-----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, K5rxmQFq3foWx5BrGHes1g5KY9zkfQyndKHQepTw2w6ESlb/ZkPOPP22HfX2IjUd dpKVK+eY2K8rDYzVPSPkrg== 0001047469-99-032278.txt : 19990817 0001047469-99-032278.hdr.sgml : 19990817 ACCESSION NUMBER: 0001047469-99-032278 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAMBA CORP CENTRAL INDEX KEY: 0000883741 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 411636021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22718 FILM NUMBER: 99691164 BUSINESS ADDRESS: STREET 1: 7301 OHMS LANE STE 200 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 BUSINESS PHONE: 6128329800 MAIL ADDRESS: STREET 1: 7301 OHMS LANE STREET 2: STE 200 CITY: MINNEAPOLIS STATE: MN ZIP: 55439 FORMER COMPANY: FORMER CONFORMED NAME: RACOTEK INC DATE OF NAME CHANGE: 19931025 10-Q 1 FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF - --- THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ COMMISSION FILE NUMBER 0-22718 ZAMBA CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE #41-1636021 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 7301 OHMS LANE, SUITE 200, MINNEAPOLIS, MINNESOTA 55439 (Address of principal executive offices, including zip code) (612) 832-9800 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Outstanding at Class June 30, 1999 ----- -------------- Common Stock, $0.01 par value 29,605,320
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- THIS REPORT CONSISTS OF 40 SEQUENTIALLY NUMBERED PAGES. ZAMBA CORPORATION INDEX PART I -- Financial Information
Item 1. Financial Statements (Unaudited) Page No. -------- Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1999, and 1998 3 Consolidated Balance Sheets as of June 30, 1999, and December 31, 1998 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999, and 1998 5 Consolidated Notes to Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Not Applicable PART II -- Other Information Items 1-3. None 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. None 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
2 PART I. FINANCIAL INFORMATION ITEM 1: FINANCIAL STATEMENTS ZAMBA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, ------------------- -------------------- 1999 1998 1999 1998 ------- ------- ------- ------ Net revenues: Services $6,327 $1,385 $11,100 $2,719 Products 4 25 54 95 ------- ------- ------- ------ 6,331 1,410 11,154 2,814 Cost and expenses: Project costs 3,348 431 6,133 931 Other costs 740 151 1,334 314 Sales and marketing 500 492 1,023 970 General and administrative 1,536 454 2,560 905 Research and development - 427 - 811 Amortization of intangibles 944 - 1,880 - ------- ------- ------- ------ Loss from operations (737) (545) (1,776) (1,117) Other income (expense): Interest income 19 56 42 132 Interest expense (21) - (45) - ------- ------- ------- ------ (2) 56 (3) 132 Net loss ($739) ($489) ($1,779) ($985) ------- ------- ------- ------ ------- ------- ------- ------ Net loss per share- basic and diluted ($0.02) ($0.02) ($0.06) ($0.04) ------- ------- ------- ------ ------- ------- ------- ------ Weighted average shares outstanding 29,576 24,923 29,321 25,025 ------- ------- ------- ------ ------- ------- ------- ------
The accompanying notes are an integral part of the consolidated financial statements. 3 ZAMBA CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) ASSETS
June 30, December 31, 1999 1998 -------- ----------- Current assets: Cash and cash equivalents $ 4,511 $ 2,962 Accounts receivable, net 4,020 2,150 Unbilled receivables 361 284 Prepaid expenses and other current assets 202 299 -------- --------- Total current assets 9,094 5,695 Property and equipment, net 1,186 1,175 Restricted cash 200 200 Identifiable intangible assets, net 4,906 6,768 Goodwill, net 96 38 Other assets 62 65 -------- --------- Total assets $ 15,544 $ 13,941 -------- --------- -------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Current installments of long-term debt $228 $285 Accounts payable 816 195 Accrued expenses 1,712 765 Deferred revenue 2,124 334 -------- --------- Total current liabilities 4,880 1,579 -------- --------- Long-term debt, less current installments 1,119 1,240 -------- --------- Commitments Total liabilities 5,999 2,819 -------- --------- Stockholders' equity: Common stock, $0.01 par value, 55,000 shares authorized, 29,605 and 29,014 issued and outstanding at June 30, 1999 and December 31, 1998, respectively 296 290 Additional paid-in capital 78,863 78,667 Accumulated deficit (69,614) (67,835) -------- --------- Total stockholders' equity 9,545 11,122 -------- --------- Total liabilities and stockholders' equity $ 15,544 $ 13,941 -------- --------- -------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 4 ZAMBA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) Six Months Ended June 30, ---------------------- 1999 1998 --------- --------- Cash flows from operating activities: Net loss ($1,779) ($985) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,242 245 Provision for bad debts 132 - Amortization of discounts on investments - (7) Changes in operating assets and liabilities: Accounts receivable (2,002) (117) Unbilled receivables (77) - Prepaid expenses and other current assets 93 78 Accounts payable 620 75 Accrued expenses 948 (357) Deferred revenue 1,790 (209) --------- --------- Net cash provided by (used in) operating activities 1,967 (1,277) Cash flows from investing activities: Purchase of investments - (2,327) Proceeds from maturity of investments - 3,565 Purchase of equipment (368) (28) Payment on debt (74) - Other (70) (25) --------- --------- Net cash provided by (used in) investing activities (512) 1,185 Cash flows from financing activities: Proceeds from exercises of stock options and warrants 94 134 --------- --------- Net cash provided by financing activities 94 134 --------- --------- Net change in cash and cash equivalents 1,549 42 Cash and cash equivalents, beginning of period 2,962 3,103 --------- --------- Cash and cash equivalents, end of period $4,511 $3,145 --------- --------- --------- ---------
The accompanying notes are an integral part of the consolidated financial statements. 5 ZAMBA CORPORATION NOTES TO FINANCIAL STATEMENTS (Unaudited) Note A. Basis of Presentation: The unaudited consolidated financial statements of Zamba Corporation ("Zamba" or the "Company") as of June 30, 1999, and for the three and six month periods ended June 30, 1999, and 1998, reflect, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to fairly state our financial position as of June 30, 1999, and our results of operations and cash flows for the reported periods. The results of operations for any interim period are not necessarily indicative of the results to be expected for any other interim period or for the full year. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with our audited consolidated financial statements and related notes for the year ended December 31, 1998, which were included in our 1998 Annual Report on Form 10-K. Note B. Net Loss per Share: We incurred net losses for the three and six month periods ended June 30, 1999, and 1998, and excluded assumed conversion shares from the diluted loss per share computation, because their effect is anti-dilutive. At June 30, 1999, we had 7,280,205 stock options outstanding, which may be dilutive in future periods. Note C. Selected Balance Sheet Information:
(in thousands) June 30, 1999 December 31, 1998 ------------- ----------------- (Unaudited) Accounts receivable, net: Accounts receivable $ 4,324 $ 2,377 Less allowance for doubtful accounts (304) (227) --------- --------- $ 4,020 $ 2,150 --------- --------- --------- --------- Property and equipment, net: Computer equipment $ 2,690 $ 2,462 Furniture and equipment 649 507 Leasehold improvements 186 186 --------- --------- 3,525 3,155 Less accumulated depreciation and amortization (2,339) (1,980) --------- -------- $ 1,186 $ 1,175 --------- --------- --------- ---------
6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Zamba is a national customer care consulting company. According to the Gartner Group, customer care is expected to grow at a cumulative average growth rate of 54% per year through 2002. Our services are designed to assist clients in building lasting relationships with customers, increase the effectiveness of customer service and sales operations, and improve overall communication with customers. We deliver our services using a unique combination of accumulated expertise in the customer care field, existing technology, and client knowledge. Typically, we perform our services on a fixed-bid, fixed-timetable basis. Rapid development and significant client involvement are key aspects to our methodologies. We offer our clients end-to-end assistance with their implementations, including business case evaluation, system planning and design, software implementation, modification and development, training, installation, change management, network management, and post-implementation support. Our services include the design, implementation and integration of enterprise level applications to facilitate sales automation, call center management, marketing automation and automated field service and sales. We also own approximately 44% of the equity in NextNet, Inc., a private corporation engaged in the development of wireless data products. The chairman of Zamba, Joseph B. Costello, is also the chairman of NextNet. We currently derive most of our revenue from systems integration services including business case evaluation, system planning and design, software package implementation, custom software development, training, installation and change management. We also derive recurring revenue from providing post-implementation support. Our revenues and earnings may fluctuate from quarter to quarter based on the number, size and scope of projects in which we are engaged, the contractual terms and degree of completion of such projects, any delays incurred in connection with a project, employee utilization rates, the adequacy of provisions for losses, the accuracy of estimates of resources required to complete ongoing projects, and general economic conditions and other factors. Also, revenues from a large client may constitute a significant portion of our total revenues in any particular quarter. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1999, COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1998 Revenues increased 349% to $6.33 million in 1999 compared to $1.41 million in 1998. The increase in revenues is due to Zamba's acquisition of The QuickSilver Group ("QuickSilver") in September 1998 and growth in the combined business since the acquisition. The increase in service revenue is primarily due to our transition to the sale of system integration services, the QuickSilver acquisition, and increased market acceptance of our services. The decrease in product revenue is due to our transition away from selling stand-alone software 7 products. We expect services revenues to increase throughout 1999 while product revenues should continue to decline. Project costs consist primarily of salaries and employee benefits for personnel dedicated to client projects and direct expenses incurred to complete projects that were not reimbursed by the client. These costs represent the most significant expense Zamba incurs in providing its services. Project costs were $3.35 million or 53% of net revenues in 1999 compared to $431,000 or 31% in 1998. The increase was primarily due to the increase in project personnel. Project personnel increased as a result of the acquisition of QuickSilver, our change in focus from software to services, and the increased number and size of our engagements. We expect project personnel costs to continue to increase on a dollar basis throughout 1999 in order to deliver revenue growth from customer care services. Other costs consist of non-billable project personnel costs and other business costs, including training and recruiting costs. Other costs were $740,000 or 12% of net revenues in 1999 compared to $151,000 or 11% of net revenues in 1998. The increase in other costs relates primarily to the increase in headcount for both training and recruiting personnel. Sales and marketing expenses were $500,000 or 8% of net revenues in 1999 compared to $492,000 or 35% of net revenues in 1998. The increase in dollar terms is due to the hiring of additional direct sales personnel. The decrease in percentage terms is due to our increased revenue and our success in the marketplace. We expect the amount spent for sales and marketing costs will increase slightly over the next few quarters as we grow our staff and pay commissions for the expected increase in sales. General and administrative expenses were $1.54 million or 24% of net revenues in 1999 compared to $454,000 or 32% of net revenues in 1998. The increase in dollar terms is primarily due to the acquisition of QuickSilver and the related increase in staff headcount as well as increased facilities and depreciation expenses. The decrease in percentage terms mostly reflects our increased revenues. We anticipate general and administrative costs to increase on a dollar basis over the next several quarters as we continue to expand geographically and invest in developing a technology infrastructure to support our anticipated revenue and headcount growth. No research and development expenses were incurred in 1999 compared to $427,000 in 1998. The 1998 expenses represent costs we incurred to develop NextNet before completing the outside financing for NextNet on September 21, 1998, as discussed in our Form 10-K for the year ended December 31, 1998. We do not expect to incur any research and development costs for the foreseeable future. Intangible asset amortization expense was $944,000 in 1999 compared to $0 in 1998. This increase is due to the acquisition of QuickSilver. The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to tangible and identifiable intangible assets. The fair value of identifiable intangible assets was $7.70 million and was allocated to the following categories: people and experiences, client references, client lists, and intellectual property and delivery methodology. These amounts are being amortized over economic useful lives of between two and four years. Approximately 97% of the costs related to the QuickSilver acquisition will be amortized by September 30, 2000. 8 Interest income was $19,000 in 1999 compared to $56,000 in 1998. The decrease is due to decreases in our cash and investment accounts, which were used to fund operating activities and the QuickSilver acquisition. Interest expense was $21,000 in 1999 compared to $0 in 1998. The increase is due to interest charges paid on debt acquired as result of the acquisition of QuickSilver and interest charges accrued for future payments of the notes payable issued in connection with the acquisition of QuickSilver. SIX MONTHS ENDED JUNE 30, 1999, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1998 Revenues increased 296% to $11.15 million in 1999 compared to $2.81 million in 1998. The increase in revenues is due to the acquisition of QuickSilver in September 1998 and growth in the combined business since the acquisition. The increase in service revenue is primarily due to our transition to the sale of system integration services, the QuickSilver acquisition, and increased market acceptance of our services. The decrease in product revenue is due to our transition away from selling stand-alone software products. We expect services revenues to increase throughout 1999 while product revenues should continue to decline. Project costs consist primarily of salaries and employee benefits for personnel dedicated to client projects and direct expenses incurred to complete projects that were not reimbursed by the client. These costs represent the most significant expense Zamba incurs in providing its services. Project costs were $6.13 million or 55% of net revenues in 1999 compared to $931,000 or 33% in 1998. The increase in costs is primarily due to the increase in project personnel. Project personnel increased as a result of the acquisition of QuickSilver, our change in focus from software to services, and the increased number and size of our engagements. We expect project personnel costs to continue to increase on a dollar basis throughout 1999 in order to deliver revenue growth. Other costs consist of non-billable project personnel costs and other business costs, including training and recruiting costs. Other costs were $1.33 million or 12% of net revenues in 1999 compared to $314,000 or 11% of net revenues in 1998. The increase in other costs relates primarily to the increase in headcount for both training and recruiting personnel. Sales and marketing expenses were $1.02 million or 9% of net revenues in 1999 compared to $970,000 or 34% of net revenues in 1998. The increase in dollar terms is due to the hiring of additional direct sales personnel. The decrease in percentage terms is due to our increased revenue and success in the marketplace. We expect the amount spent for sales and marketing costs will increase slightly over the next few quarters as we grow our staff and pay commissions for the expected increase in sales. General and administrative expenses were $2.56 million or 23% of net revenues in 1999 compared to $905,000 or 32% of net revenues in 1998. The increase in dollar terms is primarily due to the acquisition of QuickSilver and the related increase in staff headcount as well as increased expenses for facilities and depreciation. The decrease in percentage terms mostly reflects our increased revenues. We anticipate general and administrative costs to increase on a 9 dollar basis over the next several quarters as we increase the size of our offices or open offices in additional locations, and invest in developing our technology infrastructure. No research and development expenses were incurred in 1999 compared to $811,000 in 1998. The 1998 expenses represent costs we incurred to develop NextNet before completing the outside financing for NextNet on September 21, 1998, as discussed in our Form 10-K for the year ended December 31, 1998. We do not expect to incur any research and development costs for the foreseeable future. Intangible asset amortization expense was $1.88 million in 1999 compared to $0 in 1998. This increase is due to the acquisition of QuickSilver. The acquisition was accounted for using the purchase method of accounting and the purchase price was allocated to tangible and identifiable intangible assets. The fair value of identifiable intangible assets was $7.70 million and was allocated to the following categories: people and experiences, client references, client lists, and intellectual property and delivery methodology. These amounts are being amortized over economic useful lives of between two and four years. Approximately 97% of the costs related to the QuickSilver acquisition will be amortized by September 30, 2000. Interest income was $42,000 in 1999 compared to $132,000 in 1998. The decrease is due to decreases in our cash and investment accounts, which were used to fund operating activities and the QuickSilver acquisition. Interest expense was $45,000 in 1999 compared to $0 in 1998. The increase is due to interest charges paid on debt acquired as result of the acquisition of QuickSilver and interest charges accrued for future payments of the notes payable issued in connection with the acquisition of QuickSilver. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1999, we had no significant capital spending or purchase commitments and had cash and cash equivalents totaling $4.51 million and working capital of $4.21 million. For the six months ended June 30, 1999, $1.97 million was provided from operating activities compared to the $1.28 million used in operating activities in the same period in 1998. The increase in cash provided from operating activities is due to our improved operating performance and a more focused effort on cash management. During the six months ended June 30, 1999, we used $512,000 in investing activities. We believe our existing capital resources will be sufficient to meet our capital requirements into 2000. YEAR 2000 Year 2000 computer issues may impact Zamba. The full extent and scope of the risks from the Year 2000 issue have not yet been fully assessed. In the event that internal products and systems, or those products and systems provided or utilized by third parties do not correctly recognize and process date information beyond the year 1999, material adverse effects on our business, operating results, and financial condition could result. 10 To address Year 2000 issues, we have initiated a program designed to address the most critical Year 2000 items that would affect our products and the operations of the following functions: operations, finance, sales, and human resources. We have not commenced work on contingency plans to address potential problems with its internal systems or the systems of its supplier and customers or other third parties. In December 1998, we commenced a program to inventory, assess, remediate, and test the Year 2000 capability of our software products. All Year 2000 activities concerning current and legacy products are expected to be completed by October 1999. Other Year 2000 issues primarily consist of assessing the Year 2000 impact for outside vendors, customers, and facilities. Project plans are being developed and will include the process of identifying and prioritizing critical suppliers and customers at the direct interface level, and communicating with them about their plans and progress in addressing Year 2000 issues. Evaluations of the most critical third parties have been initiated. It is expected that all Year 2000 project plans, 1999 budgets and the remaining inventories will be completed by the beginning of the third quarter of 1999. Concurrent with this effort, each business function is conducting a focused level of ranking and functional assessment of its inventory to establish the methods and actions required to resolve any Year 2000 issues discovered. The assessment efforts are estimated to be completed by the beginning of the third quarter of 1999. The remediation (modification or replacement of existing software or systems) and the testing phases of the project plans are expected to take place throughout most of 1999 and are estimated to be completed, for all business critical items, by the fourth quarter of 1999. All remaining issues (which are considered low priority or low risk to the business) are planned to be addressed as time permits and could continue through the first half of 2000. To date, nominal amounts have been spent to address Year 2000 issues, aside from amounts spent in the normal course of business to upgrade our information system infrastructure. We don't expect the total cost associated with required modifications to become Year 2000 ready to be significant or to have a material adverse effect on our business, operating results and financial condition. Our current estimates of the amount of time and costs necessary to implement and test its systems are based on the facts and circumstances existing at this time. New developments may occur that could affect our estimates for the required modifications to become Year 2000 ready. These developments include, but are not limited to: (a) the availability and cost of personnel trained in this area, (b) the ability to locate and correct all relevant computer code and equipment, and (c) the planning and modification success needed to achieve full implementation. Readers are cautioned that the foregoing discussion regarding Year 2000 computer issues contains forward-looking statements based on current expectations that involve risks and uncertainties and should be considered in conjunction with the following. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect our business, operating results, and financial condition. Due in large part to the uncertainty of the Year 2000 readiness of third-party suppliers and customers, as well as the lack of a final Year 2000 project plan for the remaining internal business systems that are not yet assessed as Year 2000 ready, we are currently unable to determine whether the consequences of Year 2000 issues will have a material impact on our business, operating results or financial condition. Our programs addressing Year 2000 computer issues are expected to reduce our level of uncertainty 11 regarding Year 2000 issues and, in particular, about the Year 2000 readiness of its material internal operations, suppliers, customers, and other third-parties. In addition, we believe that the current Year 2000 activities surrounding our software products and internal systems have reduced the risk of any disruption caused by any Year 2000 issues in these areas. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), effective in 2001, establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. We have no derivative financial instruments. At the present time, we do not anticipate that SFAS No. 133 will have a material impact on the financial position or results of operations. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We have debt at a fixed interest rate of 7%, as described in Item 7A in the 1998 Annual Report to Shareholders on Form 10-K. There has been no material change to this information. FACTORS THAT MAY AFFECT FUTURE RESULTS There can be no assurance that our business will grow as anticipated or that we will achieve or sustain profitability on a quarterly or annual basis in the future. We derive a substantial part of our revenues from a small number of clients whom, after evaluating our capabilities, decide whether to engage us to create business case evaluations, consult on change management practices and, in some cases, to design, implement and deploy their customer care systems. A decision by any one of these clients to delay a customer care project may have a material adverse effect on our business and results of operations. In order for our revenues from consulting and integration services to grow, we must continue to add more clients and larger projects to plan, design and implement customer care systems. Inability to obtain clients for large-scale consulting and integration services could materially and adversely affect the growth of its business. In addition to the factors listed above, actual results could vary materially from the foregoing forward-looking statements due to our inability to hire and retain qualified personnel, the risk that we may need to enhance products and services beyond what is currently planned, the levels of promotion and marketing required to promote our products and services so as to attain a competitive position in the marketplace, or other risks and uncertainties identified in this Quarterly Report and our other filings with the SEC. 12 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES. None ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Zamba held its Annual Meeting on May 20, 1999. Two proposals were presented at the Annual Meeting for voting by the shareholders: the election of directors and the ratification of KPMG, LLP as Zamba's independent auditors for 1999. Each person nominated for director was elected, with 25,531,433 votes cast in favor of electing Joseph B. Costello, and 56,206 votes cast against; 25,531,433 votes cast in favor of electing Dixon R. Doll, and 56,206 votes cast against; 25,533,432 votes cast in favor of electing Paul D. Edelhertz, and 54,207 votes cast against; 25,430,821 votes cast in favor of electing Michael A. Fabiaschi, and 156,818 votes cast against; and 25,533,433 votes cast in favor of electing Thomas W. Minick, and 54,206 votes cast against. 25,512,276 votes were cast in favor of the proposal to ratify the appointment of KPMG, LLP as independent auditors for fiscal year 1999; with 6,749 votes cast against; 68,614 votes abstaining; and no broker non-votes. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (b) Reports on Form 8-K - None 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ZAMBA CORPORATION By: /s/ PAUL EDELHERTZ --------------------------------- Paul Edelhertz President and Chief Executive Officer By: /s/ MICHAEL H. CARREL --------------------------------- Michael H. Carrel Chief Financial Officer Dated: August 16, 1999 14 EXHIBIT INDEX
- ------------------------------------------------------------------------------------- SEQUENTIALLY NUMBERED EXHIBIT NUMBER TITLE PAGE - ------------------------------------------------------------------------------------- 10.01** Change of Control Agreement between Registrant and Peter Marton dated 16 July 15, 1999 - ------------------------------------------------------------------------------------- 10.02** Change of Control Agreement between Registrant and Michael Carrel dated 25 July 8, 1999 - ------------------------------------------------------------------------------------- 10.03** Change of Control Agreement between Registrant and Ian Nemerov dated July 8, 33 1999 - -------------------------------------------------------------------------------------
** Management contract or compensation plan 15 EX-10.01 2 EXHIBIT 10.01 CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT This Change in Control Employment and Severance Agreement (the "AGREEMENT") is entered into this 15th day of July, 1999 between Peter Marton ("Executive") and ZAMBA CORPORATION, a Delaware corporation (the "COMPANY"). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events following a Change in Control (as hereinafter defined). Certain capitalized terms used in this Agreement are defined in Article VII. The Company and Executive hereby agree as follows: ARTICLE I EMPLOYMENT BY THE COMPANY 1.1 Executive is currently employed as the Executive Vice President and Chief Operating Officer of the Company. 1.2 This Agreement shall become effective upon the occurrence of a Change in Control. 1.3 The Company and Executive each agree and acknowledge that Executive is employed by the Company as an "at will" employee and that either Executive or the Company has the right at any time to terminate Executive's employment with the Company, with or without cause or advance notice, for any reason or for no reason. The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event that Executive's employment with the Company terminates under the circumstances described in Article II of this Agreement. 1.4 The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive's past services to the Company, Executive's continued employment with the Company and Executive's execution of the general waiver and release described in Section 4.3. ARTICLE II TRIGGERING EVENTS 2.1 Involuntary Termination of Employment During Term (a) If Executive's employment is involuntarily terminated by the Company without Cause during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive's employment is involuntarily terminated by the Company for Cause during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.2 Voluntary Termination of Employment During Term. 16 (a) Executive may voluntarily terminate his employment with the Company at any time during the Term. If Executive voluntarily terminates his employment for Good Reason during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive voluntarily terminates his employment for any reason other than Good Reason during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.3 Death or Disability During Term. If Executive's employment with the Company terminates on account of death or disability during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. 2.4 Employment Through Term. If Executive's employment continues through the end of the Term, such continuation of employment will be a Triggering Event, and the Company shall pay Executive the compensation and benefits described in Article III. ARTICLE III COMPENSATION AND BENEFITS 3.1 Right to Benefits. If a Triggering Event occurs, Executive shall be entitled to receive the compensation and benefits described in this Agreement subject to the restrictions and limitations set forth in Article IV. If a Triggering Event does not occur, Executive shall not be entitled to receive any compensation and benefits described in this Agreement, except as otherwise specifically set forth herein. 3.2 Severance Payment. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, Executive shall receive a lump sum severance payment equal to the sum of (a) the amount of Executive's Base Salary that would have been paid with respect to the period beginning on the date of the Triggering Event and ending with the last day of the Term plus (b) six (6) months of Base Salary. Such lump sum amount shall be paid no later than thirty (30) days following the date of the Triggering Event or, if later, the date of termination of Executive's employment with the Company and shall be subject to all applicable tax withholding. 17 3.3 Health Insurance Coverage. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, to the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group health insurance policy, Executive and his covered dependents will be eligible to continue their health insurance benefits at their own expense. If Executive elects COBRA continuation coverage, the Company shall pay Executive's and covered dependents' COBRA continuation premiums for six (6) months following the date Executive's coverage as an active employee under the Company's group health policy ceases, provided that the Company's obligation to make such payments shall terminate immediately if Executive becomes eligible for other health insurance benefits at the expense of a new employer. Executive agrees to notify the Company, in writing, immediately upon acceptance of any employment which provides health insurance benefits. This Section 3.3 provides only for the Company's payment of COBRA continuation premiums for the period specified above. This Section 3.3 is not intended to affect, nor does it affect, the rights of Executive, or Executive's covered dependents, under any applicable law with respect to health insurance continuation coverage. 3.4 Stock Option Acceleration. Executive's stock options under the Company's 1993 Equity Incentive Plan which are outstanding as of the date of the Triggering Event (the "Stock Options") shall become fully vested and exercisable upon the occurrence of a Triggering Event or upon the termination of Executive's employment during the Term which does not otherwise constitute a Triggering Event, notwithstanding the then existing provisions of the relevant Stock Option agreements, which provisions are expressly modified by this Agreement. The period of time during which the Stock Options shall remain exercisable, and all other terms and conditions of the Stock Options, shall be as specified in the relevant Stock Option agreements. 3.5 Mitigation. Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by retirement benefits after the date of the Triggering Event, or otherwise. ARTICLE IV LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT 4.1 Other Severance Benefits; Withholding of Taxes. The benefits provided under this Agreement are in lieu of any other benefit provided under any employment contract or severance plan of the Company in effect at the time of a Triggering Event. The Company shall withhold appropriate federal, state or local income and employment taxes from any payments hereunder. 4.2 Obligations of Executive. During the Term, Executive agrees not to personally solicit any of the Company's employees to become employed elsewhere or provide the names of such employees to any other company which Executive has reason to believe will solicit such employees. 4.3 Employee Agreement and Release Prior to Receipt of Certain Benefits. Prior to the receipt of any benefits under Section 3.2 above, Executive shall execute an effective employee agreement and release in the form attached hereto as Exhibit A. Such employee agreement and release shall specifically relate to all of Executive's rights and claims in existence at the time of its execution. It is understood that Executive has twenty-one (21) days to consider whether to execute such employee agreement and release and Executive may revoke such employee agreement and release within seven (7) days after execution of such employee agreement and release. If Executive does not execute such employee agreement and release within the twenty-one (21) day period, or if Executive revokes such employee agreement and release within the seven (7) day period, no benefits shall be payable under 18 Section 3.2 above. Nothing in this Agreement shall limit the scope or time of applicability of such employee agreement and release once it is executed and not timely revoked. 4.4 Certain Additional Payments. If it shall be determined, either by the Company or by a final determination of the Internal Revenue Service, that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (including, without limitation, the value ascribed to option acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would cause Executive to become subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay to Executive, within the later of ninety (90) days of the date of the Triggering Event or ninety (90) days of the date of determination referred to above, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax and any federal (and state and local) income and employment taxes on the Gross-Up Payment, shall be equal to the Payments. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal, state and local income taxes at the highest nominal marginal rate of federal, state and local income taxation in the calendar year in which the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be less than the amount taken into account to determine the amount of the Gross-Up Payment, then Executive shall repay to the Company at that time the portion of the Gross-Up Payment attributable to such reduction (plus an amount equal to any tax reduction, whether of the Excise Tax, any applicable income tax, or any applicable employment tax, which Executive may enjoy as a result of such initial repayment). If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be more than the amount taken into account to determine the amount of the Gross-Up Payment, then the Company shall pay to Executive an additional amount, which shall be determined using the same methods as were used for calculating the Gross-Up Payment, with respect to such excess. For purposes of this Section 4.4, a determination of the Internal Revenue Service as to the amount of Excise Tax for which Executive is liable shall not be treated as final until the time that either (i) the Company agrees to acquiesce in the determination of the Internal Revenue Service or (ii) the determination of the Internal Revenue Service has been upheld in a court of competent jurisdiction and the Company decides not to appeal such judicial decision or such decision is not appealable. If the Company chooses to contest the determination of the Internal Revenue Service, then all costs, attorneys' fees, and other expenses shall be paid by the Company. 19 4.5 Amendment or Termination. This Agreement may be amended or terminated only upon the mutual written consent of the Company and Executive. ARTICLE V OTHER RIGHTS AND BENEFITS NOT AFFECTED 5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any stock option or other agreements with the Company; PROVIDED, HOWEVER, that in accordance with Section 4.1 above, any benefits provided hereunder shall be in lieu of any other severance payments to which Executive may otherwise be entitled, including, without limitation, under any employment contract or severance plan, and benefits under this Agreement shall be offset to the extent necessary to give effect to this proviso. Except as otherwise expressly provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the effective date of a Change in Control shall be payable in accordance with such plan, policy, practice or program. 5.2 Employment Status. This Agreement does not constitute a contract of employment, nor does it impose on Executive any obligation to remain as an employee or on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at will employee, or (iii) to change the Company's policies regarding termination of employment. ARTICLE VI NON-ALIENATION OF BENEFITS No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. ARTICLE VII DEFINITIONS For purposes of the Agreement, the following terms shall have the meanings set forth below: 7.1 "Agreement" means this Change in Control Severance Agreement. 7.2 "Base Salary" means Executive's salary (excluding bonus, any other incentive or other payments and stock option exercises) at the rate paid by the Company in consideration for Executive's service on the day prior to the effective date of a Change in Control or at such higher rate as may be in effect during the Term and which is includable in the gross income of Executive for federal income tax purposes or which would have been includable in gross income except for an election either under Section 125 or 402(e)(3) of the Code or under the terms of a nonqualified deferred compensation arrangement sponsored by the Company. 7.3 "Cause" means either of the following: (i) an intentional or grossly negligent act by Executive causing material harm to the Company or (ii) Executive's conviction of, or plea of "guilty" or "no contest" to, a felony. 20 7.4 "Change in Control" means the consummation of any one of the following events: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least fifty percent (50%) of the voting securities of the controlling acquiring corporation); (iii) a merger or consolidation in which the Company is the surviving corporation and less than fifty percent (50%) of the voting securities of the Company which are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (iv) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, becomes the beneficial owner of voting securities of the Company representing fifty percent (50%) or more of the combined voting power of all of the voting securities of the Company; or (v) the liquidation or dissolution of the Company. 7.5 "Code" means the Internal Revenue Code of 1986, as amended. 7.6 "Company" means Zamba Corporation, a Delaware corporation, and any successor thereto. 7.7 "Disability" means a disability which qualifies Executive as disabled for purposes of receiving benefits under the Company's long term disability plan applicable to Executive. 7.8 "Good Reason" means that any one of the following actions has been taken by the Company without Executive's express written consent and such action has not been promptly reversed within thirty (30) days following written notice from Executive to the Company: (i) a material reduction in Executive's job responsibilities given Executive's prior position and responsibilities with the Company, it being deemed that a position with a different title but providing similar activities, given the size of the combined company, shall not be considered a material reduction in Executive's job responsibilities; (ii) any reduction in Executive's compensation and aggregate benefits as in effect immediately prior to such reduction; (iii) relocation of Executive's workplace to a facility or location more than twenty-five (25) miles from Executive's workplace immediately prior to such relocation; (iv) any purported termination of Executive's employment which is not effected by reason of death, disability, or Cause; (v) the failure or refusal of a successor to the Company to assume the Company's obligations under this Agreement, as provided in Section 8.7 below; or (vi) a material breach by the Company or any successor to the Company of any of the material provisions of this Agreement 7.9 "Term" means the period beginning on the effective date of a Change in Control and ending thirteen (13) months thereafter. 7.10 "Triggering Event" means an event described in Section 2.1(a), 2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for purposes of this Agreement. 21 ARTICLE VIII GENERAL PROVISIONS 8.1 Notices. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at his address as listed in the Company's payroll records. 8.2 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. 8.3 Waiver. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 8.4 Complete Agreement. This Agreement, including Exhibit A, constitutes the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein. 8.5 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 8.6 Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof. 8.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not delegate any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. 8.8 Attorneys' Fees. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 8.9 Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Minnesota. 8.10 Construction of Plan. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control. 22 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above. ZAMBA CORPORATION, PETER MARTON A DELAWARE CORPORATION EXECUTIVE By: /s/ PAUL EDELHERTZ /s/ PETER MARTON --------------------------- ---------------------------- Name: PAUL EDELHERTZ ----------------------------- Title: PRESIDENT AND CEO Exhibit A: Employee Agreement and Release 23 EXHIBIT A EMPLOYEE AGREEMENT AND RELEASE I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE FOREGOING AGREEMENT. Except as otherwise set forth in this Agreement, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I sign this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; state laws comparable to the foregoing federal laws; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's Indemnification Agreement. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Agreement; (B) I have the right to consult with an attorney prior to executing this Agreement; (C) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (D) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (E) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date ("Effective Date"). By: ----------------------------------- Date: --------------------------------- 24 EX-10.02 3 EXHIBIT 10.02 CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT This Change in Control Employment and Severance Agreement (the "AGREEMENT") is entered into this 8th day of July, 1999 between Michael H. Carrel ("Executive") and ZAMBA CORPORATION, a Delaware corporation (the "COMPANY"). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events following a Change in Control (as hereinafter defined). Certain capitalized terms used in this Agreement are defined in Article VII. The Company and Executive hereby agree as follows: ARTICLE I EMPLOYMENT BY THE COMPANY 1.1 Executive is currently employed as the Vice President and Chief Financial Officer of the Company. 1.2 This Agreement shall become effective upon the occurrence of a Change in Control. 1.3 The Company and Executive each agree and acknowledge that Executive is employed by the Company as an "at will" employee and that either Executive or the Company has the right at any time to terminate Executive's employment with the Company, with or without cause or advance notice, for any reason or for no reason. The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event that Executive's employment with the Company terminates under the circumstances described in Article II of this Agreement. 1.4 The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive's past services to the Company, Executive's continued employment with the Company and Executive's execution of the general waiver and release described in Section 4.3. ARTICLE II TRIGGERING EVENTS 2.1 Involuntary Termination of Employment During Term (a) If Executive's employment is involuntarily terminated by the Company without Cause during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive's employment is involuntarily terminated by the Company for Cause during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.2 Voluntary Termination of Employment During Term. 25 (a) Executive may voluntarily terminate his employment with the Company at any time during the Term. If Executive voluntarily terminates his employment for Good Reason during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive voluntarily terminates his employment for any reason other than Good Reason during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.3 Death or Disability During Term. If Executive's employment with the Company terminates on account of death or disability during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. 2.4 Employment Through Term. If Executive's employment continues through the end of the Term, such continuation of employment will be a Triggering Event, and the Company shall pay Executive the compensation and benefits described in Article III. ARTICLE III COMPENSATION AND BENEFITS 3.1 Right to Benefits. If a Triggering Event occurs, Executive shall be entitled to receive the compensation and benefits described in this Agreement subject to the restrictions and limitations set forth in Article IV. If a Triggering Event does not occur, Executive shall not be entitled to receive any compensation and benefits described in this Agreement, except as otherwise specifically set forth herein. 3.2 Severance Payment. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, Executive shall receive a lump sum severance payment equal to the sum of (a) the amount of Executive's Base Salary that would have been paid with respect to the period beginning on the date of the Triggering Event and ending with the last day of the Term plus (b) six (6) months of Base Salary. Such lump sum amount shall be paid no later than thirty (30) days following the date of the Triggering Event or, if later, the date of termination of Executive's employment with the Company and shall be subject to all applicable tax withholding. 3.3 Health Insurance Coverage. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, to the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group health insurance policy, Executive and his covered dependents will be eligible to continue their health insurance benefits at their own expense. If Executive elects COBRA continuation coverage, the Company shall pay Executive's and covered dependents' COBRA continuation premiums for six (6) months following the date Executive's coverage as an active employee under the Company's group health policy ceases, provided that the Company's obligation to make such payments shall terminate immediately if Executive becomes eligible for other health insurance benefits at the expense of a new employer. Executive agrees to notify the Company, in writing, immediately upon acceptance of any employment which provides health insurance benefits. This Section 3.3 provides only for the Company's payment of COBRA continuation premiums for the period specified above. This Section 3.3 is not intended to affect, nor does it affect, the rights of Executive, or 26 Executive's covered dependents, under any applicable law with respect to health insurance continuation coverage. 3.4 Stock Option Acceleration. Executive's stock options under the Company's 1993 Equity Incentive Plan which are outstanding as of the date of the Triggering Event (the "Stock Options") shall become fully vested and exercisable upon the occurrence of a Triggering Event or upon the termination of Executive's employment during the Term which does not otherwise constitute a Triggering Event, notwithstanding the then existing provisions of the relevant Stock Option agreements, which provisions are expressly modified by this Agreement. The period of time during which the Stock Options shall remain exercisable, and all other terms and conditions of the Stock Options, shall be as specified in the relevant Stock Option agreements. 3.5 Mitigation. Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by retirement benefits after the date of the Triggering Event, or otherwise. ARTICLE IV LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT 4.1 Other Severance Benefits; Withholding of Taxes. The benefits provided under this Agreement are in lieu of any other benefit provided under any employment contract or severance plan of the Company in effect at the time of a Triggering Event. The Company shall withhold appropriate federal, state or local income and employment taxes from any payments hereunder. 4.2 Obligations of Executive. During the Term, Executive agrees not to personally solicit any of the Company's employees to become employed elsewhere or provide the names of such employees to any other company which Executive has reason to believe will solicit such employees. 4.3 Employee Agreement and Release Prior to Receipt of Certain Benefits. Prior to the receipt of any benefits under Section 3.2 above, Executive shall execute an effective employee agreement and release in the form attached hereto as Exhibit A. Such employee agreement and release shall specifically relate to all of Executive's rights and claims in existence at the time of its execution. It is understood that Executive has twenty-one (21) days to consider whether to execute such employee agreement and release and Executive may revoke such employee agreement and release within seven (7) days after execution of such employee agreement and release. If Executive does not execute such employee agreement and release within the twenty-one (21) day period, or if Executive revokes such employee agreement and release within the seven (7) day period, no benefits shall be payable under Section 3.2 above. Nothing in this Agreement shall limit the scope or time of applicability of such employee agreement and release once it is executed and not timely revoked. 27 4.4 Certain Additional Payments. If it shall be determined, either by the Company or by a final determination of the Internal Revenue Service, that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (including, without limitation, the value ascribed to option acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would cause Executive to become subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay to Executive, within the later of ninety (90) days of the date of the Triggering Event or ninety (90) days of the date of determination referred to above, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax and any federal (and state and local) income and employment taxes on the Gross-Up Payment, shall be equal to the Payments. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal, state and local income taxes at the highest nominal marginal rate of federal, state and local income taxation in the calendar year in which the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be less than the amount taken into account to determine the amount of the Gross-Up Payment, then Executive shall repay to the Company at that time the portion of the Gross-Up Payment attributable to such reduction (plus an amount equal to any tax reduction, whether of the Excise Tax, any applicable income tax, or any applicable employment tax, which Executive may enjoy as a result of such initial repayment). If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be more than the amount taken into account to determine the amount of the Gross-Up Payment, then the Company shall pay to Executive an additional amount, which shall be determined using the same methods as were used for calculating the Gross-Up Payment, with respect to such excess. For purposes of this Section 4.4, a determination of the Internal Revenue Service as to the amount of Excise Tax for which Executive is liable shall not be treated as final until the time that either (i) the Company agrees to acquiesce in the determination of the Internal Revenue Service or (ii) the determination of the Internal Revenue Service has been upheld in a court of competent jurisdiction and the Company decides not to appeal such judicial decision or such decision is not appealable. If the Company chooses to contest the determination of the Internal Revenue Service, then all costs, attorneys' fees, and other expenses shall be paid by the Company. 4.5 Amendment or Termination. This Agreement may be amended or terminated only upon the mutual written consent of the Company and Executive. 28 ARTICLE V OTHER RIGHTS AND BENEFITS NOT AFFECTED 5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any stock option or other agreements with the Company; PROVIDED, HOWEVER, that in accordance with Section 4.1 above, any benefits provided hereunder shall be in lieu of any other severance payments to which Executive may otherwise be entitled, including, without limitation, under any employment contract or severance plan, and benefits under this Agreement shall be offset to the extent necessary to give effect to this proviso. Except as otherwise expressly provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the effective date of a Change in Control shall be payable in accordance with such plan, policy, practice or program. 5.2 Employment Status. This Agreement does not constitute a contract of employment, nor does it impose on Executive any obligation to remain as an employee or on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at will employee, or (iii) to change the Company's policies regarding termination of employment. ARTICLE VI NON-ALIENATION OF BENEFITS No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. ARTICLE VII DEFINITIONS For purposes of the Agreement, the following terms shall have the meanings set forth below: 7.1 "Agreement" means this Change in Control Severance Agreement. 7.2 "Base Salary" means Executive's salary (excluding bonus, any other incentive or other payments and stock option exercises) at the rate paid by the Company in consideration for Executive's service on the day prior to the effective date of a Change in Control or at such higher rate as may be in effect during the Term and which is includable in the gross income of Executive for federal income tax purposes or which would have been includable in gross income except for an election either under Section 125 or 402(e)(3) of the Code or under the terms of a nonqualified deferred compensation arrangement sponsored by the Company. 7.3 "Cause" means either of the following: (i) an intentional or grossly negligent act by Executive causing material harm to the Company or (ii) Executive's conviction of, or plea of "guilty" or "no contest" to, a felony. 7.4 "Change in Control" means the consummation of any one of the following events: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least fifty percent (50%) of the voting securities of the controlling acquiring corporation); (iii) a merger or consolidation in which the 29 Company is the surviving corporation and less than fifty percent (50%) of the voting securities of the Company which are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (iv) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, becomes the beneficial owner of voting securities of the Company representing fifty percent (50%) or more of the combined voting power of all of the voting securities of the Company; or (v) the liquidation or dissolution of the Company. 7.5 "Code" means the Internal Revenue Code of 1986, as amended. 7.6 "Company" means Zamba Corporation, a Delaware corporation, and any successor thereto. 7.7 "Disability" means a disability which qualifies Executive as disabled for purposes of receiving benefits under the Company's long term disability plan applicable to Executive. 7.8 "Good Reason" means that any one of the following actions has been taken by the Company without Executive's express written consent and such action has not been promptly reversed within thirty (30) days following written notice from Executive to the Company: (i) a material reduction in Executive's job responsibilities given Executive's prior position and responsibilities with the Company, it being deemed that a position with a different title but providing similar activities, given the size of the combined company, shall not be considered a material reduction in Executive's job responsibilities; (ii) any reduction in Executive's compensation and aggregate benefits as in effect immediately prior to such reduction; (iii) relocation of Executive's workplace to a facility or location more than twenty-five (25) miles from Executive's workplace immediately prior to such relocation; (iv) any purported termination of Executive's employment which is not effected by reason of death, disability, or Cause; (v) the failure or refusal of a successor to the Company to assume the Company's obligations under this Agreement, as provided in Section 8.7 below; or (vi) a material breach by the Company or any successor to the Company of any of the material provisions of this Agreement 7.9 "Term" means the period beginning on the effective date of a Change in Control and ending thirteen (13) months thereafter. 7.10 "Triggering Event" means an event described in Section 2.1(a), 2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for purposes of this Agreement. ARTICLE VIII GENERAL PROVISIONS 8.1 Notices. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at his address as listed in the Company's payroll records. 8.2 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or 30 rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. 8.3 Waiver. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 8.4 Complete Agreement. This Agreement, including Exhibit A, constitutes the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein. 8.5 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 8.6 Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof. 8.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not delegate any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. 8.8 Attorneys' Fees. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 8.9 Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Minnesota. 8.10 Construction of Plan. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above. ZAMBA CORPORATION, MICHAEL H. CARREL A DELAWARE CORPORATION EXECUTIVE By: /s/ Paul Edelhertz /s/ Michael H. Carrel ------------------------------ ------------------------------ Name: Paul Edelhertz -------------------------------- Title: President and CEO ------------------------------- Exhibit A: Employee Agreement and Release 31 EXHIBIT A EMPLOYEE AGREEMENT AND RELEASE I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE FOREGOING AGREEMENT. Except as otherwise set forth in this Agreement, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I sign this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; state laws comparable to the foregoing federal laws; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's Indemnification Agreement. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Agreement; (B) I have the right to consult with an attorney prior to executing this Agreement; (C) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (D) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (E) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date ("Effective Date"). By: ---------------------------------- Date: -------------------------------- 32 EX-10.03 4 EXHIBIT 10.03 CHANGE IN CONTROL EMPLOYMENT AND SEVERANCE AGREEMENT This Change in Control Employment and Severance Agreement (the "AGREEMENT") is entered into this 8th day of July, 1999 between Ian Nemerov ("Executive") and ZAMBA CORPORATION, a Delaware corporation (the "COMPANY"). This Agreement is intended to provide Executive with the compensation and benefits described herein upon the occurrence of specific events following a Change in Control (as hereinafter defined). Certain capitalized terms used in this Agreement are defined in Article VII. The Company and Executive hereby agree as follows: ARTICLE I EMPLOYMENT BY THE COMPANY 1.1 Executive is currently employed as the Secretary and General Counsel of the Company. 1.2 This Agreement shall become effective upon the occurrence of a Change in Control. 1.3 The Company and Executive each agree and acknowledge that Executive is employed by the Company as an "at will" employee and that either Executive or the Company has the right at any time to terminate Executive's employment with the Company, with or without cause or advance notice, for any reason or for no reason. The Company and Executive wish to set forth the compensation and benefits which Executive shall be entitled to receive in the event that Executive's employment with the Company terminates under the circumstances described in Article II of this Agreement. 1.4 The duties and obligations of the Company to Executive under this Agreement shall be in consideration for Executive's past services to the Company, Executive's continued employment with the Company and Executive's execution of the general waiver and release described in Section 4.3. ARTICLE II TRIGGERING EVENTS 2.1 Involuntary Termination of Employment During Term (a) If Executive's employment is involuntarily terminated by the Company without Cause during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive's employment is involuntarily terminated by the Company for Cause during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 33 2.2 Voluntary Termination of Employment During Term. (a) Executive may voluntarily terminate his employment with the Company at any time during the Term. If Executive voluntarily terminates his employment for Good Reason during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. (b) If Executive voluntarily terminates his employment for any reason other than Good Reason during the Term, such termination of employment will NOT be a Triggering Event, and Executive will NOT be entitled to receive any compensation or benefits under the provisions of this Agreement except as otherwise specifically set forth herein. 2.3 Death or Disability During Term. If Executive's employment with the Company terminates on account of death or disability during the Term, such termination of employment will be a Triggering Event, and the Company shall pay or provide Executive the compensation and benefits described in Article III. 2.4 Employment Through Term. If Executive's employment continues through the end of the Term, such continuation of employment will be a Triggering Event, and the Company shall pay Executive the compensation and benefits described in Article III. ARTICLE III COMPENSATION AND BENEFITS 3.1 Right to Benefits. If a Triggering Event occurs, Executive shall be entitled to receive the compensation and benefits described in this Agreement subject to the restrictions and limitations set forth in Article IV. If a Triggering Event does not occur, Executive shall not be entitled to receive any compensation and benefits described in this Agreement, except as otherwise specifically set forth herein. 3.2 Severance Payment. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, Executive shall receive a lump sum severance payment equal to the sum of (a) the amount of Executive's Base Salary that would have been paid with respect to the period beginning on the date of the Triggering Event and ending with the last day of the Term plus (b) six (6) months of Base Salary. Such lump sum amount shall be paid no later than thirty (30) days following the date of the Triggering Event or, if later, the date of termination of Executive's employment with the Company and shall be subject to all applicable tax withholding. 3.3 Health Insurance Coverage. Upon the occurrence of a Triggering Event or, if later, upon the termination of Executive's employment with the Company following a Triggering Event, to the extent permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and by the Company's group health insurance policy, Executive and his covered dependents will be eligible to continue their health insurance benefits at their own expense. If Executive elects COBRA continuation coverage, the Company shall pay Executive's and covered dependents' COBRA continuation premiums for six (6) months following the date Executive's coverage as an active employee under the Company's group health policy ceases, provided that the Company's obligation to make such payments shall terminate immediately if Executive becomes eligible for other health insurance benefits at the expense of a new employer. Executive agrees to notify the Company, in writing, immediately upon acceptance of any employment which provides health insurance benefits. This Section 3.3 provides only for the Company's payment of COBRA continuation premiums for the period specified 34 above. This Section 3.3 is not intended to affect, nor does it affect, the rights of Executive, or Executive's covered dependents, under any applicable law with respect to health insurance continuation coverage. 3.4 Stock Option Acceleration. Executive's stock options under the Company's 1993 Equity Incentive Plan which are outstanding as of the date of the Triggering Event (the "Stock Options") shall become fully vested and exercisable upon the occurrence of a Triggering Event or upon the termination of Executive's employment during the Term which does not otherwise constitute a Triggering Event, notwithstanding the then existing provisions of the relevant Stock Option agreements, which provisions are expressly modified by this Agreement. The period of time during which the Stock Options shall remain exercisable, and all other terms and conditions of the Stock Options, shall be as specified in the relevant Stock Option agreements. 3.5 Mitigation. Except as otherwise specifically provided herein, Executive shall not be required to mitigate damages or the amount of any payment provided under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by Executive as a result of employment by another employer or by retirement benefits after the date of the Triggering Event, or otherwise. ARTICLE IV LIMITATIONS AND CONDITIONS ON BENEFITS; AMENDMENT OF AGREEMENT 4.1 Other Severance Benefits; Withholding of Taxes. The benefits provided under this Agreement are in lieu of any other benefit provided under any employment contract or severance plan of the Company in effect at the time of a Triggering Event. The Company shall withhold appropriate federal, state or local income and employment taxes from any payments hereunder. 4.2 Obligations of Executive. During the Term, Executive agrees not to personally solicit any of the Company's employees to become employed elsewhere or provide the names of such employees to any other company which Executive has reason to believe will solicit such employees. 4.3 Employee Agreement and Release Prior to Receipt of Certain Benefits. Prior to the receipt of any benefits under Section 3.2 above, Executive shall execute an effective employee agreement and release in the form attached hereto as Exhibit A. Such employee agreement and release shall specifically relate to all of Executive's rights and claims in existence at the time of its execution. It is understood that Executive has twenty-one (21) days to consider whether to execute such employee agreement and release and Executive may revoke such employee agreement and release within seven (7) days after execution of such employee agreement and release. If Executive does not execute such employee agreement and release within the twenty-one (21) day period, or if Executive revokes such employee agreement and release within the seven (7) day period, no benefits shall be payable under Section 3.2 above. Nothing in this Agreement shall limit the scope or time of applicability of such employee agreement and release once it is executed and not timely revoked. 35 4.4 Certain Additional Payments. If it shall be determined, either by the Company or by a final determination of the Internal Revenue Service, that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement (including, without limitation, the value ascribed to option acceleration pursuant to Section 3.4 above) or otherwise (the "Payments"), would cause Executive to become subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay to Executive, within the later of ninety (90) days of the date of the Triggering Event or ninety (90) days of the date of determination referred to above, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of any Excise Tax and any federal (and state and local) income and employment taxes on the Gross-Up Payment, shall be equal to the Payments. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal, state and local income taxes at the highest nominal marginal rate of federal, state and local income taxation in the calendar year in which the Gross-Up Payment is made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be less than the amount taken into account to determine the amount of the Gross-Up Payment, then Executive shall repay to the Company at that time the portion of the Gross-Up Payment attributable to such reduction (plus an amount equal to any tax reduction, whether of the Excise Tax, any applicable income tax, or any applicable employment tax, which Executive may enjoy as a result of such initial repayment). If the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be more than the amount taken into account to determine the amount of the Gross-Up Payment, then the Company shall pay to Executive an additional amount, which shall be determined using the same methods as were used for calculating the Gross-Up Payment, with respect to such excess. For purposes of this Section 4.4, a determination of the Internal Revenue Service as to the amount of Excise Tax for which Executive is liable shall not be treated as final until the time that either (i) the Company agrees to acquiesce in the determination of the Internal Revenue Service or (ii) the determination of the Internal Revenue Service has been upheld in a court of competent jurisdiction and the Company decides not to appeal such judicial decision or such decision is not appealable. If the Company chooses to contest the determination of the Internal Revenue Service, then all costs, attorneys' fees, and other expenses shall be paid by the Company. 4.5 Amendment or Termination. This Agreement may be amended or terminated only upon the mutual written consent of the Company and Executive. ARTICLE V OTHER RIGHTS AND BENEFITS NOT AFFECTED 5.1 Nonexclusivity. Nothing in the Agreement shall prevent or limit Executive's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices provided by the Company and for which Executive may otherwise qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any stock option or other agreements with the Company; PROVIDED, HOWEVER, that in accordance with Section 4.1 above, any benefits provided hereunder shall be in lieu of any other severance payments to which Executive may otherwise be entitled, including, without limitation, under any employment contract or severance plan, and benefits under this Agreement shall be offset to the extent necessary to give effect to this proviso. Except as otherwise expressly provided herein, amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of the Company at or subsequent to the effective date of a Change in Control shall be payable in accordance with such plan, policy, practice or program. 36 5.2 Employment Status. This Agreement does not constitute a contract of employment, nor does it impose on Executive any obligation to remain as an employee or on the Company any obligation (i) to retain Executive as an employee, (ii) to change the status of Executive as an at will employee, or (iii) to change the Company's policies regarding termination of employment. ARTICLE VI NON-ALIENATION OF BENEFITS No benefit hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to do so shall be void. ARTICLE VII DEFINITIONS For purposes of the Agreement, the following terms shall have the meanings set forth below: 7.1 "Agreement" means this Change in Control Severance Agreement. 7.2 "Base Salary" means Executive's salary (excluding bonus, any other incentive or other payments and stock option exercises) at the rate paid by the Company in consideration for Executive's service on the day prior to the effective date of a Change in Control or at such higher rate as may be in effect during the Term and which is includable in the gross income of Executive for federal income tax purposes or which would have been includable in gross income except for an election either under Section 125 or 402(e)(3) of the Code or under the terms of a nonqualified deferred compensation arrangement sponsored by the Company. 7.3 "Cause" means either of the following: (i) an intentional or grossly negligent act by Executive causing material harm to the Company or (ii) Executive's conviction of, or plea of "guilty" or "no contest" to, a felony. 7.4 "Change in Control" means the consummation of any one of the following events: (i) a sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation (other than a transaction the principal purpose of which is to change the state of the Company's incorporation or a transaction in which the voting securities of the Company are exchanged for beneficial ownership of at least fifty percent (50%) of the voting securities of the controlling acquiring corporation); (iii) a merger or consolidation in which the Company is the surviving corporation and less than fifty percent (50%) of the voting securities of the Company which are outstanding immediately after the consummation of such transaction are beneficially owned, directly or indirectly, by the persons who owned such voting securities immediately prior to such transaction; (iv) any transaction or series of related transactions after which any person (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934), other than any employee benefit plan (or related trust) sponsored or maintained by the Company or any subsidiary of the Company, becomes the beneficial owner of voting securities of the Company representing fifty percent (50%) or more of the combined voting power of all of the voting securities of the Company; or (v) the liquidation or dissolution of the Company. 7.5 "Code" means the Internal Revenue Code of 1986, as amended. 7.6 "Company" means Zamba Corporation, a Delaware corporation, and any successor thereto. 37 7.7 "Disability" means a disability which qualifies Executive as disabled for purposes of receiving benefits under the Company's long term disability plan applicable to Executive. 7.8 "Good Reason" means that any one of the following actions has been taken by the Company without Executive's express written consent and such action has not been promptly reversed within thirty (30) days following written notice from Executive to the Company: (i) a material reduction in Executive's job responsibilities given Executive's prior position and responsibilities with the Company, it being deemed that a position with a different title but providing similar activities, given the size of the combined company, shall not be considered a material reduction in Executive's job responsibilities; (ii) any reduction in Executive's compensation and aggregate benefits as in effect immediately prior to such reduction; (iii) relocation of Executive's workplace to a facility or location more than twenty-five (25) miles from Executive's workplace immediately prior to such relocation; (iv) any purported termination of Executive's employment which is not effected by reason of death, disability, or Cause; (v) the failure or refusal of a successor to the Company to assume the Company's obligations under this Agreement, as provided in Section 8.7 below; or (vi) a material breach by the Company or any successor to the Company of any of the material provisions of this Agreement 7.9 "Term" means the period beginning on the effective date of a Change in Control and ending thirteen (13) months thereafter. 7.10 "Triggering Event" means an event described in Section 2.1(a), 2.2(a), 2.3 or 2.4 above. No other event shall be a Triggering Event for purposes of this Agreement. ARTICLE VIII GENERAL PROVISIONS 8.1 Notices. Any notices provided hereunder must be in writing and such notices or any other written communication shall be deemed effective upon the earlier of personal delivery (including personal delivery by telex or facsimile) or the third day after mailing by first class mail, to the Company at its primary office location and to Executive at his address as listed in the Company's payroll records. Any payments made by the Company to Executive under the terms of this Agreement shall be delivered to Executive either in person or at his address as listed in the Company's payroll records. 8.2 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provisions had never been contained herein. 8.3 Waiver. If either party should waive any breach of any provisions of this Agreement, he or it shall not thereby be deemed to have waived any preceding or succeeding breach of the same or any other provision of this Agreement. 8.4 Complete Agreement. This Agreement, including Exhibit A, constitutes the entire agreement between Executive and the Company and it is the complete, final, and exclusive embodiment of their agreement with regard to this subject matter. It is entered into without reliance on any promise or representation other than those expressly contained herein. 38 8.5 Counterparts. This Agreement may be executed in separate counterparts, any one of which need not contain signatures of more than one party, but all of which taken together will constitute one and the same Agreement. 8.6 Headings. The headings of the Articles and Sections hereof are inserted for convenience only and shall neither be deemed to constitute a part hereof nor to affect the meaning thereof. 8.7 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by Executive and the Company, and their respective successors, assigns, heirs, executors and administrators, except that Executive may not delegate any of his duties hereunder and he may not assign any of his rights hereunder without the written consent of the Company, which consent shall not be withheld unreasonably. 8.8 Attorneys' Fees. If either party hereto brings any action to enforce his or its rights hereunder, the prevailing party in any such action shall be entitled to recover his or its reasonable attorneys' fees and costs incurred in connection with such action. 8.9 Choice of Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of Minnesota. 8.10 Construction of Plan. In the event of a conflict between the text of the Agreement and any summary, description or other information regarding the Agreement, the text of the Agreement shall control. IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year written above. ZAMBA CORPORATION, IAN NEMEROV A DELAWARE CORPORATION EXECUTIVE By: /s/ PAUL EDELHERTZ /s/ IAN NEMEROV ----------------------------- ----------------------------- Name: PAUL EDELHERTZ ------------------------------- Title: PRESIDENT AND CEO ------------------------------ Exhibit A: Employee Agreement and Release 39 EXHIBIT A EMPLOYEE AGREEMENT AND RELEASE I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE FOREGOING AGREEMENT. Except as otherwise set forth in this Agreement, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the date I sign this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; state laws comparable to the foregoing federal laws; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing; provided, however, that nothing in this paragraph shall be construed in any way to release the Company from its obligation to indemnify me pursuant to the Company's Indemnification Agreement. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (A) my waiver and release do not apply to any rights or claims that may arise after the date I sign this Agreement; (B) I have the right to consult with an attorney prior to executing this Agreement; (C) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (D) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (E) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date ("Effective Date"). By: ---------------------------------------- Date: -------------------------------------- 40 EX-27 5 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 2ND QTR. 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 4,511 0 4,324 (304) 0 9,094 3,525 (2,339) 15,544 4,880 0 0 0 79,159 0 15,544 54 11,154 2 7,467 5,331 132 45 (1,779) 0 (1,779) 0 0 0 (1,779) (.06) (.06)
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