, including service with respect to an employee benefit plan, shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the Corporation (and any successor to the Corporation by merger or otherwise) to the fullest extent authorized by, and subject to the conditions and (except as provided herein) procedures set forth in the Florida Business Corporation Act, as the same exists or may hereafter be amended (but any such amendment shall not be deemed to limit or prohibit the rights of indemnification hereunder for past acts or omissions of any such person insofar as - 13 - such amendment limits or prohibits the indemnification rights that said law permitted the Corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA taxes or penalties and amounts paid or to be paid in settlement) actually and reasonably incurred or suffered by such person in connection therewith if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe such person's conduct was unlawful; provided, however, that the Corporation shall -------- ------- indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person (except for a suit or action pursuant to SECTION 6.2 hereof) only if such proceeding (or part thereof) was authorized by the Board. Persons who are not directors or officers of the Corporation and are not so serving at the request of the Corporation may be similarly indemnified in respect of such service to the extent authorized at any time by the Board. The indemnification conferred in this SECTION 6.1 also shall include the right to be paid by the Corporation (and such successor) the expenses (including attorneys' fees) incurred in the defense of or other involvement in any such proceeding in advance of its final disposition; provided, however, that, if and to the extent the Florida Business - - -------- ------- Corporation Act requires, the payment of such expenses (including attorneys' fees) incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the Corporation of an undertaking by or on behalf of such director or officer to repay all amounts so paid in advance if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this SECTION 6.1 or otherwise; and provided -------- further, that such expenses incurred by other employees and agents may be so - - ------- paid in advance upon such terms and conditions, if any, as the Board deems appropriate. 6.2. RIGHT OF CLAIMANT TO BRING ACTION AGAINST THE CORPORATION If a claim under SECTION 6.1 is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring an action against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct that make it permissible under the Florida Business Corporation Act for the Corporation to indemnify the claimant for the amount claimed or is otherwise not entitled to indemnification under SECTION 6.1, but the burden of proving such - 14 - defense shall be on the Corporation. The failure of the Corporation to have made a determination (in the manner provided under the Florida Business Corporation Act) prior to or after the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Florida Business Corporation Act shall not be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Unless otherwise specified in an agreement with the claimant, an actual determination by the Corporation (in the manner provided under the Florida Business Corporation Act) after the commencement of such action that the claimant has not met such applicable standard of conduct shall not be a defense to the action, but shall create a presumption that the claimant has not met the applicable standard of conduct. 6.3. NON-EXCLUSIVITY The rights to indemnification and advance payment of expenses provided by SECTION 6.1 hereof shall not be deemed exclusive of any other rights to which those seeking indemnification and advance payment of expenses may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 6.4. SURVIVAL OF INDEMNIFICATION The indemnification and advance payment of expenses and rights thereto provided by, or granted pursuant to, SECTION 6.1 hereof shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee, partner or agent and shall inure to the benefit of the personal representatives, heirs, executors and administrators of such person. 6.5. INSURANCE The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee, partner (limited or general) or agent of another corporation or of a partnership, joint venture, limited liability company, trust or other enterprise, against any liability asserted against such person or incurred by such person in any such capacity, or arising out of such person's status as such, and related expenses, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of the Florida Business Corporation Act. - 15 - 7. GENERAL PROVISIONS 7.1. INSPECTION OF BOOKS AND RECORDS Any shareholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its shareholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a shareholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the shareholder. The demand under oath shall be directed to the Corporation at its registered office or at its principal place of business. 7.2. DIVIDENDS The Board may declare dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation and the laws of the State of Florida. 7.3. RESERVES The directors of the Corporation may set apart, out of the funds of the Corporation available for dividends, a reserve or reserves for any proper purpose and may abolish any such reserve. 7.4. EXECUTION OF INSTRUMENTS All checks, drafts or other orders for the payment of money and promissory notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board may from time to time designate. 7.5. FISCAL YEAR The fiscal year of the Corporation shall be fixed by resolution of the Board. - 16 - 7.6. SEAL The corporate seal shall be in such form as the Board shall approve. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. * * * * - 17 - EX-5.1 3 EXHIBIT 5.1 May 21, 1998 Board of Directors AnswerThink Consulting Group, Inc. 1401 Brickell Avenue Suite 350 Miami, Florida 33131 Ladies and Gentlemen: We are acting as counsel to AnswerThink Consulting Group, Inc., a Florida corporation (the "COMPANY"), in connection with its registration statement on Form S-1 (File No. 333-48123), as amended (the "REGISTRATION STATEMENT") filed with the Securities and Exchange Commission relating to the proposed public offering of up to 4,427,500 shares (including 577,500 shares to cover over allotments, if any) of the Company's common stock, par value $0.001 per share (the "SHARES"). This opinion letter is furnished to you at your request to enable you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. (S) 229.601(b)(5), in connection with the Registration Statement. For purposes of this opinion letter, we have examined copies of the following documents: 1. An executed copy of the Registration Statement. 2. The Second Amended and Restated Articles of Incorporation of the Company, as certified by the Secretary of State of the State of Florida on May 12, 1998 and by the Secretary of the Company on the date hereof as then being complete, accurate and in effect. 3. The Bylaws of the Company, as certified by the Secretary of the Company on the date hereof as then being complete, accurate and in effect. 4. The proposed form of Underwriting Agreement among the Company, certain selling shareholders and the several Underwriters to be named therein, for whom Morgan Stanley & Co. Incorporated, Donaldson, Lufkin & Jenrette Securities Corporation, The Robinson-Humphrey Company LLC and NationsBanc Montgomery Securities, LLC will act as representatives, filed as Exhibit 1.1 to the Registration Statement (the "UNDERWRITING AGREEMENT"). Board of Directors AnswerThink Consulting Group, Inc. May 21, 1998 Page 2 5. Resolutions of the Board of Directors of the Company adopted on May 5, 1998, as certified by the Secretary of the Company on the date hereof as then being complete, accurate and in effect, relating to the issuance and sale of the Shares and arrangements in connection therewith. In our examination of the aforesaid documents, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity, accuracy and completeness of all documents submitted to us, and the conformity with the original documents of all documents submitted to us as certified, telecopied, photostatic, or reproduced copies. This opinion letter is given, and all statements herein are made, in the context of the foregoing. This opinion letter is based as to matters of law solely on the Florida Business Corporation Act. We express no opinion herein as to any other laws, statutes, regulations, or ordinances. Based upon, subject to and limited by the foregoing, we are of the opinion that following (i) final action of the Board of Directors or of a Committee of the Board of Directors of the Company approving the price of the Shares, (ii) execution and delivery by the Company of the Underwriting Agreement, (iii) effectiveness of the Registration Statement, (iv) issuance of the Shares pursuant to the terms of the Underwriting Agreement and (v) receipt by the Company of the consideration for the Shares specified in the resolutions of the Board of Directors or a committee of the Board of Directors, the Shares will be validly issued, fully paid and nonassessable under the Florida Business Corporation Act. We assume no obligation to advise you of any changes in the foregoing subsequent to the delivery of this opinion letter. This opinion letter has been prepared solely for your use in connection with the filing of the Registration Statement on the date of this opinion letter and should not be quoted in whole or in part or otherwise be referred to, nor filed with or furnished to any governmental agency or other person or entity, without the prior written consent of this firm. We hereby consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the caption "Legal Matters" in the prospectus constituting a part of the Registration Statement. In giving this consent, we do not thereby admit that we are an "expert" within the meaning of the Securities Act of 1933, as amended. Very truly yours, /s/ Hogan & Hartson L.L.P. HOGAN & HARTSON L.L.P. EX-10.4 4 EXHIBIT 10.4 EXHIBIT 10.4 SECOND AMENDED AND RESTATED --------------------------- REGISTRATION RIGHTS AGREEMENT ----------------------------- (INVESTORS AND EXECUTIVES) THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT") is made as of May 5, 1998, by and among AnswerThink Consulting Group, Inc., a Florida corporation (the "COMPANY"), AnswerThink Consulting Group, Inc., a Delaware Corporation and wholly-owned subsidiary of the Company ("ACG-DELAWARE") and each of the shareholders listed on SCHEDULE 1 hereto (the "SHAREHOLDERS"). ---------- WHEREAS, the Company and the Shareholders entered into that certain Registration Agreement dated as of April 23, 1997 (the "PRIOR AGREEMENT") whereby the Shareholders had certain registration rights with respect to shares of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), owned or acquired by the Shareholders; WHEREAS, the Company, ACG-Delaware and the Shareholders entered into that certain Amended and Restated Registration Rights Agreement dated as of April 13, 1998 (the "AMENDMENT"), which amended and restated the Prior Agreement; WHEREAS, the "GTCR GROUP" consists of the Shareholders identified as such on SCHEDULE 1, and Registrable Securities (as hereinafter defined) held by the ---------- GTCR Group are referred to herein as "GTCR GROUP REGISTRABLE SECURITIES"; WHEREAS, the "MILLER GROUP" consists of the Shareholders identified as such on SCHEDULE 1, and Registrable Securities held by the Miller Group are referred ---------- to herein as "MILLER GROUP REGISTRABLE SECURITIES" (GTCR Group Registrable Securities and Miller Group Registrable Securities are referred to herein collectively as "INVESTOR REGISTRABLE SECURITIES"); WHEREAS, Registrable Securities held by Shareholders who are identified as "Executives" on SCHEDULE 1 are referred to herein as "EXECUTIVE REGISTRABLE ---------- SECURITIES"; WHEREAS, prior to the Effective Time, all shares of preferred stock of the Company will be converted into shares of Common Stock; WHEREAS, the Shareholders who are executing this Amended and Restated Registration Rights Agreement (the "REQUIRED SHAREHOLDERS") hold, collectively: (i) at least 70% of the "Registrable Securities," as such term is defined in the Prior Agreement; (ii) a majority of the GTCR Investor Registrable Securities; and (iii) a majority of the Miller Registrable Securities; WHEREAS, the Company, ACG-Delaware and the Required Shareholders desire to amend and restate the Amendment upon the terms and conditions set forth herein. NOW, THEREFORE, the Company, ACG-Delaware and the Required Shareholders hereby agree as follows: 1. EFFECTIVE TIME; TERMINATION OF PRIOR AGREEMENT. ---------------------------------------------- (A) EFFECTIVE TIME. This Amended and Restated Registration Rights -------------- Agreementshall be effective upon the signing of the underwriting agreement relating to the Company's initial public offering (the "EFFECTIVE TIME"). (B) TERMINATION OF PRIOR AGREEMENT. The Amendment shall be ------------------------------ terminated at the Effective Time. 2. DEMAND REGISTRATIONS. -------------------- (A) REQUESTS FOR REGISTRATION. At any time after the Effective Time ------------------------- and subject to SECTION 2(B), SECTION 2(C) and SECTION 2(E) below, the holders ------------ ------------ ------------ of a majority of the GTCR Group Registrable Securities and the holders of a majority of the Miller Group Registrable Securities may each request registration under the Securities Act of 1933, as amended (the "SECURITIES ACT"), of (x) all or any portion of their Registrable Securities on Form S-1 or any similar long-form registration ("LONG-FORM REGISTRATIONS") and (y) all or any portion of their Registrable Securities on Form S-2 or S-3 (including pursuant to Rule 415 under the Securities Act) or any similar short-form registration ("SHORT-FORM REGISTRATIONS") if available. All registrations requested pursuant to this SECTION 2(A) are referred to herein as "DEMAND ------------ REGISTRATIONS." Each request for a Demand Registration shall specify the approximate number of Registrable Securities requested to be registered and the anticipated per share price range for such offering. Within ten days after receipt of any such request, the Company shall give written notice of such requested registration to all other holders of Registrable Securities and, subject to SECTION 2(D) below, shall include in ------------ such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. "REGISTRABLE SECURITIES" means the shares of Common Stock held by the Shareholders at the Effective Time, together with any other shares of Common Stock issued or issuable with respect to said shares by way of a stock dividend or stock split or conversion or in connection with an exchange or combination of shares, recapitalization, merger, consolidation or other reorganization, and any other shares of Common Stock held by the Shareholders at any time. As to any -2- particular Registrable Securities, such securities shall cease to be Registrable Securities when they have been registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) ("RULE 144"). For purposes of this Amended and Restated Registration Rights Agreement, a person shall be deemed to be a holder of Registrable Securities whenever such person has the right to acquire such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise), whether or not such acquisition has actually been effected; provided, however, that such ----------------- acquisition must actually have been effected prior to the effective date of any registration statement which includes any Registrable Securities to be so acquired. (B) LONG-FORM REGISTRATIONS. The holders of a majority of ----------------------- the GTCR Group Registrable Securities and the holders of a majority of the Miller Group Registrable Securities shall each be entitled to request (i) two (2) Long-Form Registrations in which the Company shall pay all Registration Expenses (as hereinafter defined) ("COMPANY-PAID LONG-FORM REGISTRATIONS") and (ii) an unlimited number of Long-Form Registrations in which the holders of Registrable Securities shall pay their share of the Registration Expenses as set forth in SECTION 5 hereof. A registration shall not count as one of the --------- permitted Long-Form Registrations until it has become effective and no Company- paid Long-Form Registration shall count as one of the permitted Long-Form Registrations unless the holders of Registrable Securities are able to register and sell at least 90% of the Registrable Securities requested to be included in such registration; provided that in any event the Company shall pay all Registration Expenses in connection with any registration initiated as a Company-paid Long-Form Registration whether or not it has become effective and whether or not such registration has counted as one of the permitted Company- paid Long-Form Registrations. (C) SHORT-FORM REGISTRATIONS. In addition to the Long-Form ----------------------- Registrations provided pursuant to SECTION 2(B), the holders of a majority ------------ of the GTCR Group Registrable Securities and the holders of a majority of the Miller Group Registrable Securities shall each be entitled to request an unlimited number of Short-Form Registrations in which the Company shall pay all Registration Expenses. Demand Registrations shall be Short-Form Registrations whenever the Company is permitted to use any applicable short form. After the Company has become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), the Company shall use its best efforts to make Short-Form Registrations on Form S-3 available for the sale of Registrable Securities. (D) PRIORITY ON DEMAND REGISTRATIONS. The Company shall not -------------------------------- include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of a majority of both the GTCR Group Registrable Securities and the Miller Group Registrable -3- Securities. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing that in their opinion the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Registrable Securities and other securities, if any, which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the Registrable Securities initially requesting any Demand Registration pursuant to the first sentence of SECTION 2(A), without adversely affecting the ------------ marketability of the offering, the Company shall include in such registration prior to the inclusion of any securities which are not Registrable Securities the number of Registrable Securities requested to be included which in the opinion of such underwriters can be sold in an orderly manner within the price range of such offering, pro rata among the respective holders thereof on the basis of the amount of Registrable Securities owned by each such holder. Unless (i) the Company, (ii) the holders of a majority of the GTCR Group Registrable Securities and (iii) the holders of a majority of the Miller Group Registrable Securities otherwise agree in writing, any persons other than holders of Registrable Securities who participate in Demand Registrations which are not at the Company's expense must pay their share of the Registration Expenses as provided in SECTION 5 hereof. --------- (E) RESTRICTIONS ON LONG-FORM REGISTRATIONS. The Company shall not be --------------------------------------- obligated to effect any Long-Form Registration within 180 days after the effective date of a previous Long-Form Registration or a previous registration in which the holders of Registrable Securities were given piggyback rights pursuant to SECTION 3 and in which there was no reduction in the number --------- of Registrable Securities requested to be included. The Company may postpone for up to 180 days the filing or the effectiveness of a registration statement for a Demand Registration if the Company, the holders of a majority of the GTCR Group Registrable Securities and the holders of a majority of the Miller Group Registrable Securities agree that such Demand Registration would reasonably be expected to have a material adverse effect on any proposal or plan by the Company or any of its Subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer, reorganization or similar transaction; provided that in such event, the holders of a majority of the Investor Registrable Securities initially requesting such Demand Registration shall be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration shall not count as one of the permitted Demand Registrations hereunder and the Company shall pay all Registration Expenses in connection with such registration. The Company may delay a Demand Registration hereunder only once in any twelve-month period. (F) SELECTION OF UNDERWRITERS. The holders of a majority of the ------------------------- Investor Registrable Securities initially requesting any Demand Registration pursuant to the first sentence of SECTION 2(A) shall have the right to select ------------ the investment banker(s) and managers(s) to administer the offering. -4- (G) OTHER REGISTRATION RIGHTS. Except pursuant to that certain ------------------------- Registration Agreement dated as of August 1, 1997 by and among the Company and certain of its shareholders (as such Registration Agreement may be amended or amended and restated from time to time, the "RTI SHAREHOLDERS REGISTRATION RIGHTS AGREEMENT") or as otherwise provided in this Agreement, the Company shall not grant to any persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of a majority of the Investor Registrable Securities. 3. PIGGYBACK REGISTRATIONS. ----------------------- (A) RIGHT TO PIGGYBACK. Whenever the Company proposes to register ------------------ any of its securities under the Securities Act (other than pursuant to a registration of securities on Form S-4 or Form S-8 under the Securities Act (or a successor form to either of such Forms) or pursuant to a Demand Registration), and the registration form to be used may be used for the registration of Registrable Securities (a "PIGGYBACK REGISTRATION"), the Company shall give prompt written notice (in any event within three business days after its receipt of notice of any exercise of demand registration rights other than under this Agreement) to all holders of Registrable Securities of its intention to effect such a registration and shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 20 days after the receipt of the Company's notice. (B) PIGGYBACK EXPENSES. The Registration Expenses of the holders of ------------------ Registrable Securities shall be paid by the Company in all Piggyback Registrations. (C) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration --------------------------------- is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration (which shall include "Registrable Securities" requested to be included in such registration under the RTI Shareholders Registration Rights Agreement), pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (iii) third, other securities requested to be included in such registration. (D) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback ----------------------------------- Registration is an underwritten secondary registration on behalf of holders of -5- the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the GTCR Group Registrable Securities, the holders of a majority of the Miller Group Registrable Securities and the holders of a majority of the "Registrable Securities" under the RTI Shareholders Registration Rights Agreement without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the securities requested to be included therein by the holders on whose behalf such registration is being effected, (ii) second, the Registrable Securities requested to be included in such registration (which shall include "Registrable Securities" requested to be included in such registration under the RTI Shareholders Registration Rights Agreement), pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (iii) third, other securities requested to be included in such registration. 4. REGISTRATION PROCEDURES. Whenever the holders of Registrable ----------------------- Securities have requested that any Registrable Securities be registered pursuant to this Amended and Restated Registration Rights Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible: (A) prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel); (B) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (C) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each -6- preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (D) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (E) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (F) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the "NASDAQ SYSTEM" (as defined in Rule 11Aa3-1 of the SEC under the Exchange Act) and, if listed on the NASDAQ System, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a "national market system security" within the meaning of Rule 11Aa2-1 of the SEC under the Exchange Act or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD; (G) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (H) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including effecting a stock split or a combination of shares); -7- (I) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate doc uments and properties of the Company, and cause the Company's officers, directors, employees and independent accounts to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (J) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (K) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included; (L) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, the Company shall use its best efforts promptly to obtain the withdrawal of such order; (M) subject to the provision in SECTION 4(D) above, use its best ------------ efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities; and (N) obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the holders of a majority of the Registrable Securities being sold reasonably request (provided that such Registrable Securities constitute a least 10% of the securities covered by such registration statement). -8- 5. REGISTRATION EXPENSES. --------------------- (A) All expenses incident to the Company's performance of or compliance with this Amended and Restated Registration Rights Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other persons retained by the Company (all such expenses being herein called "REGISTRATION EXPENSES"), shall be borne as provided in this Amended and Restated Registration Rights Agreement, except that the Company shall, in any event, pay its internal expenses (including, without limitation, all salaries and expenses to its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASDAQ System. (B) In connection with each Demand Registration and each Piggyback Registration, the Company shall reimburse the holders of Registrable Securities included in such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the GTCR Group Registrable Securities and one counsel chosen by the holders of a majority of the Miller Group Registrable Securities and for the reasonable fees and disbursements of each additional counsel retained by any holder of Registrable Securities for the purpose of rendering a legal opinion on behalf of such holder in connection with any underwritten Demand Registration or Piggyback Registration. (C) To the extent Registration Expenses are not required to be paid by the Company, each holder of securities included in any registration hereunder shall pay those Registration Expenses allocable to the registration of such holder's securities so included, and any Registration Expenses not so allocable shall be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered. 6. INDEMNIFICATION. --------------- (A) The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, its officers and directors and each person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated -9- therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (B) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided that the obligation to indemnify shall be individual, not joint and several, for each holder and shall be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement. (C) Any person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying part of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified -10- party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (D) The indemnification provided for under this Amended and Restated Registration Rights Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason. 7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No person may ------------------------------------------- participate in any registration hereunder which is underwritten unless such person (i) agrees to sell such person's securities on the basis provided in any underwriting arrangements approved by the person or persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder and such holder's intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in SECTION 5 hereof. --------- 8. MISCELLANEOUS. ------------- (A) NO INCONSISTENT AGREEMENTS. The Company shall not enter into -------------------------- any agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Amended and Restated Registration Rights Agreement. (B) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company shall -------------------------------------------- not take any action, or permit any change to occur, with respect to its securities which would adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Amended and Restated Registration Rights Agreement or which would adversely effect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). (C) REMEDIES. Any person having rights under any provisions of this -------- Amended and Restated Registration Rights Agreement shall be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Amended and Restated Registration Rights Agreement and to exercise all other rights granted by law. The parties hereto agree -11- and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Amended and Restated Registration Rights Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any, bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent violation of the provisions of this Amended and Restated Registration Rights Agreement. (D) AMENDMENT AND WAIVERS. Except as otherwise provided herein, --------------------- the provisions of this Amended and Restated Registration Rights Agreement may be amended or waived only upon the prior written consent of the Company, the holders of at least 70% of the Registrable Securities, the holders of a majority of the GTCR Group Registrable Securities and the holders of a majority of the Miller Group Registrable Securities. (E) SUCCESSORS AND ASSIGNS. All covenants and agreements in this ---------------------- Amended and Restated Registration Rights Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Amended and Restated Registration Rights Agreement which are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities. (F) SEVERABILITY. Whenever possible, each provision of this Amended ------------ and Restated Registration Rights Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amended and Restated Registration Rights Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Amended and Restated Registration Rights Agreement. (G) COUNTERPARTS. This Amended and Restated Registration Rights ------------ Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Amended and Restated Registration Rights Agreement. (H) DESCRIPTIVE HEADINGS. The descriptive headings of this Amended -------------------- and Restated Registration Rights Agreement are inserted for convenience only and do not constitute a part of this Amended and Restated Registration Rights Agreement. (I) GOVERNING LAW. THIS AMENDED AND RESTATED REGISTRATION RIGHTS ------------- AGREEMENT, THE RIGHTS AND DUTIES OF THE PARTIES HERETO, AND ANY CLAIMS OR DISPUTES RELATING THERETO, -12- SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA (BUT NOT INCLUDING THE CHOICE OF LAW RULES THEREOF). (J) NOTICES. All notices, demands or other communications to be ------- given or delivered under or by reason of the provisions of this Amended and Restated Registration Rights Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable overnight courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid at the addresses set forth: (i) in the case of a Shareholder, on the books and records of the Company (or such other address as to which such Shareholder has notified the Company); or (ii) in the case of the Company, below: AnswerThink Consulting Group, Inc. 1001 Brickell Bay Drive Suite 3000 Miami, Florida 33131 Attention: Ted A. Fernandez President, Chief Executive Officer and Chairman. * * * * * -13- IN WITNESS WHEREOF, the parties have executed this Amended and Restated Registration Rights Agreement as of the date first written above. THE COMPANY: ACG-DELAWARE: ANSWERTHINK CONSULTING GROUP, INC., ANSWERTHINK CONSULTING GROUP, INC., a Florida corporation a Delaware corporation By: /s/ Ted A. Fernandez By: /s/ Ted A. Fernandez -------------------- -------------------- Ted A. Fernandez Ted A. Fernandez President, Chief Executive President, Chief Executive Officer and Chairman Officer and Chairman REQUIRED SHAREHOLDERS: [Signature appears here] /s/ Ulysses S. Knotts - - ------------------------ --------------------- James D. and Pamela Askew Ulysses S. Knotts, III /s/ Priscilla Cooney /s/ Edmund R. Miller - - -------------------- -------------------- Priscilla Cooney Edmund R. Miller /s/ Alex Fernandez /s/ George E. Miller - - ------------------ -------------------- Alex Fernandez George E. Miller /s/ Ted A. Fernandez [Signatures appear here] - - -------------------- ------------------------ Ted A. Fernandez Luis and Mercedes San Miguel /s/ Allan R. Frank [Signature appears here] - - ------------------ ------------------------ Allan R. Frank Fernando and Cecelia Montero /s/ Donnell S. Guthrie /s/ George G. Guthrie - - ---------------------- --------------------- Donnell S. Guthrie George G. Guthrie, Trustee for Christine Donnell Guthrie, Elizabeth Stanley Guthrie and George G. Guthrie -14- Golder, Thoma Cressey, Rauner Rock Creek Partners, L.P. Fund V, L.P. By: /s/ Bruce Rauner By: [Signature appears here] ---------------- ------------------------ GTCR Associates V Southeast Investments International, Ltd. By: /s/ Bruce Rauner By: /s/ Edmund R. Miller ---------------- -------------------- Miller Capital Management, Inc. Southeast Investments, L.P. By: /s/ Edmund R. Miller By: /s/ Edmund R. Miller -------------------- -------------------- FSC Corp. By: /s/ Robert T. Jefferson Name: Erich Ozada ----------------------- Lighthouse Partners USA, L.P. Robert T. Jefferson by its General Partner Archery Capital /s/ Erich Ozada - - ---------------------------- -------------------- Name: Name: Erich Ozada [Signature appears here] - - ---------------------------- ------------------------ Name: Name: Pharos Fund Limited -15- SCHEDULE 1 ---------- SHAREHOLDERS ------------ Executives GTCR Group - - ---------- ---------- David A.J. Axson Golder, Thoma Cressey, Rauner Elizabeth E. Brumbaugh Fund V, L.P. Ted A. Fernandez GTCR Associates V Allan R. Frank MG Capital Partners II, L.P. FSC Corp. Ulysses S. Knotts, III Miller Capital Management, Inc. Edmund R. Miller Gregory P. Hackett Robin M. Potter Beth E. Stanley -16- Miller Group ------------ AB Hannells Industrier Christina Donnell Guthrie Dr. James D. Askew and Donnell S. Guthrie Mrs. Pamela Askew Elizabeth Staton Guthrie James D. Askew, cust. for George Gordon Guthrie, Jr. Amanda F. Askew, UALUGTMA Bonni Gelman Harris Marisa E. Askew Bonni Harris, cust. for Atlantic Balanced Fund Jason Ross Harris, UGTMA/FL Ana Azcuy Bonni Harris, cust. for Bank Morgan Stanley AG Nikki Lee Harris, UGTMA/FL BFC Holdings, Inc. Holterman Corporation Leonardo F. Brito Carmen Howell Juan Carlos Campuzano and Lighthouse Partners USA, L.P. Mayra R. Campuzano Family Trust of Nathan A. Low, dated Priscilla Cooney 4/12/96, N. Low, Trustee Mark Dreier Edmund R. Miller Steven L. Eber George E. Miller Pippa J. Ellis Fernando Montero and Alex Fernandez Cecelia Montero Aurelio E. Fernandez and Alain Oihayon Berta T. Fernandez Erinch R. Ozada Bernard Frank Alan Penn and Roberta Penn Muriel I. Frank A. Markman Peters and Duff Adam Gelman Jenny R. Peters Duff Gelman, cust. for Brian Pfeifler Devra Leya Gelman, UGTMA/FL Pharos Fund Limited Duff Gelman, cust. for Delaware Charter Guarantee & Trust Ellen Behia Gelman, UGTMA/FL Co., TTEE, FBO S. Daniel Ponce Duff Gelman, cust. for Robert I. Rafford, Jr. Jude Gelman, UGTMA/FL Rock Creek Partners, L.P. Karen Gelman Luis San Miguel and Mila Ann Gelman Mercedes San Miguel Mila Gelman-Johnson, cust. for Joseph Salvani Spencer Gelman-Johnson, Southeast Investments UGTMA/CA International, Ltd. Theodore Gelman Rev. Trust, Southeast Investments, L.P. T. Gelman and Southampton Ltd. E. Gelman, TTEES, UDA 8/5/93 -17- EX-10.5 5 EXHIBIT 10.5 EXECUTION COPY EXHIBIT 10.5 SECOND AMENDED AND RESTATED ---------------------------- REGISTRATION RIGHTS AGREEMENT ----------------------------- (FORMER RTI SHAREHOLDERS) THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Amended and Restated Registration Rights Agreement") is made as of May 5, 1998, by and among AnswerThink Consulting Group, Inc., a Florida corporation (the "COMPANY"), AnswerThink Consulting Group, Inc., a Delaware corporation and a wholly owned subsidiary of the Company("ACG-DELAWARE"), and each of the shareholders listed on SCHEDULE 1 hereto (the "SHAREHOLDERS"). ---------- WHEREAS, the Company and the Shareholders entered into that certain Registration Agreement dated as of August 1, 1997 (the "PRIOR AGREEMENT") whereby the Shareholders had certain registration rights with respect to shares of the Company's common stock, par value $.001 per share (the "COMMON STOCK"), owned or acquired by the Shareholders; WHEREAS, the Company, ACG-Delaware and the Shareholders entered into that certain Amended and Restated Registration Rights Agreement dated as of April 13, 1998 (the "AMENDMENT"), which amended and restated the Prior Agreement; WHEREAS, the Shareholders who are executing this Amended and Restated Registration Rights Agreement (the "REQUIRED SHAREHOLDERS") hold at least 70% of the "Registrable Securities," as such term is defined in the Prior Agreement; and WHEREAS, the Company, ACG-Delaware and the Required Shareholders desire to amend and restate the Amendment upon the terms and conditions set forth herein. NOW, THEREFORE, the Company, ACG-Delaware and the Required Shareholders hereby agree as follows: 1. EFFECTIVE TIME; TERMINATION OF PRIOR AGREEMENT. - - -- ---------------------------------------------- (a) EFFECTIVE TIME. This Amended and Restated Registration Rights --- -------------- Agreement shall be effective upon the signing of the underwriting agreement relating to the Company's initial public offering (the "EFFECTIVE TIME"). (b) TERMINATION OF PRIOR AGREEMENT. The Prior Agreement shall be --- ------------------------------ terminated at the Effective Time. 2. PIGGYBACK REGISTRATIONS. - - -- ----------------------- (a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any of --- ------------------ its securities under the Securities Act of 1933, as amended (the "SECURITIES ACT") (other than pursuant to a registration of securities on Form S-8 under the Securities Act (or a successor form to either of such Forms) or pursuant to a "Demand Registration," as such term is defined in that certain Registration Agreement dated as of April 23, 1997 by and among the Company and certain investors in and executives of the Company (as such Registration Agreement may be amended or amended and restated from time to time, the "INVESTORS AND EXECUTIVES REGISTRATION RIGHTS AGREEMENT")), and the registration form to be used may be used for the registration of Registrable Securities (as defined below) (a "PIGGYBACK REGISTRATION"), the Company shall give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and shall include in such registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein within 20 days after the receipt of the Company's notice. "REGISTRABLE SECURITIES" means the shares of Common Stock held by the Shareholders at the Effective Time, together with any other shares of Common Stock issued or issuable with respect to said shares by way of a stock dividend or stock split or conversion or in connection with an exchange or combination of shares, recapitalization, merger, consolidation or other reorganization, and any other shares of Common Stock held by the Shareholders at any time. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when they have been registered under the Securities Act or sold to the public through a broker, dealer or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) ("RULE 144"). For purposes of this Amended and Restated Registration Rights Agreement, a person shall be deemed to be a holder of Registrable Securities whenever such person has the right to acquire such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise), whether or not such acquisition has actually been effected; provided, however, that such ----------------- acquisition must actually have been effected prior to the effective date of any registration statement which includes any Registrable Securities to be so acquired. (b) PIGGYBACK EXPENSES. The Registration Expenses (as hereinafter --- ------------------ defined) of the holders of Registrable Securities shall be paid by the Company in all Piggyback Registrations. (c) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an --- --------------------------------- underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the Company without adversely affecting the marketability of - 2 - the offering, the Company shall include in such registration (i) first, the securities the Company proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration (which shall include "Registrable Securities" requested to be included in such registration under the Investors and Executives Registration Rights Agreement), pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (iii) third, other securities requested to be included in such registration. (d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is an --- ----------------------------------- underwritten secondary registration on behalf of holders of the Company's securities, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in an orderly manner in such offering within a price range acceptable to the holders of a majority of the "Registrable Securities" under the Investors and Executives Registration Rights Agreement and the holders of a majority of the Registrable Securities under this Amended and Restated Registration Rights Agreement without adversely affecting the marketability of the offering, the Company shall include in such registration (i) first, the securities requested to be included therein by the holders on whose behalf such registration is being effected, (ii) second, the Registrable Securities requested to be included in such registration (which shall include "Registrable Securities" requested to be included in such registration under the Investors and Executives Registration Rights Agreement), pro rata among the holders of such Registrable Securities on the basis of the number of shares owned by each such holder, and (iii) third, other securities requested to be included in such registration. 3. REGISTRATION PROCEDURES. Whenever the holders of Registrable Securities - - -- ----------------------- have requested that any Registrable Securities be registered pursuant to this Amended and Restated Registration Rights Agreement, the Company shall use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible: (a) prepare and file with the Securities and Exchange Commission (the "SEC") a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment of such counsel); (b) notify each holder of Registrable Securities of the effectiveness of each registration statement filed hereunder and prepare and file with the SEC such amendments and supplements to such registration statement - 3 - and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller; (d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the "NASDAQ SYSTEM" (as defined in Rule 11Aa3- 1 of the SEC under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")) and, if listed on the NASDAQ System, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a "national market system security" within the meaning of Rule 11Aa2-1 of the SEC under the Exchange Act or, failing that, to secure NASDAQ authorization for such Registrable Securities and, without limiting the - 4 - generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the NASD; (g) provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including effecting a stock split or a combination of shares); (i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accounts to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (k) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such holder and its counsel should be included; (l) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any common stock included in such registration statement for sale in any jurisdiction, the Company shall use its best efforts promptly to obtain the withdrawal of such order; (m) subject to the provision in SECTION 3(D) above, use its best efforts to ------------ cause such Registrable Securities covered by such registration - 5 - statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities; and (n) obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the holders of a majority of the Registrable Securities being sold reasonably request (provided that such Registrable Securities constitute a least 10% of the securities covered by such registration statement). 4. REGISTRATION EXPENSES. - - -- --------------------- (a) All expenses incident to the Company's performance of or compliance with this Amended and Restated Registration Rights Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, and fees and disbursements of counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and other persons retained by the Company (all such expenses being herein called "REGISTRATION EXPENSES"), shall be borne by the Company. (b) In connection with each Piggyback Registration, the Company shall reimburse the holders of Registrable Securities included in such registration for the reasonable fees and disbursements of one counsel chosen by the holders of a majority of the Registrable Securities and for the reasonable fees and disbursements of each additional counsel retained by any holder of Registrable Securities for the purpose of rendering a legal opinion on behalf of such holder in connection with any underwritten Piggyback Registration. 5. INDEMNIFICATION. - - -- --------------- (a) The Company agrees to indemnify, to the extent permitted by law, each holder of Registrable Securities, its officers and directors and each person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the - 6 - Company shall indemnify such underwriters, their officers and directors and each person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities. (b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided that the obligation to indemnify shall be individual, not joint and several, for each holder and shall be limited to the net amount of proceeds received by such holder from the sale of Registrable Securities pursuant to such registration statement. (c) Any person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying part of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (d) The indemnification provided for under this Amended and Restated Registration Rights Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and shall survive - 7 - the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason. 6. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No person may participate in - - -- ------------------------------------------- any registration hereunder which is underwritten unless such person (i) agrees to sell such person's securities on the basis provided in any underwriting arrangements approved by the person or persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided that no holder of Registrable Securities included in any underwritten registration shall be required to make any representations or warranties to the Company or the underwriters (other than representations and warranties regarding such holder and such holder's intended method of distribution) or to undertake any indemnification obligations to the Company or the underwriters with respect thereto, except as otherwise provided in SECTION 5 hereof. --------- 7. MISCELLANEOUS. - - -- ------------- (a) NO INCONSISTENT AGREEMENTS. The Company shall not enter into any --- -------------------------- agreement with respect to its securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Amended and Restated Registration Rights Agreement. (b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company shall not --- -------------------------------------------- take any action, or permit any change to occur, with respect to its securities which would adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Amended and Restated Registration Rights Agreement or which would adversely effect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split or a combination of shares). (c) REMEDIES. Any person having rights under any provisions of this Amended --- -------- and Restated Registration Rights Agreement shall be entitled to enforce such rights specifically to recover damages caused by reason of any breach of any provision of this Amended and Restated Registration Rights Agreement and to exercise all other rights granted by law. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Amended and Restated Registration Rights Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any, bond or other security) for specific performance and for other injunctive relief in order to enforce or prevent - 8 - violation of the provisions of this Amended and Restated Registration Rights Agreement. (d) AMENDMENT AND WAIVERS. Except as otherwise provided herein, the --- --------------------- provisions of this Amended and Restated Registration Rights Agreement may be amended or waived only upon the prior written consent of the Company and holders of at least 70% of the Registrable Securities. (e) SUCCESSORS AND ASSIGNS. All covenants and agreements in this Amended --- ---------------------- and Restated Registration Rights Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. In addition, whether or not any express assignment has been made, the provisions of this Amended and Restated Registration Rights Agreement which are for the benefit of purchasers or holders of Registrable Securities are also for the benefit of, and enforceable by, any subsequent holder of Registrable Securities. (f) SEVERABILITY. Whenever possible, each provision of this Amended and --- ------------ Restated Registration Rights Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Amended and Restated Registration Rights Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Amended and Restated Registration Rights Agreement. (g) COUNTERPARTS. This Amended and Restated Registration Rights Agreement --- ------------ may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same Amended and Restated Registration Rights Agreement. (h) DESCRIPTIVE HEADINGS. The descriptive headings of this Amended and --- -------------------- Restated Registration Rights Agreement are inserted for convenience only and do not constitute a part of this Amended and Restated Registration Rights Agreement. (i) GOVERNING LAW. THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, --- ------------- THE RIGHTS AND DUTIES OF THE PARTIES HERETO, AND ANY CLAIMS OR DISPUTES RELATING THERETO, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA (BUT NOT INCLUDING THE CHOICE OF LAW RULES THEREOF). (j) NOTICES. All notices, demands or other communications to be given or --- ------- delivered under or by reason of the provisions of this Amended and Restated Registration Rights Agreement shall be in writing and shall be deemed to - 9 - have been given when delivered personally to the recipient, sent to the recipient by reputable overnight courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid at the addresses set forth: (i) in the case of a Shareholder, on the books and records of the Company (or such other address as to which such Shareholder has notified the Company); or (ii) in the case of the Company, below: AnswerThink Consulting Group, Inc. 1001 Brickell Bay Drive Suite 3000 Miami, Florida 33131 Attention: Ted A. Fernandez President, Chief Executive Officer and Chairman. * * * * * - 10 - IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Registration Rights Agreement as of the date first written above. THE COMPANY: ANSWERTHINK CONSULTING GROUP, INC., a Florida corporation By: /s/ Ted A. Fernandez -------------------- Ted A. Fernandez President, Chief Executive Officer and Chairman ACG-DELAWARE: ANSWERTHINK CONSULTING GROUP, INC., a Delaware corporation By: /s/ Ted A. Fernandez -------------------- Ted A. Fernandez President, Chief Executive Officer and Chairman REQUIRED SHAREHOLDERS: /s/ Robert Jordan ----------------- Robert Jordan /s/ Scott Smith --------------- Scott Smith /s/ Louis Todd -------------- Louis Todd - 11 - SCHEDULE 1 ---------- SHAREHOLDERS ------------ Marvin Botnick John Dean Jim Grebe Fred Herbert Robert Jordan John Shlesinger Scott Smith Louis Todd - 12 - EX-10.14 6 EXHIBIT 10.14 Exhibit 10.14 EMPLOYMENT AGREEMENT --------------------- This EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this ________ day of _____________, 1998, by and between AnswerThink Consulting Group, Inc., a Florida corporation (the "Company"), and NAME (the "Executive"). WHEREAS, the Company and the Executive have entered into a Senior Management Agreement dated as of DATE, as amended (the "Senior Management Agreement"); WHEREAS, the Company and the Executive desire to amend the Senior Management Agreement to delete the "Provisions Relating to Employment" therein and the Company desires to employ the Executive, and the Executive desires to be employed by the Company, on the terms and conditions set forth herein from and after the completion of the initial public offering of the Company's Common Stock (the "Offering Date"); and WHEREAS, the board of directors of the Company (the "Board") has approved and authorized the entry into this Agreement with the Executive. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Employment Agreement. On the terms and conditions set forth in this -------------------- Agreement, the Company agrees to employ the Executive and the Executive agrees to be employed by the Company for the Employment Period set forth in Section 2 hereof and in the position and with the duties set forth in Section 3 hereof. Terms used herein with initial capitalization are defined in Section 21 below. 2. Term. The initial term of employment under this Agreement shall be ---- for a three-year period commencing on the Offering Date (the "Initial Term"). The term of employment shall be automatically renewed for an additional consecutive 12-month period (the "Extended Term") as of the first and every subsequent anniversary of the Offering Date, unless and until either party provides written notice to the other party in accordance with Section 11 hereof not less than 90 days before such anniversary date that such party is terminating the term of employment under this Agreement, which termination shall be effective as of the end of such Initial Term or Extended Term, as the case may be, or until such term of employment is otherwise terminated as hereinafter set forth. Such Initial Term and all such Extended Terms are collectively referred to herein as the "Employment Period." The parties' obligations under Sections 7, 9 and 10 hereof shall survive the expiration or termination of the Employment Period. [3. Position and Duties. The Executive shall serve as President, Chief ------------------- Executive Officer and Chairman of the Company during the Employment Period. As the President and Chief Executive Officer of the Company, the Executive shall render executive, policy and other management services to the Company of the type customarily performed by persons serving in a similar chief executive officer capacity. As Chief Executive Officer, the Executive shall be responsible for implementing the policies of the Board and shall report only to the Board. All other officers of the Company shall report directly to the Executive, except as the Executive shall otherwise determine, and except that the internal auditor shall report directly to the Board. The Executive shall also perform such duties as the Board may from time to time reasonably determine and assign to the Executive. During the Employment Period, there shall be no material change in the duties and responsibilities of the Executive from those previously in effect, other than as provided herein, unless the parties otherwise agree in writing. The Executive shall devote the Executive's reasonable best efforts and substantially full business time to the performance of the Executive's duties and the advancement of the business and affairs of the Company.] [3. Position and Duties. The Executive shall serve as Executive Vice ------------------- President, TITLE of the Company during the Employment Period. As the Executive Vice President, TITLE of the Company, the Executive shall render executive, policy and other management services to the Company of the type customarily performed by persons serving in a similar officer capacity. The Executive shall report to the Chief Executive Officer of the Company, except as otherwise determined by the Chief Executive Officer or the Board. The Executive shall also perform such duties as the Chief Executive Officer or the Board may from time to time reasonably determine and assign to the Executive. During the Employment Period, there shall be no material change in the duties and responsibilities of the Executive from those previously in effect, other than as provided herein, unless the parties otherwise agree in writing. The Executive shall devote the Executive's reasonable best efforts and substantially full business time to the performance of the Executive's duties and the advancement of the business and affairs of the Company.] 4. Place of Performance. In connection with the Executive's employment -------------------- by the Company, the Executive shall be based at the principal executive offices of the Company, except as otherwise agreed by the Executive and the Company and except for reasonable travel on Company business. If the Executive is required to relocate his place of employment to a location more than 50 miles from its location as of the date of this Agreement, the Company shall pay or reimburse the Executive for the reasonable moving and relocation expenses incurred by him to establish a personal residence at the new location, including reasonable traveling and temporary living expenses. -2- 5. Compensation. ------------ (a) Base Salary. During the Employment Period, the Company shall pay ----------- to the Executive an annual base salary (the "Base Salary"), which initially shall be at the rate of $____________ per year. The Base Salary shall be reviewed no less frequently than annually and may be increased at the discretion of the Board. If the Executive's Base Salary is increased, the increased amount shall be the Base Salary for the remainder of the Employment Period. Except as otherwise agreed in writing by the Executive, the Base Salary shall not be reduced from the amount previously in effect during the Employment Term. The Base Salary shall be payable biweekly or in such other installments as shall be consistent with the Company's payroll procedures. (b) Bonus. During the Employment Period, the Executive may also be ----- eligible to earn an annual bonus pursuant to a bonus plan adopted by the Board for each fiscal year. (c) Benefits. During the Employment Period, the Executive will be -------- entitled to such other benefits approved by the Board and made available to employees. Nothing contained in this Agreement shall prevent the Company from changing carriers or from effecting modifications in insurance coverage for the Executive. (d) Vacation; Holidays. The Executive shall be entitled to all public ------------------ holidays observed by the Company and vacation days in accordance with the applicable vacation policies for senior executives of the Company, which shall be taken at a reasonable time or times. (e) Withholding Taxes and Other Deductions. To the extent required by -------------------------------------- law, the Company shall withhold from any payments due Executive under this Agreement any applicable federal, state or local taxes and such other deductions as are prescribed by law or Company policy. 6. Expenses. The Executive is expected and is authorized to incur -------- reasonable expenses in the performance of his duties hereunder, including the costs of entertainment, travel, and similar business expenses incurred in the performance of his duties. The Employers shall reimburse the Executive for all such expenses promptly upon periodic presentation by the Executive of an itemized account of such expenses. 7. Confidentiality; Work Product. ----------------------------- (a) Information. The Executive acknowledges that the information, ----------- observations and data obtained by the Executive concerning the business and affairs of the Company and its Subsidiaries and their predecessors during the course of the Executive's performance of services for, or employment -3- with, any of the foregoing persons (whether or not compensated for such services) are the property of the Company and its Subsidiaries, including information concerning acquisition opportunities in or reasonably related to the business or industry of the Company or its Subsidiaries of which the Executive becomes aware during such period. Therefore, the Executive agrees that he will not at any time (whether during or after the Employment Period) disclose to any unauthorized person or, directly or indirectly, use for the Executive's own account, any of such information, observations or data without the Board's consent, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a direct or indirect result of the Executive's acts or omissions to act or the acts or omissions to act of other senior or junior management employees of the Company and its Subsidiaries. The Executive agrees to deliver to the Company at the termination of the Executive's employment, or at any other time the Company may request in writing (whether during or after the Employment Period), all memoranda, notes, plans, records, reports and other documents, regardless of the format or media (and copies thereof), relating to the business of the Company and its Subsidiaries and their predecessors (including, without limitation, all acquisition prospects, lists and contact information) which the Executive may then possess or have under the Executive's control. (b) Inventions and Patents. The Executive acknowledges that all ---------------------- inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) that relate to the actual or anticipated business, research and development or existing or future products or services of the Company or its Subsidiaries that are conceived, developed, made or reduced to practice by the Executive while employed by the Company or any of its predecessors ("Work Product") belong to the Company and the Executive hereby assigns, and agrees to assign, all of the above to the Company. Any copyrightable work prepared in whole or in part by the Executive in the course of the Executive's work for any of the foregoing entities shall be deemed a "work made for hire" under the copyright laws, and the Company shall own all rights therein. To the extent that any such copyrightable work is not a "work made for hire," the Executive hereby assigns and agrees to assign to Company all right, title and interest, including without limitation, copyright in and to such copyrightable work. The Executive shall promptly disclose such Work Product and copyrightable work to the Board and perform all actions reasonably requested by the Board (whether during or after the Employment Period) to establish and confirm the Company's ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). (c) Enforcement. The Executive acknowledges that the restrictions ----------- contained in Section 7(a) hereof are reasonable and necessary, in view of the nature of the Company's business, in order to protect the legitimate interests of the Company, and that any violation thereof would result in irreparable injury to the Company. Therefore, the Executive agrees that in the event of a breach or -4- threatened breach by the Executive of the provisions of Section 7(a) hereof, the Company shall be entitled to obtain from any court of competent jurisdiction, preliminary or permanent injunctive relief restraining the Executive from disclosing or using any such confidential information. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including, without limitation, recovery of damages from the Executive. 8. Termination of Employment. ------------------------- (a) Permitted Terminations. The Executive's employment hereunder may ---------------------- be terminated during the Employment Term without any breach of this Agreement only under the following circumstances: (i) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death; (ii) By the Company. The Company may terminate the Executive's -------------- employment: (A) If the Executive shall have been unable to perform all of the Executive's duties hereunder by reason of illness, physical or mental disability or other similar incapacity, which inability shall continue for more than three consecutive months; or (B) For Cause; or (iii) By the Executive. The Executive may terminate employment ---------------- for Good Reason. (b) Termination. Any termination of the Executive's employment by the ----------- Company or the Executive (other than because of the Executive's death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 11 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Termination of the Executive's employment shall take effect on the Date of Termination. 9. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment is terminated during the ----- Employment Term as a result of the Executive's death, the Company shall pay to the Executive's estate, or as may be directed by the legal -5- representatives of such estate, the Executive's full Base Salary through the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any bonus or incentive compensation plan or program of the Company pursuant to Sections 5(b) and (c) hereof, at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement. (b) Disability. If the Company terminates the Executive's employment ---------- during the Employment Term because of the Executive's disability pursuant to Section 8(a)(ii)(A) hereof, the Company shall pay the Executive the Executive's full Base Salary through the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any bonus or incentive compensation plan or program of the Company pursuant to Sections 5(b) and (c) hereof, at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement; provided, that payments so made to the -------- Executive during any period that the Executive is unable to perform all of the Executive's duties hereunder by reason of illness, physical or mental illness or other similar incapacity shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such payment under disability benefit plans of the Company and which amounts were not previously applied to reduce any such payment. (c) By the Company with Cause or by the Executive without Good Reason. ----------------------------------------------------------------- If the Company terminates the Executive's employment during the Employment Term for Cause pursuant to Section 8(a)(ii)(B) hereof or if the Executive voluntarily terminates the Executive's employment during the Employment Term other than for Good Reason, the Company shall pay the Executive the Executive's full Base Salary through the Date of Termination and all other unpaid amounts, if any, to which Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any bonus or incentive compensation plan or program of the Company pursuant to Sections 5(b) and (c) hereof, at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement. (d) By the Company without Cause or by the Executive for Good Reason. ---------------------------------------------------------------- If the Company terminates the Executive's employment during the Employment Term other than for Cause, disability or death pursuant to Section 8(a)(i) or (ii) hereof, or the Executive terminates his employment during the Employment Term for Good Reason pursuant to Section 8(a)(iii) hereof, the Company shall pay the Executive (A) the Executive's full Base Salary through the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any bonus or incentive compensation plan or program of the Company -6- pursuant to Sections 5(b) and (c) hereof, at the time such payments are due and (B) subject to Sections 9(e) and 9(f) hereof: (i) No Change of Control. Except as provided in Section 9(d)(ii) -------------------- hereof, during the one-year period commencing on the Date of Termination (the "Initial Period"), the Company shall pay the Executive an aggregate amount equal to Executive's Base Salary, payable in equal installments on the Company's regular salary payment dates, and any other amounts that would have been payable to or on behalf of the Executive under Section 5(c) hereof (the "Severance Payments"). In addition, the Company shall have the option, by delivering written notice to the Executive in accordance with Section 11 hereof within 90 days after the Date of Termination, to extend the severance period to the second anniversary of the Date of Termination (the "Extended Period"). During the Extended Period, the Company will continue to make Severance Payments at the same annual rate to the Executive. Notwithstanding the foregoing and without in any way modifying the provisions of Sections 7 and 10 hereof, from and after the first date that Executive becomes employed with another Person or provides services as a consultant or other self-employed individual, the Company, at its option, may eliminate or otherwise reduce the amount of Severance Payments otherwise required to be made pursuant to this Section 9(d)(i) to the extent of the compensation and benefits received by the Executive from such other employment or self-employment; or (ii) Change of Control. If such termination is in anticipation of, in ----------------- connection with or within one year after the date of a Change of Control, the Company shall pay the Executive an aggregate amount equal to Executive's Base Salary, payable in equal installments on the Company's regular salary payment dates, and any other amounts that would have been payable to or on behalf of the Executive under Section 5(c) hereof (the "Severance Payments") from the Date of Termination through the second anniversary of the Date of Termination at the time such payments would otherwise have been due in accordance with the Company's normal payroll practices, and the Company shall have no further obligations to the Executive under this Agreement. In addition, in such event, the Executive's rights with respect to stock options and shares of restricted stock previously granted by the Company, deferred and incentive compensation or bonus amounts awarded by the Company and other contingent or deferred compensation awards or grants made by the Company, or otherwise made in connection with the Executive's employment hereunder, shall be fully vested and nonforfeitable as of the Date of Termination, except to the extent inconsistent with the terms of any such plan or arrangement that is intended to qualify under Section 401(a) or 423 of the Code. For purposes of Section 10 hereof, the "Initial Period" shall be the first 24 months following the Date of Termination. (e) Parachute Limitations. Notwithstanding any other provision of --------------------- this Agreement or of any other agreement, contract or understanding -7- heretofore or hereafter entered into by the Executive with the Company or any subsidiary or affiliate thereof, except an agreement, contract or understanding hereafter entered into that expressly modifies or excludes application of this Section 9(e) (the "Other Agreements"), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Company (or any subsidiary or affiliate thereof) for the direct or indirect compensation of the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Executive (a "Benefit Plan"), if the Executive is a "disqualified individual" (as defined in Section 280G(c) of the Internal Revenue Code of 1986, as amended (the "Code")), the Executive shall not have any right to receive any payment or benefit under this Agreement, any Other Agreement or any Benefit Plan (i) to the extent that such payment or benefit, taking into account all other rights, payments or benefits to or for the Executive under this Agreement, all Other Agreements and all Benefit Plans, would cause any payment or benefit to the Executive under this Agreement, any Other Agreement or any Benefit Plan to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result of --- receiving a Parachute Payment, the aggregate after-tax amount received by the Executive under this Agreement, all Other Agreements and all Benefit Plans would be less than the maximum after-tax amount that could be received by the Executive without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such payment or benefit under this Agreement, any Other Agreement or any Benefit Plan would cause the Executive to be considered to have received a Parachute Payment that would have the adverse after-tax effect described in clause (ii) of the preceding sentence, then the Executive shall have the right, in the Executive's sole discretion, to designate those rights, payments or benefits under this Agreement, any Other Agreement and any Benefit Plan that should be reduced or eliminated so as to avoid having the payment or benefit to the Executive under this Agreement be deemed to be a Parachute Payment. (f) Mitigation. The Company's obligation to continue to provide the ---------- Executive with benefits pursuant to Section 9(d)(i) or (ii) above shall cease if the Executive becomes eligible to participate in benefits substantially similar to those provided under this Agreement as a result of the Executive's subsequent employment during the period that the Executive is entitled to receive Severance Payments. (g) Liquidated Damages. The parties acknowledge and agree that ------------------ damages which will result to the Executive for termination by the Company without Cause or by the Executive for Good Reason shall be extremely difficult or impossible to establish or prove, and agree that the Severance Payments shall constitute liquidated damages for any breach of this Agreement by the Company through the Date of Termination. The Executive agrees that, except for such other -8- payments and benefits to which the Executive may be entitled as expressly provided by the terms of this Agreement or any applicable Benefit Plan, such liquidated damages shall be in lieu of all other claims that the Executive may make by reason of termination of his employment or any such breach of this Agreement and that, as a condition to receiving the Severance Payments, the Executive will execute a release of claims in a form reasonably satisfactory to the Company. 10. Noncompetition and Nonsolicitation. ---------------------------------- (a) Noncompetition. The Executive acknowledges that in the course of -------------- his employment with the Company and its Subsidiaries and their predecessors, he has and will continue to become familiar with the trade secrets of, and other confidential information concerning, the Company and its Subsidiaries, that the Executive's services will be of special, unique and extraordinary value to the Company and its Subsidiaries and that the Company's ability to accomplish its purposes and to successfully pursue its business plan and compete in the marketplace depend substantially on the skills and expertise of the Executive. Therefore, and in further consideration of the compensation being paid to the Executive hereunder, the Executive agrees that, during the Employment Period and any Initial Period or Extended Period, so long as Severance Payments are being made or during any portion of the Initial or Extended Period that Severance Payments are not required to be made pursuant to the last sentence of Section 9(d)(i) hereof (the "Noncompete Period"), he shall not directly or indirectly own, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company, its Subsidiaries, or any business in which the Company or its Subsidiaries has commenced negotiations or has requested and received information relating to the acquisition of such business within eighteen months prior to the termination of the Executive's employment with the Company, in any country where the Company, its Subsidiaries, or other aforementioned business conducts business. (b) Nonsolicitation. During the Employment Period and for two years --------------- following the Date of Termination, the Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way willfully interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) induce or attempt to induce any customer, supplier, licensee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary or (iii) initiate or engage in any discussions regarding an acquisition of, or the Executive's employment (whether as an employee, an independent contractor or otherwise) by, any businesses in which the Company or any of its Subsidiaries has entertained discussions or has requested and received information relating to the acquisition of -9- such business by the Company or its Subsidiaries upon or within the 18-month period prior to the Date of Termination. (c) Enforcement. If, at the time of enforcement of this Section 10, a ----------- court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law. Because the Executive's services are unique and because the Executive has access to confidential information, the parties hereto agree that money damages would be an inadequate remedy for any breach of any provision of this Agreement. Therefore, in the event a breach or threatened breach by the Executive of any provision of this Agreement, the Company may, in addition to other rights and remedies existing in its favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof (without posting a bond or other security). 11. Notices. All notices, demands, requests or other communications ------- required or permitted to be given or made hereunder shall be in writing and shall be delivered, telecopied or mailed by first class registered or certified mail, postage prepaid, addressed as follows: (a) If to the Company: (b) If to the Executive: or to such other address as may be designated by either party in a notice to the other. Each notice, demand, request or other communication that shall be given or made in the manner described above shall be deemed sufficiently given or made for all purposes three days after it is deposited in the U.S. mail, postage prepaid, or at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, the answer back or the affidavit of messenger being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 12. Severability. The invalidity or unenforceability of any one or more ------------ provisions of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. -10- 13. Survival. It is the express intention and agreement of the parties -------- hereto that the provisions of Sections 7, 9 and 10 hereof shall survive the termination of employment of the Executive. In addition, all obligations of the Company to make payments hereunder shall survive any termination of this Agreement on the terms and conditions set forth herein. 14. Assignment. The rights and obligations of the parties to this ---------- Agreement shall not be assignable or delegable, except that (i) in the event of the Executive's death, the personal representative or legatees or distributees of the Executive's estate, as the case may be, shall have the right to receive any amount owing and unpaid to the Executive hereunder and (ii) the rights and obligations of the Company hereunder shall be assignable and delegable in connection with any subsequent merger, consolidation, sale of all or substantially all of the assets of the Company or similar reorganization of a successor corporation. 15. Binding Effect. Subject to any provisions hereof restricting -------------- assignment, this Agreement shall be binding upon the parties hereto and shall inure to the benefit of the parties and their respective heirs, devisees, executors, administrators, legal representatives, successors and assigns. 16. Amendment; Waiver. This Agreement shall not be amended, altered or ----------------- modified except by an instrument in writing duly executed by the parties hereto. Neither the waiver by either of the parties hereto of a breach of or a default under any of the provisions of this Agreement, nor the failure of either of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any such provisions, rights or privileges hereunder. 17. Headings. Section and subsection headings contained in this Agreement -------- are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 18. Governing Law. This Agreement, the rights and obligations of the ------------- parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of Florida (but not including the choice of law rules thereof). 19. Entire Agreement; Senior Management Agreement Amended. By mutual ----------------------------------------------------- consent, effective as of the Offering Date, the parties hereby amend the Senior Management Agreement by deleting Sections 7, 8 and 9 thereof and this Agreement shall supersede the Provisions Relating to Employment set out in the Senior Management Agreement. This Agreement constitutes the entire agreement between the parties respecting the employment of Executive, there being no representations, warranties or commitments except as set forth herein. -11- 20. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be an original and all of which shall be deemed to constitute one and the same instrument. 21. Definitions. ----------- "Agreement" means this Employment Agreement. --------- "Base Salary" is defined in Section 5(a) above. ----------- "Beneficial Owner" means a beneficial owner within the meaning of ---------------- Rule 13d-3 under the Securities Exchange Act of 1934, as amended. "Benefit Plan" is defined in Section 9(e) above. ------------ "Board" means the board of directors of the Company. ----- "Cause" means (i) the commission of a felony or a crime involving ----- moral turpitude or the commission of any other act or omission involving dishonesty or fraud with respect to the Company or any of its Subsidiaries or any of their customers or suppliers, (ii) conduct tending to bring the Company or any of its Subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties of the office held by the Executive as reasonably directed by the Board, and such failure is not cured within 30 days after the Executive receives notice thereof from the Board, (iv) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries or (v) any breach of Section 7 or 10 of this Agreement. "Change in Control" means (A) any Person, other than any Person who is ----------------- a Beneficial Owner of the Company's securities before the Offering Date, becomes, after the Offering Date, the beneficial owner, directly or indirectly, of securities of the Company representing 40% or more of the combined voting power of the Company's then outstanding securities; (B) during any two-year period, individuals who at the beginning of such period constitute the Board (including, for this purpose, any director who after the beginning of such period filled a vacancy on the Board caused by the resignation, mandatory retirement, death, or disability of a director and whose election or appointment was approved by a vote of at least two-thirds of the directors then in office who were directors at the beginning of such period) cease for any reason to constitute a majority thereof; (C) notwithstanding clauses (A) or (E) of this paragraph, the Company consummates a merger or consolidation of the Company with or into another corporation, the result of which is that the Persons who were stockholders of the Company at the time of the execution of the agreement to merge or consolidate own less than 80% of the total equity of the corporation surviving or resulting from the merger or consolidation or of a corporation owning, directly or indirectly, 100% of the total equity of such surviving or resulting corporation; or (D) the sale in one or a -12- series of transactions of all or substantially all of the assets of the Company; (E) any Person has commenced a tender or exchange offer, or entered into an agreement or received an option to acquire beneficial ownership of 40% or more of the total number of voting shares of the Company, unless the Board has made a determination that such action does not constitute and will not constitute a material change in the Persons having control of the Company; or (F) there is a change of control in the Company of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act other than in circumstances specifically covered by clauses (A) through (E) above. "Code" is defined in Section 9(e) above. ---- "Company" means AnswerThink Consulting Group, Inc. and its successors ------- and assigns. "Date of Termination" means (i) if the Executive's employment is ------------------- terminated by the Executive's death, the date of the Executive's death; (ii) if the Executive's employment is terminated because of the Executive's disability pursuant to Section 8(a)(ii)(A) hereof, 30 days after Notice of Termination, provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period; (iii) if the Executive's employment is terminated by the Company for Cause pursuant to Section 8(a)(ii)(B) hereof or by the Executive for Good Reason pursuant to Section 8(a)(iii) hereof, the date specified in the Notice of Termination; or (iv) if the Executive's employment is terminated during the Employment Term other than pursuant to Section 8(a), the date on which Notice of Termination is given. "Employment Period" is defined in Section 2 above. ----------------- "Executive" means NAME. --------- "Extended Period" is defined in Section 9(d)(i) above. --------------- "Extended Term" is defined in Section 2 above. ------------- "Good Reason" means (i) the Company's failure to perform or observe ----------- any of the material terms or provisions of this Agreement, and the continued failure of the Company to cure such default within 30 days after written demand for performance has been given to the Company by the Executive, which demand shall describe specifically the nature of such alleged failure to perform or observe such material terms or provisions; or (ii) a material reduction in the scope of the Executive's responsibilities and duties. "Initial Period" is defined in Section 9(d) above. -------------- -13- "Initial Term" is defined in Section 2 above. ------------ "Noncompete Period" is defined in Section 10(a) above. ----------------- "Notice of Termination" is defined in Section 8(b) above. --------------------- "Offering Date" means the date of the completion of an initial public ------------- offering of the Company's Common Stock. "Other Agreements" is defined in Section 9(e) above. ---------------- "Parachute Payment" is defined in Section 9(e) above. ----------------- "Person" means an individual, a partnership, a limited liability ------ company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Senior Management Agreement" means the Senior Management Agreement --------------------------- dated as of DATE, as amended, by and between the Company and the Executive. "Severance Payments" is defined in Section 9(d) above. ------------------ "Subsidiary" means any corporation of which the Company owns ---------- securities having a majority of the ordinary voting power in electing the board of directors directly or through one or more subsidiaries. "Subsidiary" means any corporation of which the Company owns ---------- securities having a majority of the ordinary voting power in electing the board of directors directly or through one or more subsidiaries. "Work Product" is defined in Section 7(b) above. ------------ -14- IN WITNESS WHEREOF, the undersigned have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the day and year first hereinabove written. ANSWERTHINK CONSULTING GROUP, INC. By: -------------------------- Name: Title: THE EXECUTIVE: ----------------------------- -15- Schedule to Exhibit 10.14 ------------------------- Parties to Employment Agreement - - ------------------------------- Ted A. Fernandez Allan R. Frank Ulysses S. Knotts, III -16- EX-10.17 7 EXHIBIT 10.17 EXHIBIT 10.17 EMPLOYMENT AGREEMENT --------------------- This EMPLOYMENT AGREEMENT ("Agreement") is entered into as of this ________ day of _____________, 1998, by and between AnswerThink Consulting Group, Inc., a Florida corporation (the "Company"), and LUIS SAN MIGUEL (the "Executive"). WHEREAS, the Company and the Executive have entered into an Employment Agreement dated as of July 22, 1997 (the "Employment Agreement"); WHEREAS, the Company and the Executive desire to terminate and replace the Employment Agreement by entering into this Agreement and the Company desires to employ the Executive, and the Executive desires to be employed by the Company, on the terms and conditions set forth herein from and after the completion of the initial public offering of the Company's Common Stock (the "Offering Date"); and WHEREAS, the board of directors of the Company (the "Board") has approved and authorized the entry into this Agreement with the Executive. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows: 1. Employment Agreement. On the terms and conditions set forth in this -------------------- Agreement, the Company agrees to employ the Executive and the Executive agrees to be employed by the Company for the Employment Period set forth in Section 2 hereof and in the position and with the duties set forth in Section 3 hereof. Terms used herein with initial capitalization are defined in Section 21 below. 2. Term. The initial term of employment under this Agreement shall be ---- for a three-year period commencing on the Offering Date (the "Initial Term"). The term of employment shall be automatically renewed for an additional consecutive 12-month period (the "Extended Term") as of the first and every subsequent anniversary of the Offering Date, unless and until either party provides written notice to the other party in accordance with Section 11 hereof not less than 90 days before such anniversary date that such party is terminating the term of employment under this Agreement, which termination shall be effective as of the end of such Initial Term or Extended Term, as the case may be, or until such term of employment is otherwise terminated as hereinafter set forth. Such Initial Term and all such Extended Terms are collectively referred to herein as the "Employment Period." The parties' obligations under Sections 7, 9 and 10 hereof shall survive the expiration or termination of the Employment Period. 1 3. Position and Duties. The Executive shall serve as Executive Vice ------------------- President, Finance and Chief Financial Officer of the Company during the Employment Period. As the Executive Vice President, Finance and Chief Financial Officer of the Company, the Executive shall render executive, policy and other management services to the Company of the type customarily performed by persons serving in a similar officer capacity. The Executive shall report to the Chief Executive Officer of the Company, except as otherwise determined by the Chief Executive Officer or the Board. The Executive shall also perform such duties as the Chief Executive Officer or the Board may from time to time reasonably determine and assign to the Executive. During the Employment Period, there shall be no material change in the duties and responsibilities of the Executive from those previously in effect, other than as provided herein, unless the parties otherwise agree in writing. The Executive shall devote the Executive's reasonable best efforts and substantially full business time to the performance of the Executive's duties and the advancement of the business and affairs of the Company. 4. Place of Performance. In connection with the Executive's employment -------------------- by the Company, the Executive shall be based at the principal executive offices of the Company, except as otherwise agreed by the Executive and the Company and except for reasonable travel on Company business. If the Executive is required to relocate his place of employment to a location more than 50 miles from its location as of the date of this Agreement, the Company shall pay or reimburse the Executive for the reasonable moving and relocation expenses incurred by him to establish a personal residence at the new location, including reasonable traveling and temporary living expenses. 5. Compensation. ------------ (a) Base Salary. During the Employment Period, the Company shall pay ----------- to the Executive an annual base salary (the "Base Salary"), which initially shall be at the rate of $175,000 per year. The Base Salary shall be reviewed no less frequently than annually and may be increased at the discretion of the Board. If the Executive's Base Salary is increased, the increased amount shall be the Base Salary for the remainder of the Employment Period. Except as otherwise agreed in writing by the Executive, the Base Salary shall not be reduced from the amount previously in effect during the Employment Term. The Base Salary shall be payable biweekly or in such other installments as shall be consistent with the Company's payroll procedures. (b) Bonus. During the Employment Period, the Executive may also be ----- eligible to earn an annual bonus pursuant to a bonus plan adopted by the Board for each fiscal year. (c) Benefits. During the Employment Period, the Executive will be -------- entitled to such other benefits approved by the Board and made available to -2- employees. Nothing contained in this Agreement shall prevent the Company from changing carriers or from effecting modifications in insurance coverage for the Executive. (d) Vacation; Holidays. The Executive shall be entitled to all public ------------------ holidays observed by the Company and vacation days in accordance with the applicable vacation policies for senior executives of the Company, which shall be taken at a reasonable time or times. (e) Withholding Taxes and Other Deductions. To the extent required by -------------------------------------- law, the Company shall withhold from any payments due Executive under this Agreement any applicable federal, state or local taxes and such other deductions as are prescribed by law or Company policy. 6. Expenses. The Executive is expected and is authorized to incur -------- reasonable expenses in the performance of his duties hereunder, including the costs of entertainment, travel, and similar business expenses incurred in the performance of his duties. The Employers shall reimburse the Executive for all such expenses promptly upon periodic presentation by the Executive of an itemized account of such expenses. 7. Confidentiality; Work Product. ----------------------------- (a) Information. The Executive acknowledges that the information, ----------- observations and data obtained by the Executive concerning the business and affairs of the Company and its Subsidiaries and their predecessors during the course of the Executive's performance of services for, or employment with, any of the foregoing persons (whether or not compensated for such services) are the property of the Company and its Subsidiaries, including information concerning acquisition opportunities in or reasonably related to the business or industry of the Company or its Subsidiaries of which the Executive becomes aware during such period. Therefore, the Executive agrees that he will not at any time (whether during or after the Employment Period) disclose to any unauthorized person or, directly or indirectly, use for the Executive's own account, any of such information, observations or data without the Board's consent, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a direct or indirect result of the Executive's acts or omissions to act or the acts or omissions to act of other senior or junior management employees of the Company and its Subsidiaries. The Executive agrees to deliver to the Company at the termination of the Executive's employment, or at any other time the Company may request in writing (whether during or after the Employment Period), all memoranda, notes, plans, records, reports and other documents, regardless of the format or media (and copies thereof), relating to the business of the Company and its Subsidiaries and their predecessors (including, -3- without limitation, all acquisition prospects, lists and contact information) which the Executive may then possess or have under the Executive's control. (b) Inventions and Patents. The Executive acknowledges that all ---------------------- inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) that relate to the actual or anticipated business, research and development or existing or future products or services of the Company or its Subsidiaries that are conceived, developed, made or reduced to practice by the Executive while employed by the Company or any of its predecessors ("Work Product") belong to the Company and the Executive hereby assigns, and agrees to assign, all of the above to the Company. Any copyrightable work prepared in whole or in part by the Executive in the course of the Executive's work for any of the foregoing entities shall be deemed a "work made for hire" under the copyright laws, and the Company shall own all rights therein. To the extent that any such copyrightable work is not a "work made for hire," the Executive hereby assigns and agrees to assign to Company all right, title and interest, including without limitation, copyright in and to such copyrightable work. The Executive shall promptly disclose such Work Product and copyrightable work to the Board and perform all actions reasonably requested by the Board (whether during or after the Employment Period) to establish and confirm the Company's ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). (c) Enforcement. The Executive acknowledges that the restrictions ----------- contained in Section 7(a) hereof are reasonable and necessary, in view of the nature of the Company's business, in order to protect the legitimate interests of the Company, and that any violation thereof would result in irreparable injury to the Company. Therefore, the Executive agrees that in the event of a breach or threatened breach by the Executive of the provisions of Section 7(a) hereof, the Company shall be entitled to obtain from any court of competent jurisdiction, preliminary or permanent injunctive relief restraining the Executive from disclosing or using any such confidential information. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including, without limitation, recovery of damages from the Executive. 8. Termination of Employment. ------------------------- (a) Permitted Terminations. The Executive's employment hereunder may ---------------------- be terminated during the Employment Term without any breach of this Agreement only under the following circumstances: (i) Death. The Executive's employment hereunder shall terminate ----- upon the Executive's death; -4- (ii) By the Company. The Company may terminate the Executive's -------------- employment: (A) If the Executive shall have been unable to perform all of the Executive's duties hereunder by reason of illness, physical or mental disability or other similar incapacity, which inability shall continue for more than three consecutive months; or (B) For Cause; or (iii) By the Executive. The Executive may terminate employment ---------------- for Good Reason. (b) Termination. Any termination of the Executive's employment by the ----------- Company or the Executive (other than because of the Executive's death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 11 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon, if any, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. Termination of the Executive's employment shall take effect on the Date of Termination. 9. Compensation Upon Termination. ----------------------------- (a) Death. If the Executive's employment is terminated during the ----- Employment Term as a result of the Executive's death, the Company shall pay to the Executive's estate, or as may be directed by the legal representatives of such estate, the Executive's full Base Salary through the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any bonus or incentive compensation plan or program of the Company pursuant to Sections 5(b) and (c) hereof, at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement. (b) Disability. If the Company terminates the Executive's employment ---------- during the Employment Term because of the Executive's disability pursuant to Section 8(a)(ii)(A) hereof, the Company shall pay the Executive the Executive's full Base Salary through the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any bonus or incentive compensation plan or program of the Company pursuant to Sections 5(b) and (c) hereof, at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement; provided, that payments so made to the -------- Executive during any period that the Executive is unable to perform all of the -5- Executive's duties hereunder by reason of illness, physical or mental illness or other similar incapacity shall be reduced by the sum of the amounts, if any, payable to the Executive at or prior to the time of any such payment under disability benefit plans of the Company and which amounts were not previously applied to reduce any such payment. (c) By the Company with Cause or by the Executive without Good Reason. ----------------------------------------------------------------- If the Company terminates the Executive's employment during the Employment Term for Cause pursuant to Section 8(a)(ii)(B) hereof or if the Executive voluntarily terminates the Executive's employment during the Employment Term other than for Good Reason, the Company shall pay the Executive the Executive's full Base Salary through the Date of Termination and all other unpaid amounts, if any, to which Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any bonus or incentive compensation plan or program of the Company pursuant to Sections 5(b) and (c) hereof, at the time such payments are due, and the Company shall have no further obligations to the Executive under this Agreement. (d) By the Company without Cause or by the Executive for Good Reason. ---------------------------------------------------------------- If the Company terminates the Executive's employment during the Employment Term other than for Cause, disability or death pursuant to Section 8(a)(i) or (ii) hereof, or the Executive terminates his employment during the Employment Term for Good Reason pursuant to Section 8(a)(iii) hereof, the Company shall pay the Executive (A) the Executive's full Base Salary through the Date of Termination and all other unpaid amounts, if any, to which the Executive is entitled as of the Date of Termination in connection with any fringe benefits or under any bonus or incentive compensation plan or program of the Company pursuant to Sections 5(b) and (c) hereof, at the time such payments are due and (B) subject to Sections 9(e) and 9(f) hereof: (i) No Change of Control. Except as provided in Section 9(d)(ii) -------------------- hereof, during the six-month period commencing on the Date of Termination (the "Initial Period"), the Company shall pay the Executive an aggregate amount equal to Executive's Base Salary, payable in equal installments on the Company's regular salary payment dates, and any other amounts that would have been payable to or on behalf of the Executive under Section 5(c) hereof (the "Severance Payments"). In addition, the Company shall have the option, by delivering written notice to the Executive in accordance with Section 11 hereof within 90 days after the Date of Termination, to extend the severance period to the first anniversary of the Date of Termination (the "Extended Period"). During the Extended Period, the Company will continue to make Severance Payments at the same annual rate to the Executive. Notwithstanding the foregoing and without in any way modifying the provisions of Sections 7 and 10 hereof, from and after the first date that Executive becomes employed with another Person or provides services as a consultant or other self-employed individual, the Company, at its -6- option, may eliminate or otherwise reduce the amount of Severance Payments otherwise required to be made pursuant to this Section 9(d)(i) to the extent of the compensation and benefits received by the Executive from such other employment or self-employment; or (ii) Change of Control. If such termination is in anticipation of, in ----------------- connection with or within one year after the date of a Change of Control, the Company shall pay the Executive an aggregate amount equal to Executive's Base Salary, payable in equal installments on the Company's regular salary payment dates, and any other amounts that would have been payable to or on behalf of the Executive under Section 5(c) hereof (the "Severance Payments") from the Date of Termination through the first anniversary of the Date of Termination at the time such payments would otherwise have been due in accordance with the Company's normal payroll practices, and the Company shall have no further obligations to the Executive under this Agreement. In addition, in such event, the Executive's rights with respect to stock options and shares of restricted stock previously granted by the Company, deferred and incentive compensation or bonus amounts awarded by the Company and other contingent or deferred compensation awards or grants made by the Company, or otherwise made in connection with the Executive's employment hereunder, shall be fully vested and nonforfeitable as of the Date of Termination, except to the extent inconsistent with the terms of any such plan or arrangement that is intended to qualify under Section 401(a) or 423 of the Code. For purposes of Section 10 hereof, the "Initial Period" shall be the first 12 months following the Date of Termination. (e) Parachute Limitations. Notwithstanding any other provision of --------------------- this Agreement or of any other agreement, contract or understanding heretofore or hereafter entered into by the Executive with the Company or any subsidiary or affiliate thereof, except an agreement, contract or understanding hereafter entered into that expressly modifies or excludes application of this Section 9(e) (the "Other Agreements"), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Company (or any subsidiary or affiliate thereof) for the direct or indirect compensation of the Executive (including groups or classes of participants or beneficiaries of which the Executive is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Executive (a "Benefit Plan"), if the Executive is a "disqualified individual" (as defined in Section 280G(c) of the Internal Revenue Code of 1986, as amended (the "Code")), the Executive shall not have any right to receive any payment or benefit under this Agreement, any Other Agreement or any Benefit Plan (i) to the extent that such payment or benefit, taking into account all other rights, payments or benefits to or for the Executive under this Agreement, all Other Agreements and all Benefit Plans, would cause any payment or benefit to the Executive under this Agreement, any Other Agreement or any Benefit Plan to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a --- -7- Parachute Payment, the aggregate after-tax amount received by the Executive under this Agreement, all Other Agreements and all Benefit Plans would be less than the maximum after-tax amount that could be received by the Executive without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such payment or benefit under this Agreement, any Other Agreement or any Benefit Plan would cause the Executive to be considered to have received a Parachute Payment that would have the adverse after-tax effect described in clause (ii) of the preceding sentence, then the Executive shall have the right, in the Executive's sole discretion, to designate those rights, payments or benefits under this Agreement, any Other Agreement and any Benefit Plan that should be reduced or eliminated so as to avoid having the payment or benefit to the Executive under this Agreement be deemed to be a Parachute Payment. (f) Mitigation. The Company's obligation to continue to provide the ---------- Executive with benefits pursuant to Section 9(d)(i) or (ii) above shall cease if the Executive becomes eligible to participate in benefits substantially similar to those provided under this Agreement as a result of the Executive's subsequent employment during the period that the Executive is entitled to receive Severance Payments. (g) Liquidated Damages. The parties acknowledge and agree that ------------------ damages which will result to the Executive for termination by the Company without Cause or by the Executive for Good Reason shall be extremely difficult or impossible to establish or prove, and agree that the Severance Payments shall constitute liquidated damages for any breach of this Agreement by the Company through the Date of Termination. The Executive agrees that, except for such other payments and benefits to which the Executive may be entitled as expressly provided by the terms of this Agreement or any applicable Benefit Plan, such liquidated damages shall be in lieu of all other claims that the Executive may make by reason of termination of his employment or any such breach of this Agreement and that, as a condition to receiving the Severance Payments, the Executive will execute a release of claims in a form reasonably satisfactory to the Company. 10. Noncompetition and Nonsolicitation. ---------------------------------- (a) Noncompetition. The Executive acknowledges that in the course of -------------- his employment with the Company and its Subsidiaries and their predecessors, he has and will continue to become familiar with the trade secrets of, and other confidential information concerning, the Company and its Subsidiaries, that the Executive's services will be of special, unique and extraordinary value to the Company and its Subsidiaries and that the Company's ability to accomplish its purposes and to successfully pursue its business plan and compete in the marketplace depend substantially on the skills and expertise of the Executive. Therefore, and in further consideration of the compensation being paid to the -8- Executive hereunder, the Executive agrees that, during the Employment Period and any Initial Period or Extended Period, so long as Severance Payments are being made or during any portion of the Initial or Extended Period that Severance Payments are not required to be made pursuant to the last sentence of Section 9(d)(i) hereof (the "Noncompete Period"), he shall not directly or indirectly own, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the businesses of the Company, its Subsidiaries, or any business in which the Company or its Subsidiaries has commenced negotiations or has requested and received information relating to the acquisition of such business within eighteen months prior to the termination of the Executive's employment with the Company, in any country where the Company, its Subsidiaries, or other aforementioned business conducts business. (b) Nonsolicitation. During the Employment Period and for two years --------------- following the Date of Termination, the Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any Subsidiary to leave the employ of the Company or such Subsidiary, or in any way willfully interfere with the relationship between the Company or any Subsidiary and any employee thereof, (ii) induce or attempt to induce any customer, supplier, licensee or other business relation of the Company or any Subsidiary to cease doing business with the Company or such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee or business relation and the Company or any Subsidiary or (iii) initiate or engage in any discussions regarding an acquisition of, or the Executive's employment (whether as an employee, an independent contractor or otherwise) by, any businesses in which the Company or any of its Subsidiaries has entertained discussions or has requested and received information relating to the acquisition of such business by the Company or its Subsidiaries upon or within the 18-month period prior to the Date of Termination. (c) Enforcement. If, at the time of enforcement of this Section 10, a ----------- court holds that the restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law. Because the Executive's services are unique and because the Executive has access to confidential information, the parties hereto agree that money damages would be an inadequate remedy for any breach of any provision of this Agreement. Therefore, in the event a breach or threatened breach by the Executive of any provision of this Agreement, the Company may, in addition to other rights and remedies existing in its favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any violations of, the provisions hereof (without posting a bond or other security). -9- 11. Notices. All notices, demands, requests or other communications ------- required or permitted to be given or made hereunder shall be in writing and shall be delivered, telecopied or mailed by first class registered or certified mail, postage prepaid, addressed as follows: (a) If to the Company: (b) If to the Executive: or to such other address as may be designated by either party in a notice to the other. Each notice, demand, request or other communication that shall be given or made in the manner described above shall be deemed sufficiently given or made for all purposes three days after it is deposited in the U.S. mail, postage prepaid, or at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, the answer back or the affidavit of messenger being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. 12. Severability. The invalidity or unenforceability of any one or more ------------ provisions of this Agreement shall not affect the validity or enforceability of the other provisions of this Agreement, which shall remain in full force and effect. 13. Survival. It is the express intention and agreement of the parties -------- hereto that the provisions of Sections 7, 9 and 10 hereof shall survive the termination of employment of the Executive. In addition, all obligations of the Company to make payments hereunder shall survive any termination of this Agreement on the terms and conditions set forth herein. 14. Assignment. The rights and obligations of the parties to this ---------- Agreement shall not be assignable or delegable, except that (i) in the event of the Executive's death, the personal representative or legatees or distributees of the Executive's estate, as the case may be, shall have the right to receive any amount owing and unpaid to the Executive hereunder and (ii) the rights and obligations of the Company hereunder shall be assignable and delegable in connection with any subsequent merger, consolidation, sale of all or substantially all of the assets of the Company or similar reorganization of a successor corporation. 15. Binding Effect. Subject to any provisions hereof restricting -------------- assignment, this Agreement shall be binding upon the parties hereto and shall inure to the benefit of the parties and their respective heirs, devisees, executors, administrators, legal representatives, successors and assigns. -10- 16. Amendment; Waiver. This Agreement shall not be amended, altered or ----------------- modified except by an instrument in writing duly executed by the parties hereto. Neither the waiver by either of the parties hereto of a breach of or a default under any of the provisions of this Agreement, nor the failure of either of the parties, on one or more occasions, to enforce any of the provisions of this Agreement or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any subsequent breach or default of a similar nature, or as a waiver of any such provisions, rights or privileges hereunder. 17. Headings. Section and subsection headings contained in this Agreement -------- are inserted for convenience of reference only, shall not be deemed to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of any of the provisions hereof. 18. Governing Law. This Agreement, the rights and obligations of the ------------- parties hereto, and any claims or disputes relating thereto, shall be governed by and construed in accordance with the laws of the State of Florida (but not including the choice of law rules thereof). 19. Entire Agreement; Employment Agreement Terminated and Superseded. By ---------------------------------------------------------------- mutual consent, effective as of the Offering Date, the parties hereby terminate the Employment Agreement and this Agreement shall supersede and replace the Employment Agreement. This Agreement constitutes the entire agreement between the parties respecting the employment of Executive, there being no representations, warranties or commitments except as set forth herein. 20. Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be an original and all of which shall be deemed to constitute one and the same instrument. 21. Definitions. ----------- "Agreement" means this Employment Agreement. --------- "Base Salary" is defined in Section 5(a) above. ----------- "Beneficial Owner" means a beneficial owner within the meaning of ---------------- Rule 13d-3 under the Securities Exchange Act of 1934, as amended. "Benefit Plan" is defined in Section 9(e) above. ------------ "Board" means the board of directors of the Company. ----- "Cause" means (i) the commission of a felony or a crime involving ----- moral turpitude or the commission of any other act or omission involving dishonesty or fraud with respect to the Company or any of its Subsidiaries or any of -11- their customers or suppliers, (ii) conduct tending to bring the Company or any of its Subsidiaries into substantial public disgrace or disrepute, (iii) substantial and repeated failure to perform duties of the office held by the Executive as reasonably directed by the Board, and such failure is not cured within 30 days after the Executive receives notice thereof from the Board, (iv) gross negligence or willful misconduct with respect to the Company or any of its Subsidiaries or (v) any breach of Section 7 or 10 of this Agreement. "Code" is defined in Section 9(e) above. ---- "Company" means AnswerThink Consulting Group, Inc. and its successors ------- and assigns. "Date of Termination" means (i) if the Executive's employment is ------------------- terminated by the Executive's death, the date of the Executive's death; (ii) if the Executive's employment is terminated because of the Executive's disability pursuant to Section 8(a)(ii)(A) hereof, 30 days after Notice of Termination, provided that the Executive shall not have returned to the performance of the Executive's duties on a full-time basis during such 30-day period; (iii) if the Executive's employment is terminated by the Company for Cause pursuant to Section 8(a)(ii)(B) hereof or by the Executive for Good Reason pursuant to Section 8(a)(iii) hereof, the date specified in the Notice of Termination; or (iv) if the Executive's employment is terminated during the Employment Term other than pursuant to Section 8(a), the date on which Notice of Termination is given. "Employment Agreement" means the Employment Agreement dated as of July -------------------- 22, 1997, as amended, by and between the Company and the Executive. "Employment Period" is defined in Section 2 above. ----------------- "Executive" means Luis San Miguel. --------- "Extended Period" is defined in Section 9(d)(i) above. --------------- "Extended Term" is defined in Section 2 above. ------------- "Good Reason" means (i) the Company's failure to perform or observe ----------- any of the material terms or provisions of this Agreement, and the continued failure of the Company to cure such default within 30 days after written demand for performance has been given to the Company by the Executive, which demand shall describe specifically the nature of such alleged failure to perform or observe such material terms or provisions; or (ii) a material reduction in the scope of the Executive's responsibilities and duties. "Initial Period" is defined in Section 9(d) above. -------------- -12- "Initial Term" is defined in Section 2 above. ------------ "Noncompete Period" is defined in Section 10(a) above. ----------------- "Notice of Termination" is defined in Section 8(b) above. --------------------- "Offering Date" means the date of the completion of an initial public ------------- offering of the Company's Common Stock. "Other Agreements" is defined in Section 9(e) above. ---------------- "Parachute Payment" is defined in Section 9(e) above. ----------------- "Person" means an individual, a partnership, a limited liability ------ company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Severance Payments" is defined in Section 9(d) above. ------------------ "Subsidiary" means any corporation of which the Company owns ---------- securities having a majority of the ordinary voting power in electing the board of directors directly or through one or more subsidiaries. "Subsidiary" means any corporation of which the Company owns ---------- securities having a majority of the ordinary voting power in electing the board of directors directly or through one or more subsidiaries. "Work Product" is defined in Section 7(b) above. ------------ -13- IN WITNESS WHEREOF, the undersigned have duly executed this Agreement, or have caused this Agreement to be duly executed on their behalf, as of the day and year first hereinabove written. ANSWERTHINK CONSULTING GROUP, INC. By: ------------------------------- Name: Title: THE EXECUTIVE: ----------------------------------- -14- EX-10.19 8 EXHIBIT 10.19 EXHIBIT 10.19 AMENDMENT NO. 2 TO PURCHASE AGREEMENT MADE AS OF APRIL 23, 1997 AMONG ANSWERTHINK CONSULTING GROUP, INC., GOLDER, THOMA CRESSEY, RAUNER FUND V, L.P., MG CAPITAL PARTNERS II, L.P. GATOR ASSOCIATES, LTD. AND TARA VENTURES, LTD. WHEREAS, AnswerThink Consulting Group, Inc., a Florida corporation (the "Company") and each of the shareholders of the Company listed on Schedule 1 ---------- hereto (the "Shareholders") are parties to the certain Purchase Agreement dated as of April 23, 1997 among the Company, Golder, Thoma Cressey, Rauner Fund V, L.P., a Delaware limited partnership, MG Capital Partners II, L.P., a Delaware limited partnership, Gator Associates, Ltd., a Florida limited partnership, and Tara Ventures, Ltd., a British Virgin Islands corporation (the "Agreement"), as amended by that certain Amendment No. 1 to the Agreement, dated as of April 13, 1998 (the "Amendment"); WHEREAS, the Shareholders who are executing this Amendment No. 1 (the "Required Shareholders") hold, collectively, at least 70% of the "Investor Stock," as such term is defined in the Agreement; and WHEREAS, the Company and the Required Shareholders wish to amend the Agreement and replace the Amendment as set forth herein; NOW, THEREFORE, the Company and the Required Shareholders hereby agree as follows: 1. Replacement of the Amendment. This Amendment No. 2 to the Agreement ---------------------------- supersedes and replaces the Amendment in all respects. 2. Section 3E (Preemptive Rights). Section 3E of the Agreement shall be ------------------------------ deleted in its entirety. 3. Section 4(iv) (Rights of First Refusal). Section 4(iv) of the Agreement --------------------------------------- shall be deleted in its entirety. 4. Section 6 (Definitions). Section 6 of the Agreement shall be amended by ----------------------- adding thereto the following new definition: "Common Stock" means the common stock of the Company, par value $.001 ------------ per share, and any other shares of capital stock of a corporation issued in exchange for such common stock in connection with an exchange or combination of shares, recapitalization, merger, consolidation or other reorganization. 5. Remaining Provisions. In all other respects, the Agreement remains -------------------- unchanged. 6. Effective Date. This Amendment No. 2 to the Agreement shall be effective as -------------- of the date upon which the Company signs an underwriting agreement relating to its initial public offering. * * * * * 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 as of this 5th day of May, 1998. ANSWERTHINK CONSULTING GROUP, INC. By: /s/ Ted A. Fernandez -------------------- Ted A. Fernandez President, Chief Executive Officer and Chairman REQUIRED SHAREHOLDERS:
Golder, Thoma Cressey, Rauner Fund V, L.P. /s/ Priscilla Cooney - - --------------------------------- By: /s/ Bruce Rauner Priscilla Cooney --------------------------------- /s/ Edmund R. Miller GTCR Associates V - - --------------------------------- Edmund R. Miller By: /s/ Bruce Rauner --------------------------------- [Signature appears here] - - --------------------------------- Southeast Investments International, Ltd. George E. Miller By: /s/ Edmund R. Miller --------------------------------- [Signature appears here] - - --------------------------------- Fernando and Cecelia Montero Southeast Investments, L.P. By: /s/ Edmund R. Miller [Erich Ozada --------------------------------- - - --------------------------------- Name: Erich Ozada for Lighthouse Partners USA, L.P. Rock Creek Partners, L.P. by its General Partner, Archery Capital By: [Signature appears here] --------------------------------- [Signature appears here] By: James H. Dahl - - --------------------------------- Managing General Partner Name: Erich Ozada - - --------------------------------- --------------------------------------- Name: Name:
3 SCHEDULE ---------- SHAREHOLDERS ------------ AB Hannells Industrier GTCR Associates V Dr. James D. Askew and Christina Donnell Guthrie Mrs. Pamela Askew Donnell S. Guthrie James D. Askew, cust. for Elizabeth Staton Guthrie Amanda F. Askew, UALUGTMA George Gordon Guthrie, Jr. Marisa E. Askew Bonni Gelman Harris Atlantic Balanced Fund Bonni Harris, cust. for Ana Azcuy Jason Ross Harris, UGTMA/FL Bank Morgan Stanley AG Bonni Harris, cust. for BFC Holdings, Inc. Nikki Lee Harris, UGTMA/FL Leonardo F. Brito Holterman Corporation Juan Carlos Campuzano and Carmen Howell Mayra R. Campuzano Lighthouse Partners USA, L.P. Priscilla Cooney Family Trust of Nathan A. Low, dated Mark Dreier 4/12/96, N. Low, Trustee Steven L. Eber MG Capital Partners II, L.P. Pippa J. Ellis Edmund R. Miller Alex Fernandez George E. Miller Aurelio E. Fernandez and Fernando Montero and Berta T. Fernandez Cecelia Montero Bernard Frank Alain Oihayon Muriel I. Frank Erinch R. Ozada Duff Adam Gelman Alan Penn and Roberta Penn Duff Gelman, cust. for A. Markman Peters and Devra Leya Gelman, UGTMA/FL Jenny R. Peters Duff Gelman, cust. for Brian Pfeifler Ellen Behia Gelman, UGTMA/FL Pharos Fund Limited Duff Gelman, cust. for Delaware Charter Guarantee & Trust Jude Gelman, UGTMA/FL Co., TTEE, FBO S. Daniel Ponce Karen Gelman Robert I. Rafford, Jr. Mila Ann Gelman Rock Creek Partners, L.P. Mila Gelman-Johnson, cust. for Luis San Miguel and Spencer Gelman-Johnson, Mercedes San Miguel UGTMA/CA Joseph Salvani Theodore Gelman Rev. Trust, Southeast Investments T. Gelman and International, Ltd. E. Gelman, TTEES, UDA 8/5/93 Southeast Investments, L.P. Golder, Thoma Cressey, Rauner Southampton Ltd. Fund V, L.P. 4 EX-10.21 9 EXHIBIT 10.21 EXHIBIT 10.21 AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER DATED AS OF AUGUST 1, 1997 AMONG ANSWERTHINK CONSULTING GROUP, INC. RELATIONAL TECHNOLOGIES, INC. AND ALL OF THE SHAREHOLDERS OF RELATIONAL TECHNOLOGIES, INC. WHEREAS, AnswerThink Consulting Group, Inc., a Florida corporation (the "Purchaser"), Relational Technologies, Inc., a Georgia corporation (the "Company"), and all of the shareholders of the Company as listed on the signature page attached hereto (collectively the "Sellers") entered into that certain Agreement and Plan of Merger dated as of August 1, 1997 (the "Agreement"), as amended by that certain Amendment No. 1 to the Agreement dated as of April 13, 1998 (the "Amendment") whereby the Company merged with and into the Purchaser pursuant to which merger the Sellers received shares of common stock in the Purchaser, par value $.001 per share (the "Common Stock"); and WHEREAS, the Purchaser and the Sellers wish to amend the Agreement and replace the Amendment as set forth herein; NOW, THEREFORE, the Purchaser and the Sellers hereby agree as follows: 1. Replacement of the Amendment. This Amendment No. 2 to the Agreement ---------------------------- supersedes and replaces the Amendment in all respects. 2. Defined Terms. Capitalized terms used herein and not otherwise defined are ------------- used as defined in the Agreement. 3. Section 5.10(a) (Restrictions on Transfer -- General). Section 5.10(a) of ----------------------------------------------------- the Agreement shall be amended and restated in its entirety to read as follows: (a) Transfer of Purchaser Common Stock. Until the fourth anniversary of this Agreement, no Seller shall Transfer any interest in any shares of Purchaser Common Stock received pursuant to this Agreement, except pursuant to (i) a Public Sale or a Sale of the Company or (ii) the provisions of this Section 5.10. 4. Section 5.10(b) (Restrictions on Transfer -- Rights of First Refusal). --------------------------------------------------------------------- Section 5.10(b) of the Agreement shall be deleted in its entirety. 5. Section 5.10(c) (Restrictions on Transfer -- Participation Rights). ------------------------------------------------------------------ Section 5.10(c) of the Agreement shall be deleted in its entirety. 6. Section 8.3 (Definitions). Section 8.3 of the Agreement shall be amended ------------------------- by adding thereto the following new subsection: (bb) "Purchaser Common Stock" means the common stock of the Purchaser, par value $.001 per share, and any other shares of capital stock of a corporation issued in exchange for such common stock in connection with an exchange or combination of shares, recapitalization, merger, consolidation or other reorganization. 7. Remaining Provisions. In all other respects, the Agreement remains -------------------- unchanged. 8. Effective Date. This Amendment No. 2 to the Agreement shall be effective as -------------- of the date upon which the Company signs an underwriting agreement relating to its initial public offering. * * * * * 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2 as of this 5th day of May, 1998. ANSWERTHINK CONSULTING GROUP, INC. By: /s/ Ted A. Fernandez --------------------------------------- Name: Ted A. Fernandez Title: President, Chief Executive Officer and Chairman SELLERS: /s/ Marvin Botnick ----------------------------------------------- Marvin Botnick /s/ John Dean ----------------------------------------------- John Dean /s/ James L. Grebe ----------------------------------------------- James L. Grebe /s/ Fred R. Herbert ----------------------------------------------- Fred R. Herbert /s/ Robert E. Jordan ----------------------------------------------- Robert E. Jordan /s/ John Shlesinger ----------------------------------------------- John Shlesinger /s/ Scott H. Smith ----------------------------------------------- Scott H. Smith /s/ Louis B. Todd, III ----------------------------------------------- Louis B. Todd, III 3 EX-10.23 10 EXHIBIT 10.23 - - -------------------------------------------------------------------------------- Exhibit 10.23 MERGER AGREEMENT by and among ANSWERTHINK CONSULTING GROUP, INC., (BUYER) ANSWERTHINK ACQUISITION SUB #1, INC., (NEWCO) LEGACY TECHNOLOGY, INC., (LEGACY) AND THE SHAREHOLDERS OF LEGACY (COLLECTIVELY, SELLERS) DATED AS OF APRIL 27, 1998 - - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE 1. Definitions...........................................................................................1 2. The Merger............................................................................................7 (a) The Merger......................................................................................7 (b) Effective Time of the Merger....................................................................7 (c) Certificate of Incorporation....................................................................8 (d) Bylaws..........................................................................................8 (e) Directors and Officers of Surviving Corporation.................................................8 (f) Effect of the Merger............................................................................8 (g) Conversion of Shares............................................................................8 (h) Purchase Price..................................................................................9 (i) Earned Payout Amount............................................................................9 (j) Form and Date of Payment of Earned Payout Amount...............................................10 (k) Working Capital Adjustment.....................................................................12 (l) Dissenting Shares..............................................................................13 (m) The Closing....................................................................................13 (n) Deliveries at the Closing......................................................................13 (o) Shareholders' Representative...................................................................14 3. Representations and Warranties Concerning the Transaction............................................15 (a) Representations and Warranties of each Seller..................................................15 (i) Authorization of Transaction..........................................................15 (ii) Noncontravention......................................................................15 (iii) Broker's Fees.........................................................................16 (iv) Investment............................................................................16 (v) Legacy Shares.........................................................................16 (vi) Disclosure............................................................................16 (b) Representations and Warranties of the Buyer and Newco..........................................17 (i) Organization of the Buyer and Newco...................................................17 (ii) Authorization of Transaction..........................................................17 (iii) Noncontravention......................................................................17 (iv) Brokers' Fees.........................................................................17 (v) Investment............................................................................18 (vi) Buyer's and Newco's Capitalization....................................................18 (vii) Disclosure............................................................................18 4. Representations and Warranties Concerning Legacy.....................................................18
-i- (a) Organization, Qualification, and Corporate Power...............................................19 (b) Capitalization.................................................................................20 (c) Noncontravention...............................................................................20 (d) Subsidiaries...................................................................................20 (e) Financial Statements...........................................................................20 (f) Events Subsequent to the Most Recent Fiscal Year End...........................................21 (g) Undisclosed Liabilities........................................................................23 (h) Tax Matters....................................................................................23 (i) Tangible Assets................................................................................25 (j) Owned Real Property............................................................................25 (k) Intellectual Property..........................................................................25 (l) Real Property Leases...........................................................................26 (m) Contracts......................................................................................27 (n) Notes and Accounts Receivable..................................................................29 (o) Powers of Attorney.............................................................................29 (p) Insurance......................................................................................29 (q) Litigation.....................................................................................30 (r) Employees......................................................................................30 (s) Employee Benefits..............................................................................30 (t) Guaranties.....................................................................................32 (u) Environment, Health, and Safety................................................................32 (v) Legal Compliance...............................................................................33 (w) Certain Business Relationships with Legacy.....................................................34 (x) Brokers' Fees..................................................................................34 (y) Disclosure.....................................................................................34 5. Pre-Closing Covenants................................................................................34 (a) General........................................................................................34 (b) Notices and Consents...........................................................................34 (c) Operation of Business..........................................................................34 (d) Preservation of Business.......................................................................35 (e) Access.........................................................................................35 (f) Notice of Developments.........................................................................35 (g) Exclusivity....................................................................................35 (i) Cancellation of Options, Bonus Programs and Phantom Stock Plans................................35 6. Additional Covenants.................................................................................36 (a) General........................................................................................36 (b) Litigation Support.............................................................................36 (c) Transition.....................................................................................36 (d) Confidentiality................................................................................37 (e) Termination of Bank Facilities; Release of Guaranties..........................................37 (f) Monitoring Information.........................................................................37
-ii- (g) Landlords' Consents............................................................................37 (h) Additional Tax Matters.........................................................................37 (i) Covenant Not to Compete........................................................................38 (j) Conduct During Earned Payout Period............................................................39 7. Conditions to Obligations to Close...................................................................41 (a) Conditions to Obligation of the Buyer..........................................................41 (b) Conditions to Obligations of the Sellers.......................................................44 8. Remedies for Breaches of This Agreement..............................................................45 (a) Survival.......................................................................................45 (b) Indemnification Provisions for Benefit of the Buyer............................................45 (c) Indemnification Provisions for Benefit of the Sellers..........................................48 (d) Matters Involving Third Parties................................................................48 (e) Exclusive Remedy...............................................................................49 (f) Payment; General Right of Offset...............................................................49 (g) Other Indemnification Provisions...............................................................49 (h) Arbitration with Respect to Certain Indemnification Matters....................................50 9. Termination..........................................................................................50 (a) Termination of Agreement.......................................................................50 (b) Effect of Termination..........................................................................51 10. Miscellaneous........................................................................................51 (a) [Reserved].....................................................................................51 (b) Press Releases and Announcements...............................................................51 (c) No Third-Party Beneficiaries...................................................................51 (d) Entire Agreement...............................................................................52 (e) Succession and Assignment......................................................................52 (f) Facsimile/Counterparts.........................................................................52 (g) Descriptive Headings...........................................................................52 (h) Notices........................................................................................52 (i) Governing Law..................................................................................53 (j) Amendments and Waivers.........................................................................54 (k) Severability...................................................................................54 (l) Expenses.......................................................................................54 (m) Construction...................................................................................54 (n) Incorporation of Exhibits, Annexes, and Schedules..............................................54 (o) Specific Performance...........................................................................54
-iii- LIST OF EXHIBITS, ANNEXES AND SCHEDULES EXHIBITS Exhibit A-1 Form of Promissory Note for Cash Equivalent Portion of Purchase Price Exhibit A-2 Form of Promissory Note for Exchange of Buyer's Shares in May, 2000 Exhibit B Financial Statements Exhibit C Form of Purchase Price Adjustment Agreement Exhibit D Form of Pledge Agreement Exhibit E-1 Form of Employment Agreement with Key Employees Exhibit E-2 Form of Compliance Agreement Exhibit F Form of Stock Option Agreement Exhibit G Confidentiality Agreement ANNEXES AND TABLES Annex A Buyer's Audited Financial Statements Annex I Determination of Adjusted EBITA of Legacy Annex II Exceptions to Representations and Warranties of Sellers Annex III Exceptions to Representations and Warranties of Buyer Annex IV [RESERVED] Annex V Persons to Deliver Employment Agreements Annex VI Persons to Deliver Compliance Agreements Annex VII Persons to Receive Options Table I Sample Calculations of Earned Payout Amount SCHEDULES Allocation Schedule Disclosure Schedule -iv- MERGER AGREEMENT This MERGER AGREEMENT ("AGREEMENT") is entered into as of the 27th day of April, 1998, by and among ANSWERTHINK CONSULTING GROUP, INC., a Florida corporation (the "BUYER"), ANSWERTHINK ACQUISITION SUB NO. 1, INC., a Massachusetts corporation and wholly owned subsidiary of Buyer ("NEWCO"), LEGACY TECHNOLOGY, INC., a Massachusetts corporation ("LEGACY"), and THE SHAREHOLDERS OF LEGACY LISTED ON THE SIGNATURE PAGE HEREOF (collectively, the "SELLERS"). The Buyer, Newco and the Sellers are referred to herein individually as a "PARTY" and collectively as the "PARTIES." Legacy and Newco are sometimes referred to herein as the "CONSTITUENT CORPORATIONS." If the context so requires, references herein to Legacy shall mean the Surviving Corporation (as hereinafter defined) for periods after the Closing Date. The Sellers collectively own all of the outstanding capital stock of Legacy. This Agreement contemplates a transaction in which Legacy will merge with and into Newco, with Newco being the surviving corporation, and the shares of capital stock of Legacy being converted into the right to receive the Purchase Price (as hereinafter identified), and the Parties intend such merger transaction to be a tax-free reorganization under Section 368 of the Code (as ----------- defined) and intend this Agreement to be a "plan of reorganization" within the meaning of the regulations promulgated under such section of the Code. Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows: 1. DEFINITIONS. ----------- "ADJUSTED EBITA OF LEGACY" means adjusted earnings before interest and taxes and goodwill amortization of Legacy during the Earned Payout Period as determined by Annex I attached hereto. ------- "ADVERSE CONSEQUENCES" means all damages from complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulations, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, liabilities, obligations, taxes, liens, losses, expenses, and fees, including all reasonable attorneys' fees and court costs. "AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. "AFFILIATED GROUP" means any affiliated group within the meaning of Code Sec. 1504 (or any similar group defined under a similar provision of state, local or foreign law). "ALLOCABLE PORTION" means with respect to the share of any Seller in a particular amount that fraction equal to the number of Legacy Shares the Seller holds as set forth in the Allocation Schedule over the total number of outstanding Legacy Shares. "BASIS" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms the reasonable basis for any specified consequence. "BUYER" has the meaning set forth in the preface above. "BUYER'S FINANCIAL STATEMENTS" has the meaning set forth in Section ------- 3(b) below. - - ---- "BUYER'S SHARES" means the shares of common stock, par value $0.001 per share, of Buyer. "CASH PORTION OF THE EARNED PAYOUT AMOUNT" has the meaning set forth in Section 2(j) below. ------------ "CASH EQUIVALENT PORTION OF THE PURCHASE PRICE" has the meaning set forth in Section 2(h) below. ------------ "CLOSING" has the meaning set forth in Section 2(m) below. ------------ "CLOSING DATE" has the meaning set forth in Section 2(m) below. ------------ "CODE" means the Internal Revenue Code of 1986, as amended. "CONFIDENTIAL INFORMATION" means all confidential information and trade secrets of Legacy including, without limitation, the identity, lists or descriptions of any customers, referral sources or organizations; financial statements, cost reports or other financial information; contract proposals, or bidding information; business plans and training and operations methods and manuals; personnel records; fee structure; and management systems, policies or procedures, including related forms and manuals; provided, that the Confidential Information shall not include information which (i) was or becomes generally available to the public other than as a result of a its disclosure under this Agreement, (ii) was or becomes available to the receiving party on a non- confidential basis from a source other than the Buyer or its advisors without breach of this Agreement provided that such source is not known to such receiving party, to any Seller or to any officer of Legacy to be bound by a confidentiality agreement with Buyer, or otherwise prohibited from transmitting the information to receiving party by a contractual, legal or fiduciary obligation, (iii) was within receiving party's possession prior to its being furnished to such receiving party by or on behalf of Buyer without breach of this Agreement, provided that the source of such information was not bound by a confidentiality agreement with Buyer or Legacy or otherwise prohibited from transmitting the information to the receiving party by a contractual, legal or fiduciary obligation, or (iv) which is required to be and actually is disclosed by operation of law. -2- "CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth in Code Sec. 1563. "CUSTOMER CONTRACT OR AGREEMENT" means any agreement whereby Legacy provides computer data warehousing and/or related consulting services to a third party during the 1997 or 1998 fiscal years of Legacy. "C&L EARNOUT DETERMINATION" shall have the meaning set forth in Section 2(j)(v) below. - - --------------- "C&L WORKING CAPITAL DETERMINATION" shall have the meaning set forth in Section 2(k) below. ------------ "DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth in Treas. Reg. (S)1.1502-13. "DISCLOSURE SCHEDULE" has the meaning set forth in Section 4 below. --------- "DOCUMENTATION" has the meaning set forth in Section 4(k) below. ------------ "EARNED PAYOUT AMOUNT" has the meaning set forth in Section 2(i) ------------ below. "EARNED PAYOUT PERIOD" means the period from May 1, 1998 through April 30, 1999. "EARNOUT DISAGREEMENT NOTICE" has the meaning set forth in Section ------- 2(j)(v) below. - - ------- "EFFECTIVE TIME" has the meaning set forth in Section 2(b) below. ------------ "EMPLOYEE BENEFIT PLAN" means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit Plan or Material fringe benefit plan or program. "EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Sec. 3(2). "EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Sec. 3(1). "EQUITABLE EXCEPTIONS" shall have the meaning set forth in Section ------- 3(a)(i) below. - - ------- -3- "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in Sec. 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "FIDUCIARY" has the meaning set forth in ERISA Sec. 3(21). "FINANCIAL STATEMENTS" has the meaning set forth in Section 4(e) ------------ below. "FORFEITED SHARES" has the meaning set forth in Section 2(o) below. ------------ "GAAP" means generally accepted accounting principles, consistently applied, as in effect from time to time. "INDEMNIFIED PARTY" has the meaning set forth in Section 8(d) below. ------------ "INDEMNIFYING PARTY" has the meaning set forth in Section 8(d) below. ------------ "INITIAL PUBLIC OFFERING" shall mean the first underwritten public offering of Buyer's common stock, pursuant to an effective registration statement under the Securities Act, with net proceeds to Buyer of not less than $10 million. "INTELLECTUAL PROPERTY" means all (a) trademarks, service marks, trade dress, logos, trade names, and corporate names and registrations and applications for registration thereof, (b) copyrights and registrations and applications for registration thereof, (c) computer software, data, and documentation, (d) trade secrets and confidential business information (including formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information), (e) other proprietary rights, and (f) copies and tangible embodiments thereof (in whatever form or medium). "KEY EMPLOYEES" has the meaning set forth in Section 7(a)(viii) below. ------------------ "Knowledge" means, with respect to Legacy, actual knowledge after reasonable inquiry by Sellers of the officers of Legacy with responsibility for the matters in question. "LEGACY" has the meaning set forth in the preface above. "LEGACY'S BUSINESS" means the business of providing consulting services to, writing custom software for, and implementing software in the data warehousing and OLAP (f/k/a DSS, EIS or Business Intelligence) markets. -4- "LEGACY OPTIONHOLDERS" means the holders of options for the purchase of Legacy Shares listed on the Allocation Schedule hereto. ------------------- "LEGACY OPTIONS" means all the agreements between Legacy and those persons listed on the Allocation Schedule hereto related to the issuance of ------------------- Legacy Shares. "LEGACY SHARES" means all outstanding shares of the common stock, $0.01 par value per share, of Legacy. "LIABILITY" means any liability, debt, obligation, amount or sum due (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due) including any liability for Taxes. "LICENSES" has the meaning set forth in Section 4(k) below. ------------ "MATERIAL" has the meaning set forth in Section 4 below. --------- "MBCL" has the meaning set forth in Section 2(a) below. ------------ "MERGER" has the meaning set forth in Section 2(a) below. ------------ "MINIMUM WORKING CAPITAL" has the meaning set forth in Section 2(k) ------------ below. "MOST RECENT BALANCE SHEET" means the balance sheet contained within the Most Recent Financial Statements. "MOST RECENT FINANCIAL STATEMENTS" means the Financial Statements for and as of the Most Recent Fiscal Year End. "MOST RECENT FISCAL YEAR END" has the meaning set forth in Section ------- 4(e) below. - - ---- "MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Sec. 3(37). "NET SERVICE REVENUES" means the gross revenue of Legacy as normally calculated on the Financial Statements less the sum of the following: (i) Legacy's cost of subcontractors, (ii) reimbursed expenses, and (iii) the cost of software that is resold by Legacy, all as calculated in accordance with GAAP. "NET WORKING CAPITAL OF LEGACY" means total current assets of Legacy less the sum of the following: (i) total current liabilities, (ii) any long-term debt of Legacy, determined in accordance with GAAP, consistently applied and on the accrual method of accounting; and (iii) all cash to accrual tax liabilities incurred by Legacy as a result the transactions contemplated by this Agreement. "NEWCO" has the meaning set forth in the preface above. -5- "1998 ADJUSTED EBITA PERCENTAGE" means the Adjusted EBITA of Legacy during the Earned Payout Period (prepared on an accrual basis of accounting and in accordance with GAAP) divided by the Net Service Revenues during the Earned Payout Period. "ORDINARY COURSE OF BUSINESS" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "OPTION CANCELLATION AGREEMENT" has the meaning set forth in Section ------- 7(a) herein. - - ---- "PARTY" has the meaning set forth in the preface above. "PBGC" means the Pension Benefit Guaranty Corporation. "POST IPO EARNOUT SHARES" has the meaning set forth in Section ------- 2(j)(ii) below. - - -------- "PRE IPO EARNOUT SHARES" has the meaning set forth in Section ------- 2(j)(iii) below. - - --------- "PROHIBITED TRANSACTION" has the meaning set forth in ERISA Sec. 406 and Code Sec. 4975. "PURCHASE PRICE" has the meaning set forth in Section 2(h) below. ------------ "PUZZANGHERA" means Paul J. Puzzanghera. "REGISTRATION AGREEMENT" means that certain Amended and Restated Registration Rights Agreement dated April 13, 1998 by and among Buyer and certain shareholders of Buyer (including Robert Jordan, John Shlesinger, Scott Smith and Louis Todd) for piggyback registration rights in connection with the Buyer's Shares. "REPORTABLE EVENT" has the meaning set forth in ERISA Sec. 4043. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SECURITY INTEREST" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and similar liens, (b) liens for Taxes not yet due and payable (or for Taxes that the taxpayer is contesting in good faith through appropriate proceedings), (c) liens arising under workers' compensation, unemployment insurance, social security, retirement, and similar legislation, (d) liens arising in connection with sales of foreign receivables, (e) liens on goods in transit incurred pursuant to documentary letters of credit, (f) purchase money liens and liens securing rental payments under capital lease arrangements, and (g) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. "SELLERS" has the meaning set forth in the preface above. -6- "SHAREHOLDERS' REPRESENTATIVE" has the meaning set forth in the Section 2(p) below. ------------ "STOCK PORTION OF THE EARNED PAYOUT AMOUNT" has the meaning set forth in Section 2(j) below. ------------ "STOCK PORTION OF THE PURCHASE PRICE" has the meaning set forth in Section 2(h) below. ------------ "SURVIVING CORPORATION" has the meaning set forth in Section ------- 2(a) below. - - ---- "SUBSIDIARY" means any corporation with respect to which another specified corporation has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "TAX" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty or addition thereto. "TAX RETURN" means any federal, foreign, state and local governmental tax return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "WORKING CAPITAL DISAGREEMENT NOTICE" has the meaning set forth in Section 2(k) below. ------------ 2. THE MERGER. ---------- (A) THE MERGER. At the Effective Time (as defined below), ---------- Legacy shall be merged with and into Newco (the "MERGER") and the separate existence of Legacy shall thereupon cease, and the name of Newco, as the surviving corporation in the Merger (the "SURVIVING CORPORATION"), shall by virtue of the Merger be "Legacy Technology, Inc.", and the Surviving Corporation shall operate as "Legacy Technology, Inc." in the Commonwealth of Massachusetts. The Merger shall have the effects set forth in the Massachusetts Business Corporation Law and Chapter 156B of the Massachusetts General Laws (collectively, the "MBCL"). (B) EFFECTIVE TIME OF THE MERGER. As soon as practicable ---------------------------- after the satisfaction or waiver of the conditions hereinafter set forth, the parties hereto will file with the Secretary of the State of the Commonwealth of Massachusetts a certificate or articles of merger or ownership and other documents (the "MERGER DOCUMENTS"), in such respective forms as required by, and executed in accordance with, the relevant provisions of the MBCL in order to effect the Merger. The Merger shall become effective at such time as the Merger Documents -7- shall have been accepted for filing with the Secretary of the State of the Commonwealth of Massachusetts or such other times and dates as the parties shall agree should be specified in the Merger Documents (the "EFFECTIVE TIME"). (C) CERTIFICATE OF INCORPORATION. The Certificate of ---------------------------- Incorporation of Newco in effect at the time of the Merger shall be the Certificate of Incorporation of the Surviving Corporation, until thereafter amended as provided thereunder and in the MBCL. (D) BYLAWS. The Bylaws of Newco in effect at the time of ------ the Merger shall be the Bylaws of the Surviving Corporation until altered, amended or repealed, as provided thereunder and in the Certificate of Incorporation and the MBCL. (E) DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. ----------------------------------------------- (I) The directors of Newco at the Effective Time shall be the directors of the Surviving Corporation and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualify in the manner provided in the Certificate of Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided by law. (II) The officers of Legacy at the Effective Time shall be the officers of the Surviving Corporation and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualify in the manner provided in the Certificate of Incorporation and Bylaws of the Surviving Corporation, or as otherwise provided by law. (F) EFFECT OF THE MERGER. The Merger shall have the effects -------------------- set forth in the MBCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchise of the Constituent Corporations shall vest in the Surviving Corporation, and all debts, liabilities and duties of the Constituent Corporations shall become the debts, liabilities and duties of the Surviving Corporation. The purpose of the Surviving Corporation shall be the purposes of Legacy immediately prior to the Merger. The total number of shares which the Surviving Corporation is authorized to issue shall be 100 shares of Common Stock, $.01 par value per share. (G) CONVERSION OF SHARES. At the Effective Time, by virtue -------------------- of the Merger and without any action on the part of the Sellers: (I) Each Legacy Share issued and outstanding immediately prior to the Effective Time (other than Legacy Shares as to which the holders thereof shall have properly exercised appraisal rights under the MBCL, if any) shall be converted into the right to receive in cash its Allocable Portion of the Purchase Price or as otherwise provided herein. -8- (II) Each Legacy Share held in the treasury of Legacy immediately prior to the Effective Time shall be canceled and retired and cease to exist. (III) Each share of common stock, par value $0.01 per share, of Newco issued and outstanding immediately prior to the Effective Time shall be converted into and exchangeable for one share of common stock, par value $0.01 per share, of the Surviving Corporation ("SURVIVING CORPORATION COMMON STOCK"). (H) PURCHASE PRICE. The purchase price for Legacy Shares -------------- shall be composed of the Cash Equivalent Portion of the Purchase Price, the Stock Portion of the Purchase Price and the Earned Payout Amount. The Buyer agrees to pay to the Sellers at the Closing the sum of $2,770,000 (to be reduced dollar for dollar by the sum of the payments made by Legacy to cancel and exchange the stock options described in Section 5(i)) in promissory notes (the "CASH EQUIVALENT PORTION OF THE PURCHASE PRICE") and 538,333 Buyer's Shares valued at $6.00 per share (the "STOCK PORTION OF THE PURCHASE PRICE") in exchange for the Legacy Shares. The Cash Equivalent Portion of the Purchase Price shall be issued by Buyer and payable to Sellers at the Closing by delivery of promissory notes in the form of and pursuant to the terms of Exhibit A-1 attached hereto in the amounts set forth on the Allocation Schedule; provided, ------------------- however, that each Seller enters into a Purchase Price Adjustment Agreement in the form attached hereto as Exhibit C. The Stock Portion of the Purchase Price shall be issued by Buyer to Sellers at the Closing by the delivery of Buyer's Shares in accordance with the Allocation Schedule; provided, that each Seller ------------------- enters into a Stock Pledge Agreement in the form attached hereto as Exhibit D --------- hereto. The sum of the Cash Equivalent Portion of the Purchase Price, the Stock Portion of the Purchase Price and the Earned Payout Amount shall be referred to as the "PURCHASE PRICE." Each of (i) the Cash Equivalent Portion of the Purchase Price and (ii) the Stock Portion of the Purchase Price shall be allocated among Sellers as set forth on the Allocation Schedule. If, but only if, an Initial ------------------- Public Offering is not completed on or before May 1, 2000, each of the Buyer's Shares issued as the Stock Portion of the Purchase Price (whether or not such Buyer's Shares are pledged in accordance with the Pledge Agreement) will be exchangeable, at the holder's option, into a promissory note, the face amount of which shall be equal to the number of Buyer's Shares exchanged by such holder multiplied by 6.0 and such note shall be issued in the form of the promissory note attached hereto as Exhibit A-2; provided, that such election to exchange ----------- must be made no later than May 15, 2000 and Buyer shall effect such exchange promptly after such election; provided, further that, if at the time of such exchange, any Buyer's Shares are pledged as collateral pursuant to Seller's Purchase Price Adjustment Agreement in the form attached hereto as Exhibit C the --------- required portion of such note shall continue to be held as Pledged Collateral under his Purchase Price Adjustment Agreement and under his Pledge Agreement in the form attached hereto as Exhibit D. --------- (I) EARNED PAYOUT AMOUNT. In addition to the Cash -------------------- Equivalent Portion of the Purchase Price and the Stock Portion of the Purchase Price, the Buyer agrees to pay to the Sellers an amount (the "EARNED PAYOUT AMOUNT") equal to the product of (A) the -9- amount, if any, by which the Net Service Revenues during the Earned Payout Period exceed $7,500,000 up to a maximum excess amount of $1,250,000 and (B) the lesser of (i) 1 and (ii) the product of (x) the 1998 Adjusted EBITA Percentage minus 0.135 and (y) 25; provided, however, that in no event will the Earned Payout Amount be less than 0. Table 1 attached hereto includes sample ------- calculations of Earned Payout Amounts. (J) FORM AND DATE OF PAYMENT OF EARNED PAYOUT AMOUNT. The ------------------------------------------------ Earned Payout Amount, if any, shall be payable in the aggregate as follows: (i) 50% of the Earned Payout Amount in cash (the "CASH PORTION OF THE EARNED PAYOUT AMOUNT") and (ii) 50% of the Earned Payout Amount in Buyer's Shares, as determined hereinafter (the "STOCK PORTION OF THE EARNED PAYOUT AMOUNT"). (I) CASH PORTION OF EARNOUT. The Cash Portion of the ----------------------- Earned Payout Amount, if any, shall be payable (pro rata in accordance with the percentages set forth on the Allocation ---------- Schedule) to the Sellers; provided, however, that each Seller -------- enters into a Purchase Price Adjustment Agreement in the form set forth as Exhibit C attached hereto. The Cash Portion of the --------- Earned Payout Amount shall be paid by wire transfer or other delivery of immediately available funds within forty-five (45) days following the expiration of the Earned Payout Period to an account or accounts designated by Sellers. (II) STOCK PORTION OF EARNOUT IF IPO PRIOR TO THE -------------------------------------------- EXPIRATION OF THE EARNED PAYOUT PERIOD. If the Initial Public -------------------------------------- Offering is completed on or before the expiration of the Earned Payout Period, the Stock Portion of the Earned Payout Amount, if any, will automatically be issued (pro rata in accordance with the percentages set forth on the Allocation Schedule) to the ------------------- Sellers, by the delivery to each such Seller of Buyer's Shares as calculated in this Section 2(j)(ii) ("POST IPO EARNOUT SHARES"). ---------------- The aggregate number of Post IPO Earnout Shares under this Section 2(j)(ii) will be equal to the Stock Portion of the Earned ---------------- Payout Amount divided by the average closing price of the Buyer's common stock as listed on the NASDAQ National Market System for the period beginning on the later of (A) the closing of the Initial Public Offering or (B) February 1, 1999 and ending on the last day of the Earned Payout Period. The Post IPO Earnout Shares shall be issued (pro rata in accordance with the percentages set forth on the Allocation Schedule) to the Sellers (as rounded up ------------------- or down to the nearest whole number); provided, that each Seller receiving Post IPO Earnout Shares must enter into a Stock Pledge Agreement in the form attached hereto Exhibit D. --------- (III) STOCK PORTION OF EARNOUT IF NO IPO PRIOR TO THE ----------------------------------------------- EXPIRATION OF THE EARNED PAYOUT PERIOD. If the Initial Public -------------------------------------- Offering is not completed on or before the expiration of the Earned Payout Period, the Stock Portion of the Earned Payout Amount, if any, will be issued (pro rata in accordance with the percentages set forth on the Allocation Schedule) to the Sellers, ------------------- by the delivery to each such Seller of Buyer's Shares as calculated in this -10- Section 2(j)(iii) ("PRE IPO EARNOUT SHARES"). The Sellers to ----------------- receive Pre IPO Earnout Shares will receive that number of Buyer's Shares equal to his or her percentage share of the Stock Portion of the Earned Payout Amount (as determined in accordance with the percentages set forth on the Allocation Schedule) ------------------- divided by $6.00 (rounded up or down to the nearest whole number); provided, that each Seller receiving Pre IPO Earnout Shares must enter into a Stock Pledge Agreement with the Buyer in the form attached hereto as Exhibit D. --------- (IV) PAYOUT. The Stock Portion of the Earned Payout ------ Amount shall be payable by the delivery of the certificates representing such shares calculated in accordance with this Section 2(j)(iii) to the Sellers on or before sixty (60) days ----------------- following the expiration of the Earned Payout Period, subject to Section 2(j)(v) below. --------------- (V) DETERMINATION. The Earned Payout Amount shall be ------------- determined by Coopers & Lybrand, L.L.P. in accordance with the terms of this Agreement and Annex I hereto which determination ------- (the "C&L EARNOUT DETERMINATION") shall be submitted in writing to the Buyer and the Sellers not later than sixty (60) days after the expiration of the Earned Payout Period. If, within five (5) business days after receipt of the C&L Earnout Determination and reasonably requested basic support information (which Buyer hereby agrees to use its best efforts to cause Coopers & Lybrand, L.L.P. to promptly provide), Shareholders' Representative delivers written notice to the Buyer that Sellers disagree with the C&L Earnout Determination (an "EARNOUT DISAGREEMENT NOTICE"), then Buyer and Shareholders' Representative shall attempt in good faith to mutually determine the correct amount of the Earned Payout Amount within five (5) business days after Shareholders' Representative delivers the Earnout Disagreement Notice to the Buyer. If Buyer and Shareholders' Representative cannot in good faith mutually determine the amount of the Earned Payout Amount within such period, then Shareholders' Representative shall have ten (10) days following their receipt of the C&L Earnout Determination to object in good faith to the Earned Payout Amount, in which event the item or items in dispute shall be resolved by Deloitte & Touche, as combined from time to time; provided that neither Buyer nor any Seller has any direct or indirect conflict or relationship with Deloitte & Touche, in which case such dispute shall be resolved by Ernst & Young, as combined from time to time; provided that neither Buyer nor any Seller has any direct or indirect conflict or relationship with Ernst & Young, in which case such dispute shall be resolved by another "Big Six" accounting firm, as combined from time to time, mutually acceptable to Buyer and Puzzanghera on behalf of Sellers. The determination made by the applicable "Big Six" accounting firm" (whether Deloitte & Touche, Ernst & Young or another accounting firm) shall be conclusive and binding on the Parties with respect to such disputed items(s). Any adjustment in the Earned Payout Amount determined by such accounting firm shall be made within ten (10) days following such resolution. The cost of -11- such other accounting firm shall be borne as follows: (i) if the review of such other accounting firm would result in an increase in the Earned Payout Amount of more than $5,000, then Buyer shall bear such cost; or (ii) if the review of such other accounting firm would result in an increase in the Earned Payout Amount of $5,000 or less, in no change to the Earned Payout Amount, or in a decrease in the Earned Payout Amount, then Sellers shall bear such cost. (K) WORKING CAPITAL ADJUSTMENT. The Cash Equivalent Portion -------------------------- of the Purchase Price shall be adjusted downward on a dollar-for-dollar basis by the amount by which the Net Working Capital of Legacy as of the Closing Date (plus the aggregate severance amounts specifically set forth on Section 4(f) of ---- ------------ the Disclosure Schedule up to a maximum of $135,000) is less than $100,000 (the "MINIMUM WORKING CAPITAL"). At the Closing Date, the Sellers shall use their best estimate of the Net Working Capital and such Net Working Capital of Legacy as of the Closing Date shall be determined subsequent to the Closing by Coopers & Lybrand, L.L.P. in accordance with the terms of this Agreement (at the expense of the Buyer), which determination (the "C&L WORKING CAPITAL DETERMINATION") shall be submitted in writing to the Buyer and the Sellers not later than sixty (60) days after the Closing. Unless Puzzanghera on behalf of all Sellers objects in writing to the C&L Working Capital Determination within five business days of the receipt of such determination, the C&L Working Capital Determination shall be final, conclusive and binding on the Parties. If no objection is made, Sellers shall pay to Buyer either (i) by wire transfer to Buyer, or (ii) at Seller's option if the promissory notes representing the Cash Equivalent Portion of the Purchase Price have not been paid off, reduce such promissory notes, the amount, if any, by which the amount of the C&L Working Capital Determination is less than the Minimum Working Capital within ten (10) days after the C&L Working Capital Determination. If Shareholders' Representative makes an objection to the C&L Working Capital Determination then Shareholders' Representative must deliver written notice to the Buyer that Sellers disagree with the C&L Working Capital Determination (an "WORKING CAPITAL DISAGREEMENT NOTICE"), then Buyer and Shareholders' Representative shall attempt in good faith to mutually determine the correct amount of the Net Working Capital as of the Closing Date within five (5) business days after Shareholders' Representative delivers the Working Capital Disagreement Notice to the Buyer. If Buyer and Shareholders' Representative cannot in good faith mutually determine the amount of the Net Working Capital as of the Closing Date within such period, then Shareholders' Representative shall have ten (10) days following their receipt of the C&L Working Capital Determination to object in good faith to the Net Working Capital as of the Closing Date, in which event the item or items in dispute shall be resolved by Deloitte & Touche, as combined from time to time; provided that neither Buyer nor any Seller has any direct or indirect conflict or relationship with Deloitte & Touche, in which case such dispute shall be resolved by Ernst & Young, as combined from time to time; provided that neither Buyer nor any Seller has any direct or indirect conflict or relationship with Ernst & Young, in which case such dispute shall be resolved by another "Big Six" accounting firm, as combined from time to time, mutually acceptable to Buyer and Puzzanghera on behalf of Sellers. The determination made by the applicable "Big Six accounting firm" (whether Deloitte & Touche, Ernst & Young or another accounting firm) shall be conclusive and binding on the Parties with respect to such disputed -12- items(s). Any adjustment in the Net Working Capital as of the Closing Date determined by such other accounting firm shall be made within ten (10) days following such resolution. The cost of such other accounting firm shall be borne as follows: (i) if the review of such other accounting firm would result in an increase in the Net Working Capital as of the Closing Date of more than $5,000, then Buyer shall bear such cost; or (ii) if the review of such other accounting firm would result in an increase in the Net Working Capital as of the Closing Date of $5,000 or less, in no change to the Net Working Capital as of the Closing Date, or in a decrease in the Net Working Capital as of the Closing Date, then Sellers shall bear such cost. (L) DISSENTING SHARES. Notwithstanding anything in this ----------------- Agreement to the contrary, Legacy Shares which are issued and outstanding immediately prior to the Effective Time and which are held by stockholders who have not voted such Legacy Shares in favor of the Merger and who shall have delivered a written demand for appraisal of such Shares in the manner provided in the MBCL (the "DISSENTING SHARES") shall not be converted into or be exchangeable for the right to receive the cash consideration provided above, unless and until such holder shall have failed to perfect or shall have effectively withdrawn or lost his right to appraisal and payment under the MBCL. If such holder shall have so failed to perfect or shall have effectively withdrawn or lost such right, his Legacy Shares shall thereupon be deemed to have been converted into and to have become exchangeable for, at the Effective Time, the right to receive the cash consideration provided herein. (M) THE CLOSING. The closing of the transactions ----------- contemplated by this Agreement (the "CLOSING") shall take place at the offices of Hogan & Hartson, LLP in Washington, D.C. commencing at 9:00 a.m. local time on April 30, 1998 or on the first business day following the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby, or such other date as the Buyer and the Sellers may mutually determine (the "CLOSING DATE"); provided, however, that the Closing Date shall be no later than May 15, 1998. (N) DELIVERIES AT THE CLOSING. At the Closing, (A) the ------------------------- Sellers will deliver to the Buyer the various certificates, instruments, and documents referred to in Section 7(a) below, (B) the Buyer will deliver to the ------------ Sellers the various certificates, instruments, and documents referred to in Section 7(b) below, (C) the Sellers will deliver to the Buyer stock certificates - - ------------ representing all of the Legacy Shares, endorsed in blank or accompanied by duly executed assignment documents, and (D) the Buyer will deliver to the Sellers the consideration specified in Section 2(h) above as may be adjusted after the ------------ Closing pursuant to Section 2(k) above. ------------ (O) POST-CLOSING ADJUSTMENT. If, but only if, the Initial ----------------------- Public Offering is completed on or before December 31, 1998, the Sellers shall forfeit to Buyer (pro rata in accordance with the percentages set forth on the Allocation Schedule) the number of Buyer's Shares (collectively, the "FORFEITED - - -------------------- SHARES") equal to (i) 538,333 less (ii) the quotient of (A) $3,230,000 divided by (B) the price of the Buyer's Shares at the closing of the Initial Public -13- Offering; provided, however, that the number of Forfeited Shares shall not exceed 158,300 in the aggregate. The Sellers agree to execute such other certificates, instruments and documents as reasonably requested by the Buyer to effect the transfer of the Forfeited Shares hereunder. All forfeitures under this Section 2(o) shall be treated as a reduction to the Purchase Price. ------------ (P) SHAREHOLDERS' REPRESENTATIVE. ---------------------------- (I) In order to administer efficiently (A) the implementation of the Agreement by the Sellers, (B) the waiver of any condition to the obligations of the Sellers to consummate the transactions contemplated hereby, and (C) the settlement of any dispute with respect to the Agreement, the Sellers hereby designate Puzzanghera as their representative (the "SHAREHOLDERS' REPRESENTATIVE"). (II) The Sellers hereby authorize the Shareholders' Representative (A) to take all action necessary in connection with the implementation of the Agreement on behalf of the Sellers, the waiver of any condition to the obligations of the Sellers to consummate the transactions contemplated hereby, or the settlement of any dispute, (B) to give and receive all notices required to be given under the Agreement and (C) to take any and all additional action as is contemplated to be taken by or on behalf of the Sellers by the terms of this Agreement. (III) In the event that the Shareholders' Representative dies, becomes legally incapacitated or resigns from such position, Wallace McKenzie shall fill such vacancy and shall be deemed to be the Shareholders' Representative for all purposes of this Agreement; however, no change in the Shareholders' Representative shall be effective until Buyer is given notice of it by the Sellers. (IV) All decisions and actions by the Shareholders' Representative shall be binding upon all of the Sellers, and no Seller shall have the right to object, dissent, protest or otherwise contest the same, in the absence of fraud, gross negligence or willful misconduct of the Shareholders' Representative. (V) By their execution of this Agreement, the Sellers agree that: (A) Buyer shall be able to rely conclusively on the instructions and decisions of the Shareholders' Representative as to any actions required or permitted to be taken by the Sellers or the Shareholders' Representative hereunder, and no party hereunder shall have any cause of action against Buyer for action taken by Buyer in reliance upon the instructions or decisions of the Shareholders' Representative; (B) all actions, decisions and instructions of the Shareholders' Representative shall be conclusive and binding upon all of the Sellers; no Seller shall have any cause of action against Buyer or Legacy for any action taken or omitted to be taken, decision made or omitted to be made or any instruction given or omitted to be -14- given by the Shareholders' Representative; and no Seller shall have any cause of action against the Shareholders' Representative for any action taken, decision made or instruction given by the Shareholders' Representative under this Agreement, except for fraud, gross negligence or willful breach of this Agreement by the Shareholders' Representative; (C) the Shareholders' Representative shall be deemed to fulfill any fiduciary obligation to the Sellers so long as no Seller is adversely affected by any action or failure to act of the Shareholders' Representative in a disproportionate measure compared to any other Seller; (D) the provisions of this Section 2(p) are ------------ independent and severable, shall constitute an irrevocable power of attorney, coupled with an interest and surviving death, granted by the Sellers to the Shareholders' Representative and shall be binding upon the executors, heirs, legal representatives and successors of each Seller; and (E) All fees and expenses incurred by the Shareholders' Representative as such shall be paid by the Sellers. 3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION. --------------------------------------------------------- (A) REPRESENTATIONS AND WARRANTIES OF EACH SELLER. Each --------------------------------------------- Seller represents and warrants to the Buyer as follows as of the date of this Agreement and as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Section 3(a)): - - ------------- (I) AUTHORIZATION OF TRANSACTION. The Seller has full ---------------------------- power and authority to execute and deliver this Agreement and to perform its obligations hereunder and this Agreement has been duly executed and delivered by the Seller. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms and conditions, except that (A) such enforceability may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other laws, decisions or equitable principles now or hereafter in effect relating to or affecting the enforcement of creditors' rights or debtors' obligations generally or non-competition arrangements, and to general equity principles, and (B) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefore may be brought (the terms of clause (A) and (B) are sometimes collectively referred to as the "EQUITABLE EXCEPTIONS"). The Seller for himself personally need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement (other than as provided for in Article 2 of this Agreement). --------- (II) NONCONTRAVENTION. Neither the execution and the ---------------- delivery of this Agreement by the Seller, nor the consummation of the transactions contemplated hereby by the Seller, will (A) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any -15- government, governmental agency, or court to which the Seller is subject, except as would not have a Material adverse effect on Legacy or the transactions contemplated by this Agreement or (B) except as set forth in Annex II, conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any part the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Seller is a party or by which it is bound or to which any of its assets is subject and which has a Material adverse effect on Legacy. (III) BROKER'S FEES. Seller has no Liability or ------------- obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer could become liable or obligated. (IV) INVESTMENT. Seller is acquiring Buyer's Shares ---------- for his own account, with no present intention of distributing or reselling such shares or any part thereof, and that he is prepared to bear the economic risk of retaining the Buyer's Shares for an indefinite period, all without prejudice, however, to his right at any time, in accordance with this Agreement and the transactions contemplated hereby, lawfully to sell or otherwise dispose of all or any part of the Buyer's Shares held by him. The Seller also represents and warrants that he is an accredited investor, as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act, and that he has had the opportunity to ask questions of the Buyer's management with respect to his investment. The Seller agrees that if, and to the extent, he elects to sell the Buyer's Shares, he will do so in compliance with the provisions and requirements of the Securities Act and applicable state securities laws. (V) LEGACY SHARES. The Seller holds of record and ------------- owns beneficially the number of Legacy Shares set forth next to its name in Section 4(b) of the Disclosure Schedule, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), claims, Taxes, Security Interests, options, warrants, rights, contracts, calls, commitments, equities, and demands. The Seller is not a party to (or has otherwise waived all rights under) any option, warrant, right, contract, call, put, or other agreement or commitment providing for the disposition or acquisition of any capital stock of Legacy (other than this Agreement). Except as set forth on Annex II, The Seller is not a party to (or has -------- otherwise terminated) any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of Legacy. (VI) DISCLOSURE. The representations and warranties ---------- regarding the Seller contained in this Section 3(a) as amended, modified and/or -16- supplemented by ANNEX II do not contain any untrue statement of a fact -------- or omit to state any Material fact necessary in order to make the statements and information contained in this SECTION 3(A) not ------------ misleading. (B) REPRESENTATIONS AND WARRANTIES OF THE BUYER AND NEWCO. The ----------------------------------------------------- Buyer and Newco represent and warrant to the Sellers that the statements contained in this SECTION 3(B) are correct and complete as of the date of this ------------ Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this SECTION 3(B)), except as set forth in ANNEX III ------------- --------- attached hereto. (I) ORGANIZATION OF THE BUYER AND NEWCO. Each of the Buyer ----------------------------------- and Newco is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Buyer is not in default under or in violation of any provision of its charter or bylaws. (II) AUTHORIZATION OF TRANSACTION. Each of the Buyer and ---------------------------- Newco has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder and this Agreement has been duly executed and delivered by the Buyer and Newco. This Agreement constitutes the valid and legally binding obligation of the Buyer and Newco, enforceable in accordance with its terms and conditions except for the Equitable Exceptions. Neither the Buyer nor Newco needs to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement (other than as provided for in ARTICLE 2 of this Agreement). (III) NONCONTRAVENTION. Neither the execution and the ---------------- delivery of this Agreement by the Buyer, nor the consummation of the transactions contemplated hereby by the Buyer, will (A) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws, except as would not have a Material adverse effect on Buyer or the transactions contemplated by this Agreement or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject and which has a Material adverse effect on Buyer. (IV) BROKERS' FEES. The Buyer has no Liability or obligation ------------- to pay any fees or commissions to any broker, finder, or agent with respect to the -17- transactions contemplated by this Agreement for which the Sellers could become liable or obligated. (V) INVESTMENT. The Buyer is acquiring the Legacy Shares ---------- for its own account, with no present intention of distributing or reselling such shares or any part thereof (except for the Merger), and that it is prepared to bear the economic risk of retaining the Legacy Shares for an indefinite period, all without prejudice, however, to its right at any time, in accordance with this Agreement and the transactions contemplated hereby, lawfully to sell or otherwise dispose of all or any part of the Legacy held by it. (VI) BUYER'S AND NEWCO'S CAPITALIZATION. The authorized ---------------------------------- capital stock of Buyer consists of (a) 100,000,000 shares of common stock, of which 46,400,083.88 shares are issued and outstanding; (b) 7,200,000 shares of the Class A preferred stock, of which 3,546,732 shares are issued and outstanding; and (c) 100,000 shares of the Class B preferred stock, of which 33,333 shares are issued and outstanding. All of the issued and outstanding Buyer's Shares have been duly authorized, are validly issued, fully paid, and nonassessable. The authorized capital stock of Newco consists of 1,000 shares of common stock, of which 100 shares are issued and outstanding. All of the issued and outstanding shares of Newco capital stock have been authorized, are validly issued, fully paid and nonassessable, and are held of record by Buyer. (VII) BUYER'S FINANCIAL STATEMENTS. Attached hereto as ANNEX ---------------------------- ----- A are the following financial statements of Buyer: audited - consolidated balance sheet and the related consolidated statements of operations, stockholders' equity, and cash flows as of and for the period beginning April 23, 1997 (date of inception) and ending (and through) January 2, 1998 (the "BUYER'S FINANCIAL STATEMENTS"). The Buyer's Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the period covered thereby and fairly present the financial condition of Buyer as of such dates, and are consistent with the books and records of Buyer (which books and records are correct and complete). Since January 2, 1998, except as set forth on ANNEX III or the notes to the Buyer's Financial Statements, there has not been any Material adverse change in the assets, Liabilities, business, financial condition, operations, or results of operations of Buyer. (VIII) DISCLOSURE. The representations and warranties ---------- contained in this SECTION 3(B) as amended, modified and/or ------------ supplemented by ANNEX III, and/or ANNEX A do not contain any untrue ------- statement of a fact or omit to state any Material fact necessary in order to make the statements and information contained in this SECTION ------- 3(B) not misleading. ---- 4. REPRESENTATIONS AND WARRANTIES CONCERNING LEGACY. The Sellers ------------------------------------------------ jointly and severally represent and warrant to the Buyer that, subject to the specific qualifications -18- and limitations set forth herein, the statements contained in this SECTION 4 are --------- correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this SECTION 4), --------- except as set forth in the Disclosure Schedule delivered by the Sellers to the Buyer on the date hereof (or on a later date as provided in SECTION 5(I)) (the ------------- "DISCLOSURE SCHEDULE"). The Disclosure Schedule may be updated (after their delivery and acceptance) one or more times prior to the Closing Date. Any updated Disclosure Schedule shall be delivered at or before the Closing. In the event any such updated Disclosure Schedule indicates a material adverse change in Legacy from information previously provided to the Buyer, Buyer shall be entitled to terminate this Agreement (without any liability whatsoever to Legacy) by written notice delivered to Legacy following receipt of such updated Disclosure Schedule. An event or matter that causes any representation or warranty contained in this Section to be inaccurate, incorrect or false will not be deemed to be "MATERIAL," to have a "MATERIAL" change in or in respect of, to have a "MATERIAL" adverse effect or to be "MATERIALLY" affected unless the loss to Legacy with respect to such event or matter, when taken together with all other related losses exceeds or will exceed $45,000 in the aggregate or unless such event or matter constitutes a criminal violation of law. For purposes of this paragraph, the word "loss" shall mean any and all direct or indirect payments, obligations, assessments, losses, losses of income, liabilities, costs and expenses paid or incurred or to be paid or incurred; provided, however, that losses shall be net of any insurance proceeds entitled to be received from a nonaffiliated insurance company on account of such loss (after taking into account any cost incurred in obtaining such proceeds or any increases in insurance premiums as a direct result thereof). A Customer Contract or Agreement is "Material" if during either calendar year 1997 or 1998 such Customer Contract or Agreement produced or is expected to produce $50,000 of Net Service Revenues. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein, however, unless the Disclosure Schedule identifies the exception with reasonable particularity (unless the specific context allows otherwise). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this SECTION 4. --------- (A) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Legacy is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation. Except as disclosed in SECTION 4(A) of the Disclosure Schedule, Legacy is duly authorized to conduct business and is in good standing under the laws of the States of Michigan, New Jersey and Wisconsin, which are the only jurisdictions in which the nature of its businesses or the ownership or leasing of its properties requires such qualification except where the failure to qualify would not have a Material adverse effect. Legacy has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. SECTION 4(a) of the Disclosure Schedule lists the directors and officers of Legacy. The Sellers have delivered to the Buyer correct and complete copies of the charter and bylaws of Legacy (as amended to date). The minute books containing the records of meetings and/or resolutions of the stockholders, the board of directors, and any committees of the board of directors, the stock certificate books and the stock record books of Legacy are correct -19- and complete in all material respects. Legacy is not in default under or in violation of any provision of its charter or bylaws. (B) CAPITALIZATION. The entire authorized capital stock of -------------- Legacy consists of 200,000 shares of capital stock, 106,800 of which are issued and outstanding and no Legacy Shares are held in treasury. All of the issued and outstanding Legacy Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held of record by the Sellers except as set forth in SECTION 4(B)-1 of the Disclosure Schedule. Except as set forth in -------------- SECTION 4(B)-2 of the Disclosure Schedule, there are no outstanding or - - -------------- authorized options, warrants, rights, contracts, calls, puts, rights to subscribe, conversion rights, or other agreements or commitments to which Legacy is a party or which are binding upon Legacy providing for the issuance, disposition, or acquisition of any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, or similar rights with respect to Legacy. There are no voting trusts, proxies, or any other agreements or understandings with respect to the voting of the capital stock of Legacy. (C) NONCONTRAVENTION. Neither the execution and the ---------------- delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which Legacy is subject or any provision of the charter or bylaws of Legacy, except to the extent any such violation does not result in a Material adverse effect on Legacy, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which Legacy is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets), except to the extent any such conflict or breach does not result in a Material adverse effect on Legacy. Legacy does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement. (D) SUBSIDIARIES. Legacy has no Subsidiaries. ------------ (E) FINANCIAL STATEMENTS. Attached hereto as EXHIBIT B are -------------------- --------- the following financial statements (collectively the "FINANCIAL STATEMENTS"): unaudited balance sheet and statement of income, changes in stockholder's equity, and cash flow as of and for the fiscal year ended December 31, 1996 and unaudited balance sheet and statement of income, changes in stockholder's equity, and cash flow as of and for the fiscal year ended December 31, 1997 (the "MOST RECENT FISCAL YEAR END") and an unaudited balance sheet and statement of income, changes in stockholder's equity, and cash flow as of and for the two (2) month period ended February 28, 1998 for Legacy. Except as set forth on SECTION ------- 4(E) of the Disclosure Schedule, the Financial Statements have been prepared in - - ---- accordance with GAAP applied on a consistent basis throughout the periods covered thereby, are correct and complete, fairly present the -20- financial condition of Legacy as of such dates, and are consistent with the books and records of Legacy (which books and records are correct and complete). (F) EVENTS SUBSEQUENT TO THE MOST RECENT FISCAL YEAR END. ---------------------------------------------------- Since Legacy's Most Recent Fiscal Year End, except as set forth on the Disclosure Schedule, there has not been any Material adverse change in the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of Legacy. Without limiting the generality of the foregoing since that date except as set forth on the Disclosure Schedule: (I) Legacy has not sold, leased, transferred, or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business; (II) Legacy has not entered into any contract, lease, sublease, license or sublicense (or series or related contracts, leases, subleases, licenses and sublicenses) either involving more than $35,000 or outside the Ordinary Course of Business; (III) Legacy has not accelerated, terminated, modified, or canceled any contract, lease, sublease, license or sublicense (or series of related contracts, leases, subleases, licenses and sublicenses) involving more than $25,000 to which Legacy is a party or by which it is bound; (IV) no party has notified Legacy of any acceleration, termination modification or cancellation of any outstanding Material Customer Contract or any contract, agreement, lease, sublease, license or sublicense (or series of related contracts, leases, subleases, licenses and sublicenses), other than any employment or consulting agreements entered into in the Ordinary Course of Business, involving more than $25,000 to which a Legacy is a party or by which it is bound; (V) Legacy has not imposed any Security Interest upon any of its Material assets, tangible or intangible; (VI) Legacy has not made any capital expenditure (or series of related capital expenditures) either involving more than $25,000 individually or $35,000 in the aggregate, or outside the Ordinary Course of Business; (VII) Legacy has not made any capital investment in, any loan to, or any acquisition of the securities or assets of any other person (or series of related capital investments, loans, and acquisitions) involving more than $50,000 in the aggregate; (VIII) Legacy has not created, incurred, assumed, or guaranteed any indebtedness (including capitalized lease obligations) involving more than -21- $30,000 individually or in the aggregate or outside the Ordinary Course of Business; (IX) Legacy has not delayed or postponed (beyond its normal practice) the payment of any accounts payable in excess of $3,750, individually or in the aggregate, and other Liabilities; (X) Legacy has not canceled, compromised, waived, or released any right or claim (or series of related rights and claims) either involving more than $25,000 or outside the Ordinary Course of Business; (XI) Legacy has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; (XII) there has been no change made or authorized in the charter or bylaws of Legacy, other than in connection with this Agreement and the transactions contemplated hereby; (XIII) Legacy has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion or exercise) any of its capital stock; (XIV) Legacy has not declared, set aside, or paid any dividend or distribution with respect to its capital stock nor redeemed, purchased, or otherwise acquired any of its capital stock; (XV) Legacy has not made any consulting or other payment to the Sellers; (XVI) Legacy has not experienced any damage, destruction or loss involving more than $35,000 (whether or not covered by insurance) to its property; (XVII) Legacy has not made any loan to, or entered into any other transaction with, any of its officers, directors or employees (who are not Sellers) outside the Ordinary Course of Business giving rise to any claim or right on its part against the person or on the part of the person against it; (XVIII) Legacy has not made any loan to, or entered into any other transaction with, any of the Sellers giving rise to any claim or right on its part against the person or on the part of such person against it; (XIX) Legacy has not entered into any employment contract or collective bargaining agreement, written or oral, or modified in any Material respect the terms of any existing such contract or agreement with any of its full-time staff employees; -22- (XX) Legacy has not granted an increase outside the Ordinary Course of Business in the base compensation of any of its directors, officers, and employees (other than the Sellers); (XXI) Legacy has not granted an increase in the base compensation, nor has Legacy made any payments or promises or commitments to pay to any of the Sellers to make any other payments (other than salary and reimbursement of customary expenses) to any of the Sellers, including without limitation bonuses. (XXII) Legacy has not adopted any (A) bonus, (B) profit-sharing, (C) incentive compensation, (D) pension, (E) retirement, (F) medical, hospitalization, life, or other insurance, (G) severance, or (H) other plan, contract or commitment for any of its directors, officers, and employees, or modified or terminated any existing such plan, contract or commitment; (XXIII) Legacy has not made any other change in employment terms for any of its directors, officers, and full- time staff employees; (XXIV) Legacy has not made or pledged to make any Material charitable or other capital contribution outside the Ordinary Course of Business; (XXV) there has not been any other occurrence, event, incident, action, failure to provide required notice to any insurance company or in connection with any other Material contractual obligation (other than in connection with this Agreement) or transaction over $5,000 outside the Ordinary Course of Business involving Legacy; and (XXVI) Legacy has not entered into any enforceable agreement committing to any of the foregoing. (G) UNDISCLOSED LIABILITIES. Except as set forth on SECTION ----------------------- ------- 4(G) of the Disclosure Schedule hereto, Legacy does not have any Liability - - ---- (including, without limitation, Liability under the Fair Labor Standards Act of 1938, as amended and the rules and regulations promulgated thereunder) which is individually in excess of $10,000, except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto), and (ii) Liabilities which have arisen after the Most Recent Fiscal Year End in the Ordinary Course of Business (none of which relates to any breach of contract, breach of warranty, tort, infringement, or violation of law or arose out of any charge, complaint, action, suit, proceedings, hearing, investigation, claim, or demand). (H) TAX MATTERS. Except as set forth on EXHIBIT 4(H) of the ----------- ------------ Disclosure Schedule, (I) Legacy has filed all Tax Returns that it was required to file on or before the Closing Date. All such Tax Returns were correct and complete -23- in all Material respects. All Taxes owed by Legacy (whether or not shown on any Tax Return) for all periods ending on or before the Closing Date have been paid or accrued on the Balance Sheet. Legacy currently is not the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by any taxing authority in a jurisdiction where Legacy does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of Legacy that arose in connection with any failure (or alleged failure) to pay any Tax, other than for Taxes that are not yet due. (II) Legacy has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party and Legacy has properly reflected the status of all employees and independent contractors in connection therewith as required by applicable Tax law and the Fair Labor Standards Act of 1938, as amended, and the rules and regulations promulgated thereunder. (III) Neither Sellers nor Legacy has received, nor does any Seller have a reasonable Basis to expect to receive, any notice that any taxing authority intends to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of Legacy either (A) claimed or raised by any authority in writing or (B) as to which the Sellers have Knowledge based upon personal contact with any agent of such authority. SECTION 4(H) of the ------------ Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed with respect to Legacy for taxable periods ended on or after December 31, 1993, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. The Sellers have delivered to the Buyer correct and complete copies of all federal income Tax Returns filed, examination reports received, and statements of deficiencies assessed against or agreed to, by Legacy since December 31, 1993. (IV) Legacy has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (V) Legacy has not filed a consent under Code Sec. 341(f) concerning collapsible corporations. Legacy has not made any payments, is not obligated to make any payments, nor is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible to Legacy under Code Sec. 280G. Legacy has not been a United States real property holding corporation within the meaning of Code Sec. 897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii). Legacy is not a party to any Tax allocation or sharing agreement. Legacy has never been -24- (nor has any Liability for unpaid Taxes because it once was) a member of an Affiliated Group filing a consolidated federal income Tax Return and has never incurred any Liability for the Taxes of any Person under Treas. Reg. ss.1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise, during any part of any consolidated return year within any part of which consolidated return year also was a member of the Affiliated Group. (VI) [RESERVED] (VII) The unpaid Taxes of Legacy as of the date of the Most Recent Balance Sheet do not exceed the reserve for Tax Liability set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and the unpaid Taxes as of the Closing Date do not exceed the reserve for Tax Liability as of the Closing Date. (I) TANGIBLE ASSETS. Legacy owns or leases substantially --------------- all tangible assets necessary for the conduct of its businesses as presently conducted and as presently proposed to be conducted. To the Knowledge of the Sellers, each such tangible asset is free from Material defects (patent and latent), has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used. (J) OWNED REAL PROPERTY. Legacy does not own nor does it ------------------- have any interest in any real property or improvements thereon (other than the leases disclosed in SECTION 4(J) of the Disclosure Schedule, and the leasehold ------------ improvements relating to the same) nor does Legacy have any options, agreements or contracts under which it has the right or obligation to acquire any interest in any real property or improvements (other than as disclosed in SECTION 4(J) of ------------ the Disclosure Schedule) (K) INTELLECTUAL PROPERTY. --------------------- (I) Attached hereto as SECTION 4(K) of the Disclosure ------------ Schedule is a list and brief description of all Intellectual Property owned or licensed by Legacy. Legacy has furnished Buyer with copies of all license agreements to which Legacy is a party, either as licensor or licensee, with respect to any Intellectual Property. Legacy has good title to or the right to use all the Intellectual Property and all inventions, processes, designs, formulae, trade secrets and know-how necessary for the conduct of the Legacy's business, in its business as presently conducted without the payment of any royalty or similar payment, and Legacy is not infringing on any Intellectual Property right of others, and neither Legacy nor Sellers are aware of any infringement by others of any such rights owned by Legacy. (II) All Material licenses set forth on SECTION 4(K) of ------------ the Disclosure Schedule are valid and binding obligations of Legacy, and to the Knowledge of the Sellers, of the other parties thereto, and enforceable against -25- Legacy, and to the Knowledge of the Sellers, the other parties thereto in accordance with their respective terms, except for the Equitable Exceptions. Legacy owns and possesses all right, title and interest in and to, or has the right to use pursuant to a valid license, all Intellectual Property necessary for the operation of the business of Legacy as presently conducted. (III) All personnel, including employees, agents, consultants, and contractors, who have contributed to or participated in the conception and development of any Intellectual Property have executed the nondisclosure agreements set forth in SECTION 4(K) of the Disclosure Schedule and either ------------ (1) have been party to a written agreement with Legacy that has accorded Legacy full, effective, exclusive and original ownership of all Material Intellectual Property, or (2) have executed appropriate instruments of assignment in favor of Legacy as assignee that have conveyed to Legacy full, effective, and exclusive ownership of all Material Intellectual Property. (IV) The Sellers have also delivered to the Buyer correct and complete samples or copies of all trademarks, service marks, trade names, copyrights, patents, registrations and, as relate to the foregoing, applications, licenses, agreements, and permissions (as amended to date) held by Legacy, and have made available to the Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. With respect to each item of Intellectual Property necessary for the conduct of the business of Legacy as heretofore conducted, each as listed on SECTION 4(K) ------------ of the Disclosure Schedule: (A) the identified owner possesses all right, title, and interest in and to the item; (B) the item is not subject to any outstanding judgment, order, decree, stipulation, injunction, or charge; (C) no charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand is pending or, to the Knowledge of any of the Sellers, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item; and (D) to the Knowledge of any of the Sellers, Legacy has never agreed to indemnify any person or entity for or against any interference, infringement, misappropriation, or other conflict with respect to the item. (V) Except as set forth on SECTION 4(K) of the ------------ Disclosure Schedule, all of the Material computer software, computer firmware, computer hardware (whether general or special purpose), and other similar or related items of automated, computerized, and/or software system(s) that are used or relied on by Legacy in the conduct of its business will not malfunction, will not cease to function, will not generate incorrect data, and will not produce incorrect results when processing, providing, and/or receiving (i) date-related data into and between the twentieth and twenty-first centuries and (ii) date-related data in connection with any valid date in the twentieth and twenty- first centuries. (L) REAL PROPERTY LEASES. SECTION 4(L) of the Disclosure -------------------- ------------ Schedule lists and describes briefly all real property leased or subleased to Legacy. The Sellers have delivered to the Buyer correct and complete copies of the leases and subleases listed in SECTION ------- -26- 4(L) of the Disclosure Schedule (as amended to date). With respect to each lease - - ---- and sublease listed in SECTION 4(L) of the Disclosure Schedule: ------------ (I) the lease or sublease is legal, valid, binding, enforceable against Legacy, and to the Knowledge of Sellers, both enforceable against the other party and in full force and effect, subject to the Equitable Exceptions; (II) the lease or sublease will continue to be legal, valid, binding, enforceable against Legacy, and, to the Knowledge of Sellers, both enforceable against the other party and in full force and effect on identical terms immediately following the Closing; (III) Legacy is not and, to the Knowledge of Sellers, no other party to the lease or sublease is in Material breach or default, and no event has occurred which, with notice or lapse of time, would constitute a Material breach or default or permit termination, modification, or acceleration thereunder; (IV) Legacy has not, and to the Knowledge of the Sellers, no other party to the lease or sublease has repudiated any provision thereof; (V) there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; (VI) Legacy has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; and (VII) to the Knowledge of Sellers, all facilities leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations. (M) CONTRACTS. SECTION 4(M) of the Disclosure Schedule --------- ------------ lists the following contracts, agreements, Customer Contracts or Agreements and other written arrangements to which Legacy is a party: (I) any written agreement (or group of related written agreements) for the lease of personal property from or to third parties providing for lease payments in excess of $35,000 per annum; (II) any written agreement (or group of related written agreements) for the furnishing or receipt of services which either calls for performance over a period of more than one year or involves more than the sum of $75,000; -27- (III) any written agreement concerning a partnership or joint venture; (IV) any written agreement (or group of related written agreement) under which it has created, incurred, assumed, or guaranteed (or may create, incur, assume, or guarantee) indebtedness (including capitalized lease obligations) involving more than $35,000 or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible; (V) any written arrangement requiring confidentiality or noncompetition ; (VI) any written arrangement with any of its directors, officers, or employees, or any of its Affiliates; (VII) any written arrangement under which the consequences of a default or termination could have a Material adverse effect on the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of Legacy; (VIII) any written Customer Contract or Agreement; or (IX) any other written arrangement (or group of related written arrangements) either involving more than $50,000 per annum or not entered into in the Ordinary Course of Business. The Sellers have delivered to the Buyer a correct and complete copy of each written arrangement listed in SECTION 4(M) of the Disclosure ------------ Schedule (as amended to date). With respect to each written arrangement so listed: (A) the written arrangement is legal, valid, binding, enforceable against Legacy and to the Knowledge of Sellers, both enforceable against the other party and in full force and effect , subject to the Equitable Exceptions; (B) the written arrangement will continue to be legal, valid, binding, enforceable against Legacy, and to the Knowledge of Sellers, both enforceable against the other party and in full force and effect on identical terms immediately following the Closing; (C) Legacy is not, nor to the Knowledge of Sellers, is any other party in Material breach or default, and no event has occurred which with notice or lapse of time would constitute a Material breach or default or permit termination, modification, or acceleration, under the written arrangement; and (D) Legacy is not, nor to the Knowledge of Sellers, has any other party, repudiated any material provision of the written arrangement. Legacy is not a party to any verbal contract, agreement, or other arrangement which, if reduced to written form, would be required to be listed in SECTION ------- 4(M) of the Disclosure Schedule under the terms of this SECTION 4(M). To the - - ---- ------------ Knowledge of the Sellers, no unfilled Customer Contract or Agreement obligating Legacy to perform services will result in a loss (i.e. Legacy will not be able to cover its variable costs under such Material Customer Contract or Agreement) to Legacy upon completion of performance. Legacy has not been -28- notified that any of its customers intends either to dispute charges under or to terminate early a Material Customer Contract or Agreement. (N) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts ----------------------------- receivable of Legacy are reflected properly on its books and records, are valid receivables subject to no setoffs or counterclaims, are presently current and collectible, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserve for bad debts set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Legacy. (O) POWERS OF ATTORNEY. There are no outstanding powers of ------------------ attorney executed on behalf of Legacy. (P) INSURANCE. SECTION 4(P) of the Disclosure Schedule sets --------- ------------ forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which Legacy has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past three (3) years: (I) the name address and telephone number of the agent; (II) the name of the insurer, the name of the policyholder, and the name of each covered insured; (III) the policy number and the period of coverage; (IV) the scope and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and (V) a description of any material retroactive premium adjustments or other loss sharing arrangements. With respect to each such insurance policy: (A) the policy is legal, valid, binding, and enforceable against Legacy and to the Knowledge of Sellers, in full force and effect; (B) the policy will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms immediately following the Closing Date; (C) Legacy is not in breach or default (including with respect to the payment of premiums or the giving of notices), and to the Knowledge of Sellers, no event has occurred which, with notice or the lapse of time, would constitute such a breach or default or permit termination, modification, or acceleration, under the policy; and (D) to the Knowledge of the Sellers, no party to the policy has repudiated any provision thereof. Legacy has been covered during the past three (3) years by insurance in scope and amount customary and reasonable for the businesses in which it has engaged during the aforementioned period. Legacy currently has no and has never had any self- insurance arrangements. -29- (Q) LITIGATION. SECTION 4(Q) of the Disclosure Schedule ---------- ------------ sets forth each instance in which Legacy (i) is subject to any unsatisfied judgment, order, decree, stipulation, injunction, or charge or (ii) is a party or, to the Knowledge of the Sellers, is threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing, or investigation of or in any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. Except as specifically described on SECTION 4(Q) of the Disclosure Schedule, no matter listed thereon ------------ could reasonably be expected, individually, to result in a Material adverse effect to Legacy. No Seller has any Knowledge that any such charge, complaint, action, suit, proceeding, hearing, or investigation will be brought or threatened against Legacy. (R) EMPLOYEES. Except as set forth in SECTION 4(R) of the --------- ------------ Disclosure Schedule, to the Knowledge of the Sellers, no key employee or full- time group of employees has any plans to terminate employment with Legacy. Legacy is not a party to or bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. Legacy has not committed any unfair labor practice. No Seller has any Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of Legacy. (S) EMPLOYEE BENEFITS. SECTION 4(S) of the Disclosure ----------------- ------------ Schedule lists all Employee Benefit Plans that Legacy maintains or to which Legacy contributes for the benefit of any current or former employee of Legacy. (I) Each Employee Benefit Plan (and each related trust or insurance contract) complies in form and in operation in all respects with the applicable requirements of ERISA and the Code. (II) All required reports and descriptions, if any, (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's and Summary Plan Descriptions) have been filed or distributed appropriately with respect to each Employee Benefit Plan. The requirements of Part 6 of Subtitle B of Title I of ERISA and of Code Sec. 4980B have been met with respect to each Employee Welfare Benefit Plan. (III) All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of Legacy. All premiums or other payments which are due for all periods ending on or before the Closing Date have been paid with respect to each Employee Welfare Benefit Plan. (IV) Each Employee Benefit Plan which is an Employee Pension Benefit Plan meets the requirements of a "qualified plan" under Code Sec. 401(a) -30- and has received a currently valid and favorable determination letter from the Internal Revenue Service, and that nothing has occurred since the receipt of such letter that would materially affect the tax qualified status of each such Employee Pension Benefit Plan. (V) The market value of assets under each Employee Pension Benefit Plan (other than any Multiemployer Plan) equals or exceeds the present value of Liabilities thereunder (determined on an accumulated benefit obligation basis) as of the last day of the most recent plan year. No Employee Pension Benefit Plan (other than any Multiemployer Plan) has been completely or partially terminated or been the subject of a Reportable Event as to which notices would be required to be filed with the PBGC. No proceeding by the PBGC to terminate any Employee Pension Benefit Plan (other than any Multiemployer Plan) has been instituted or, to the Knowledge of the Sellers, threatened. (VI) There have been no Prohibited Transactions with respect to any Employee Benefit Plan. No Fiduciary has any Liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any Employee Benefit Plans. No charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand with respect to the administration or the investment of the assets of any Employee Benefit Plan (other than routine claims for benefits) is pending or, to the Knowledge of the Sellers, threatened. No Seller has any Knowledge of any Basis for any such charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand. (VII) The Sellers have delivered to the Buyer correct and complete copies of (A) the plan documents and summary plan descriptions, (B) the most recent determination letter received from the Internal Revenue Service, (C) the most recent Form 5500 Annual Report, and (D) all related trust agreements, insurance contracts, and other funding agreements which implement each Employee Benefit Plan. Legacy does not contribute to, has never contributed to, nor ever has been required to contribute to any Multiemployer Plan or has any Liability (including withdrawal Liability) under any Multiemployer Plan. Legacy has not incurred, and neither the Sellers nor any of the directors or the officers (or employees with responsibility for litigation matters) of Legacy has any reason to expect that Legacy will incur, any Liability to the PBGC (other than PBGC premium payments) or otherwise under Title IV of ERISA (including any withdrawal Liability) or under the Code with respect to any Employee Pension Benefit Plan that Legacy and the Controlled Group of Corporations which includes Legacy maintains or ever has maintained or to which any of them contributes, ever has contributed, or ever has been required to contribute. Legacy does not maintain, nor has it ever maintained or contributed to, or ever has been required to contribute to any Employee Welfare Benefit Plan providing health, accident, or life insurance -31- benefits to former employees, their spouses, or their dependents (other than in accordance with Code Sec. 162(k)). (T) GUARANTIES. Legacy is not a guarantor nor is it otherwise ---------- liable for any Liability or obligation (including indebtedness) of any other person. (U) ENVIRONMENT, HEALTH, AND SAFETY. ------------------------------- (I) To the Knowledge of Sellers, Legacy and its respective predecessors and Affiliates have complied in all material respects with all laws (including rules and regulations thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning the environment, public health and safety, and employee health and safety, and no charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has been filed or commenced against any of them alleging any material failure to comply with any such law or regulation. (II) To the Knowledge of Sellers, Legacy has no Liability (and there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against Legacy giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) of any federal, state, local, or foreign government (or agency thereof) concerning employee health and safety. (III) To the Knowledge of Sellers, Legacy does not have any Material Liability (and Legacy has not exposed any employee to any substance or condition that could form the Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand (under the common law or pursuant to statute) against Legacy giving rise to any Liability) for any illness of or personal injury to any employee. (IV) To the Knowledge of Sellers, Legacy has obtained and been in compliance in all material respects with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied in all material respects with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all federal, state, local, and foreign laws (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions, and charges thereunder) relating to public health and safety, worker health and safety, and pollution or protection of the environment, including laws relating to emissions, discharge, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling -32- of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. (V) LEGAL COMPLIANCE. Except as it would not, individually or ---------------- in the aggregate, have a Material adverse effect on Legacy: (I) Legacy has complied with all laws (including rules and regulations thereunder) of federal, state, local, and foreign governments (and all agencies thereof). No charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has been filed or commenced against Legacy which is currently pending and alleges any failure to comply with any such law or regulation. (II) Legacy has complied with all applicable laws (including rules and regulations thereunder) relating to the employment of labor (including but not limited to the engagement of independent contractors under the Fair Labor Standards Act of 1938, as amended, and the rules and regulations promulgated thereunder), employee civil rights, hiring of engaging non-United States citizens, and equal employment opportunities. (III) Legacy has not violated in any respect or received a notice or charge asserting any violation of the Sherman Act, the Clayton Act, the Robinson-Patman Act, or the Federal Trade Act, each as amended. (IV) Legacy has not: (A) made or agreed to make any contribution, payment, or gift of funds or property to any governmental official, employee, or agent where either the contribution, payment, or gift or the purpose thereof was illegal under the laws of any federal, state, local, or foreign jurisdiction; (B) established or maintained any unrecorded fund or asset for any purpose, or made any false entries on any books or records for any reason; or (C) made or agreed to make any contribution, or reimbursed any political gift or contribution made by any other person, to any candidate for federal, state, local, or foreign public office in excess of $500. (V) Legacy has filed with all applicable governmental authorities in a timely manner all reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all respects) under all applicable laws (including rules and regulations thereunder). -33- (VI) Legacy has possession of all records and documents it was required to retain under all applicable laws (including rules and regulations thereunder). (W) CERTAIN BUSINESS RELATIONSHIPS WITH LEGACY. Except as set ------------------------------------------ forth in Section 4(w) of the Disclosure Schedule, neither the Sellers nor its ------------ Affiliates has been involved in any business arrangement or relationship with Legacy within the past twelve (12) months other than customary employment relationships, and neither the Sellers nor its Affiliates owns any Material property or right, tangible or intangible, which is used in the business of Legacy. (X) BROKERS' FEES. Legacy does not have any Liability or ------------- obligation to pay any fees or commissions to any broker, finder, or similar representative with respect to the transactions contemplated by this Agreement. (Y) DISCLOSURE. The representations and warranties contained in ---------- this Section 4 as amended, modified and/or supplemented by the Disclosure --------- Schedules do not contain any untrue statement of a fact or omit to state any Material fact necessary in order to make the statements and information contained in this Section 4 not misleading. 5. PRE-CLOSING COVENANTS. The Parties agree as follows with respect --------------------- to the period between the execution of this Agreement and the Closing or the earlier termination of this Agreement. (A) GENERAL. Each of the Parties will use its reasonable ------- efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Section 7 below). --------- (B) NOTICES AND CONSENTS. The Sellers will cause Legacy to -------------------- give any notices to third parties required in connection with this Agreement and the transactions contemplated hereby, and will cause Legacy to obtain third party consents required in connection with this Agreement and the transactions contemplated hereby and with matters pertaining to Legacy disclosed or required to be disclosed in the Disclosure Schedule. Each of the Parties will take any additional action (and the Sellers will cause Legacy to take any additional action) that may be necessary, proper, or advisable in connection with any other notices to, filings with, and authorizations, consents, and approvals of governments, governmental agencies, and third parties that he, she or it may be required to give, make, or obtain. (C) OPERATION OF BUSINESS. Except as contemplated hereby, or --------------------- as may be incidental to or in furtherance of the transactions contemplated hereby, or as may have been set forth herein or in the Disclosure Schedule, the Sellers will not cause or permit Legacy to engage in any practice, take any action, embark on any course of inaction, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Sellers will not cause or permit Legacy to engage in any practice, take any action, -34- embark on any course of inaction, or enter into any transaction of the sort described in Section 4(F) above. ----------- (D) PRESERVATION OF BUSINESS. Except as contemplated hereby, or as may be incidental to or in furtherance of the transactions contemplated hereby, or as may have been set forth herein or in the Disclosure Schedule, the Sellers will cause Legacy to use reasonable commercial efforts to keep its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, suppliers, customers, and employees. (E) ACCESS. Only in the event that neither Buyer or Sellers exercised its right to terminate this Agreement as provided in Section 9 herein, --------- the Sellers will permit, and the Sellers will cause Legacy to permit, representatives of the Buyer to have access at reasonable times, and in a manner so as not to interfere with the normal business operations of Legacy, to the headquarters of Legacy and to all books, records, contracts, Tax records, and documents of or pertaining to Legacy; provided, however, that Buyer shall direct all requests for information and material only through Paul Puzzanghera, unless otherwise agreed to by Buyer and Sellers in writing. (F) NOTICE OF DEVELOPMENTS. The Sellers will give prompt ---------------------- written notice to the Buyer of any material development affecting the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of Legacy. Each Party will give prompt written notice to the others of any material development affecting the ability of the Parties to consummate the transactions contemplated by this Agreement. Except for the right of the Sellers to update any Disclosure Schedule as provided in SECTION 4 hereof, no disclosure by any Party pursuant to this SECTION 5(F) however, shall be deemed to amend or supplement ANNEX III or the Disclosure Schedule or to prevent or cure any misrepresentation, breach of warranty, and/or breach of covenant. (G) EXCLUSIVITY. The Sellers will not (and the Sellers will ----------- not cause or permit Legacy to) (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any (A) liquidation, dissolution, or recapitalization, (B) merger or consolidation, (C) acquisition or purchase of securities or assets, or (D) similar transaction or business combination involving Legacy or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. The Sellers will notify the Buyer immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing. (H) CANCELLATION OF OPTIONS, BONUS PROGRAMS AND PHANTOM STOCK --------------------------------------------------------- PLANS. Legacy shall use its best efforts to provide for the cancellation, at or - - ----- prior to the Closing, of any stock options, deferred bonus programs, and phantom equity plans outstanding with respect to Legacy, which cancellation Legacy and Sellers agree shall be at no cost to the Buyer and/or Legacy. The payments made by Sellers and due pursuant to the cancellation of such -35- programs will vest and be payable to the recipients on terms and conditions mutually agreed upon by the Sellers and Buyer. (I) SCHEDULES, EXHIBIT B AND KEY EMPLOYEES' EMPLOYMENT -------------------------------------------------- AGREEMENTS. The Parties agree and understand that neither the Disclosure - - ---------- Schedule nor Exhibit B has been provided on the date of execution of this --------- Agreement. The Sellers shall deliver the Disclosure Schedules and Exhibit B --------- within one (1) business day of the date of execution of this Agreement. Upon receipt thereof, Buyer shall have seven (7) business days in which to accept or reject such Disclosure Schedule and Exhibit B at Buyer's sole discretion. In the --------- event that Buyer rejects such Disclosure Schedule or Exhibit B, Buyer shall be --------- entitled to terminate this Agreement (without any liability whatsoever to Legacy or Sellers) by written notice delivered to Legacy within seven (7) business days following receipt of such Disclosure Schedule and Exhibit B. Within ten (10) --------- days after the execution of this Agreement, Sellers shall procure the Employment Agreements with the Key Employees listed on Annex V in substantially the form of ------- Exhibit E-1 (or Exhibit E-2 for the non-Seller Key Employees, if applicable), - - ----------- ----------- provided, such Employment Agreements shall be null and void in the event the transactions contemplated by this Agreement are not consummated and provided, further, such Employment Agreements shall not to be effective until the Closing Date. 6. ADDITIONAL COVENANTS. The Parties further covenant and agree as -------------------- follows: (A) GENERAL. In case at any time after the Closing any further ------- action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under SECTION 8 below). The Sellers acknowledge and agree that from and after the Closing the Buyer will be entitled to possession of all documents, books, records, agreements, and financial data of any sort relating to Legacy; provided that Sellers may retain any copies of the foregoing as shall be necessary to comply with applicable tax and other laws, regulations and ordinances. (B) LITIGATION SUPPORT. In the event and for so long as any ------------------ Party actively is contesting or defending against any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving Legacy, each of the other Parties will cooperate with him or it and his, her or its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending Party is entitled to indemnification therefor under Section 8 below). - - --------- (C) TRANSITION. The Sellers will not take any action that ---------- primarily is designed or intended to have the effect of discouraging any lessor, licensor, customer, supplier, -36- or other business associate of Legacy from maintaining the same business relationships with Legacy after the Closing for a period of twenty-four (24) months thereafter as it maintained with Legacy prior to the Closing. The Sellers will refer all customer inquiries relating to Legacy's Business to the Buyer and/or Legacy from and after the Closing for a period of twenty-four (24) months thereafter. (D) CONFIDENTIALITY. The Sellers will treat and hold as such all --------------- of the Confidential Information, refrain from using any of the Confidential Information except in connection with this Agreement for a period of three (3) years from the Closing, and except as otherwise permitted hereunder or as may be required by law, deliver promptly to the Buyer or destroy, at the reasonable request and option of the Buyer, all tangible embodiments (and all copies) of the Confidential Information which are in its possession. In the event that the Sellers are requested or required (by request for information or documents in any legal proceeding, interrogatory, subpoena, civil investigative demand, or similar legal process) to disclose any Confidential Information, the Sellers will notify the Buyer promptly of the request or requirement so that the Buyer may seek an appropriate protective order or waive compliance with the provisions of this Section 6(d). If, in the absence of a protective order or the receipt of ------------ a waiver hereunder, the Sellers are compelled to disclose any Confidential Information or else stand liable for contempt, that Sellers may disclose the Confidential Information; provided, however, that the Sellers shall use their reasonable efforts to obtain, at the reasonable request and expense of the Buyer, an order or other assurance that confidential treatment will be accorded to such portion of the Confidential Information required to be disclosed as the Buyer shall reasonably designate. The foregoing provisions shall not apply to any Confidential Information which is generally available to the public immediately prior to the time of disclosure. (E) TERMINATION OF BANK FACILITIES; RELEASE OF GUARANTIES. Buyer ----------------------------------------------------- and Sellers shall take all reasonable best efforts necessary to (i) retire all of Legacy's outstanding bank indebtedness and (ii) fully, completely and unconditionally release and/or substitute Buyer or Legacy at or prior to Closing as guarantor for the Sellers on all banking facilities of Legacy or other guarantees. (F) MONITORING INFORMATION. Prior to the Closing, Sellers shall ---------------------- cause Legacy to deliver such information as may reasonably be requested by Buyer. (G) LANDLORDS' CONSENTS. Sellers shall cause Legacy on or before ------------------- the Closing Date to obtain from its landlords (to the extent required under the pertinent premises lease) written consent to the assignment of all leases being assumed by Buyer, which assignments are deemed to have resulted from the transactions contemplated by this Agreement. (H) ADDITIONAL TAX MATTERS. ---------------------- (I) The Sellers shall prepare (at Sellers' sole cost and expense) and provide to Buyer for filing, and the Buyer shall cause Legacy to file with the appropriate governmental authorities all Tax Returns required to be filed by Legacy for any taxable period ending on or prior to the Closing Date and Sellers -37- shall remit any Taxes due (net of any paid estimated taxes, credits or prepaid taxes in respect of such Taxes) in respect of such Tax Returns (but only to the extent such Taxes are in excess of the reserve, if any, for such Tax liability used to determine the Net Working Capital of Legacy). (II) Buyer and Sellers recognize that each of them will need access, from time to time, after the Closing Date, to certain accounting and Tax records and information held by the Buyer, Newco and/or Legacy to the extent such records and information pertain to events occurring on or prior to the Closing Date; therefore, Buyer agrees to cause Newco and Legacy to (A) use its best efforts to properly retain and maintain such records for a period of six (6) years from the date the Tax Returns for the year in which the Closing occurs are filed or until the expiration of the statute of limitations as may be extended by law from time to time that applies to the Tax Return in question (i.e., including Tax Returns for years preceding the year in which the Closing occurs), whichever is later, and (B) allow the Sellers and their agents and representatives at times and dates mutually acceptable to the Parties, to inspect, review and make copies of such records as such other party may deem necessary or appropriate from time to time, such activities to be conducted during normal business hours and at the other Party's expense. (I) COVENANT NOT TO COMPETE. For a period of two (2) years from ----------------------- and after the Closing Date, none of the Sellers will, directly or indirectly, as principal, agent, trustee or through the agency of any corporation, partnership, association or agent or agency, (i) own, manage, control, participate in, consult with, render services for, or in any manner engage in any activity or business competing with the businesses of the Buyer, Legacy or their Affiliates, or any business in which Buyer, Legacy or their Affiliates has commenced negotiations or has requested and received information relating to the acquisition of such business within one (1) year prior to the Closing Date in any country where the Buyer, Legacy, such Affiliates or other aforementioned business conducts business; provided, however, for the purposes of this Subsection 6(i)(i) only and for purposes of the period after beginning on the - - ------------------ first anniversary of the Closing Date and ending on the second anniversary of the Closing Date, the businesses of the Buyer, Legacy or their Affiliates shall exclude the following: (A) the development, marketing, general management of DSS or information technology products but in no event to exclude the provision of services (whether direct or indirect) with respect to such businesses, (B) providing services as a general industry analyst or venture capitalist not in competition with such businesses, (C) general managing consulting in industries not competitive with the Buyer's, Legacy's or their Affiliates' businesses, (D) information or content delivery segment of the information technology business (e.g. economic or marketing data suppliers or companies primarily engaged in information (e.g. news, statistics, etc.) via the worldwide web), and (E) providing information technology services to small companies under $500,000,000 in gross revenues which are not currently in the business of Legacy, (ii) request, advise, induce or attempt to induce any customer, supplier, licensee or other business relation of the Buyer, Legacy or any Affiliate (each, a "CUSTOMER") to withdraw, curtail, cancel or otherwise cease such Customer's business with the Buyer, Legacy and/or such Affiliate or in any way interfere with the -38- relationship between any such Customer and the Buyer, Legacy and/or any Affiliate, (iii) service, canvass, solicit or accept any business from any Customer for the purpose of competing with the Buyer, Legacy or the Affiliates, (iv) disclose to any other person, firm, corporation or other entity, the name or address of any Customer for the purpose of competing with the Buyer, Legacy or any Affiliate, (v) solicit for employment or employ any person who is or was employed by Legacy, the Buyer or any Affiliate at any time within the one (1) year period immediately preceding such solicitation of employment to leave the employ of the Buyer, Legacy or such Affiliate and/or accept employment with any Seller or with such Person, firm, association, corporation or other entity, or in any way willfully interfere with the relationship between the Buyer, Legacy or any Affiliate and any such person, or (vi) initiate or engage in any discussions regarding an acquisition of, or Seller's employment (whether as an employee, an independent contractor or otherwise) by, any businesses with which the Buyer, Legacy or any Affiliate has entertained discussions or has requested and received information relating to the acquisition of such business by the Buyer, Legacy or such Affiliate upon or within the one (1) year period prior to the date hereof; provided, however, that no owner of less than five percent (5%) of the outstanding stock of any publicly traded corporation shall be deemed to engage solely by reason thereof in any of its businesses. For purposes of this Agreement, the Parties have agreed to allocate $50,000 of the Purchase Price to the covenant not to compete contained in this Section 6(i). In addition, for ------------ purposes of this Section 6(i), "Affiliate" with respect to the Buyer means any ------------ corporation or business entity that either controls or is controlled by the Buyer, The Hackett Group, Inc., Delphi Partners, Inc. or is controlled by the shareholders that control the Buyer (and for this definition, "control" means the ownership, either directly or through an unbroken chain of control, of more than fifty percent (50%) of the equity interests or combined voting or management rights in an entity). (J) CONDUCT DURING EARNED PAYOUT PERIOD. Sellers acknowledge and ----------------------------------- agree that, during the Earned Payout Period, Buyer shall be entitled to oversee the operation and management of Legacy's Business and, together with Puzzanghera, set mutually acceptable goals and budgets of Legacy, all of which shall be reasonably and legally designed and intended to maximize the productivity, efficiency, profitability and Adjusted EBITA of Legacy. The Sellers further agree, during the Earned Payout Period, not and not to allow Legacy to cut staff, capital expenditures and general and administrative expenses or take other actions that are not consistent with Legacy's prior practices and/or prudent business practices, and Sellers agree not and not to allow Legacy to engage in any activity inconsistent with Legacy's past practices in order to increase current year profits of the business of Legacy at the expense of the longer term growth of the business of Legacy. During the Earned Payout Period, the Buyer agrees to (i) maintain separate books and records for Legacy; (ii) maintain Legacy as a separate entity and not to sell or otherwise dispose of any of its assets except in the Ordinary Course of Business or sell or otherwise dispose of any of its stock without the prior written consent of Puzzanghera; (iii) cause Legacy to be operated essentially as it was prior to the sale of the Legacy Shares except in so far as the prior practices of Legacy were imprudent or unreasonable; (iv) not materially change, except with the consent of Puzzanghera, and except in the Ordinary Course of Business, (A) the prices charged for Legacy's services, (B) the level of compensation of Legacy's consultants and full-time corporate employees or (C) the level Legacy's general and -39- administrative expenses, unless the prior business practices were unreasonable or imprudent and/or unless the changes are reasonably necessary to support the growth of Legacy's business and (v) cause Legacy to be responsible for Buyer's OLAP and DSS business and the data warehousing components of such business; provided, however, that any employee who was employed by Buyer or a Buyer Affiliate (other than Legacy or Newco) at any time prior to Closing shall continue to provide their services as currently conducted, whether or not such services are related to the Buyer's OLAP and DSS business and the data warehousing components of such business, and such employees will not attribute any of their revenues to, or otherwise report to, Legacy, except as otherwise agreed in writing by Buyer. Buyer agrees that Puzzanghera shall not be terminated without Cause (as defined in his Employment Agreement) during the Earned Payout Period. Buyer further agrees that, subject to the terms of his employment agreement, Puzzanghera shall have complete and final (subject to the limitations set forth herein and in his employment agreement) authority and responsibility for the management and operation of Legacy's business during the Earned Payout Period. Buyer shall use Legacy's current name as its trade name in Massachusetts during the Earned Payout Period, and shall not change such name in Massachusetts without the prior written consent of Puzzanghera; provided, however, Buyer shall be entitled to operate the business of Legacy under the name "Legacy Technology, Inc., a subsidiary of AnswerThink Consulting Group, Inc." or a mutually agreed upon combination of any of the above. Buyer, Legacy and the Sellers recognize and acknowledge that the relationship that will exist between Buyer, Legacy and the Sellers upon the consummation of the transactions contemplated herein will be based on a high degree of mutual trust and confidence among the parties, and each of Buyer and the Sellers agree that at all times following the Closing that each will act with respect to its dealings with Legacy and its operations in such a way as to promote, to the extent reasonably possible, the successful operation and growth of Legacy. In addition, during the Earned Payout Period, the Buyer agrees to provide funds, at Buyer's sole discretion and at commercially reasonably interest rates, to help Legacy meet its working capital requirements. (K) REORGANIZATION INTENT. The Parties agree that the Merger is --------------------- intended to be a tax-free reorganization under Section 368 of the Code, and this ----------- Agreement is intended to be a "plan of reorganization" within the meaning of the regulations promulgated under such section of the Code. None of the Parties has taken, shall take or fail to take any action that would jeopardize the qualification of the Merger as such a tax-free reorganization (other than actions contemplated by this Agreement or as may be otherwise legally required). (L) OPTIONS. If the Initial Public Offering is completed, the ------- Buyer agrees that any options granted by Buyer to former employees of Legacy in connection herewith shall be deemed to be granted under the 1998 Stock Option and Incentive Plan of the successor of the Buyer, a copy of which is available upon request, and that the shares underlying such options shall be registered under Form S-8 as soon as practicable. -40- 7. CONDITIONS TO OBLIGATIONS TO CLOSE. ---------------------------------- (A) CONDITIONS TO OBLIGATION OF THE BUYER. The obligation of the ------------------------------------- Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction or waiver of the following conditions: (I) the representations and warranties set forth in Section ------- 3(a) and Section 4 above shall be true and correct in all material respects ---- --------- at and as of the Closing Date; (II) the Sellers shall have performed and complied with all of their covenants hereunder in all Material respects through the Closing; (III) Legacy will have procured all third party consents and given all notices required in connection with this Agreement and the transactions contemplated hereby, including without limitation all action necessary in connection with and/or the receipt of any notices to, filings with, and authorizations, consents and approvals of governments, governmental agencies, and third parties as set forth herein or in the Disclosure Schedule; (IV) no action, suit, or proceeding shall be pending or, to the Knowledge of Sellers, threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect adversely the right of the Buyer to own, operate, or control Legacy Shares or Legacy (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (V) the Sellers shall have delivered to the Buyer a certificate (without qualification as to knowledge or Materiality or otherwise) to the effect that each of the conditions specified above in Section 7(a)(i)-(iv) is satisfied in all respects; -------------------- (VI) the acquisition by the Buyer of Legacy Shares shall represent one hundred percent (100%) of the issued and outstanding capital stock of Legacy and all of such Legacy Shares shall be free and clear of any Security Interests or other liens, claims or encumbrances of any nature whatsoever; (VII) [RESERVED]; (VIII) the Buyer and Legacy shall have received from each of the persons listed on Annex V (the "Key Employees") an executed employment ------- agreement in the form and substance attached hereto as Exhibit E-1 and ----------- pursuant -41- to the terms described in Annex V with respect to salary and bonus for each ------- such Key Employee; (IX) the Buyer and Legacy shall have received from at least 80% of the persons listed on Annex VI an executed compliance agreement in -------- the form and substance attached hereto as Exhibit E-2; ----------- (X) the Buyer shall have received from Puzzanghera an executed joinder or other documentation required by the Registration Agreement to become a party thereto; (XI) the Buyer and Newco shall have received from the Sellers an opinion of counsel in the form agreeable to counsel to each Party, addressed to the Buyer and Newco and dated as of the Closing Date; (XII) the Buyer shall have received the resignations, effective as of the Closing, of each director of Legacy prior to the Closing; (XIII) the Buyer shall be satisfied that the Net Working Capital of Legacy on the Closing Date (plus the aggregate severance amounts ---- specifically set forth on Section 4(f) of the Disclosure Schedule up to a ----------- maximum of $100,000) equaled or exceeded $100,000 or an appropriate adjustment shall have been made to the Purchase Price as provided in Section 2(h); ----------- (XIV) the Buyer shall be satisfied in its sole discretion with the results of its continuing legal due diligence investigations of Legacy, all of which shall be final and completed to Buyer's satisfaction prior to Closing; (XV) no material adverse change shall have occurred in Legacy's Business or its future prospects; (XVI) Sellers shall have caused Legacy to cancel each outstanding phantom stock, deferred bonus, or option plan, if any, and all outstanding Legacy Options shall have been canceled pursuant to an option cancellation agreement reasonably acceptable to Buyer; provided that such cancellation is all at no cost to the Buyer or Legacy; (XVII) Each Seller shall have executed the Purchase Price Adjustment Agreement in the form of Exhibit C attached hereto and each --------- Seller shall have executed a Stock Pledge Agreement in the form of Exhibit ------- D attached hereto; - (XVIII) Sellers shall have caused each person listed on Annex VII --------- to execute a Stock Option Agreement in the form of Exhibit F attached --------- hereto for the issuance of options to purchase Buyer's Shares in the aggregate amount set -42- forth on Annex VII to those persons on Annex VII, subject to reallocation --------- --------- by Legacy; (XIX) all liens and Security Interests securing debts of Legacy which have been paid in full prior to or at the Closing shall have been fully released of record to the reasonable satisfaction of the Buyer and all Uniform Commercial Code financing statements covering such debts shall have been terminated; (XX) no unsatisfied liens for the failure to pay Taxes of any nature whatsoever shall exist against Legacy, or against or in any way affecting any Legacy Share; (XXI) the Sellers shall and Legacy shall have caused all of Legacy's officers, directors and/or Key Employees of Legacy to, have repaid in full all debts and other obligations, if any, owed to Legacy; (XXII) the Buyer shall have received from Legacy the Financial Statements; (XXIII) all appropriate corporate and shareholder authorizations of Legacy shall have been obtained; (XXIV) since the Most Recent Balance Sheet, Legacy shall have made no dividend, consulting or other payment to the Sellers, except for employment salaries (not to exceed current compensation) as set forth on Section 4(m) of the Disclosure Schedule and bonuses as set forth on Section ----------- ------- 4(m) of the Disclosure Schedule; --- (XXV) except as set forth on the Disclosure Schedule, since Most Recent Balance Sheet, Legacy shall not have transferred, conveyed, disposed of and/or sold any of Material assets, except in the Ordinary Course of Business; and (XXVI) all Intellectual Property created or developed by any Seller and any other current employee of Legacy that has been used historically by Legacy or is being used currently by Legacy shall be one hundred percent (100%) owned by Legacy as of the Closing Date. (XXVII) all of the Sellers of Legacy shall have agreed to participate in the Merger without any dissenter's rights exercised. The Buyer may waive any condition specified in this Section 7(a) at or ----------- prior to the Closing. -43- (B) CONDITIONS TO OBLIGATIONS OF THE SELLERS. The obligations of the ---------------------------------------- Sellers to consummate the transactions to be performed by them in connection with the Closing is subject to satisfaction or waiver of the following conditions: (I) the representations and warranties set forth in Section ------- 3(b) above shall be true and correct in all Material respects at and as of --- the Closing Date; (II) the Buyer shall have performed and complied with all of its covenants hereunder in all Material respects through the Closing; (III) Buyer will have procured all third party consents (including the BankBoston, N.A. consent, if required) and given all notices required by Buyer or Newco in connection with this Agreement and the transactions contemplated hereby, including without limitation all action necessary in connection with and/or the receipt of any notices to, filings with, and authorizations, consents and approvals of governments, governmental agencies, and third parties as set forth herein; (IV) no action, suit or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); (V) the Buyer shall have delivered to the Sellers a certificate (without qualification as to knowledge or Materiality or otherwise) to the effect that each of the conditions specified above in Section 7(b)(i)-(iv) ------------------- is satisfied in all respects; (VI) the Buyer shall have executed the Stock Option Agreements in the form of Exhibit F attached hereto for the issuance of options to --------- purchase Buyer's Shares in the aggregate amount set forth on Annex VII to --------- those persons on Annex VII, subject to reallocation by Legacy; --------- (VII) [RESERVED]; (VIII) each of the persons and entities listed on Annex V and ------- Annex VI shall have received from the Buyer an executed employment or -------- compliance agreement, as applicable, in the form and substance attached hereto as Exhibits E-1 and E-2, respectively; provided, the executed ------------ --- Employment Agreements will include the salary and bonus terms described on Annex V with respect to the Key Employees; ------- -44- (IX) Puzzanghera shall have received from the Buyer an executed joinder or other documentation required by the Registration Agreement to become a party thereto; (X) Legacy shall have received from the Buyer the Buyer's Financial Statements and all appropriate corporate and shareholder authorizations of the Buyer shall have been obtained; (XI) Legacy shall have received from the Buyer an opinion of counsel in the form agreeable to counsel to each Party, addressed to Legacy and dated as of the Closing Date ; (XII) the Buyer shall have executed the Purchase Price Adjustment Agreement in the form of Exhibit C attached hereto and the Buyer --------- shall have executed the Stock Pledge Agreement in the form of Exhibit D --------- attached hereto; and (XIII) all actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby will be reasonably satisfactory in form and substance to the Sellers. The Sellers may waive any condition specified in this Section 7(b) at or ----------- prior to the Closing. 8. REMEDIES FOR BREACHES OF THIS AGREEMENT. (A) SURVIVAL. All of the representations and warranties of the -------- Sellers contained in Section 4 above (other than the representations and --------------- warranties of the Sellers contained in Section 4(h) above) shall survive the ----------- Closing hereunder and continue in full force and effect for a period of two (2) years thereafter. Subject to the foregoing, the other representations, warranties, and covenants of the Parties contained in this Agreement (including the representations and warranties of the Sellers contained in Section 4(h) ----------- above) shall survive the Closing (even if the damaged Party knew or had reason to know of any misrepresentation or breach of warranty or covenant at the time of the Closing) and continue in full force and effect for the applicable statute of limitations, except as otherwise provided elsewhere in this Agreement. (B) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER. --------------------------------------------------- (I) In the event the Sellers breach any of their representations, warranties, agreements, and covenants contained herein, and provided that the particular representation, warranty, agreement, or covenant survives the Closing and that the Buyer makes a written claim for indemnification against the Sellers pursuant to Section 10(h) below within the applicable survival period, then the Sellers agree to jointly and severally indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer through and after the -45- date of the claim for indemnification (including any Adverse Consequences the Buyer may suffer after the end of the applicable survival period resulting from, arising out of, relating to, in the nature of, or caused by the breach); provided, however, that the Sellers shall not have any obligation to indemnify the Buyer from and against any Adverse Consequences resulting from, arising out of, relating to, in the nature of, or caused by the breach of any representation or warranty of the Sellers contained in SECTION 4 above (i) --------- until and only to the extent that the Buyer has suffered aggregate losses by reason of all such breaches in excess of a $50,000 threshold or (ii) in excess of the Purchase Price (after which point Sellers shall have no obligation to indemnify Buyer from and against further such Adverse Consequences); provided, further, however, that the limitations set forth in (i) and (ii) above specifically shall not apply to the liability of Sellers with respect to Adverse Consequences resulting from or attributable to intentional fraud or any willful misconduct by the Sellers or to any breaches of the representations and warranties contained in SECTION 4(G) and SECTION 4(H) hereof. ------------ ------------ (II) In the event any Seller breaches any of its several representations, warranties, and covenants contained in SECTION 3 herein, and provided that the --------- particular representation, warranty, or covenant survives the Closing and that the Buyer makes a written claim for indemnification against such Sellers pursuant to SECTION 10(H) ------------- below within the applicable survival period, then each of the Sellers agrees to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Buyer may suffer after the end of the applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach. (III) The Sellers agree to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer may suffer resulting from, arising out of, relating to, in the nature of, or caused by any Liability of Legacy arising under Reg. (S).1.1502-6 (because Legacy once was a member of an Affiliated Group during any part of any consolidated return year within any part of which consolidated return year any corporation other than Legacy also was a member of the Affiliated Group). (IV) The Sellers shall indemnify the Buyer from and against the entirety of any Taxes which may become due and owing by reason of or as a result of the failure of this transaction to qualify as a tax-free reorganization under SECTION 368 of the Code which amount shall be reduced by an ----------- amount equal to the present value (discounted at 6.0%) of any federal, state and local income or franchise tax savings to which the Buyer, the Company or any of their Affiliates may be entitled as a result of such failure based on the highest marginal federal, state and local income and franchise tax rates; provided, however; Sellers shall not be subject to this indemnification obligation if the failure of this transaction to so qualify results (a) solely from Buyer's breach of the covenant set forth in SECTION ------- -46- 6(K) hereof or (b) from a Final Determination that the fair ---- market value per share of the Buyer's Shares was less than $6.00 as of the Closing Date (but only if the Buyer has not completed the Initial Public Offering on or before December 31, 1998). "FINAL DETERMINATION" shall mean a determination by the Internal Revenue Service which is no longer subject to appeal. This subsection (iv) of SECTION 8(B) shall be the sole ------------ basis for indemnification for the Taxes which are incurred based on a failure of this transaction to qualify as a tax-free reorganization under SECTION 368 of the Code. ----------- (V) The Sellers agree to indemnify the Buyer from and against the entirety of any sales, use, recording or other transfer Taxes which may become due and owing by reason of the transactions contemplated by this Agreement. (VI) The Sellers agree to indemnify the Buyer from and against the entirety of any brokerage fees or investment banking commissions due by Sellers or Legacy by reason of the transactions contemplated by this Agreement. (VII) The Sellers shall be liable for, and hereby indemnify, the Buyer for all Taxes imposed on Legacy with respect to any taxable year ended on or before the Closing Date or with respect to any period beginning before and ending after the Closing Date, for the portions of such taxable year or period ending prior to the Closing Date, including without limitation any Taxes incurred in connection with any audit by any governmental authority for any such period ending on or prior to the Closing Date; provided, however, that such indemnity shall be made only to the extent such Taxes are in excess of the reserve, if any, for such Tax Liability used to determine the Net Working Capital of Legacy. The Parties hereto shall, to the extent permitted or not prohibited by applicable law, elect with the relevant taxing authority, if required or necessary, to terminate the taxable year of Legacy as of the Closing Date. In any case where applicable law does not permit Legacy to treat such date as the end of a taxable year or period, then whenever it is necessary to determine the liability for income Taxes of Legacy, for a portion of a taxable year or period, such determination shall (unless otherwise agree to in writing by the Buyer and the Sellers) be determined by a closing of Legacy's books as of the Closing Date, except that exemptions, allowances or deductions that are calculated on an annual basis, such as the deduction for depreciation, shall be apportioned based upon the number of days during such taxable year or period the Sellers and Buyer owned the stock in Legacy. (VIII) The Sellers shall indemnify the Buyer from and against the entirety of all Tax Liability created from and the conversion by Legacy to the accrual basis of tax accounting from the cash basis of tax accounting to the extent such Taxes are in excess of the reserve, if any, for such Tax Liability used to determine the Net Working Capital of Legacy. -47- (IX) The Sellers shall indemnify the Buyer from and against the entirety of all Adverse Consequences as a result of any noncompliance by Legacy prior to the Closing with any wage or employment laws. (X) The Parties shall make appropriate adjustments for tax benefits in determining the liability of the Sellers under this SECTION 8. --------- (C) INDEMNIFICATION PROVISIONS FOR BENEFIT OF ----------------------------------------- THE SELLERS. In the event the Buyer breaches any of its representations, - - ----------- warranties, and covenants contained herein, and provided that the particular representation, warranty, or covenant survives the Closing and that the Sellers make a written claim for indemnification against the Buyer pursuant to SECTION 10(H) below within the applicable survival period, then the Buyer agrees to indemnify the Sellers from and against the entirety of any Adverse Consequences the Sellers may suffer through and after the date of the claim for indemnification (including any Adverse Consequences the Sellers may suffer after the end of the applicable survival period) resulting from, arising out of, relating to, in the nature of, or caused by the breach; provided, however, that the Buyer shall not have any obligation to indemnify the Sellers from and against any Adverse Consequences resulting from, arising out of, relating to, in the nature of, or caused by the breach of any representation or warranty of the Buyer contained in SECTION 3(B) above (i) until and only to the extent that the ------------ Sellers in the aggregate have suffered aggregate losses by reason of all such breaches in excess of a $50,000 threshold or (ii) in excess of the Purchase Price (after which point Buyer shall have no obligation to indemnify any Seller from and against further such Adverse Consequences); provided, further, however, that the limitations set forth in (i) and (ii) above specifically shall not apply to the liability of Buyer with respect to Adverse Consequences resulting from or attributable to intentional fraud or any willful misconduct by the Buyer. (D) MATTERS INVOLVING THIRD PARTIES. If any ------------------------------- third party shall notify any Party (the "INDEMNIFIED PARTY") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "INDEMNIFYING PARTY") under this SECTION 8, then the Indemnified --------- Party shall notify in writing each Indemnifying Party thereof promptly, which notice shall describe the matter in reasonable detail, including relevant evidence and estimated loss; provided, however, that no delay on the part of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is damaged and materially prejudiced from adequately defending such claim. In the event any Indemnifying Party notifies the Indemnified Party within thirty (30) days after the Indemnified Party has given notice of the matter that the Indemnifying party is assuming the defense thereof, (A) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (B) the Indemnified Party may retain separate co-counsel at its sole cost and expense (except that the Indemnifying Party will be responsible for the fees and expenses of the separate co-counsel to the extent the counsel the Indemnifying Party has selected has a conflict of interest), (C) the Indemnified Party will not consent to the entry of any judgment or enter into any settlement or compromise with respect to the matter without the written consent of the Indemnifying Party (not to be withheld unreasonably), and (D) the Indemnifying Party will not consent to the entry of any judgment with -48- respect to the matter, or enter into any settlement or compromise which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event no Indemnifying Party notifies in writing the Indemnified Party within twenty (20) days after the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, the Indemnified Party may defend against, or enter into any settlement with respect to, the matter in any manner it reasonably may deem appropriate. At any time after commencement of any such action, any Indemnifying Party may request an Indemnified Party to accept a bona fide offer from the other Party(ies) to the action for a monetary settlement payable solely by such Indemnifying Party (which does not burden or restrict the Indemnified Party nor otherwise prejudice him or her) whereupon such action shall be taken unless the Indemnified Party determines that the dispute should be continued, the Indemnifying Party shall be liable for indemnity hereunder only to the extent of the lesser of (i) the amount of the settlement offer or (ii) the amount for which the Indemnified Party may be liable with respect to such action. In addition, the Party controlling the defense of any third party claim shall deliver, or cause to be delivered, to the other Party copies of all correspondence, pleadings, motions, briefs, appeals or other written statements relating to or submitted in connection with the defense of the third party claim, and timely notices of, and the right to participate in (as an observer) any hearing or other court proceeding relating to the third party claim. (E) EXCLUSIVE REMEDY. The Parties acknowledge ---------------- and agree that the foregoing indemnification provisions in this SECTION 8 shall --------- be the exclusive remedy of the Parties for any breach of the representations and warranties of the Parties contained in SECTION 3 or SECTION 4 of this Agreement. --------- --------- (F) PAYMENT; GENERAL RIGHT OF OFFSET. The -------------------------------- Indemnifying Parties shall promptly pay to the Indemnified Party as may be entitled to indemnity hereunder in cash the amount of any Adverse Consequences to which such Indemnified Party may become entitled to by reason of the provisions of SECTION 2 or SECTION 8 of this Agreement. Notwithstanding the --------- --------- foregoing, in connection with the indemnification of Buyer pursuant to SECTION ------- 8(B)(I) above, Buyer shall have the option to first seek indemnification - - ------- payments through offset against any promissory note or Earned Payout Amount payable to Sellers after an indemnification claim has been made therefor, for the amount of any Adverse Consequences or any other payments to which Buyer may become entitled to by reason of the provisions of this Agreement (i.e. payments under SECTION 2 or SECTION 6 or other costs in connection therewith). In no --------- --------- event shall either party receive indemnification for an indemnification claim under this ARTICLE VIII which has been fully satisfied through insurance, an ------------ adjustment to Purchase Price or cash payment. (G) OTHER INDEMNIFICATION PROVISIONS. Except as -------------------------------- provided in Section 8(f) above, the foregoing indemnification provisions are in addition to, and not in derogation of, any statutory or common law remedy any Party may have for breach of representation, warranty, or covenant. -49- (H) ARBITRATION WITH RESPECT TO CERTAIN ----------------------------------- INDEMNIFICATION MATTERS. THE PARTIES AGREE TO SUBMIT TO ARBITRATION, IN - - ----------------------- ACCORDANCE WITH THESE PROVISIONS, ANY DISPUTED CLAIM OR CONTROVERSY ARISING FROM OR RELATED TO THE ALLEGED BREACH OF THIS AGREEMENT OR ANY DISPUTED INDEMNIFICATION CLAIM MADE PURSUANT TO THIS SECTION 8. THE PARTIES FURTHER AGREE THAT THE ARBITRATION PROCESS AGREED UPON HEREIN SHALL BE THE EXCLUSIVE MEANS FOR RESOLVING ALL DISPUTES MADE SUBJECT TO ARBITRATION HEREIN, BUT THAT NO ARBITRATOR SHALL HAVE AUTHORITY TO EXPAND THE SCOPE OF THESE ARBITRATION PROVISIONS. ANY ARBITRATION HEREUNDER SHALL BE CONDUCTED UNDER THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION (AAA). EITHER PARTY MAY INVOKE ARBITRATION PROCEDURES HEREIN BY WRITTEN NOTICE FOR ARBITRATION CONTAINING A STATEMENT OF THE MATTER TO BE ARBITRATED. THE PARTIES SHALL THEN HAVE FOURTEEN (14) DAYS IN WHICH THEY MAY IDENTIFY A MUTUALLY AGREEABLE, NEUTRAL ARBITRATOR. AFTER THE FOURTEEN (14) DAY PERIOD HAS EXPIRED, THE PARTIES SHALL PREPARE AND SUBMIT TO THE AAA A JOINT SUBMISSION, WITH EACH PARTY TO CONTRIBUTE HALF OF THE APPROPRIATE ADMINISTRATIVE FEE. IN THE EVENT THE PARTIES CANNOT AGREE UPON A NEUTRAL ARBITRATOR WITHIN FOURTEEN (14) DAYS AFTER WRITTEN NOTICE FOR ARBITRATION IS RECEIVED, THEIR JOINT SUBMISSION TO THE AAA SHALL REQUEST ARBITRATORS WHO ARE PRACTICING ATTORNEYS WITH PROFESSIONAL EXPERIENCE IN THE FIELD OF CORPORATE LAW, AND THE PARTIES SHALL ATTEMPT TO SELECT AN ARBITRATOR FROM THE PANEL ACCORDING TO AAA PROCEDURES. UNLESS OTHERWISE AGREED BY THE PARTIES, THE ARBITRATION HEARING SHALL TAKE PLACE IN THE BOSTON, MASSACHUSETTS METROPOLITAN AREA, AT A PLACE DESIGNATED BY THE AAA. ALL ARBITRATION PROCEDURES HEREUNDER SHALL BE CONFIDENTIAL. EACH PARTY SHALL BE RESPONSIBLE FOR ITS COSTS INCURRED IN ANY ARBITRATION, AND THE ARBITRATOR SHALL NOT HAVE AUTHORITY TO INCLUDE ALL OR ANY PORTION OF SAID COSTS IN AN AWARD REGARDLESS OF WHICH PARTY PREVAILS. THE ARBITRATOR MAY INCLUDE EQUITABLE RELIEF. ANY ARBITRATION AWARDED SHALL BE ACCOMPANIED BY A WRITTEN STATEMENT CONTAINING A SUMMARY OF THE ISSUES IN CONTROVERSY, A DESCRIPTION OF THE AWARD, AND AN EXPLANATION OF THE REASONS FOR THE AWARD. 9. TERMINATION. ----------- (A) TERMINATION OF AGREEMENT. The Parties may ------------------------ terminate this Agreement as provided below: (I) the Buyer and the Sellers may terminate this Agreement by mutual written consent at any time prior to the Closing; (II) the Buyer may terminate this Agreement by giving written notice to the Sellers at any time prior to the Closing in the event the Sellers are in breach of any Material representation, warranty, or covenant contained in this Agreement in any Material respect and such breach has not been cured within ten (10) days of written notice thereof, and the Sellers may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing in the event the Buyer is in breach of any Material representation, warranty, or covenant -50- contained in this Agreement in any Material respect and such breach has not been cured within ten (10) days of written notice thereof; (III) the Buyer may terminate this Agreement by giving written notice to the Sellers at any time prior to the Closing if the Closing shall not have occurred on or before May 15, 1998 by reason of the failure of any condition precedent under SECTION 7(A) hereof (unless the failure ------------ results primarily from the Buyer itself breaching any representation, warranty, or covenant contained in this Agreement); or (IV) the Sellers may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing if the Closing shall not have occurred on or before May 15, 1998 by reason of the failure of any condition precedent under SECTION 7(B) hereof (unless the ------------ failure results primarily from any Seller himself breaching any representation, warranty, or covenant contained in this Agreement) (V) the Sellers may terminate this Agreement by giving written notice to the Buyer at any time prior to the Closing if the Initial Public Offering has been abandoned. Nothing contained in this SECTION 9(A) shall alter, affect, ------------ modify or restrict either Parties' rights to rely on and/or seek indemnification for a breach of any of the representations and warranties and/or conditions or covenants of any of the Parties contained in this Agreement. (B) EFFECT OF TERMINATION. If either Buyer or Sellers --------------------- terminate this Agreement pursuant to SECTION 9(A) above, all obligations of the ------------ Parties hereunder shall terminate without any Liability of any Party to any other Party. 10. MISCELLANEOUS. -------------- (A) [RESERVED] (B) PRESS RELEASES AND ANNOUNCEMENTS. Except as -------------------------------- may be required by applicable securities laws or stock exchange requirements, no Party shall issue any press release or public announcement relating to the subject matter of this Agreement prior to, at or about the Closing without the prior written approval of the Buyer and the Sellers, which written approval will not be unreasonably withheld; provided, however, that any Party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Parties prior to making the disclosure). (C) NO THIRD-PARTY BENEFICIARIES. This ---------------------------- Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. -51- (D) ENTIRE AGREEMENT. This Agreement (including ---------------- the documents referred to herein or signed by the Parties and delivered herewith) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements, or representations by or among the Parties, written or oral, that may have related in any way to the subject matter hereof; provided, however, that unless and until the consummation of the purchase and sale transaction contemplated hereunder occurs, the Confidentiality Agreement attached hereto as EXHIBIT G shall remain in full force and effect. (E) SUCCESSION AND ASSIGNMENT. This Agreement ------------------------- shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his, her or its rights, interests, or obligations hereunder without the prior written approval of the Buyer and the Sellers; provided, however, that the Buyer may (i) assign any or all of its rights and interests hereunder to a wholly-owned Subsidiary (in any or all of which cases the Buyer and Newco nonetheless shall remain liable and responsible for the performance of all of its respective obligations hereunder). (F) FACSIMILE/COUNTERPARTS. This Agreement may ---------------------- be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar instantaneous electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes. At the request of any Party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof. (G) DESCRIPTIVE HEADINGS. The descriptive -------------------- section headings contained in this Agreement are inserted for convenience or reference only and shall not control or affect in any way the meaning, interpretation, or construction of any of the provisions of this Agreement. (H) NOTICES. All notices, requests, demands, ------- claims, and other communications hereunder will be in writing. Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to Legacy or the Sellers: Mr. Paul J. Puzzanghera c/o Legacy Technology, Inc. One Van de Graaff Drive Burlington, Massachusetts 01803-5171 Tel: (781) 273-5400 Fax: (781) 273-4555 -52- with a copy to: Parker Chapin Flattau & Kimpl, LLP 1211 Avenue of the Americas New York, New York 10036 Attention: Martin Weisberg, Esq. Tel: (212) 704-6000 Fax: (212) 704-6288 If to the Buyer: AnswerThink Consulting Group, Inc. 1001 Brickell Bay Drive, Suite 3000 Miami, Florida 33131 Attention: Ted A. Fernandez Tel: (305) 375-8005 Fax: (305) 375-8810 with a copy to: Hogan & Hartson, LLP 555 Thirteenth Street, NW Washington, D.C. 20004 Attention: Christopher J. Hagan, Esq. Tel: (202) 637-5771 Fax: (202) 637-5910 Any Party may give any notice, request, demand, claim, or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the individual for whom it is intended. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other parties notice in the manner herein set forth. (I) GOVERNING LAW. ALL QUESTIONS CONCERNING THE ------------- CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS AGREEMENT HERETO WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS. -53- (J) AMENDMENTS AND WAIVERS. No amendment of any ---------------------- provision of this Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Sellers. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. (K) SEVERABILITY. Any term or provision of this ------------ Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. (L) EXPENSES. Each of the Parties and Legacy -------- will bear his, her or its own costs and expenses (including legal fees and expenses and investment banking fees) incurred in connection with this Agreement and the transactions contemplated hereby. The Sellers acknowledge and agree that Legacy has not borne or will bear any of the Sellers' costs and expenses (including any of its legal fees and expenses and investment banking fees) in connection with this Agreement or any of the transactions contemplated hereby. (M) CONSTRUCTION. The language used in this ------------ Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant relating to the same subject matter as any other representation, warranty or covenant (regardless of the relative levels of specificity) which the Party has not breached, it shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. (N) INCORPORATION OF EXHIBITS, ANNEXES, AND --------------------------------------- SCHEDULES. The Exhibits, Annexes, and Schedules identified in - - --------- this Agreement are incorporated herein by reference and made a part hereof. (O) SPECIFIC PERFORMANCE. Each of the Parties -------------------- acknowledges and agrees that the other Parties would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are -54- breached. Accordingly, each of the Parties agrees that the other Parties shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter, in addition to any other remedy to which they may be entitled, at law or in equity. [THIS SPACE INTENTIONALLY LEFT BLANK] -55- IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. NEWCO: BUYER: ANSWERTHINK ACQUISITION ANSWERTHINK CONSULTING GROUP, INC. SUB NO. 1, INC. By: /s/ TED A. FERNANDEZ By: /s/ TED A. FERNANDEZ -------------------------- --------------------------------------- Ted A. Fernandez Ted A. Fernandez President President and Chief Executive Officer LEGACY: LEGACY TECHNOLOGY, INC. By: /s/PAUL J. PUZZANGHERA -------------------------------------- Paul J. Puzzanghera President and Chief Executive Officer SELLERS: /s/PAUL J. PUZZANGHERA ------------------------------------------- Paul J. Puzzanghera /s/WALLACE MCKENZIE ------------------------------------------- Wallace McKenzie /s/AL JETTE ------------------------------------------- Al Jette [ADDITIONAL SIGNATURES ON NEXT PAGE] -56- ATTESTATIONS: NEWCO: BUYER: ANSWERTHINK ACQUISITION ANSWERTHINK CONSULTING GROUP, INC. SUB NO. 1, INC. By: /s/LUIS SAN MIGUEL By: /s/LUIS SAN MIGUEL ----------------------------- ---------------------------------- Luis San Miguel Luis San Miguel Vice President and Treasurer Executive Vice President and Chief Financial Officer LEGACY: LEGACY TECHNOLOGY, INC. By: /s/AL JETTE ----------------------------------- Al Jette Treasurer The Exhibits, Annexes, Tables and Schedules to this Agreement have not been included with this Registration Statement on Form S-1. AnswerThink will provide these exhibits, annexes, tables and schedules upon the request of the Securities and Exchange Commission. -57- EX-10.25 11 EXHIBIT 10.25 Exhibit 10.25 - - -------------------------------------------------------------------------------- SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT - - -------------------------------------------------------------------------------- Second Amendment dated as of May 20, 1998 to Revolving Credit Agreement (the "Second Amendment"), by and among ANSWERTHINK CONSULTING GROUP, INC (the "Borrower"), BANKBOSTON, N.A. and the other lending institutions listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (the "Banks"), - - ---------- amending certain provisions of the Revolving Credit Agreement dated as of November 7, 1997 (as amended and in effect from time to time, the "Credit Agreement") by and among the Borrower, the Banks and BankBoston, N.A. as agent for the Banks (the "Agent"). Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein. WHEREAS, the Borrower and the Banks have agreed to modify certain terms and conditions of the Credit Agreement as specifically set forth in this Second Amendment; NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: (S)1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. Section 1.1 of ---------------------------------------------- the Credit Agreement is hereby amended by inserting the following definitions in the appropriate alphabetical order: Legacy. Legacy Technology, Inc., a Massachusetts corporation, ------ formed as a result of the Legacy Merger. Legacy Acquisition Documents. The Legacy Merger Agreement and ---------------------------- all agreements and documents required to be entered into or delivered pursuant thereto or in connection with the Legacy Merger, each in form and substance acceptable to the Agent. Legacy Merger. The merger on the Legacy Merger Closing Date of ------------- Newco, with and into Legacy Technology, Inc., with Newco being the surviving corporation and renamed "Legacy Technology, Inc.", all pursuant to the terms of the Legacy Acquisition Documents. Legacy Merger Agreement. That certain Merger Agreement by and ----------------------- among the Borrower, Newco, Legacy Technology, Inc., and the Legacy Sellers, dated as of April 27, 1998, and in form and substance acceptable to the Agent. Legacy Merger Closing Date. The first date on which the -------------------------- conditions set forth in the Legacy Acquisition Documents have been satisfied and the Legacy Merger has occurred. -2- Legacy Note. Those certain subordinated promissory notes dated ----------- as of May 20, 1998 form the Borrower to each of the Legacy Sellers in the aggregate principal amount for all such notes of not more than $2,770,000, and each in form and substance acceptable to the Agent, and each subject to the terms of the Subordination Agreement. Legacy Secondary Note. Those certain subordinated promissory --------------------- notes from the Borrower to each of the Legacy Sellers in the aggregate principal amount for all such notes of not more than $3,300,000, which may be issued on or after May 1, 2000 pursuant to Paragraph 2(h) of the Legacy Merger Agreement, and each in form and substance acceptable to the Agent, and each subject to the terms of the Subordination Agreement. Legacy Sellers. Collectively, Paul J. Puzzanghera, Wallace -------------- McKenzie and Al Jette. Newco. AnswerThink Acquisition Sub No. 1, Inc., a ----- Massachusetts corporation. Subordination Agreement. That certain Subordination Agreement ----------------------- dated as of May 20, 1998 by and among the Borrower, the Legacy Sellers and the Agent, and in form and substance acceptable to the Agent. (S)2. AMENDMENT TO SECTION 8 OF THE CREDIT AGREEMENT. Section 8.1 of ---------------------------------------------- the Credit Agreement is hereby amended by (i) deleting the word "and" which appears at the end of (S)8.1(g); (ii) deleting the period which appears at the end of (S)8.1(h) and substituting in place thereof a semicolon and the word "and"; and (iii) inserting immediately after the text of (S)8.1(h) the following: (i) Indebtedness of the Borrower incurred (i) pursuant to the Legacy Note and the Legacy Secondary Notes; and (ii) in connection with certain earnout provisions pertaining to Legacy Merger in the aggregate principal amount of not more than $1,250,000. (S)3. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall not --------------------------- become effective until the Agent receives the following: (a) a counterpart of this Second Amendment, executed by the Borrower, the Guarantor and the Banks; (b) copies of the Legacy Acquisition Documents, together with evidence that the Legacy Merger has been consummated; (c) executed copies of each of the Perfection Certificate, Guaranty, Security Agreement, and financing statements duly executed and delivered by Legacy; -3- (d) copies certified by a duly authorized officer of Legacy to be true and complete on the date hereof, of each of (i) its charter or other incorporation documents as in effect on such date of certification and (ii) its by-laws as in effect on such date; (e) an incumbency certificate from Legacy, dated as of the date hereof, signed by a duly authorized officer of Legacy, and giving the name and bearing a specimen signature of each individual who shall be authorized to sign, in the name and on behalf of Legacy, each of the Loan Documents to which Legacy is or is to become a party and to give notices and to take other action on its behalf under the Loan Documents; (f) a counterpart of the Subordination Agreement, executed by the Borrower, the Legacy Sellers and the Agent; and (g) evidence satisfactory to the Agent that the conditions set forth in (S)8.5.1(d) of the Credit Agreement have been satisfied (including, without limitation, the Borrower having taken or caused to be taken, such action to perfect the Agent's security interest in all assets of Legacy, delivery of the stock certificate and stock power (duly executed in blank) of Legacy, and evidence of compliance with the financial covenants on a pro forma basis). (S)4. REPRESENTATION AND WARRANTIES. The Borrower hereby repeats, on ----------------------------- and as of the date hereof, each of the representations and warranties made by it in (S)6 of the Credit Agreement, and such representations and warranties remain true as of the date hereof (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date), provided, that all references therein to the Credit Agreement shall refer to - - -------- such Credit Agreement as amended hereby. In addition, the Borrower hereby represents and warrants that the execution and delivery by the Borrower of this Second Amendment and the performance by the Borrower of all of its agreements and obligations under the Credit Agreement as amended hereby are within the corporate authority of each the Borrower and has been duly authorized by all necessary corporate action on the part of the Borrower. (S)5. RATIFICATION, ETC. Except as expressly amended hereby, the ----------------- Credit Agreement and all documents, instruments and agreements related thereto, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Second Amendment shall be read and construed as a single agreement. All references in the Credit Agreement or any related agreement or instrument to the Credit Agreement shall hereafter refer to the Credit Agreement as amended hereby. (S)6. NO WAIVER. Nothing contained herein shall constitute a waiver --------- of, impair or otherwise affect any Obligations, any other obligation of the Borrower or any rights of the Agent or the Banks consequent thereon. (S)7. COUNTERPARTS. This Second Amendment may be executed in one or ------------ more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. -4- (S)8. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND ------------- CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). -5- IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as a document under seal as of the date first above written. ANSWERTHINK CONSULTING GROUP, INC. By: /s/ Luis E. San Miguel ----------------------------------- Title: Executive Vice President and Chief Financial Officer BANKBOSTON, N.A. By: [Signature appears here] ----------------------------------- Jay L. Massimo, Director EX-10.26 12 EXHIBIT 10.26 EXECUTION COPY Exhibit 10.26 AMENDMENT NO. 1 TO MERGER AGREEMENT DATED AS OF APRIL 27, 1998 AMONG ANSWERTHINK CONSULTING GROUP, INC., ("BUYER") ANSWERTHINK ACQUISITION SUB. NO. 1, INC., ("NEWCO") LEGACY TECHNOLOGY, INC. ("LEGACY") AND THE SHAREHOLDERS OF LEGACY TECHNOLOGY, INC. ("SELLERS") WHEREAS, Buyer, Newco, Legacy and Sellers entered into that certain merger agreement dated April 27, 1998 (the "Agreement") whereby the Parties agreed to merge Legacy with and into Newco upon the terms and conditions of the Merger Agreement; WHEREAS, the Articles of Incorporation of Buyer were amended and restated in contemplation of the proposed Initial Public Offering of Buyer (the "Amended and Restated Articles"); WHEREAS, the Amended and Restated Articles reflected that each share of Buyer's capital stock was reverse split on a one-for-two basis (e.g., each two shares of Buyer's outstanding capital stock on a pre-split basis were exchanged for one share of Buyer's capital stock on a post-split basis) (the "Reverse Stock Split"); WHEREAS, the number of Buyer's Shares issued in connection with this Agreement shall be equal to one-half of the total number of shares which would have been issued prior to the aforementioned reverse stock split, and the price per shall be double the price per share prior to the reverse stock split; WHEREAS, the Amended and Restated Articles and the one for two reverse split of Buyer's Shares were adopted and approved by the directors and shareholders of Buyer (as required); and WHEREAS, the Buyer, Newco, Legacy and the Sellers wish to amend the Agreement as set forth herein; NOW, THEREFORE, the Parties hereby agree as follows: 1. Section 2(h) (Purchase Price). As a result of the Reverse Stock Split, ----------------------------- section 2(h) of the Agreement is amended to replace the number "538,333" with "269,166" and to replace "$6.00" with "$12.00" in the second sentence. Section 2(h) of the Agreement is further amended to replace "6.0" with "12.0" in the seventh sentence. 2. Section 2(j) (Earned Payout Amount). As a result of the Reverse Stock ----------------------------------- Split, section 2(j)(iii) of the Agreement is amended to replace "$6.00" with "$12.00" in the second sentence. 3. Section 2(m) (the Closing). As a result of the Reverse Stock Split, -------------------------- section 2(m) of the Agreement is amended to replace "May 15, 1998" with "May 20, 1998" in the last sentence. 4. Section 2(o) (Post Closing Adjustment). As a result of the Reverse Stock -------------------------------------- Split, section 2(o) of the Agreement is amended to replace "538,333" with 269,166" and to replace "158,300" with "79,150". 5. Section 3(b). As a result of the Reverse Stock Split, section 3(b)(vi) of ------------ the Agreement is hereby amended by replacing the first sentence in its entirety with the following: "The authorized capital stock of Buyer consists of (a) 125,000,000 shares of common stock, of which 23,200,041 shares are issued and outstanding; (b) 1,250,000 shares of the preferred stock, of which no shares are issued and outstanding; and (c) 3,650,000 shares of convertible preferred stock, of which 1,790,026 shares are issued and outstanding." 6. Defined Terms. Capitalized terms used herein and not otherwise defined are ------------- used as defined in the Agreement. * * * * * 2 IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 1 as of this 18th day of May, 1998. ANSWERTHINK CONSULTING GROUP, INC. By: /Luis San Miguel/ ----------------------------------- Name: Luis San Miguel Title: Executive Vice President - Finance and Chief Financial Officer ANSWERTHINK ACQUISITION SUB. NO. 1, INC. By: /Luis San Miguel/ ----------------------------------- Name: Luis San Miguel Title: Vice President and Treasurer LEGACY TECHNOLOGY, INC. By: /Paul Puzzanghera/ ----------------------------------- Name: Paul Puzzanghera Title: President and Chief Executive Officer SELLERS: /Paul Puzzanghera/ --------------------------------------- Paul Puzzanghera /Wallace McKenzie/ --------------------------------------- Wallace McKenzie /Al Jette/ --------------------------------------- Al Jette 3 EX-10.27 13 EXHIBIT 10.27 Exhibit 10.27 TERMINATION OF SENIOR MANAGEMENT AGREEMENT ------------------------------------------ This AGREEMENT (this "AGREEMENT") is entered into as of _____________ __, 1998, by and among Edmund R. Miller (the "EXECUTIVE"), AnswerThink Consulting Group, Inc. (the "COMPANY"), the Company and those members of the Company's Board of Directors whose signatures appear on the Consent of Directors attached hereto (the "DIRECTORS"). RECITALS -------- A. The Executive has entered into a Senior Management Agreement with the Company dated as of April 23, 1997, as amended effective March 27, 1998 (the "SENIOR MANAGEMENT AGREEMENT"). B. The Directors and the Executive desire to terminate the Senior Management Agreement pursuant to the terms and provisions of this Agreement. C. Capitalized terms used but not defined herein have the meanings assigned to such terms in the Senior Management Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing premises, and good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. TERMINATION OF SENIOR MANAGEMENT AGREEMENT. Effective upon the completion ------------------------------------------ of the initial public offering of the Company's Common Stock (the "OFFERING DATE"), the Senior Management Agreement shall be terminated and from and after the Offering Date the Senior Management Agreement shall be of no further force or effect. Shares of the Company's Common Stock purchased by the Executive pursuant to the Senior Management Agreement that have become vested thereunder before the Offering Date shall continue to be fully vested notwithstanding the termination of the Senior Management Agreement. 2. EFFECTIVE DATE. This Agreement shall be effective as of the Offering Date. -------------- 3. COUNTERPARTS; FACSIMILE TRANSMISSION. This Agreement may be executed in any ------------------------------------ number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A party's signature appearing on this Agreement sent by facsimile transmission shall be binding as evidence of that party's acceptance and agreement to the terms hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above. THE EXECUTIVE: ANSWERTHINK CONSULTING GROUP, INC. By: - - ------------------------------- ------------------------------- Edmund R. Miller Ted A. Fernandez, President * * * * * -2- EX-10.28 14 EXHIBIT 10.28 Exhibit 10.28 SECOND AMENDMENT TO ------------------- CERTAIN SENIOR MANAGEMENT AGREEMENTS ------------------------------------ This SECOND AMENDMENT TO CERTAIN SENIOR MANAGEMENT AGREEMENTS (this "SECOND AMENDMENT") is entered into as of _____________ __, 1998, by and among those executives whose signatures appear on the signature page hereto (the "EXECUTIVES") of AnswerThink Consulting Group, Inc. (the "COMPANY"), the Company and those members of the Company's Board of Directors whose signatures appear on the Consent of Directors attached hereto (the "DIRECTORS"). RECITALS -------- A. Executives Fernandez, Frank and Knotts have entered into Senior Management Agreements with the Company dated as of April 23, 1997, as amended effective March 27, 1998, and Executive Dungan entered into a Senior Management Agreement with the Company dated as of July 11, 1997, as amended effective March 27, 1998 (the "SENIOR MANAGEMENT AGREEMENTS"). B. The Directors and each of the Executives desire to revise the respective Senior Management Agreements in certain respects, all pursuant to the terms and provisions of this Second Amendment. C. Capitalized terms used but not defined herein have the meanings assigned to such terms in the Senior Management Agreements. AGREEMENT --------- NOW, THEREFORE, in consideration of the foregoing premises, and good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. AMENDMENTS TO THE SENIOR MANAGEMENT AGREEMENTS. Effective upon the ---------------------------------------------- completion of the initial public offering of the Company's Common Stock (the "OFFERING DATE"): (A) AMENDMENT TO SECTION 3. Section 3 of each of the Senior ---------------------- --------- Management Agreements shall be amended to read as follows: 3. Repurchase Option. (a) In the event that Executive ceases to be employed by any of the Company and its Subsidiaries for any reason (the "Termination"), the Unvested Shares (whether held by Executive or one or more of Executive's transferees) will be subject to repurchase by the Company, the Investors and the Other Executives pursuant to the terms and conditions set forth in this Section 3 (the "Repurchase Option"). Any shares subject to repurchase pursuant to the Repurchase Option under this Agreement are referred to herein as "Subject Shares." (b) In the event of Termination, the purchase price for each Unvested Share of Common Stock will be Executive's Original Cost for such share. (c) The Board may elect to purchase all or any portion of any class of the Subject Shares by delivering written notice (the "Repurchase Notice") to the holder or holders of the Executive Stock within 90 days after the Termination. The Repurchase Notice will set forth the number of Subject Shares of each class to be acquired from each holder, the aggregate consideration to be paid for such shares and the proposed time and place for the closing of the transaction. The number of shares to be repurchased by the Company shall first be satisfied to the extent possible from the shares held by Executive at the time of delivery of the Repurchase Notice. If the number of shares of any class then held by Executive is less than the total number of shares of such class which the Company elects and is entitled to purchase pursuant to the Repurchase Option, the Company shall purchase the remaining shares of such class elected to be purchased from the other holder(s), pro rata according to the number of shares of such class held by such other holder(s) at the time of delivery of such Repurchase Notice (determined as nearly as practicable to the nearest share). (d) If for any reason the Company does not elect to purchase all of the Subject Shares pursuant to the Repurchase Option, each of the Investors and the Other Executives shall be entitled to exercise the Repurchase Option for the Subject Shares the Company has not elected to purchase (the "Available Shares"). As soon as practicable after the Company has determined that there will be Available Shares, but in any event within 120 days after the Termination, the Company shall give written notice (the "Option Notice") to the Investors and the Other Executives setting forth the number of Available Shares and the purchase price for the Available Shares. Each Investor and each Other Executive may elect to purchase any or all of the Available Shares by giving written notice to the Company within one month after the Option Notice has been given by the Company. As soon as practicable, and in any event within ten days after the expiration of the one-month period set forth above, the Company shall notify each holder of Subject Shares as to the number of shares being purchased from such holder by the Investors and the Other Executives (the "Supplemental Repurchase Notice"). At the time the Company delivers the Supplemental Repurchase Notice to such holder(s), the Company shall also deliver written notice to the Investors and the Other Executives setting forth the number of shares each such Person is entitled to purchase, the aggregate purchase price and the time and place of the closing of the transaction. If the Investors and Other Executives elect to purchase an aggregate number of any class of Subject Shares greater than the number of such class of Subject Shares which such Persons are entitled to purchase pursuant to the Repurchase Option, such class shall be allocated among the Investors and Other Executives pro rata based upon the number of shares of Underlying Common Stock owned by each such Person (but in no event shall the pro rata share of any such Person result in such Person acquiring a number of Subject Shares of any class in excess of the number of such class requested to be purchased by such Person). If the number of shares of any class then held by Executive is less than the total number of -2- shares of such class which the Investors and the Other Executives have elected and are entitled to purchase pursuant to the Repurchase Option, such Persons shall purchase the remaining shares elected to be purchased from the other holder(s) of Non-Restricted Executive Stock under this Agreement, pro rata according to the number of shares of Non-Restricted Executive Stock of such class held by such other holder(s) at the time of delivery of such Repurchase Notice (determined as nearly as practicable to the nearest share). (e) The closing of the purchase of Subject Shares pursuant to the Repurchase Option shall take place on the date designated by the Company in the Repurchase Notice or Supplemental Repurchase Notice, which date shall not be more than one month nor less than five days after the delivery of the last such notice. The Company will pay for the Subject Shares to be purchased by it pursuant to the Repurchase Option by first offsetting amounts outstanding under any bona fide debts owed by Executive to the Company; upon full repayment of such bona fide debts, the Company will make payment by, subject to Subsection (f) below, a check or wire transfer of funds. Each Investor and Other Executive will pay for Subject Shares to be purchased pursuant to the Repurchase Option by check or wire transfer of funds. Each purchaser of Subject Shares pursuant to the Repurchase Option will be entitled to receive customary representations and warranties from the sellers regarding such sale and to require all sellers' signatures be guaranteed. (f) Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Subject Shares by the Company shall be subject to applicable restrictions contained in the Florida Business Corporation Act and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Subject Shares hereunder which the Company is otherwise entitled or required to make, the Company may make such repurchases as soon as it is permitted to do so under such restrictions. (g) The Executive and the Company may agree at any time to exchange any number of Restricted Shares held by the Executive to the Company for an equal number of shares of the Company's Common Stock (the "Exchange Shares"). The Exchange Shares received by the Executive shall not be deemed to be Restricted Shares for purposes of this Agreement or the Restricted Securities Agreement. Any Exchange Shares so received shall vest immediately upon receipt by the Executive, and shall not be subject to the Repurchase Option contained in this Section 3. (B) AMENDMENT TO SECTION 4. Section 4 of each of the Management ---------------------- --------- Agreements is hereby amended by deleting the previous text in its entirety. (C) AMENDMENT TO SECTION 6. Section 6 of each of the Management ---------------------- --------- Agreements is hereby amended by deleting the previous text in its entirety. 2. EFFECTIVE DATE. This Second Amendment shall be effective as of the Offering -------------- Date. -3- 3. COUNTERPARTS; FACSIMILE TRANSMISSION. This Second Amendment may be executed ------------------------------------ in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A party's signature appearing on this Second Amendment sent by facsimile transmission shall be binding as evidence of that party's acceptance and agreement to the terms hereof. IN WITNESS WHEREOF, the parties have caused this Second Amendment to Certain Senior Management Agreements to be executed as of the date first written above. THE EXECUTIVES: ANSWERTHINK CONSULTING GROUP, INC. By: - - ---------------------------- ---------------------------- Ted A. Fernandez, President David Dungan - - ---------------------------- Ted A. Fernandez - - ---------------------------- Allan R. Frank - - ---------------------------- Ulysses S. Knotts, III * * * * * -4- EX-23.1 15 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Amendment No. 2 to Form S-1 (File No. 333-48123) of our report dated March 12, 1998, except for Note 11, as to which the date is May 12, 1998, on our audit of the consolidated financial statements of AnswerThink Consulting Group, Inc. We also consent to the references to our firm under the caption "Experts" and "Selected Financial Data." /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Miami, Florida May 22, 1998 EX-23.2 16 EXHIBIT 23.2 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Amendment No. 2 to Form S-1 (File No. 333-48123) of our reports dated February 27, 1998, on our audits of the financial statements of Delphi Partners, Inc., The Hackett Group, Inc., Relational Technologies, Inc. and Legacy Technology, Inc. We also consent to the references to our firm under the captions "Experts" and "Selected Financial Data." /s/ Coopers & Lybrand L.L.P. Coopers & Lybrand L.L.P. Miami, Florida May 22, 1998 -----END PRIVACY-ENHANCED MESSAGE-----