-----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, SOyfBv/Xje3RsorRNFGlwReGh6RxU366PaXZk56szidfzRM2SH3TjpON54YwSnyi lNs5HJlpQSdaoP7ZLfsHOQ== 0000950134-99-007501.txt : 19990817 0000950134-99-007501.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950134-99-007501 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: THOMAS GROUP INC CENTRAL INDEX KEY: 0000900017 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT CONSULTING SERVICES [8742] IRS NUMBER: 720843450 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22010 FILM NUMBER: 99691297 BUSINESS ADDRESS: STREET 1: 5215 N OCONNOR BLVD STE 2500 CITY: IRVING STATE: TX ZIP: 75039 BUSINESS PHONE: 9728693400 MAIL ADDRESS: STREET 1: 5215 N OCONNOR SUITE 2500 CITY: IRVING STATE: TX ZIP: 75039 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1999 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 10-Q ----------- [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 COMMISSION FILE NUMBER 0-22010 ----------- THOMAS GROUP, INC. (Exact name of registrant as specified in its charter) DELAWARE 72-0843540 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
5221 NORTH O'CONNOR BOULEVARD SUITE 500 IRVING, TX 75039-3714 (Address of principal executive offices, including zip code) (972) 869-3400 (Registrant's telephone number, including area code) ----------- NONE (Former name, former address and former fiscal year, if changed since last report) ----------- 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 [_] As of July 30, 1999 the following number of shares of the registrant's stock were outstanding: Common Stock 4,826,928 Class B Common Stock 3,970 --------- Total 4,830,898 =========
2 THOMAS GROUP, INC. PART I - FINANCIAL INFORMATION
PAGE NO. Item 1 - Financial Statements (unaudited) Consolidated Balance Sheets, June 30, 1999 and December 31, 1998....................................... 3 Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 1999 and 1998................. 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998.................................. 5 Notes to Consolidated Financial Statements.................. 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 9 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K.......................... 15
2 3 ITEM I - FINANCIAL STATEMENTS THOMAS GROUP, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
JUNE 30, DECEMBER 31, ASSETS 1999 1998 --------- ------------ Current Assets Cash and cash equivalents ................................................. $ 9,610 $ 6,376 Trade accounts receivable, net of allowances of $396 ...................... 9,564 11,239 Unbilled receivables ...................................................... 380 740 Income tax receivable ..................................................... 1,793 -- Deferred tax asset ........................................................ 1,973 2,331 Other assets .............................................................. 675 405 -------- -------- Total Current Assets ................................................... 23,995 21,091 -------- -------- Property and Equipment, net .................................................. 3,014 3,627 Deferred Tax Asset ........................................................... 287 2,519 Other Assets ................................................................. 3,288 4,394 -------- -------- $ 30,584 $ 31,631 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities .................................. $ 5,532 $ 6,028 Income taxes payable ...................................................... -- 602 Advance payments .......................................................... -- 532 Current maturities of long-term obligations ............................... 199 329 -------- -------- Total Current Liabilities .............................................. 5,731 7,491 Long-Term Obligations ........................................................ 3,056 2,928 -------- -------- Total Liabilities ...................................................... 8,787 10,419 -------- -------- Commitments and Contingencies Stockholders' Equity Common Stock, $.01 par value; 25,000,000 shares authorized; 6,535,241 and 6,536,416 shares issued and outstanding .................. 65 65 Additional paid-in capital ................................................ 23,020 22,699 Retained earnings ......................................................... 15,802 13,654 Accumulated other comprehensive income - foreign currency translation ..... (943) (482) Treasury stock, 1,725,349 and 1,558,849 shares of Common, at cost ......... (16,147) (14,724) -------- -------- Total Stockholders' Equity ............................................. 21,797 21,212 -------- -------- $ 30,584 $ 31,631 ======== ========
See accompanying notes to consolidated financial statements. 3 4 THOMAS GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Revenue ........................................... $ 15,752 $ 16,565 $ 30,462 $ 32,211 Cost of Sales ............................... 8,875 10,076 17,734 19,801 ---------- ---------- ---------- ---------- Gross Margin ...................................... 6,877 6,489 12,728 12,410 Selling, General and Administrative ......... 4,640 14,035 9,217 19,311 ---------- ---------- ---------- ---------- Operating Income (Loss) ........................... 2,237 (7,546) 3,511 (6,901) Interest Income (Expense), Net .................... 29 (90) 66 (61) ---------- ---------- ---------- ---------- Income (Loss) from Continuing Operations Before Income Tax .................................. 2,266 (7,636) 3,577 (6,962) Income Tax (Benefit) .............................. 905 (2,905) 1,429 (2,635) ---------- ---------- ---------- ---------- Income (Loss) from Continuing Operations .......... 1,361 (4,731) 2,148 (4,327) ---------- ---------- ---------- ---------- Discontinued Operations: Loss from Operations, net of income tax ........... -- (350) -- (1,092) Estimated (Loss) on disposal, including provision for operating losses through disposal date, net of income tax .................................. -- (2,905) -- (2,905) ---------- ---------- ---------- ---------- Net Income (Loss) ................................. $ 1,361 $ (7,986) $ 2,148 $ (8,324) ========== ========== ========== ========== Earnings (Loss) per common share: Basic: Income (Loss) from Continuing Operations .......... $ 0.28 $ (0.94) $ 0.43 $ (0.77) Discontinued Operations: Loss from Operations ............................ -- (0.07) -- (0.19) Estimated Loss on Disposal ...................... -- (0.58) -- (0.52) ---------- ---------- ---------- ---------- Net Income (Loss) per share ....................... $ 0.28 $ (1.59) $ 0.43 $ (1.48) ========== ========== ========== ========== Diluted: Income from Continuing Operations ................. $ 0.28 -- $ 0.43 -- Discontinued Operations: Loss from Operations ............................ -- -- -- -- Estimated Loss on Disposal ...................... -- -- -- -- ---------- ---------- ---------- ---------- Net Income per share .............................. $ 0.28 -- $ 0.43 -- ========== ========== ========== ========== Weighted average shares: Basic ............................................. 4,895,870 5,031,498 4,950,961 5,634,525 Diluted ........................................... 4,938,479 -- 5,008,766 --
See accompanying notes to consolidated financial statements. 4 5 THOMAS GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) ------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, --------------------- 1999 1998 -------- -------- Cash Flows From Operating Activities: Net income (loss) from continuing operations ............................................... $ 2,148 $ (4,327) Adjustments to reconcile net income (loss) from continuing operations to net cash from operating activities Depreciation and amortization .................................................... 791 785 Provision for write-down of assets ............................................... -- 3,602 Deferred taxes ................................................................... 2,877 (3,384) Gain (loss) on disposal of property .............................................. (3) 36 Other ............................................................................ 146 146 Change in operating assets and liabilities (Increase) decrease in trade accounts receivable ............................ 1,557 (3,505) (Increase) decrease in income tax receivable ................................ (1,793) -- (Increase) decrease in unbilled receivables ................................. 360 835 (Increase) decrease in other assets ......................................... 539 1,371 Increase (decrease) in accounts payable and accrued liabilities ............. (571) 2,897 Increase (decrease) in advance payments ..................................... (532) -- Increase (decrease) in income taxes payable ................................. (606) (761) -------- -------- Net Cash Provided By (Used In) Operating Activities .................... 4,913 (2,305) Cash Flows From Investing Activities: Capital expenditures ....................................................................... (190) (402) -------- -------- Net Cash Used In Investing Activities .................................. (190) (402) Cash Flows From Financing Activities: Purchase of treasury stock ................................................................. (1,423) (10,605) Proceeds from exercise of stock options .................................................... 112 350 Other long-term obligations ................................................................ 128 (81) Advances - line of credit .................................................................. -- 22,589 Repayment - line of credit ................................................................. -- (19,408) Net repayments from (advances to) affiliates ............................................... -- 2,274 -------- -------- Net Cash Used In Financing Activities .................................. (1,183) (4,881) Effect of Exchange Rate Changes on Cash ........................................................ (306) (78) -------- -------- Net cash provided by (used in) continuing operations ........................................... 3,234 (7,666) Discontinued Operations: Net cash used in operating activities ................................................ -- (1,238) -------- -------- Net increase (decrease) in cash and cash equivalents ........................................... 3,234 (8,904) Cash and Cash Equivalents: Beginning of period ........................................................................ 6,376 11,254 -------- -------- End of period .............................................................................. $ 9,610 $ 2,350 ======== ========
See accompanying notes to consolidated financial statements. 5 6 THOMAS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. The unaudited consolidated financial statements of Thomas Group, Inc. (the "Company") include all adjustments, which include only normal recurring adjustments, which are, in the opinion of management, necessary to present fairly the results of operations of the Company for the interim periods presented. The unaudited financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's 1998 Annual Report to Stockholders. The results of operations for the three and six-month periods ended June 30, 1999 are not necessarily indicative of the results of operations for the entire year ending December 31, 1999. Certain consolidated financial statement amounts have been reclassified from the previously reported financial statements in order to conform with the current presentation. 2. Earnings Per Share - Basic earnings per share is based on the number of weighted average shares outstanding. The following table reconciles basic earnings per share to diluted earnings per share under the provisions of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The following illustrates the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- In thousands, except per share data 1999 1998 1999 1998 -------- -------- -------- -------- NUMERATOR: Income (Loss) available to Common Stockholders ......................... $ 1,361 $(7,986) $ 2,148 $ (8,324) ======== ======== ======== ======== DENOMINATOR: Weighted Average Shares Outstanding: Basic ..................................... 4,895.9 5,031.5 4,951.0 5,634.5 Effect of Dilutive Securities: Common Stock Options .............. 42.9 150.1 57.8 126.7 -------- -------- -------- -------- Diluted ................................... 4,938.7 5,181.6 5,008.8 5,761.2 ======== ======== ======== ======== EARNINGS (LOSS) PER SHARE: Basic ........................................ $ 0.28 $(1.59) $ 0.43 $ (1.48) Diluted ...................................... $ 0.28 -- $ 0.43 --
6 7 THOMAS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 3. Deferred Taxes - As a result of the restructuring charges and losses from discontinued operations recognized in the second quarter of 1998, the Company maintains deferred tax assets of $2.3 million at June 30, 1999. Utilization of the deferred tax asset is dependent on future taxable income in excess of existing taxable temporary differences. The asset has been recognized because management believes it is more likely than not that the deferred tax asset will be utilized in future years. This conclusion is based on the belief that current and future levels of taxable income will be sufficient to realize the benefits of the deferred tax asset on domestic operations. 4. Significant Clients - The Company recorded revenue from one client of $4.7 million, or 29.8% of total revenue, and $9.7 million, or 31.8% of total revenue, during the three and six months ended June 30, 1999, respectively. Revenue from the same client totaled $4.4 million, or 26.7% of total revenue, and $7.3 million, or 22.7% of total revenue for the three and six months ended June 30, 1998, respectively. The Company recorded revenue from a second client of $1.8 million, or 11.4% of total revenue during the three months ended June 30, 1999. There was no other client from which revenue exceeded 10% of total revenue in the three or six-month periods ended June 30, 1999 or June 30, 1998. 5. Comprehensive Income - In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and display of comprehensive income. Comprehensive income includes all changes in equity (foreign currency translation) except those resulting from investments by owners and distributions to owners.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------- In thousands of dollars 1999 1998 1999 1998 Net income ............................... $ 1,361 $(7,986) $ 2,148 $(8,324) Decrease in other comprehensive income ... (243) (45) (461) (119) ------- ------- ------- ------- Comprehensive income (loss) ............. $ 1,118 $(8,031) $ 1,687 $(8,443) ======= ======= ======= =======
6. Revolving Credit Agreement - The Company previously maintained a $20 million revolving credit agreement with Comerica Bank. Terms of the agreement provided for a $1 million per quarter reduction in available credit beginning in 1999. In April 1999 the Company amended the agreement to reduce the maximum available borrowings to $15 million with no quarterly reduction. The agreement is in place to provide funding for potential future operating cash requirements or business expansion purposes. Loans under this agreement bear interest at the prime rate or other similar interest options. There has been no utilization of the credit facility during the first half of 1999. 7. Litigation - The Company is subject to various claims and other legal matters, described below, in the course of conducting its business. The Company believes that neither such claims and other legal matters nor the cost of prosecuting and/or defending such claims and other legal matters will have a material adverse effect on the Company's consolidated results of operations, financial condition or cash flows. On April 28, 1999 a judgment was entered in all matters in favor of the Company in the legal action Creative Dimensions in Management, Inc. v. Thomas Group, Inc. This manner arose out of disputes under two agreements between the Company and Creative Dimensions in Management, Inc., a small private company with whom the Company had an alliance. In the case of Thomas Group, Inc. v. Blevins, et al., filed May 19, 1997 in the U.S. District Court for the Northern District of Texas, and in the case styled Blevins, et al. v. Thomas Group, Inc., et al., filed June 9, 1997 in the U.S. District Court for the Northern District of Ohio, each party has asserted claims arising out of the purchase agreement 7 8 THOMAS GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) and consulting agreement in connection with the Company's purchase of Interlink Technologies ("Interlink"). As a result of losses sustained by its subsidiary, the Company asserted claims in the Texas action against Ron Blevins and Mike Smith, the former owners of Interlink, for breach of contract and fraudulent misrepresentation. The Texas federal action was transferred to Ohio and consolidated with the Ohio federal action. The trial date has been set for October 26, 1999. The Company believes the former owners' claims have no merit, and it is the Company's intention to vigorously pursue its own claims against the former owners of Interlink, as well as vigorously defend against the former owners' claims. The Company is party to a legal action styled Philip R. Thomas and Wayne Heirtzler Thomas v. Thomas Group, Inc., before the U.S. District Court, Middle District of Louisiana, consolidated with another action styled Thomas Group of Louisiana, Inc. v. Philip R. Thomas and Wayne Heirtzler Thomas. Mr. and Mrs. Thomas sought to "enforce leases" and seized, under a writ of sequestration, movable assets at the Company's CEO Center in Louisiana. No damages were alleged by Mr. and Mrs. Thomas. The second suit was filed against Mr. and Mrs. Thomas by a subsidiary of the Company, seeking to dissolve the writ of sequestration and asserting a claim for damages. A hearing was held on February 2, 1999 on the motions of the Company and its subsidiary to dissolve the writ of sequestration, and the court has lifted the sequestration order. The Company has amended its complaint in this action, to seek a declaratory judgment from the federal court that the Company is not in default under any of the leases relating to the Louisiana property. The Company is party to an arbitration proceeding with the former Chairman and CEO of the Company, styled Thomas Group, Inc. v. Philip Thomas. The Company timely paid Mr. Thomas all benefits due him under his written employment agreement, including a $1.8 million severance payment, yet Mr. Thomas has demanded additional compensation and retirement benefits. On December 18, 1998, the Company initiated this proceeding before the American Arbitration Association in Dallas, Texas pursuant to an arbitration clause in Mr. Thomas' employment agreement. On December 31, 1998, Mr. Thomas filed suit in Dallas County District Court in an action styled Philip R. Thomas v. Thomas Group, Inc. The Company moved to stay the litigation based on the parties' written agreement to arbitrate, and the litigation has been stayed. The Company believes Mr. Thomas' claims have no merit, vigorously contests Mr. Thomas' claims, and is seeking a determination that Mr. Thomas is owed nothing further as a result of his employment relationship with the Company. 8. Supplemental Disclosure of Cash Flow Information
SIX MONTHS ENDED JUNE 30, ------------------ 1999 1998 -------- ------ Interest paid............................. $ 22 $ 124 Income taxes paid......................... $658 $1,965
8 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OVERVIEW The Company derives the majority of its revenue from monthly fixed and incentive fees for the implementation of Total Cycle Time and other business improvement programs. Incentive fees are tied to improvements in a variety of client performance measures typically involving response time, asset utilization, productivity and profitability. Due to the Company's use of incentive fee contracts, variations in revenue levels may cause fluctuations in quarterly results. Factors such as a client's commitment to a Total Cycle Time program, general economic and industry conditions, and other issues could affect a client's business performance, thereby affecting the Company's incentive fee revenue and quarterly earnings. Quarterly revenue and earnings of the Company may also be impacted by the size and timing of starts and completions of individual contracts. UNLESS OTHERWISE STATED, THE DISCUSSION THAT FOLLOWS PERTAINS TO CONTINUING OPERATIONS ONLY. The following table sets forth the percentages which items in the statement of operations bear to revenue:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ----------------- 1999 1998 1999 1998 ------- ------- ------ ------ Revenue ...................................... 100.0% 100.0% 100.0% 100.0% Cost of Sales .......................... 56.3 60.8 58.2 61.5 ----- ------ ------ ----- Gross Margin ................................. 43.7 39.2 41.8 38.5 Selling, General and Administrative ... 29.5 26.3 30.3 29.9 Restructuring costs .................... -- 58.4 -- 30.0 ----- ------ ------ ----- Operating Income (Loss) ...................... 14.2 (45.5) 11.5 (21.4) Interest Income (Expense), Net ............... 0.2 (0.5) 0.2 (0.2) ----- ------ ------ ----- Income (Loss) from Continuing Operations Before Income Taxes .......................... 14.4 (46.0) 11.7 (21.6) Income Taxes (Benefit) ....................... 5.8 (17.5) 4.7 (8.2) ----- ------ ------ ----- Income (Loss) from Continuing Operations ..... 8.6% (28.5)% 7.0% (13.4)% ===== ====== ====== =====
The following table sets forth the Company's revenue by geographic distribution:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------ ------------------- 1999 1998 1999 1998 ------- ------- ------- -------- Business Improvement Programs United States ................. $ 8,834 $11,567 $19,266 $22,222 Europe ........................ 5,287 4,088 8,153 8,200 Asia/Pacific .................. 1,631 910 3,043 1,789 ------- ------- ------- ------- Total Revenue .................... $15,752 $16,565 $30,462 $32,211 ======= ======= ======= =======
9 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998 REVENUE - Revenue from continuing operations decreased 4.9% in the second quarter of 1999 from the second quarter of 1998. This revenue decrease resulted from a $0.6 million decline in fixed fee revenue and a $0.2 million decline in incentive revenue. Fixed fee and incentive revenue represent 78.9% and 21.1% of revenue, respectively, for the second quarter of 1999 and 78.6% and 21.4% of revenue, respectively, for the second quarter of 1998. The United States component of revenue decreased 23.6% due to contract completions exceeding new contract start-ups. European revenue increased 29.3% due to $1.0 million in incentive fees received from a contract that ended in December 1998. Asia/Pacific revenue increased 79.2% due to new contracts started in 1999. GROSS PROFIT - Gross profit was 43.7% of revenue in the second quarter of 1999 compared to 39.2% of revenue in the second quarter of 1998. This increase in percentage was primarily the result of the use of part-time Resultants(SM) in 1999 who are compensated only when they are working on client assignments. Average full-time Resultants(SM) headcount decreased from 174 in the second quarter of 1998 to 152 in the second quarter of 1999. The use of part-time professionals is intended to reduce the volatility of the Company's profit margin in the event of a reduction in the number of active contracts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and administrative expenses consist of all operating expenses not directly associated with the generation of revenue. A significant portion of selling, general and administrative expenses are for corporate personnel (including corporate officers), non-program-related travel and entertainment, corporate facilities costs, and professional and legal costs. In the second quarter of 1998, selling, general and administrative expenses also include restructuring cost of $9.7 million. Selling, general and administrative expenses, excluding the restructuring charge, as a percentage of total revenue increased to 29.5% in the first quarter of 1999 from 26.3% in the second quarter of 1998. The increase in percentage is primarily due to a $0.5 million increase in legal fees related to three legal issues. In April 1999 the Company received a favorable judgment in one action and the related legal fees have ceased. Management anticipates favorable rulings in the remaining actions. There is also a potential that some of the legal fees may be partially covered by insurance; however, no provision for reimbursement has been recognized at June 30, 1999. The Company is currently in discussion with its liability insurers. The 1998 restructuring costs of $9.7 million included approximately $3.0 million for personnel reduction costs and $6.7 million for the write-down of leasehold improvements and other costs associated with underutilized and unnecessary facilities. DISCONTINUED OPERATIONS - In the second quarter of 1998, the Company announced its plan to dispose of its Information Technologies business segment. The Company recorded an after tax charge of approximately $2.9 million as the estimated loss on disposal of the segment, including estimated operating losses during the phase-out period. Terms of the sale required a revision to the estimated loss on disposal and an additional $0.4 million after tax charge was recorded in the third quarter of 1998. The Company realized a loss of $0.7 million net of tax in the first quarter of 1998 as a result of the operations of the discontinued segment. OTHER - The Company's effective tax rate was 40% in the second quarter of 1999, as compared to the 38% rate in the second quarter of 1998. The increase is attributable to certain 1998 adjustments made to accommodate the restructuring charge and discontinued operations and a change in the mix of domestic and foreign revenue sources. RESULTS OF OPERATIONS - Net income in the second quarter of 1999 was $1.4 million, or $0.28 per share, an increase of $6.1 million compared to a net loss of $4.7 million, or $0.94 per share, in the second quarter of 1998. Excluding the restructuring and non-recurring charges, net income in the quarter ended June 30, 1998 was $1.3 million, or $0.24 per share. 10 11 SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) REVENUE - Revenue decreased approximately 5.4% in the first half of 1999 compared to the first half of 1998. The decrease consisted of a $0.5 million increase in fixed fee revenue and a $2.3 million decrease in incentive revenue. Fixed fee and incentive revenue represent 84.4% and 15.6%, respectively, of revenue in the first half of 1999 and 78.3% and 21.7% of revenue, respectively, in the first half of 1998. The United States component of revenue decreased 13.3%, primarily as a result of contract completions in the second half of 1998. Asia/Pacific revenue increased 70.1% for the comparable period due to the increased referenceability of the Company in the region which has been converted to four new contracts since the end of 1998. GROSS PROFIT - Gross profit was 41.8% of revenue in the first half of 1999 compared to 38.5% of revenue in the first half of 1998. This increase was primarily the result of the use of part-time Resultants(SM) in 1999 who are compensated only when they are working on client assignments. The use of part-time professionals is intended to reduce the volatility of the Company's profit margin in the event of a reduction in the number of active contracts. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - In the six months ended June 30, 1998 selling, general and administrative expenses include restructuring costs and other nonrecurring personnel costs totalling $10.4 million. Selling, general and administrative expense, excluding the restructuring charge, as a percentage of total revenue increased to 30.3% in the first half of 1999 from 29.9% in the first half of 1998. On an absolute basis, selling, general and administrative expense decreased $0.4 million, primarily the result of costs associated with the departure of three senior level managers in the first quarter of 1998. The full effect of these cost-cutting measures are partially offset by increased legal costs due to various legal actions. (See Litigation later in this discussion.) DISCONTINUED OPERATIONS - In the second quarter of 1998, the Company announced its plan to dispose of its Information Technologies business segment. The Company recorded an after tax charge of approximately $2.9 million as the estimated loss on disposal of the segment, including estimated operating losses during the phase-out period. Terms of the sale required a revision to the estimated loss on disposal and an additional $0.4 million after tax charge was recorded in the third quarter of 1998 resulting in a total charge of $3.3 million as the estimate loss on disposal of the segment for 1998. The Company realized a loss of $1.1 million net of tax in the first quarter of 1998 as a result of the operations of the discontinued segment. OTHER - The Company's effective tax rate was 40% in the first half of 1999, as compared to the 38% rate in the first half of 1998. The increase is attributable to certain adjustments made to accommodate the restructuring charge and discontinued operations. As a result of the restructuring charges and losses from discontinued operations recognized in the second quarter of 1998, the Company maintains deferred tax assets of $2.3 million and an income tax receivable of $1.8 million at June 30, 1999. The income tax receivable is to be applied to current year tax liability. The deferred tax asset will be applied to future tax liabilities. Utilization of the deferred tax asset and receivable is dependent on future taxable profits in excess of existing taxable temporary differences. At a tax rate of 40% the Company needs to realize pre-tax income of $6.8 million in the next five years to fully realize the total tax benefit of $4.1 million. Assuming margins remain equivalent to historical levels, business under commitment (backlog) at June 30, 1999 should produce income before taxes of approximately $6 million in the next two years. Management believes that closing sufficient additional revenue to generate $1 million of additional income before taxes in the next two years is highly likely. The Company will continue in future periods to evaluate the realizability of the tax assets and make necessary adjustments through charges to expense should projected future taxable income be insufficient to realize the benefit of the tax assets. 11 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS - Net income in the first half of 1999 was $2.1 million, or $0.43 per share, an increase of $6.5 million from a net loss of $4.3 million, or $0.77 per share, in the first half of 1998. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents increased by $3.2 million in the first half of 1999 compared to a $8.9 million decrease in the first half of 1998. The major components of these changes are discussed below: CASH FLOWS FROM OPERATING ACTIVITIES - Operating activities provided cash of $4.9 million in the first half of 1999 compared to a use of cash of $2.3 million in the first half of 1998. Accounts receivable balances more than 30 days past due were $1.6 million at June 30, 1999, compared to $2.0 million at December 31, 1998 and $1.5 million at June 30, 1998. Days sales outstanding in accounts receivable was 53 days at December 31, 1998 and June 30, 1999. CASH FLOWS FROM INVESTING ACTIVITIES - Cash flows used in investing activities totaled $0.2 million in the first half of 1999 and were attributable to office facilities and miscellaneous equipment. Capital expenditures for the comparable period of the prior year were primarily for the purchase of computers and network computing equipment. CASH FLOWS FROM FINANCING ACTIVITIES - In February 1999, the Board of Directors of the Company approved a stock repurchase plan for up to 250,000 shares of Common Stock of the Company. Shares are purchased in the open market. During the first half of 1999, the Company purchased 166,000 shares of stock its stock at an average price of approximately $8.57 per share. Cash flows used in financing activities in the first half of 1998 were primarily for the purchase of outstanding stock. In February 1998, the Company entered into a stock purchase agreement with its then Chairman and Chief Executive Officer to repurchase shares of common stock for $8.2 million in cash and satisfaction of a $2.3 million debt to the Company. Terms of the agreement called for independent determination of the value (and consequently, the number) of shares to be acquired. In April 1998 the number of shares was determined to be approximately 1.3 million, representing a discount to the market value during the settlement period. The Company previously maintained a $20 million revolving credit agreement with Comerica Bank. Terms of the agreement provided for a $1 million per quarter reduction in available credit beginning in the first quarter of 1999. In April 1999 the Company amended the agreement to reduce maximum allowable borrowings to $15 million with no quarterly reduction. The agreement is in place to provide funding for potential future operating cash requirements or business expansion purposes. Loans under this agreement bear interest at the prime rate or other similar interest options. There has been no utilization of the credit facility during the first half of 1999. At June 30, 1998 the balance due on the agreement was $3.2 million. FINANCIAL CONDITION The Company believes that its financial condition remains strong and that it has the financial resources necessary to meet its needs. Cash provided by operating activities and the Company's credit facility should be sufficient to meet short and long-term operational needs. LITIGATION The Company is subject to various claims and other legal matters, described below, in the course of conducting its business. The Company believes that neither such claims and other legal matters nor the cost of prosecuting and/or 12 13 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) defending such claims and other legal matters will have a material adverse effect on the Company's consolidated results of operations, financial condition or cash flows. On April 28, 1999 a judgment was entered in all matters in favor of the Company in the legal action styled Creative Dimensions in Management, Inc. v. Thomas Group, Inc. This manner arose out of disputes under two agreements between the Company and Creative Dimensions in Management, Inc., a small private company with whom the Company had an alliance. In the case of Thomas Group, Inc. v. Blevins, et al., filed May 19, 1997 in the U.S. District Court for the Northern District of Texas, and in the case styled Blevins, et al. v. Thomas Group, Inc., et al., filed June 9, 1997 in the U.S. District Court for the Northern District of Ohio, each party has asserted claims arising out of the purchase agreement and consulting agreement in connection with the Company's purchase of Interlink Technologies ("Interlink"). As a result of losses sustained by its subsidiary, the Company asserted claims in the Texas action against Ron Blevins and Mike Smith, the former owners of Interlink, for breach of contract and fraudulent misrepresentation. The Texas federal action was transferred to Ohio and consolidated with the Ohio federal action. The trial date has been set for October 26, 1999. The Company believes the former owners' claims have no merit, and it is the Company's intention to vigorously pursue its own claims against the former owners of Interlink, as well as vigorously defend against the former owners' claims. The Company is party to a legal action styled Philip R. Thomas and Wayne Heirtzler Thomas v. Thomas Group, Inc., before the U.S. District Court, Middle District of Louisiana, consolidated with another action styled Thomas Group of Louisiana, Inc. v. Philip R. Thomas and Wayne Heirtzler Thomas. Mr. and Mrs. Thomas sought to "enforce leases" and seized, under a writ of sequestration, movable assets at the Company's CEO Center in Louisiana. No damages were alleged by Mr. and Mrs. Thomas. The second suit was filed against Mr. and Mrs. Thomas by a subsidiary of the Company, seeking to dissolve the writ of sequestration and asserting a claim for damages. A hearing was held on February 2, 1999 on the motions of the Company and its subsidiary to dissolve the writ of sequestration, and the court has lifted the sequestration order. The Company has amended its complaint in this action, to seek a declaratory judgment from the federal court that the Company is not in default under any of the leases relating to the Louisiana property. The Company is party to an arbitration proceeding with the former Chairman and CEO of the Company, styled Thomas Group, Inc. v. Philip Thomas. The Company timely paid Mr. Thomas all benefits due him under his written employment agreement, including a $1.8 million severance payment, yet Mr. Thomas has demanded additional compensation and retirement benefits. On December 18, 1998, the Company initiated this proceeding before the American Arbitration Association in Dallas, Texas pursuant to an arbitration clause in Mr. Thomas' employment agreement. On December 31, 1998, Mr. Thomas filed suit in Dallas County District Court in an action styled Philip R. Thomas v. Thomas Group, Inc. The Company moved to stay the litigation based on the parties' written agreement to arbitrate, and the litigation has been stayed. The Company believes Mr. Thomas' claims have no merit, vigorously contests Mr. Thomas' claims, and is seeking a determination that Mr. Thomas is owed nothing further as a result of his employment relationship with the Company. YEAR 2000 ISSUES The Company's internal business information systems are primarily comprised of commercial application software products offered for license by Microsoft Corporation and other recognized providers. Because these providers' products are widely distributed commercially developed applications, the Company anticipates these applications have been or will be brought into compliance by the manufacturers. 13 14 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company has implemented new accounting and financial reporting software that is Year 2000 compliant. To be Year 2000 compliant, many of the various software programs utilized by the Company required upgrading. Generally these upgrades were included as part of the licensing for use of the program, and were available at no additional cost. Hardware purchases in the last year have been made in contemplation of the Year 2000, but not specifically for that purpose. As such, the Company estimates the total cost incurred to date specifically for Year 2000 compliance to be less than $0.1 million. The Company does not anticipate any Year 2000 compliance issues to arise related to its primary internal business information systems. Thomas Group is not aware of any further material operational issues or costs associated with preparing internal systems for the Year 2000. However, the Company utilizes other third party network equipment, telecommunication products, and other third party software products that may or may not be Year 2000 compliant. Although the Company is currently taking steps to address the impact, if any, of the Year 2000 issue surrounding such third party products, failure of any critical technology to operate properly in the Year 2000 may have an adverse impact on business operations or require the Company to incur unanticipated expenses to remedy any problems. The Company is unaware of any client who may be impacted by the Year 2000 issue. A failure of a client to appropriately handle issues related to the Year 2000 might have an adverse impact on the financial results of the Company. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT: With the exception of historical information, the matters discussed in this report are "forward looking statements" as that term is defined in Section 21E of the Securities Exchange Act of 1934. While the Company believes that its strategic plan is on target and its business outlook remains strong, several important factors have been identified, which could cause actual results to differ materially from those predicted, included by way of example: o The competitive nature of the management consulting industry, in light of new entrants into the industry and the difficulty of differentiating the services offered to potential clients. o The time required by prospective clients to fully understand the value and complexity of a typical Total Cycle Time (TCT) program may result in an extended lead time to close new business. o Performance-oriented fees are earned upon the achievement of improvements in a client's business. The client's commitment to a TCT program and general economic/industry conditions could impact a client's business performance and consequently the Company's ability to forecast the timing and ultimate realization of performance-oriented fees. o The ability of the Company to productively re-deploy personnel during program transition periods. o The ability of the Company to create alliances and make acquisitions that are accretive to earnings. 14 15 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THOMAS GROUP, INC. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits: 3.2 - Amended and Restated Bylaws dated August 9, 1993 4.5 - Amendment No. 2 to Rights Agreement dated August 12, 1999 10.2 - Employment agreement between the Company and J. Thomas Williams 10.14 - Amendment No. 1 to Revolving Credit Loan Agreement dated December 6, 1996 between Comerica Bank-Texas and the Company dated April 1, 1999 27 - Financial Data Schedule (b) Reports on Form 8-K for the Quarter Ending June 30, 1999: none 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. THOMAS GROUP, INC. Registrant August 16, 1999 /s/ J. Thomas Williams --------------- ---------------------- Date J. Thomas Williams Chief Executive Officer August 16, 1999 /s/ Leland L. Grubb, Jr. --------------- ---------------------- Date Leland L. Grubb, Jr. Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
15 16 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.2 - Amended and Restated Bylaws dated August 9, 1993 4.5 - Amendment No. 2 to Rights Agreement dated August 12, 1999 10.2 - Employment agreement between the Company and J. Thomas Williams 10.14 - Amendment No. 1 to Revolving Credit Loan Agreement dated December 6, 1996 between Comerica Bank-Texas and the Company dated April 1, 1999 27 - Financial Data Schedule
EX-3.2 2 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF THOMAS GROUP, INC. A Delaware Corporation As of August 9, 1993 2 BYLAWS OF THOMAS GROUP, INC. TABLE OF CONTENTS ARTICLE I OFFICES Section 1. Registered Office.................................................................... 1 Section 2. Other Offices........................................................................ 1 ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings.................................................................... 1 Section 2. Annual Meetings...................................................................... 1 Section 3. Special Meetings..................................................................... 1 Section 4. Notice of Meetings and Adjourned Meetings............................................ 2 Section 5. Quorum............................................................................... 2 Section 6. Certain Rules of Procedure Relating to Stockholder Meetings.............................................................. 3 Section 7. Voting............................................................................... 3 Section 8. Inspectors........................................................................... 4 Section 9. New Business......................................................................... 5 Section 10. Nominations for Director............................................................. 5 Section 11. Requests for Stockholder List and Corporation Records................................ 6 ARTICLE III DIRECTORS Section 1. Powers............................................................................... 7 Section 2. Number of directors; Term; Qualification............................................. 7 Section 3. Election............................................................................. 7 Section 4. Vacancies............................................................................ 7 Section 5. Place of Meetings.................................................................... 8 Section 6. Regular Meetings..................................................................... 8 Section 7. Special Meetings..................................................................... 8 Section 8. Notice of Meetings................................................................... 8 Section 9. Quorum and Manner of Acting.......................................................... 8 Section 10. Action by consent; Participation by Telephone or Similar Equipment................... 9 Section 11. Resignation; Removal................................................................. 9 Section 12. Compensation of Directors............................................................ 9 ARTICLE IV COMMITTEES OF THE BOARD Section 1. Designation, Powers and Name........................................................ 10
-i- 3 Section 2. Meetings; Minutes................................................................... 10 Section 3. Compensation........................................................................ 11 Section 4. Action by Consent; Participation by Telephone or Similar Equipment.................. 11 Section 5. Changes in Committees; Resignations; Removals....................................... 11 ARTICLE V OFFICERS Section 1. Officers............................................................................ 12 Section 2. Election and Term of Office......................................................... 12 Section 3. Removal and Resignation............................................................. 12 Section 4. Vacancies........................................................................... 12 Section 5. Salaries............................................................................ 13 Section 6. Chairman of the Board............................................................... 13 Section 7. Chief Executive Officer............................................................. 13 Section 8. President and Chief Operating Officer............................................... 13 Section 9. Vice Presidents..................................................................... 14 Section 10. Treasurer........................................................................... 14 Section 11. Assistant Treasurer................................................................. 14 Section 12. Secretary........................................................................... 14 Section 13. Assistant Secretaries............................................................... 15 ARTICLE VI CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC. Section 1. Contracts........................................................................... 15 Section 2. Checks, etc......................................................................... 15 Section 3. Loans............................................................................... 15 Section 4. Deposits............................................................................ 15 ARTICLE VII CAPITAL STOCK Section 1. Stock Certificates.................................................................. 16 Section 2. List of Stockholders Entitled to Vote............................................... 16 Section 3. Stock Ledger........................................................................ 17 Section 4. Transfers of Capital Stock.......................................................... 17 Section 5. Lost Certificates................................................................... 17 Section 6. Fixing of Record Date............................................................... 18 Section 7. Beneficial Owners ARTICLE VIII DIVIDENDS Section 1. Declaration......................................................................... 18 Section 2. Reserve............................................................................. 18
-ii- 4 ARTICLE IX INDEMNIFICATION Section 1. Indemnification..................................................................... 18 Section 2. Advancement of Expenses............................................................. 19 Section 3. Non-Exclusivity..................................................................... 19 Section 4. Insurance........................................................................... 19 Section 5. Continuity.......................................................................... 20 ARTICLE X SEAL................................................................................ 20 ARTICLE XI WAIVER OF NOTICE.................................................................... 20 ARTICLE XII AMENDMENTS.......................................................................... 20
-iii- 5 BYLAWS OF THOMAS GROUP, INC. A Delaware Corporation ARTICLE I OFFICES Section 1. Registered Office. The registered office of Thomas Group, Inc. (hereinafter called the "Corporation") within the State of Delaware shall be located in the City of Wilmington, County of New Castle. Section 2. Other Offices. The Corporation may also have an office or offices and keep the books and records of the Corporation, except as may otherwise be required by law, in such other place or places, within or without the State of Delaware, as the Board of Directors of the Corporation (hereinafter sometimes called the "Board") may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of stockholders of the Corporation shall be held at the office of the Corporation in the State of Delaware or at such other place, within or without the State of Delaware, as may from time to time be fixed by the Board or specified or fixed in the respective notices or waivers of notice thereof. Section 2. Annual Meetings. The annual meeting of stockholders of the Corporation for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held annually on such date and at such time as may be fixed by the Board. Section 3. Special Meetings. Special meetings of stockholders, unless otherwise provided by law, may be called at any time only by (i) the Board pursuant to a resolution adopted by a majority of the then authorized number of Directors (as determined in accordance with Section 2 of Article III of these Bylaws), (ii) the Chairman of the Board, or (iii) the President. Any such call must specify the matter or matters to be acted upon at such meeting and only such matter or matters shall be acted upon thereat. -1- 6 Section 4. Notice of Meetings and Adjourned Meetings. Except as may otherwise be required by law, notice of each meeting of stockholders, annual or special, shall be in writing, shall state the purpose or purposes of the meeting, the place, date and hour of the meeting and, unless it is the annual meeting, shall indicate that the notice is being issued by or at the direction of the person or persons calling the meeting, and a copy thereof shall be delivered or sent by mail, not less than ten (10) or more than sixty (60) days before the date of said meeting, to each stockholder entitled to vote at such meeting. If mailed, such notice shall be directed to the stockholder at his address as it appears on the stock record of the Corporation unless he shall have filed with the Secretary a written request that notices to him be mailed to some other address, in which case it shall be directed to him at such other address. Notice of any adjourned meeting need not be given if the time and place to which the meeting shall be adjourned were announced at the meeting at which the adjournment was taken unless (i) the adjournment is for more than thirty (30) days, (ii) the Board shall fix a new record date for any adjourned meeting after the adjournment or (iii) these Bylaws otherwise require. Section 5. Quorum. At each meeting of stockholders of the Corporation, the holders of a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote shall be present or represented by proxy to constitute a quorum for the transaction of business, except as may otherwise be provided by law or the Certificate of Incorporation. If a quorum is present at a meeting of stockholders, the stockholders represented in person or by proxy at the meeting may conduct such business as may be properly brought before the meeting until it is finally adjourned, and the subsequent withdrawal from the meeting of any stockholder or the refusal of any stockholder represented in person or by proxy to vote shall not affect the presence of a quorum at the meeting, except as may otherwise be provided by law or the Certificate of Incorporation. If, however, a quorum shall not be present or represented at any meeting of the stockholders, the chairman of the meeting or holders of majority of the shares represented in person or by proxy shall have the power to adjourn the meeting to another time, or to another time and place, without notice (subject, however, to the requirements of Section 4 of Article II of these Bylaws) other than announcement of adjournment at the meeting, and there may be successive adjournments for like cause and in like manner until the requisite amount of shares entitled to vote at such meeting shall be represented. At such adjourned meeting at which the requisite amount of shares entitled to vote thereat -2- 7 shall be represented, any business may be transacted that might have been transacted at the original meeting so adjourned. Section 6. Certain Rules of Procedure Relating to Stockholder Meetings. All stockholder meetings, annual or special, shall be governed in accordance with the following rules: (i) Only stockholders of record or their proxies will be permitted to present motions from the floor at any meeting of stockholders. (ii) The chairman of the meeting shall preside over and conduct the meeting in a fair and reasonable manner, and all questions of procedure or conduct of the meeting shall be decided solely by the chairman of the meeting. The chairman of the meeting shall have all power and authority vested in a presiding officer by law or practice to conduct an orderly meeting. Among other things, the chairman of the meeting shall have the power to adjourn or recess the meeting, to silence or expel persons to insure the orderly conduct of the meeting, to declare motions or persons out of order, to prescribe rules of conduct and an agenda for the meeting, to impose reasonable time limits on questions and remarks by any stockholder, to limit the number of questions a stockholder may ask, to limit the nature of questions and comments to one subject matter at a time as dictated by any agenda for the meeting, to limit the number of speakers or persons addressing the chairman of the meeting or the meeting, to determine when the polls shall be closed, to limit the attendance at the meeting to stockholders of record, beneficial owners of stock who present letters from the record holders confirming their status as beneficial owners, and the proxies of such record and beneficial holders, and to limit the number of proxies a stockholder may name. Section 7. Voting. Except as otherwise provided in the Certificate of Incorporation, at each meeting of stockholders, every stockholder of the Corporation shall be entitled to one (1) vote for every share of capital stock standing in his name on the stock records of the Corporation (i) at the time fixed pursuant to Section 6 of Article VII of these Bylaws as the record date for the determination of stockholders entitled to vote at such meeting, or (ii) if no such record date shall have been fixed, then at the close of business on the date next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. At each such meeting, every stockholder shall be entitled to vote in person, or by proxy -3- 8 appointed by an instrument in writing executed by such stockholder or by his duly authorized agent and bearing a date not more than three (3) years prior to the meeting in question, unless said instrument provides for a longer period during which it is to remain in force. At all meetings of stockholders at which a quorum is present, all matters (except as otherwise provided in Section 3 of Article III of these Bylaws and except in cases where a larger vote is required by law, the Certificate of Incorporation or these Bylaws) shall be decided by a majority of the votes cast affirmatively or negatively at such meeting by the holders of shares present or represented by proxy and entitled to vote thereon. At any meeting of stockholders, every stockholder having the right to vote may vote either in person or by a proxy executed in writing by the stockholder or by his duly authorized attorney-in-fact. Each such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after three years from the date of its execution, unless otherwise provided in the proxy. Each proxy shall be revocable unless expressly provided therein to be irrevocable and coupled with an interest sufficient in law to support an irrevocable power or unless otherwise made irrevocable by law. Section 8. Inspectors. The Board of Directors shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If any inspector appointed or designated by the Board shall be unwilling or unable to serve, or if the Board shall fail to appoint inspectors, the chairman of the meeting shall appoint the necessary inspector or inspectors. The inspectors so appointed, before entering upon the discharge of their duties, shall be sworn faithfully to execute their duties with strict impartiality, and according to the best of their ability, and the oath so taken shall be subscribed by them. Such inspectors shall (i) ascertain the number of shares outstanding and the voting power of each, (ii) determine the shares represented at a meeting, the existence of a quorum, and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by such inspectors, (v) certify their determination of the number of shares represented at the meeting and their count of all votes and ballots and (vi) perform such further acts as are proper to conduct any election or vote with fairness to all stockholders. On request of the chairman of the meeting, the -4- 9 inspectors shall make a report in writing of any challenge, question or matter determined by them and shall execute a certificate of any fact found by them. An inspector need not be a stockholder of the Corporation, and any officer or Director of the Corporation may be an inspector on any question other than a vote for or against his election to any position with the Corporation or on any other question in which he may be directly interested. Section 9. New Business. Any new business to be taken up at any annual meeting of stockholders shall be stated in writing and filed with the Secretary by the Board of Directors or other person or persons proposing such new business at least ninety (90) days before the date of the annual meeting, and all business so stated, proposed and filed shall be considered at the annual meeting, but no other proposal shall be acted upon at the annual meeting of stockholders. Any stockholder may make any other proposal at the annual meeting, and the proposal may be discussed and considered, but unless stated in writing and filed with the Secretary at least ninety (90) days before the meeting such proposal shall be postponed for action at the next annual or special meeting of stockholders or at an adjournment of the meeting with respect to which such business was proposed. This provision shall not prevent the consideration and approval or disapproval at the annual meeting of stockholders of reports of officers, Directors and committees of the Board of Directors, but in connection with such reports no new business shall be acted upon at such annual meeting unless stated and filed as herein provided. Section 10. Nominations for Director. Notwithstanding anything in these Bylaws to the contrary, only persons who are nominated in accordance with the procedures hereinafter set forth in this Section 10 shall be eligible for election as Directors of the Corporation in accordance with Section 3 of Article III of these Bylaws. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 10. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than thirty (30) days nor more than sixty (60) days prior to the meeting; provided, however that in the event that less than forty -5- 10 (40) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Any adjournment(s) or postponement(s) of the original meeting whereby the meeting will reconvene within thirty (30) days from the original date shall be deemed for purposes of notice to be a continuation of the original meeting and no nominations by a stockholder of persons to be elected Directors of the Corporation may be made at any such reconvened meeting other than pursuant to a notice that was timely for the meeting on the date originally scheduled. Such stockholder's notice shall set forth: (i) as to each person whom the stockholder proposed to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of Directors, or as otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor regulation thereto (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected); and (ii) as to the stockholder giving the notice (a) the name and address, as they appear on the Corporation's books, of such stockholder, and (b) the class and number of shares of the Corporation which are beneficially owned by such stockholder. At the request of the Board of Directors, any person nominated by the Board for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section 10, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. Section 11. Requests for Stockholder List and Corporation Records. Stockholders shall have those rights afforded under the General Corporation Law of the State of Delaware (the "DGCL") to inspect for any proper purpose the Corporation's stock ledger, list of stockholders and other books and records, and make copies or extracts therefrom. Such request shall be in writing in compliance with Section 220 of the DGCL. Information so requested shall be made available for inspecting, copying or extracting during usual business hours at the principal executive offices of the Corporation. Alternative arrangements with respect to this Section 11 may be permitted in the discretion of the President of the Corporation or by vote of the Board of Directors. -6- 11 ARTICLE III DIRECTORS Section 1. Powers. The business of the Corporation shall be managed by or under the direction of the Board. The Board may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by law or otherwise directed or required to be exercised or done by the stockholders. Section 2. Number of Directors; Term; Qualification. The number of Directors which shall constitute the whole Board of Directors shall be not less than one (1), and may be from time to time fixed and determined at a different number only by resolution of the Board of Directors. No decrease in the number of Directors constituting the Board shall shorten the term of any incumbent Director. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, each Director shall hold office until the next annual meeting and until his successor is elected and qualified, or until his earlier death, resignation, disqualification or removal. Directors need not be residents of the State of Delaware or stockholders of the Corporation. Each director must have attained the age of majority. Section 3. Election. At each meeting of stockholders for the election of Directors at which a quorum is present, the persons receiving a plurality of the votes of the shares represented in person or by proxy and entitled to vote on the election of Directors shall be elected Directors. All elections of Directors shall be by written ballot, unless otherwise provided in the Certificate of Incorporation. Section 4. Vacancies. Unless otherwise provided by law or by the Certificate of Incorporation, in the case of any increase in the number of Directors or any vacancy in the Board of Directors, such newly created directorship or vacancy may be filled by the affirmative vote of the majority of the remaining Directors then in office, although less than a quorum, or by a sole remaining Director. Unless the Certificate of Incorporation or these Bylaws provide otherwise, when one or more Directors shall resign from the Board of Directors, effective at a future date, the majority of Directors then in office, including those who have so resigned, shall have the power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective. Any Director elected or chosen as provided herein shall serve for the remaining term of the directorship to which appointed and until -7- 12 his successor is elected and qualified or until his earlier death, resignation or removal. Section 5. Place of Meetings. Meetings of the Board shall be held at the Corporation's office in the State of Delaware or at such other place, within or without such State, as the Board may from time to time determine or as shall be specified or fixed in the notice or waiver of notice of any such meeting. Section 6. Regular Meetings. Regular meetings of the Board shall be held on such days and at such times as the Board may from time to time determine. Notice of regular meetings of the Board need not be given except as otherwise required by law or these Bylaws. Section 7. Special Meetings. Special meetings of the Board may be called by the Chairman of the Board or the President and shall be called by the Secretary at the request of any two of the other Directors. Section 8. Notice of Meetings. Notice of each special meeting of the Board (and of each regular meeting for which notice shall be required), stating the time, place and purposes thereof, shall be mailed to each Director, addressed to him at his residence or usual place of business, or shall be sent to him by telex, cable, facsimile or telegram so addressed, or shall be given personally or by telephone, on twenty-four (24) hours notice, or such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Notice of any such meeting need not be given to any Director, however, if waived by him before or after the other form of recorded communication, or if he shall be present at the meeting, except when he is present for the express purpose of objecting at the beginning of such meeting to the transaction of any business because the meeting is now lawfully called or convened. Section 9. Quorum and Manner of Acting. The presence of at least a majority of the authorized number of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business at any meeting of the Board. If a quorum shall not be present at any meeting of the Board, a majority of the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Except where a different vote is required by law, the act of a majority of the Directors present at any meeting at which a quorum shall be present shall be the act of the Board. -8- 13 Section 10. Action by Consent; Participation by Telephone or Similar Equipment. Any action required or permitted to be taken by the Board may be taken without a meeting if all the Directors consent in writing to the adoption of a resolution authorizing the action, unless otherwise restricted by the Certificate of Incorporation or these Bylaws. The resolution and the written consents thereto by the Directors shall be filed with the minutes of the proceedings of the Board. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any one or more Directors may participate in any meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting of the Board. Section 11. Resignation; Removal. Any Director may resign at any time by giving written notice to the Corporation, provided, however, that written notice to the Board, the Chairman of the Board, the President or the Secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein, and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any Director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of Directors; provided, however, that when the holders of any class or series are entitled by the Certificate of Incorporation to elect one (1) or more Directors, then, with respect to the removal without cause of a Director or Directors so elected, the required majority vote shall be of the holders of the outstanding shares of such class or series and not of the outstanding shares as a whole. Section 12. Compensation of Directors. The Board may, unless otherwise restricted by the Certificate of Incorporation or these Bylaws, provide for the payment to any of the Directors of a specified amount for services as a Director and/or member of a committee of the Board, or of a specified amount for attendance at each regular or special Board meeting or committee meeting, or of both, and all Directors shall be reimbursed for expenses of attendance at any such meeting; provided, however, that nothing herein contained shall be construed to preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. -9- 14 ARTICLE IV COMMITTEES OF THE BOARD Section 1. Designation, Powers and Name. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, including, if they shall so determine, an Executive Committee, each such committee to consist of one or more of the directors of the Corporation. Except to the extent restricted by law, the Certificate of Incorporation, or these Bylaws, each committee designated by the Board of Directors shall have and may exercise such of the powers of the Board in the management of the business and affairs of the Corporation as may be provided in such resolution or in these Bylaws; provided, however, that no such committee shall have the power or authority in reference to amending the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors pursuant to authority, if any, expressly vested in the Board by the provisions of the Certificate of Incorporation, (i) fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, or (ii) fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, provided further, that, unless the resolution establishing the committee, the Certificate of Incorporation or these Bylaws expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the DGCL. The committee may authorize the seal of the Corporation to be affixed to all papers which may require it. The Board of Directors may designate one or more Directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting. Section 2. Meetings; Minutes. Unless the Board of Directors shall otherwise provide, upon designation of any committee by the Board, such committee shall elect one of its members as chairman and may elect one of its members as vice -10- 15 chairman and shall adopt rules of proceeding providing for, among other things, the manner of calling committee meetings, giving notices thereof, quorum requirements for such meetings, and the methods of conducting the same. Each committee of Directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. Section 3. Compensation. Members of special or standing committees may be allowed compensation if the Board of Directors shall so determine pursuant to Section 12 of Article III of these Bylaws. Section 4. Action by Consent; Participation by Telephone or Similar Equipment. Unless the Board of Directors, the Certificate of Incorporation or these Bylaws shall otherwise provide, any action required or permitted to be taken by any committee may be taken without a meeting if all members of the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the committee shall be filed with the minutes of the proceedings of the committee. Unless the Board of Directors, the Certificate of Incorporation, or these Bylaws shall otherwise provide, any other or more members of any such committee may participate in any meeting of the committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation by such means shall constitute presence in person at a meeting of the committee. Section 5. Changes in Committees; Resignations; Removals. The Board shall have power, by the affirmative vote of a majority of the authorized number of Directors, at any time to change the members of, to fill vacancies in, and to discharge any committee of the Board. Any member of any such committee may resign at any time by giving notice to the Corporation, provided, however, that notice to the Board, the Chairman of the Board, the President, the chairman of such committee or the Secretary shall be deemed to constitute notice to the Corporation. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any member of any such committee may be removed at any time, with or without cause, by the affirmative vote of a majority of the authorized number of Directors at any meeting of the Board called for that purpose. -11- 16 ARTICLE V OFFICERS Section 1. Officers. The officers of the Corporation shall be a Chairman of the Board, a Chief Executive Officer, a President, a Chief Operating Officer, one or more Vice Presidents (any one or more of whom may be designated Executive Vice President or Senior Vice President), a Secretary and a Treasurer. The Board of Directors may appoint such other officers and agents, including Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, as it shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined by the Board. Any two or more offices may be held by the same person. The Chairman of the Board shall be elected from among the Directors. With the foregoing exception, none of the other officers need be a Director, and none of the officers need be a stockholder of the Corporation unless otherwise required by the Certificate of Incorporation. Section 2. Election and Term of Office. The officers of the Corporation shall be elected annually by the Board of Directors at its first regular meeting held after the annual meeting of stockholders or as soon thereafter as conveniently practicable. Each officer shall hold office until his successor shall have been elected or appointed and shall have been qualified or until his death or the effective date of his resignation or removal, or until he shall cease to be a Director in the case of the Chairman of the Board. Section 3. Removal and Resignation. Any officer or agent elected or appointed by the Board of Directors may be removed, with or without cause, by the affirmative vote of a majority of the Board of Directors whenever, in its judgment, the best interests of the Corporation shall be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights other than indemnification rights with respect to officers. Any officer may resign at any time by giving written notice to the Corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 4. Vacancies. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise may be filled by the Board of Directors and, in the case of any vacancy in an office other than the office of Chairman of the Board (if any) or President, by the President for the unexpired portion of the term. -12- 17 Section 5. Salaries. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors or pursuant to its direction; and no officer shall be prevented from receiving such salary by reason of his also being a Director. Section 6. Chairman of the Board. The Chairman of the Board (who may also hold the office of Chief Executive Officer or other offices) shall have such duties as the Board of Directors may prescribe. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board may sign all certificates for shares of stock of the Corporation. In the Chairman's absence, such duties shall be attended to by the President or any Vice President. Section 7. Chief Executive Officer. Unless and to the extent that such powers and duties are expressly delegated to the Chairman of the Board or the President by the Board of Directors, the Chief Executive Officer shall be the Chief Executive Officer of the Corporation and, subject to the supervision of the Board of Directors, shall, together with the President, have general management and control of the business and property of the Corporation in the ordinary course of its business with all such powers with respect to such general management and control as may be reasonably incident to such responsibilities, including, but not limited to, the power to employ, discharge, or suspend employees and agents of the Corporation, and to fix the compensation of employees and agents. The Chief Executive Officer may, without limitation, agree upon and execute all division and transfer orders, bonds, contracts, and other obligations in the name of the Corporation. Section 8. President and Chief Operating Officer. Unless and to the extent that such powers and duties are expressly delegated to the Chairman of the Board or the Chief Executive Officer by the Board of Directors, the President and Chief Operating Officer shall be an executive officer of the Corporation and, subject to the supervision of the Board of Directors, shall, together with the Chairman of the Board and the Chief Executive Officer have general management and control of the business and property of the Corporation in the ordinary course of its business with all such powers with respect to such general management and control as may be reasonably incident to such responsibilities, including, but not limited to, the power to employ, discharge, or suspend employees and agents of the Corporation, and to fix the compensation of employees and agents. The President and Chief Operating Officer may, without limitation, agree upon and execute all division and transfer orders, bonds, contracts, and other obligations in the name of the Corporation. -13- 18 Section 9. Vice Presidents. Each Vice President shall have such powers and duties as may be assigned to him by the Board of Directors, the Chairman of the Board, or the President and (in order of their seniority as determined by the Board of Directors or, in the absence of such determination, as determined by the length of time they have held the office of Vice President) shall exercise the powers of the President during that officer's absence or inability to act. As between the Corporation and third parties, any action taken by a Vice President in the performance of the duties of the President shall be conclusive evidence of the absence or inability to act of the President at the time such action was taken. Section 10. Treasurer. The Treasurer shall have custody of the Corporation's funds and securities, shall keep full and accurate account of receipts and disbursements, shall deposit all monies and valuable effects in the name and to the credit of the Corporation in such depository or depositories as may be designated by the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, or the President. Section 11. Assistant Treasurer. Each Assistant Treasurer shall have such powers and duties as may be assigned to him by the Board of Directors, the Chairman of the Board, or the President. The Assistant Treasurers (in the order of their seniority as determined by the Board of Directors or, in the absence of such a determination, as determined by the length of time they have held the office of Assistant Treasurer) shall exercise the powers of the Treasurer during that officer's absence or inability to act. Section 12. Secretary. Except as otherwise provided in these Bylaws, the Secretary shall keep the minutes of all meetings of the Board of Directors and of the stockholders in books provided for that purpose, and he shall attend to the giving and service of all notices. He may sign with the Chairman of the Board or the President, in the name of the Corporation, all contracts of the Corporation and affix the seal of the Corporation thereto. He may sign with the Chairman of the Board or the President all certificates for shares of stock of the Corporation, and he shall have charge of the certificate books, transfer books, and stock papers as the Board of Directors may direct, all of which shall at all reasonable times be open to inspection by any director upon application at the office of the Corporation during business hours. He shall in general perform all duties incident to the office of the Secretary, subject to the control of the Board of Directors, the Chairman of the Board, and the President. -14- 19 Section 13. Assistant Secretaries. Each Assistant Secretary shall have such powers and duties as may be assigned to him by the Board of Directors, the Chairman of the Board, or the President. The Assistant Secretaries (in the order of their seniority as determined by the Board of Directors or, in the absence of such a determination, as determined by the length of time they have held the office of Assistant Secretary) shall exercise the powers of the Secretary during that officer's absence or inability to act. ARTICLE VI CONTRACTS, CHECKS, LOANS, DEPOSITS, ETC. Section 1. Contracts. The Board may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation, to enter into any contract or to execute and deliver any instrument, which authorization may be general or confined to specific instances; and, unless so authorized by the Board, no agent or employee who is not an officer shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any purpose or for any amount. Section 2. Checks, etc. All checks, drafts, bills of exchange or other orders for the payment of money out of the funds of the Corporation, and all notes or other evidences of indebtedness of the Corporation, shall be signed in the name and on behalf of the Corporation in such manner as shall from time to time be authorized by the Board, which authorization may be general or confined to specific instances. Section 3. Loans. No loan shall be contracted on behalf of the Corporation, and no negotiable paper shall be issued in its name, unless authorized by the Board, which authorization may be general or confined to specific instances. All bonds, debentures, notes and other obligations or evidences of indebtedness of the Corporation issued for such loans shall be made, executed and delivered as the Board shall authorize. Section 4. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as may be selected by or in the manner designated by the Board. The Board or its designees may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as may be deemed expedient. -15- 20 ARTICLE VII CAPITAL STOCK Section 1. Stock Certificates. Each stockholder of the Corporation shall be entitled to have, in such form as shall be approved by the Board, a certificate or certificates signed by the Chairman of the Board or the President and by either the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary (except that, when any such certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or any employee, the signatures of any such officers may be facsimiles, engraved or printed), which may be sealed with the seal of the Corporation (which seal may be a facsimile, engraved or printed), certifying the number of shares of capital stock of the Corporation owned by such stockholder. In case any officer who has signed or whose facsimile signature has been placed upon any such certificate shall have ceased to be such officer before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he were such officer at the date of its issue. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof, and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock; provided that, except as otherwise stated in Section 202 of the DGCL, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, option or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make or cause to have prepared or made, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be -16- 21 open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present. Section 3. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 2 of this Article VII or the books and records of the Corporation, or to vote in person or by proxy at any meeting of stockholders. Section 4. Transfers of Capital Stock. Transfers of shares of capital stock of the Corporation shall be made only on the stock record of the Corporation by the holder of record thereof or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation or the transfer agent thereof, and only on surrender of the certificate or certificates representing such shares, properly endorsed or accompanied by a duly executed stock transfer power. The Board may make such additional rules and regulations as it may deem expedient concerning the issue and transfer of certificates representing shares or uncertificated shares of the capital stock of the Corporation. Section 5. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. Section 6. Fixing of Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividends or other distribution or allotment of any rights, or entitled to exercise -17- 22 any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which record date shall (i) not precede the date upon which the resolution fixing the record date is adopted by the Board and (ii) not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 7. Beneficial Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. ARTICLE VIII DIVIDENDS Section 1. Declaration. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. Reserve. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the Corporation, and the Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE IX INDEMNIFICATION Section 1. Indemnification. The Corporation shall indemnify to the full extent authorized or permitted by Section 145 of the DGCL any person (his heirs, executors and administrators) made, or threatened to be made, a party to any -18- 23 action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he is or was a Director or officer of the Corporation or by reason of the fact that as such Director or officer at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. The Corporation may indemnify to the full extent authorized or permitted by Section 145 of the DGCL any person (his heirs, executors and administrators) made, or threatened to be made, a party to any action, suit or proceeding (whether civil, criminal, administrative or investigative) by reason of the fact that he is or was an employee or agent of the Corporation or by reason of the fact that as such employee or agent, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which Directors, officers, employees and agents of the Corporation may be entitled by law. Section 2. Advancement of Expenses. Expenses (including attorneys' fees) incurred by an officer or Director of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors upon receipt of an undertaking by or on behalf of such Director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Article IX. Such expenses incurred by employees and agents of the Corporation other than Directors and officers may be paid upon such terms and conditions, if any, as the Board of Directors deems appropriate. Section 3. Non-Exclusivity. The indemnification and advancement of expenses provided for hereby shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested Directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. Section 4. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise -19- 24 against any liability asserted against him and incurred by him in any such capacity, arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article IX. Section 5. Continuity. The indemnification and advancement of expenses provided for in this Article IX shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a Director, officer, employee or agent of the Corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE X SEAL The seal of the Corporation shall be such as from time to time may be approved by the Board of Directors. ARTICLE XI WAIVER OF NOTICE Whenever any notice is required by law, the Certificate of Incorporation or these Bylaws to be given to any Director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, Directors, or members of a committee of Directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. ARTICLE XII AMENDMENTS Subject to the Certificate of Incorporation and applicable law, these Bylaws or any of them may be amended or supplemented in any respect at any time, either (a) at any meeting of stockholders, provided that any amendment or supplement proposed to be acted upon at any such meeting shall have been described or referred to in the notice of such meeting, or (b) at any meeting of the Board, provided that any amendment or supplement proposed to be acted upon at any such meeting shall have been described or referred to in the notice of such meeting or an announcement with respect thereto shall have been made at the last previous Board meeting, and provided further -20- 25 that no amendment or supplement adopted by the Board shall vary or conflict with any amendment or supplement adopted by the stockholders. I, the undersigned, being the Secretary of the Corporation DO HEREBY CERTIFY THAT the foregoing are the Bylaws of said Corporation, as adopted by the Board of Directors of said Corporation as of August 9, 1993. ------------------------------- Alex W. Young Secretary -21- EX-4.5 3 AMENDMENT NO. 2 TO RIGHTS AGREEMENT 1 EXHIBIT 4.5 AMENDMENT NUMBER TWO TO RIGHTS AGREEMENT AMENDMENT NUMBER TWO dated as of August 12, 1999 to the Rights Agreement dated as of July 9, 1998, as amended (as so amended, the "Rights Agreement"), between Thomas Group, Inc., a Delaware corporation (the "Company"), and Harris Trust and Savings Bank, as Rights Agent (the "Rights Agent"). W I T N E S S E T H WHEREAS, the parties hereto desire to amend the Rights Agreement in certain respects; NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Defined Terms; References. (a) Unless otherwise specifically defined herein, each term used herein which is defined in the Rights Agreement has the meaning assigned to such term in the Rights Agreement. Each reference to "hereof," "hereunder," "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Rights Agreement shall, after this Amendment becomes effective, refer to the Rights Agreement as amended hereby. (b) Section 1(o) of the Rights Agreement is hereby amended by deleting the definition of "Disinterested Director" contained therein. SECTION 2. Form of Rights Certificates. Section 4(b) of the Rights Agreement is hereby amended by deleting the words "the Disinterested Directors have determined" from clause (iii)(B) thereof. SECTION 3. Exercise of Rights; Purchase Price; Expiration Date of Rights. Section 7(e) of the Rights Agreement is hereby amended by deleting the words "the Disinterested Directors have determined" from clause (iii)(B) of the first sentence thereof. SECTION 4. Adjustment of Purchase Price; Number and Kind of Shares or Number of Rights. Section 11 of the Rights Agreement is hereby amended by: (a) replacing the words "a majority of the Disinterested Directors" in subsection (a)(ii)(A) thereof with the words "the Board, prior to the public announcement of such tender or exchange offer," and by replacing each subsequent instance of the words "Disinterested Directors" in subsection (a)(ii)(A) thereof with the word "Board"; (b) deleting the words "the later of (x)" in the first sentence of subsection (a)(iii) thereof; (c) replacing the words "and (y) the date on which the Company's right of redemption pursuant to Section 23(a) (Redemption and Termination -- Redemption) expires (the later of (x) and 2 (y)" in the first sentence of subsection (a)(iii) thereof with the words "(the date of such Flip-in Event"; (d) replacing the words "Disinterested Directors" in subsection (a)(iv) thereof with the word "Board"; (e) adding the words "the earlier of the Stock Acquisition Date or" after the first instance of the word "after" in the first sentence of subsection (n) thereof; and (f) adding the words "the earlier of the Stock Acquisition Date or" after the first instance of the word "after" in subsection (o) thereof. SECTION 5. Consolidation, Merger or Sale or Transfer of Assets or Earning Power. Section 13 of the Rights Agreement is hereby amended by replacing the word "stated" in subsection (c)(ii) thereof with the word "states". SECTION 6. Redemption and Termination. Section 23(a) of the Rights Agreement is hereby amended by: (a) replacing the words "Close of Business on the tenth Business Day following the Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the Close of Business on the tenth Business Day following the Record Date)" in the first sentence thereof with the words "Stock Acquisition Date"; (b) deleting the two provisos and the semicolon immediately preceding the first proviso from the first sentence thereof; and (c) deleting the second sentence thereof. SECTION 7. Supplements and Amendments. Section 27 of the Rights Agreement is hereby amended by: (a) replacing the words "Prior to the Distribution Date and subject to the penultimate sentence of this Section 27" in the first sentence thereof with the words "For so long as the Rights are redeemable, and subject to the following provisions of this Section 27"; (b) adding the word "may," after the first instance of the word "Company" in the first sentence thereof; (c) replacing the proviso and the semicolon preceding such proviso from the first sentence thereof with the words "or, on and after the Distribution Date, any holders of Rights Certificates"; (d) replacing the words "From and after the Distribution Date" in the second sentence thereof with the words "At any time when the Rights are no longer redeemable,"; 3 (e) replacing the words "in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder or (iv) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not" in the second sentence thereof with the words "; provided, however, that no such supplement or amendment may (i)"; (f) adding the words ", or, prior to the Distribution Date, the holders of Common Stock" after the second instance of the words "Rights Certificates" in the second sentence thereof; and (g) replacing the first and second proviso and the semicolon preceding the first proviso in the second sentence thereof with the words ", (ii) cause this Agreement again to become amendable other than in accordance with this sentence, or (iii) cause the Rights again to become redeemable." SECTION 8. Determination and Actions by the Board of Directors, Etc. Section 29 of the Rights Agreement is hereby amended by: (a) deleting the words "Disinterested Directors" from the title thereof; (b) deleting the first and second parenthetical clauses from the second sentence thereof; and (c) deleting the second parenthetical clause and the words "or the Disinterested Directors" from the third sentence thereof. SECTION 9. Severability. Section 31 of the Rights Agreement is hereby amended by deleting the second sentence thereof. SECTION 10. Form of Rights Certificate. Exhibit 1 to the Rights Agreement is hereby amended by replacing the words "Close of Business (as such term is defined in the Rights Agreement) on the tenth (10th) Business Day (as such term is defined in the Rights Agreement) following the Stock Acquisition Date (as such term is defined in the Rights Agreement) (as such time period may be extended pursuant to the Rights Agreement)" in clause (i)(a) of the sixth paragraph thereof with the words "Stock Acquisition Date (as such term is defined in the Rights Agreement)". SECTION 11. Summary of Rights to Purchase Preferred Stock. The Summary of Rights to Purchase Preferred Stock included in Exhibit 2 to the Rights Agreement is hereby amended by: (a) inserting the words "(other than Dorsey R. Gardner or his affiliates)" after the word "person" in the second sentence of the second paragraph thereof; 4 (b) replacing the words "a majority of the Disinterested Directors (as defined below)" in clause (ii)(B) of the first sentence of the sixth paragraph thereof with the words "the Board of Directors"; (c) deleting the second sentence of the sixth paragraph thereof; (d) adding a new sentence to the end of the sixth paragraph thereof that reads as follows: The events described in this paragraph are referred to as "Flip-in Events."; (e) deleting the last sentence of the eighth paragraph thereof; (f) inserting two new sentences to the end of the eighth paragraph thereof that read as follows: The events described in this paragraph are referred to as "Flip-over Events." Flip-in Events and Flip-over Events are referred to collectively as "Triggering Events."; (g) deleting the words "ten (10) business days following" in the first sentence of the twelfth paragraph thereof; (h) deleting the thirteenth paragraph thereof; (i) replacing the words "prior to the Distribution Date; provided, that any amendments after the Stock Acquisition Date must be approved by a majority of the Disinterested Directors" in the first sentence of the fifteenth paragraph thereof with the words "at any time during the period in which the Rights are redeemable;" (j) replacing the words "After the Distribution Date" in the second sentence of the fifteenth paragraph thereof with the words "At any time when the Rights are no longer redeemable"; (k) replacing the words "in order to cure any ambiguity, inconsistency or defect, to make changes which do" in the second sentence of the fifteenth paragraph thereof with the words "only if such amendment does"; (l) deleting the words "or to shorten or lengthen any time period under the Rights Agreement" in the second sentence of the fifteenth paragraph thereof; and (m) by replacing the words "to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable; and, provided, that any amendments after the Stock Acquisition Date must be approved by a majority of the Disinterested Directors" in the second sentence of the fifteenth paragraph thereof with the words "may cause the Rights again to become redeemable". 5 SECTION 12. Governing Law. This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such State applicable to contracts made and to be performed entirely within such State. SECTION 13. Counterparts. This Amendment may be executed in any number of counterparts and such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 14. Effectiveness. This Amendment shall become effective upon execution by each of the parties hereto of a counterpart hereof. * * * * * 6 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. THOMAS GROUP, INC. By: --------------------------------------- Name: ------------------------------ Title: ----------------------------- Attest: By: --------------------------------------- Name: ------------------------------ Title: ----------------------------- HARRIS TRUST AND SAVINGS BANK By: --------------------------------------- Name: ------------------------------ Title: ----------------------------- Attest: By: --------------------------------------- Name: ------------------------------ Title: ----------------------------- EX-10.2 4 EMPLOYMENT AGREEMENT - J. THOMAS WILLIAMS 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of April 2, 1998 with an effective date of March 10th, by and between THOMAS GROUP, INC., a Delaware corporation ("Thomas Group") and J. Thomas Williams, an individual residing in Washington, D.C. ("Employee"). RECITALS WHEREAS, Employee is the President and Chief Operating Officer of Thomas Group reporting to the Chief Executive Officer and an integral part of its management who participates in the decision-making process relative to short and long-term planning and policy for Thomas Group; and WHEREAS, Thomas Group has determined that it would be in the best interests of Thomas Group and its stockholders to assure continuity in the management of Thomas Group's operations by entering into an employment agreement to retain the services of Employee; and WHEREAS, Thomas Group wishes to assure itself of the continued services of Employee for the period hereinafter provided, and Employee is willing to be employed by Thomas Group for said period, upon the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and the obligations undertaken by the parties pursuant hereto and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Thomas Group and Employee agree as follows: 1. Definitions. The defined terms used in this Agreement shall have the meanings ascribed to them in this Section 1. 1.1 Affiliate. "Affiliate" shall mean any corporation over which Employee or Thomas Group, as the case may be, can exercise effective management and control. 1.2 Board of Directors. "Board" or the "Board of Directors" shall mean the Board of Directors of Thomas Group or any committee of the Board empowered to act or make decisions or determinations with respect to this Agreement. 1.3 Cause. "Cause" shall mean that, as determined in good faith by the Board of Directors, Employee has engaged in any act of gross misconduct which is materially injurious to Thomas Group or its business. 1.4 Change in Control. "Change in Control" shall mean: 2 (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person" which, for purposes of this definition, excludes Employee or any of his Affiliates) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of shares of common stock or other securities of Thomas Group resulting in the beneficial ownership by such individual, entity or group of 40% or more of either (1) the then-outstanding shares of common stock of Thomas Group (the "Outstanding Thomas Group Common Stock") or (2) the combined voting power of the then-outstanding voting securities of Thomas Group entitled to vote generally in the election of directors (the "Outstanding Thomas Group Voting Securities"); or (b) if individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute more than fifty percent of the members of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election or nomination for election by Thomas Group's stockholders was approved by a vote of at least two-thirds of the directors then constituting the Incumbent Board, shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest subject to Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) approval by the stockholders of Thomas Group of a reorganization, merger or consolidation unless following such reorganization, merger or consolidation (1) more than 40% of, respectively, the then-outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation (the "Outstanding Survivor Common Stock"), and the combined voting power of the then-outstanding voting securities of such corporation entitled to vote generally in the election of directors (the "Outstanding Survivor Voting Securities"), is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Thomas Group Common Stock and Outstanding Thomas Group Voting Securities immediately prior to such reorganization, merger or consolidation in substantially the same proportions as their ownership immediately prior to such reorganization, merger or consolidation, of the Outstanding Thomas Group Common Stock and Outstanding Thomas Group Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares of Outstanding Survivor Common Stock and Outstanding Survivor Voting Securities owned by Thomas Group's stockholders, but not from the total number of shares of Outstanding Survivor Common Stock and Outstanding Survivor Voting Securities, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of Thomas Group), (2) no Person (excluding Thomas Group, any employee benefit plan (or related trust) of Thomas Group, any qualified employee benefit plan of such Surviving Corporation and any Person beneficially owning, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 40% or more of the Outstanding Thomas Group Common Stock or Outstanding Thomas Group Voting Securities, as the case may be) beneficially owns, directly or indirectly, 40% or more of, respectively, the shares of Outstanding Survivor Common -2- 3 Stock or the Outstanding Survivor Voting Securities, and (3) more than 50% of the members of the board of directors of the Surviving Corporation were members of the Incumbent Board at the time of the execution of the initial agreement providing for such reorganization, merger or consolidation; or (d) (1) approval by the stockholders of Thomas Group of a complete liquidation or dissolution of Thomas Group or (2) the first to occur of (i) the sale or other disposition (in one transaction or a series of related transactions) of all or substantially all of the assets of Thomas Group, or (ii) the approval by the stockholders of Thomas Group of any such sale or disposition, other than, in each case, any such sale or disposition to a corporation with respect to which immediately thereafter (x) more than 40% of, respectively, the shares of Outstanding Survivor Common Stock and the Outstanding Survivor Voting Securities is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Thomas Group Common Stock and Outstanding Thomas Group Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition of the Outstanding Thomas Group Common Stock and Outstanding Thomas Group Voting Securities, as the case may be (for purposes of determining whether such percentage test is satisfied, there shall be excluded from the number of shares of Outstanding Survivor Common Stock and Outstanding Survivor Voting Securities owned by Thomas Group's stockholders, but not from the total number of shares of Outstanding Survivor Common Stock and Outstanding Survivor Voting Securities of the surviving corporation, any shares or voting securities received by any such stockholder in respect of any consideration other than shares or voting securities of Thomas Group), (y) no Person (excluding Thomas Group and any employee benefit plan (or related trust) of Thomas Group, any qualified employee benefit plan of such transferee corporation and any Person beneficially owning, immediately prior to such sale or other disposition, directly or indirectly, 40% or more of the Outstanding Thomas Group Common Stock or Outstanding Thomas Group Voting Securities, as the case may be) beneficially owns, directly or indirectly, 40% or more of, respectively, the shares of Outstanding Survivor Common Stock and the Outstanding Survivor Voting Securities and (z) more than 50% of the members of the board of directors of the surviving corporation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the board providing for such sale or other disposition of assets of Thomas Group. 1.5 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended. 1.6 Common Stock. "Common Stock" shall mean the common stock of Thomas Group, par value $.01 per share. 1.7 Disability. "Disability" shall mean the inability of Employee to perform his material managerial duties and responsibilities as contemplated under Section 3 during the Term of Employment, as determined in accordance with Section 6.1(e). -3- 4 1.8 Good Reason. "Good Reason" shall mean Employee's decision to terminate his employment under this Agreement if Thomas Group or any successor thereto commits any material breach of this Agreement. 1.9 Term of Employment. "Term of Employment" shall mean the period of time commencing on the effective date of this Agreement and continuing until the fifth anniversary date of this Agreement; provided, however, that Employee and Thomas Group can agree, in writing, to extend the Term of Employment for an additional five years, unless terminated earlier pursuant to the terms hereof. 2. Termination of Prior Agreements. Thomas Group and Employee hereby acknowledge and agree that this Agreement supersedes any prior agreements. 3. Employment. Thomas Group employs Employee and Employee accepts employment by Thomas Group as President and Chief Operating officer of Thomas Group for the Term of Employment on the terms and conditions and for the compensation hereinafter set forth. Subject to the authority of the Board of Directors, Employee shall be responsible for the overall operations of Thomas Group in the ordinary course of its business with all such powers as may be reasonably incident to such responsibilities as its President and Chief Operating Officer, with all of the rights, powers and decision-making discretion appertaining thereto. Employee shall devote his full time and effort to the discharge of his duties as Thomas Group's President and Chief Operating Officer. 4. Compensation and Benefits During the Term of Employment. 4.1 Base Compensation. Employee shall receive base compensation ("Base Compensation") in the amount determined by the Compensation and Stock Option Committee of the Board of Directors (the "Compensation Committee"). The amount of Employee's Base Compensation shall initially be $370,000 annually and shall be reviewed and adjusted as appropriate at least annually by the Compensation Committee. Base Compensation shall be paid in equal monthly installments by Thomas Group to Employee. 4.2 Incentive Compensation Arrangement. (a) In further consideration of Employee's performance of services under Section 3 hereof, Thomas Group agrees to compensate Employee under the incentive compensation arrangement ("Incentive Compensation") set forth in Section 4.2(b). Except as specifically provided herein, the computation of annual incentive compensation will be based upon the audited financial results of Thomas Group. (b) (1) General. Employee's Incentive Compensation is initially based upon 25% (the "Entitled Percent") of the dollar value derived from a formula sharing ratio of Thomas Group's revenues. The sharing ratio is based upon Thomas Group's percentage increase in cumulative income before tax and incentive compensation ("IBTIC") for the current fiscal year compared to Thomas Group's cumulative IBTIC for the prior fiscal year, and upon certain targeted levels of Thomas Group's IBTIC. For purposes of determining IBTIC, Incentive Compensation -4- 5 includes CEO and other officer Incentive Compensation. The Compensation Committee may review the percent stated above from time to time and make appropriate changes. The performance goals for this assignment are shown in Exhibit 2. (2) Incentive Compensation Calculation. The formula for determining incentive compensation is as follows: Incentive Compensation equals the product of Thomas Group revenues for the applicable fiscal year multiplied by the income growth sharing ratio expressed as a percentage ("IGSR") for the fiscal year, the result multiplied by the Entitled Percent. The ISGR is determined with reference to the following table: INCOME GROWTH SHARING RATIO
Income Before Tax and Incentive Compensation Less as a % of Revenues than 5%* 5%-9.99%* 10%-14.99%* 15%-24.99%* Over 25%* ------------------ -------- --------- ----------- ----------- --------- 0 - 8.99% 0 0 0 .2% .3% 9.00% - 14.99% .3% .4% .5% .6% .7% 15.00% - 19.25% .5% .6% .8% 1.0% 1.2% Over 19.25% .8% 1.0% 1.3% 1.6% 1.8%
*IBTIC Growth Rate ISGR is determined by first determining the IBTIC as a percent of revenue for the current fiscal year and then entering the table along that line until the appropriate IBTIC Growth Rate is reached; the ISGR is shown at that intersection in the table. For purposes of this table, IBTIC Growth Rate for each applicable fiscal year is derived from the following formula: IBTIC[Current Fiscal Year] minus 1 x 100 -------------------------- IBTIC[Prior Fiscal Year] In the event that either the IBTIC Growth Rate or the IBTIC, as computed above, is zero or negative for a particular fiscal year, it shall be treated as zero for purposes of the foregoing computation for such year. Note: In the case of good performance an additional bonus of $50K for that year will be granted and applied to reduce the loan from Thomas Group Inc., to J. Thomas Williams. -5- 6 (3) If Incentive Compensation, as calculated in accordance with Section 4.2(b) hereof, exceeds 70 percent of Base Compensation in a fiscal year, the excess of Incentive Compensation, as calculated, over 70 percent of Base Compensation will not be paid to Employee but will be used to calculate the award of a stock option to Employee. The number of shares to be awarded under such option is determined using the following formula: N = Excess Incentive Compensation ----------------------------- P Where: N = Number of shares subject to such option P = Market price of the Company's stock on the date of award Excess Incentive Compensation = Excess of Incentive Compensation as calculated minus 55 percent of base compensation in a fiscal year. Options granted hereunder shall be granted pursuant to the Corporation's Stock Option Plans and shall be subject to all limitations of such plans, including the aggregate number of options which may be granted. Options granted pursuant to this Section 4.2(b)(3) shall contain an option price equal to the market price (average of the day's high and low prices) on the date of award, shall be fully vested, and shall expire 10 years following date of grant. This stock option award shall not preclude the Board of Directors from granting additional options to Employee as it deems appropriate. Options granted pursuant to this Agreement shall be administered by the Compensation Committee. A initial grant increasing current options to 80,000 will be made as of the effective date of this Agreement (current 45,000 plus new 35,000) and will vest as EPS targets (as in Exhibit 2) are achieved at 7,000 per year for the five year period. (4) Partial Fiscal Years. The computations set forth in Section 4.2(b)(2) above shall be adjusted to take into account eligibility for partial fiscal years by computing them based upon the entire fiscal year and multiplying these results by the ratio of the number of days of such partial fiscal year to the number of days in the complete fiscal year. This is calculated at the completion of the fiscal year. (5) (i) Payments. Thomas Group shall pay the Incentive Compensation to Employee on or before the fifteen (15) days after the completion of the audit of Thomas Group's financial statements by Thomas Group's certified public accountants. (ii) Eligibility Under Other Plans. Employee's eligibility for bonuses or incentive compensation payments under plans in effect prior to effectiveness of this Agreement shall terminate upon the effectiveness of this Agreement. 4.3 Travel Costs. Thomas Group shall reimburse Employee for all travel costs incurred by Employee in connection with Thomas Group's business, together with all other business expenses of Employee in performing his duties hereunder. -6- 7 4.4 Automobile Expenses. Thomas Group shall provide automobile transportation to employee for Employee's use in connection with Thomas Group's business. 4.5 Pension and Insurance Benefit Plan Participation; No Other Bonus Plan Participation. Employee shall be entitled to participate in Thomas Group's 401(k) plan, subject to the terms and conditions of such plans. Thomas Group also shall provide medical, disability and life insurance coverage to Employee on the terms and conditions of each of the plans Thomas Group maintains with respect thereto. Employee will be covered by $1M of term insurance paid by Thomas Group and payable to employees estate in the case of death while in the employment of Thomas Group Inc. 5. Term of the Agreement. The term of this Agreement, unless terminated sooner pursuant to Section 5, shall be for the Term of Employment. 6. Termination; Disability; Death, Change in Control. 6.1 Basis. Employee's employment under this Agreement may be terminated as described in this Section 6.1. In the event that Employee's employment is terminated in accordance with this Section 6.1, Employee shall be entitled to receive the benefits described in Section 6.2 that correspond with the manner of such termination. (a) Termination Without Cause. Thomas Group may terminate Employee's employment hereunder without Cause by written notice to Employee to that effect. Unless otherwise specified in the notice, such termination shall be effective immediately. (b) Termination With Cause. Thomas Group may terminate the employment of Employee hereunder for Cause by written notice to Employee to that effect. Unless otherwise specified in the notice, such termination shall be effective immediately. (c) Good Reason. Upon the occurrence of an event constituting Good Reason as described in Section 1.10 hereof, Employee may terminate his employment hereunder for Good Reason within 30 days thereafter upon written notice to Thomas Group to that effect. If the effect of the occurrence of the event described in Section 1.10 may be cured, Thomas Group shall have the opportunity to cure any such effect for a period of 30 days following receipt of Employee's termination notice. The right of Employee to terminate his employment for Good Reason under this Section 6.1(c) shall not limit Thomas Group's ability to terminate Employee for Cause under Section 6.1(b) hereof if Cause is determined to exist prior to the time Employee delivers his written notice of termination for Good Reason to Thomas Group. (d) Without Good Reason. Employee may voluntarily terminate his employment hereunder without Good Reason upon written notice to Thomas Group to that effect. -7- 8 (e) Disability. Employee or Thomas Group may terminate Employee's employment by reason of Disability upon written notice to the other party to that effect. If the parties hereto are unable to agree as to the existence of Disability or as to the date of commencement of Disability, each of Employee and Thomas Group shall select a physician licensed to practice medicine in the United States and the determination as to any such question shall be made by such physicians; provided, however, that if such two physicians are unable to agree, they shall mutually select a third physician licensed to practice medicine in the United States and the determination as to any such question shall be made by a majority of such physicians. Any determination made by physicians in accordance with the provisions of the immediately foregoing sentence shall be final and binding on the parties hereto. Employee agrees to submit to any and all reasonable medical examinations or procedures and to execute and deliver any and all consents to release of medical information and records or otherwise as shall be reasonably required by any of the physicians selected in accordance with this Section 6.1(e). Unless otherwise specified in the notice, such termination shall be effective immediately. (f) Death. This Employment Agreement shall automatically terminate as of the date of Employee's death during the Term of Employment. (g) Change in Control. If a Change in Control occurs during the Term of Employment, Thomas Group shall promptly give written notice to Employee thereof. Following a Change in Control, Employee shall be required to continue his employment hereunder for 90 days after the date of such Change in Control, unless his employment is terminated sooner by Thomas Group as set forth in Section 6.1(h). In the event that Employee decides to resign or otherwise voluntarily terminate his employment following the occurrence of a Change in Control, Employee may do so by giving written notice to Thomas Group to that effect on or before 180 days after the occurrence of the Change in Control, which notice shall be effective on the later to occur of (i) 180 days after the occurrence of the Change in Control or (ii) 90 days after the date of such notice. If Employee does not give such notice to Thomas Group, this Agreement will remain in effect; provided, however, that the failure of Employee to terminate this Agreement following the occurrence of a Change in Control shall not be deemed a waiver of Employee's right to terminate his employment upon a subsequent occurrence of a Change in Control in accordance with the terms of this subsection. (h) Notwithstanding that Employee has given notice of termination pursuant to subsections (d) or (g) of this Section 6.1, Thomas Group may, in its sole discretion, thereafter require Employee to terminate his employment prior to the expiration of the applicable notice period. 6.2 Benefits Upon Termination. Employee shall receive the benefits described in the subsection below that corresponds with the manner of termination of Employee's employment under Section 6.1. (a) Without Cause. In the event Thomas Group terminates Employee's employment hereunder without Cause during the Term of Employment, Employee shall be entitled to the payments and benefits set forth on Exhibit I. -8- 9 (b) With Cause. In the event Employee's employment is terminated with Cause, no further payments or benefits shall be paid or provided by Thomas Group to Employee hereunder except for reimbursement for expenses incurred prior to the date of termination, or the payment of Incentive Compensation that has become due and payable to Employee on or before the date of such termination under Section 4.2 hereof. In addition, Employee shall be entitled to exercise any vested but unexercised stock options for a period of 90 days following the effective date of the termination of Employee for Cause, and if any such options remain unexercised upon the expiration of such 90-day period, they shall be determined forfeited by Employee and have no further force and effect. (c) Good Reason. In the event Employee terminates his employment for Good Reason during the Term of Employment, Employee shall be entitled to the payments and benefits set forth on Exhibit I. (d) Without Good Reason. In the event Employee terminates his employment without Good Reason pursuant to Section 6.1(d) hereof, Employee shall be entitled to the benefits or payments provided for in Section 6.2(b) hereof. (e) Disability. In the event that Employee's employment is terminated by reason of Disability, Employee shall be entitled to the payments and benefits set forth on Exhibit I. (f) Death. In the event Employee's employment is terminated by reason of his death, Thomas Group shall not be required to make any payments or provide any benefits hereunder, except for (a) reimbursement for expenses incurred prior to such termination date, (b) payment of Incentive Compensation through such termination date as provided in Section 4.2, (c) the use by Thomas Group of its best efforts to remove any guaranties by Employee of indebtedness of Thomas Group, and provided, however, that nothing contained herein shall limit or diminish any rights of Employee's estate or any other person to payments under any life insurance policy maintained by Thomas Group for the benefit of Employee or his beneficiaries or any health, disability, pension or other benefit plan provided pursuant to Section 4.7, in each case in accordance with the terms thereof. If Employee's employment is terminated by reason of his death, the benefits provided under this Section 6.2(f) shall be paid to the beneficiary or beneficiaries designated in writing by Employee and delivered during Employee's lifetime to an officer of Thomas Group; however, if no such beneficiary designation is made by Employee during his lifetime, the benefits hereunder shall be paid to his estate. In addition, Employee's estate shall be entitled to exercise any vested but unexercised stock options for a period of 180 days following the date of Employee's death, and if any such options remain unexercised upon the expiration of such 180-day period, they shall be determined forfeited by Employee's estate and have no further force and effect. (g) Change in Control. In the event Employee terminates his employment as provided in Section 6.1(g) following the occurrence of a Change in Control, Employee shall be entitled to the payments and benefits provided in Exhibit I. -9- 10 7. Non-Competition, Non-Solicitation, and Confidentiality Covenants. 7.1 Non-competition Covenant. (a) In consideration for the execution of this Agreement by Thomas Group and the payments for services to be rendered by Employee hereunder, Employee agrees that during the Term of Employment and, in the case of a termination Without Good Reason or for Cause, for a period of three years after the date of such termination, Employee shall not engage in competition with Thomas Group in any manner or capacity (e.g., as an advisor, principal, agent, partner, officer, director, shareholder, employee, member of any association or otherwise) that materially adversely affects Thomas Group, including without limitation, rendering time based management counseling services, soliciting customers of Thomas Group for any competitor of Thomas Group, or soliciting any employee of Thomas Group to leave the employ of Thomas Group to work for or on behalf of any competitor of Thomas Group (the "Prohibited Activities"). Employee further agrees that, during the Term of Employment, and, in the case of a termination Without Good Reason or for Cause, for a period of three years after the date of such termination, Employee will not assist or encourage any other person in carrying out any activity that would be one of the Prohibited Activities if such activity were carried out by Employee and, in particular, Employee agrees that he will not induce any employee of Thomas Group to carry out any such activity. (b) The obligations of Employee under this Section 7.1 shall apply to any geographic area in which Thomas Group is operating. In addition to the exclusion from Prohibited Activities set forth in Section 7.1(a) hereof, ownership by Employee, as a passive investment, of less than 5% of the outstanding shares of capital stock of any corporation listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a breach of this Section 7.1. 7.2 Right to Work Product and Confidentiality. (a) Thomas Group and Employee each acknowledge that performance of this Agreement may result in the discovery, creation or development of inventions, combinations, methods, formulae, techniques, processes, improvements, software designs, computer programs, strategies, specific computer-related know-how, course materials, seminar materials, computer models, customer lists, data and original works of authorship (collectively, the "Work Product"). Employee agrees that Employee will promptly and fully disclose to Thomas Group any and all Work Product generated, conceived, reduced to practice or learned by Employee, either solely or jointly with others, during the Term of Employment, which in any way relates to the business of Thomas Group. Employee further agrees that neither Employee, nor any party claiming through Employee will, other than in the performance of this Agreement, make use of or disclose to others any proprietary information relating to the Work Product. -10- 11 (b) Employee agrees that, whether or not the services performed by Employee hereunder are considered works made for hire or an employment to invent, all Work Product discovered, created or developed under this Agreement shall be and remain the sole property of Thomas Group and its assigns. Except as specifically set forth in writing and signed by both Thomas Group and Employee, Employee agrees that Thomas Group shall have all copyright and patent rights with respect to any Work Product discovered, created, or developed under this Agreement without regard to the origin of the Work Product. (c) If and to the extent that Employee may, under applicable law, be entitled to claim any ownership interest in the Work Product, Employee hereby transfers, grants, conveys, assigns and relinquishes exclusively to Thomas Group any and all right, title and interest it now has or may hereafter acquire in and to the Work Product under patent, copyright, trade secret and trademark law in perpetuity or for the longest period otherwise permitted by law. Employee further agrees, as to the Work Product, to assist Thomas Group in every reasonable way to obtain and, from time to time, enforce patents, copyrights, trade secrets and other rights and protection relating to said Work Product, and to that end, Employee will execute all documents for use in applying for and obtaining such patents, copyrights, trade secrets and other rights and protection with respect to such Work Product as Thomas Group may desire, together with any assignments thereof to Thomas Group or persons designated by it. Employee's obligations to assist Thomas Group in obtaining and enforcing patents, copyrights, trade secrets and other rights and protection relating to the Work Product shall continue beyond the Term of Employment. (d) If and to the extent that any preexisting rights of Employee are embodied or reflected in the Work Product, Employee hereby grants to Thomas Group the irrevocable, perpetual, non-exclusive, worldwide, royalty-free right and license to (i) use, execute, reproduce, display, perform and distribute copies of and prepare derivative works based upon such preexisting rights and any derivative works thereof and (ii) authorize others to do any or all of the foregoing. (e) Employee acknowledges that much, if not all, of the material and information related to the products, consulting techniques, or other business affairs of Thomas Group and its Affiliates, including, without limitation, any and all Work Product discovered or created pursuant to this Agreement, and the business affairs of Thomas Group's clients and customers which have or will come into Employee's possession or knowledge in connection with the performance of this Agreement, consists of confidential and proprietary data of Thomas Group and its Affiliates (collectively, "Confidential Information"), disclosure of which to, or use by, third parties would be damaging to Thomas Group or its clients. Employee agrees to hold such Confidential Information in strictest confidence and agrees not to release such information to any other Thomas Group employee unless such employee has a need for such knowledge. Employee further agrees not to make use of Confidential Information for Employee's own benefit or for the benefit of any third parties, other than for the performance of this Agreement, and not to release or disclose the Confidential Information to any other party either during or after the Term of Employment. In the event of any breach of this confidentiality obligation, Employee acknowledges that Thomas Group would have no adequate remedy at law, since the harm caused by such a breach -11- 12 would not be easily measured and compensated for in the form of damages, and hereby waives its right to contest any equitable relief sought by Thomas Group, though not Employee's right to contest the question of whether a breach has occurred, and Employee waives the requirement of any bond being posted as security for such equitable relief. 8. General Provisions. 8.1 Notices. All notices, requests, demands, or other communications with respect to this Agreement shall be in writing and shall be personally delivered, telecopied, or mailed, postage prepaid, certified or registered mail, or delivered by a nationally recognized express courier service, charges prepaid, to the following addresses (or such other addresses as the parties may specify from time to time in accordance with this Section 8.1): Employee: J. Thomas Williams 5215 North O'Connor Boulevard Suite 2500 Irving, TX 75039 Thomas Group: Thomas Group, Inc. 5215 North O'Connor Boulevard Suite 2500 Irving, TX 75039 Any such notice shall, when sent in accordance with the preceding sentence, be deemed to have been given and received (i) on the day personally delivered or telecopied, (ii) on the third day following the date mailed, or (iii) 24 hours after shipment by such courier service. 8.2 Entire Agreement. This Agreement, together with the exhibits hereto, supersedes any and all other agreements, either oral or written between the parties hereto with respect to the employment of Employee by Thomas Group and contains all of the covenants and agreements between the parties with respect to such employment. Any modification of this Agreement will be effective only if it is in writing signed by each of the parties hereto. 8.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 8.4 Waiver of Breach. The waiver by either party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach. 8.5 Severability. The provisions of this Agreement are severable, and if any one or more provisions may be determined to be judicially unenforceable and/or invalid by a court of competent jurisdiction, in whole or in part, the remaining provisions shall nevertheless be binding, enforceable and in full force and effect. -12- 13 8.6 Titles and Headings. The titles and headings of the various sections hereof are intended solely for convenience of reference and not intended for any purpose whatsoever to explain, modify or place any construction upon any of the provisions of this Agreement. 8.7 Attorney's Fees. In the event any one or more of the parties hereto bring suit against any other part hereto, based upon or arising out of a breach or violation of this Agreement, each party hereto agrees that each party who is successful on the merits, upon final adjudication from which no further appeal can be taken or is taken within the time allowed by law, shall be entitled to recover his or its reasonable attorneys' fees and expenses from the party or parties which is or are (as the case may be) not successful. 8.8 Benefit and Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that nothing contained in this Section 8.8 shall impair Employee's rights under Section 6.2(g), if the successor or assign of Thomas Group became such upon the occurrence of a Change in Control. Notwithstanding anything herein to the contrary, Employee shall not assign any of his rights or obligations under this Agreement. 8.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, and all of which shall together constitute one agreement. 8.10 Reliance on Authority of Person Signing Agreement. Each individual signing this Agreement on behalf of a corporation warrants that such execution has been duly authorized by the corporation for which he or she is signing. The execution and performance of this Agreement by each party has been duly authorized by all applicable laws and regulations and (in the case of a corporation) all necessary corporate action, and this Agreement constitutes the valid and enforceable obligation of each party in accordance with its terms. 8.11 Amendments. Amendments to any section of this Agreement shall not be effective unless agreed to in writing by the parties hereto. This Agreement, including this provision against oral modification, shall not be amended, modified or terminated except in a writing signed by each of the parties to this Agreement, and no waiver of any provision of this Agreement shall be effective unless in a writing duly signed by the party sought to be bound. 8.12 Waiver. No waiver of any provision of this Agreement shall be deemed to operate as waiver of any past or future right. 9. Renewal Discussions. Unless Employee's employment hereunder has been earlier terminated, the parties hereto agree that they will use their reasonable best efforts to enter into discussions six months prior to the fifth anniversary of the effective date of this Agreement with respect to whether and on what terms Employee's employment after such date, and the terms thereof, this Agreement shall automatically terminate on such fifth anniversary. -13- 14 10. Certain Tax Provisions. Employee acknowledges and agrees that all payments and benefits made or provided to Employee pursuant to the terms hereof which are required by applicable federal, state or local laws to be subject to withholding for income taxes, shall be so subject. 11. RESOLUTION OF CERTAIN CONTROVERSIES. In the event of any controversy or claim arising out of or related to the provisions concerning the use and protection of Confidential Information or the non-solicitation prohibitions, or the breach thereof, the parties agree that Thomas Group may seek equitable and other relief. In the event of any controversy or claim arising out of or related to the other provisions of this Agreement, the parties agree first to try in good faith to settle the dispute by non-binding mediation administered by the American Arbitration Association under its Commercial Mediation Rules. In the event that mediation does not resolve the dispute, such dispute shall be settled exclusively by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association in Dallas, Texas, and judgment may be entered in any court having jurisdiction thereof. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement effective as of the date first above written. EMPLOYEE: J. Thomas Williams ---------------------------------------- J. Thomas Williams THOMAS GROUP, INC. By: ------------------------------------- Name: PHILIP R. THOMAS Title: Chairman and Chief Executive Officer -14- 15 EXHIBIT I SEVERANCE BENEFIT PAYMENTS 1. A lump sum payment in cash, not later than 20 days after the termination of Employee's employment, in an amount equal to eighteen (18) months at Employee's average "Annualized Includible Compensation" (Annualized Includible Compensation is defined as the total cash paid in Base Compensation, salary and incentive compensation to Employee during the period consisting of the preceding full taxable year, after the date of this Agreement). 2. The unvested portion of stock options granted to Employee shall become fully vested and immediately exercisable on the effective date of such termination and shall be exercisable for the maximum period specified in such options. -15- 16 EXHIBIT 2 This minimum performance goals for this assignment and 3 years into the potential extension period are shown in the following table.
YEAR 1998 1999 2000 2001 2002 2003 2004 2005 - ------------- -------- -------- -------- -------- -------- -------- -------- -------- FULL YEAR EPS HURDLE $1.30 $ 1.49 $ 1.71 $ 1.96 $ 2.25 $ 2.58 $ 2.96 $ 3.40 FULL YEAR REVENUES HURDLE (IN $MILLION) $91.1 $104.8 $120.5 $138.6 $159.4 $183.4 $210.9 $242.5
-16- EX-10.14 5 AMENDMENT NO. 1 TO REVOLVING CREDIT LOAN AGREEMENT 1 EXHIBIT 10.14 FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT THIS FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING REDIT LOAN AGREEMENT (the "AMENDMENT"), dated as of April 1, 1999, is between THOMAS GROUP, INC., a Delaware corporation ("BORROWER") and COMERICA BANK-TEXAS, a Texas banking association ("LENDER"). RECITALS: Borrower and Lender have entered into that certain First Amended and Restated Revolving Credit Loan Agreement dated as of December 4, 1996 (as amended or otherwise modified from time to time, the "AGREEMENT"). Borrower and Lender desire to amend the Agreement. NOW, THEREFORE, in consideration of the premises herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I Definitions Section I.1 Definitions. Capitalized terms used in this Amendment, to the extent not otherwise defined herein, shall have the same meanings as in the Agreement, as amended hereby. ARTICLE II Amendments Section II.1 Amendment to Recitals and to Definitions. Effective as of the date hereof the following changes are made to the Recitals and Section 1.1: (a) All references in the Recitals to "$20,000,000" shall be changed to read "$15,000,000". (b) The definition of "REDUCTION DATES" is deleted in its entirety and no replacement definition is provided. FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 1 2 (c) The existing definitions of the following terms are deleted in their entirety and are replaced by the following: "EBITDA" shall mean at any time, and for the previous four calendar quarters then ending as computed in accordance with GAAP, (a) the sum of the Borrower's consolidated net income, plus interest expense, taxes, depreciation and amortization expense for the same period, plus (b) the non-cash portion of the one-time restructuring charge taken in the second fiscal quarter of 1998, excluding (c) any gain or loss from the sale of any capital assets. "REVOLVING CREDIT COMMITMENT" shall mean the obligation of the Lender to make Revolving Credit Loans to the Borrower in an aggregate principal amount at any time outstanding up to but not to exceed $15,000,000, from the date of this Agreement through December 2, 2003. (d) The following definition is hereby added to Section 1.1 in alphabetical order to read as follows: "NET INTEREST EXPENSE RATIO" shall mean, at any particular time, the ratio resulting as the quotient of (a) the Borrower's EBITDA for the immediately preceding twelve-month period divided by (b) the Borrower's Net Interest Expense. Section II.2. Amendment to Section 3.1. Effective as of the date of this Amendment, the following changes are made to Section 3.1: (e) Section 3.1 of the Agreement is amended by adding the following sentence to become the last sentence of Section 3.1: No Letter of Credit will be issued with an expiration date that extends beyond November 1, 2003. (f) All references in Section 3.1 to "$20,000,000" shall be changed to read "$15,000,000". Section II.3. Amendment to Section 10.1. Effective as of the date of this Amendment, Section 10.1 of the Agreement is deleted in its entirety and is replaced by the following: 10.1. Acquisitions; New Subsidiaries. The Borrower will not engage in any acquisition of stock or assets (an "Acquisition") or any combination of stock and assets of any entity without the prior written consent of the Lender. The Borrower will not form any new Subsidiary unless such subsidiary, simultaneous with its formation, executes an unlimited guaranty in favor of the Lender, in form and substance satisfactory to the Lender. FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 2 3 Section II.4. Amendment to Section 10.2. Effective as of the date of this Amendment, Section 10.2 of the Agreement is amended by adding thereto the following sentence to become the last sentence of Section 10.2: Additionally, the Borrower and each Guarantor agrees that notwithstanding anything to the contrary contained in this Agreement, if at any time the Indebtedness should exceed $10,000,000, upon the request of the Lender, the Borrower and each Guarantor will execute the documents attached hereto as Annex I, together with such other documents and agreements which the Lender deems necessary to grant to the Lender and to perfect a first priority lien and security interest in all of the Borrower's and each Guarantor's assets, wherever located. Section II.5. Addition of New Section 10.14. Effective as of the date hereof, the following new Section 10.14. is added to the Agreement: 10.14 Consecutive Losses. Permit any "Loss" to exist on a rolling two-quarter basis. For purposes of this covenant, "Loss" shall mean as of any date of computation any negative number resulting from the computation of net income for the previous two quarters, as computed in accordance with GAAP (excluding within the computation of net income all extraordinary and non-recurring charges to income). ARTICLE III Conditions Precedent The effectiveness of this Amendment is subject to the condition that all parties hereto (including Guarantors) shall have executed the same and that Lender shall have received as of the date hereof, in form and substance satisfactory to Lender, an amended Note and resolutions of the Board of Directors of Borrower certified by a senior officer which authorize the execution, delivery, and performance by Borrower of this Amendment. ARTICLE IV Ratification and Other Agreements Section IV.1 Ratification. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Agreement, the Note and all other documents executed in connection with the Agreement are hereby ratified and confirmed and shall continue in full force and effect. Borrower and Lender agree that the Agreement as amended hereby and all other documents executed in connection with the FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 3 4 Agreement or this Amendment to which Borrower is a party shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. Section IV.2. Representations and Warranties. Borrower hereby represents and warrants to Lender that (a) the execution, delivery and performance of this Amendment and any and all other documents executed and/or delivered in connection herewith have been authorized by all requisite corporate action on the part of Borrower and will not violate the certificate of incorporation or bylaws of Borrower or any agreement to which Borrower or any of its properties is bound, (b) except for certain amendments to the Borrower's certificate of incorporation dated July 10, 1998, neither the certificate of incorporation nor the bylaws of Borrower have been amended or revoked since the date of the Agreement and such certificate of incorporation and bylaws are in full force and effect, (c) the representations and warranties contained in the Agreement, as amended hereby, and any other documents executed in connection therewith or herewith are true and correct on and as of the date hereof as though made on and as of the date hereof, (d) no Event of Default has occurred and is continuing and no event or condition has occurred that with the giving of notice or lapse of time or both would be an Event of Default, and (e) Borrower is in full compliance with all covenants and agreements contained in the Agreement as amended hereby. Section IV.3. Agreement. If any provision hereof extends any Termination Date, it is agreed that any covenants in the Agreement which, because of references to dates, could be interpreted as expiring prior to any Termination Date (as extended by this Amendment) are automatically extended in scope until such time as all Indebtedness is paid in full. Section IV.4. Certain References to Borrower. It is agreed that all references to "BORROWER" in Sections 5, 6, and 7 of the Agreement shall be deemed to be references to the Borrower and its Subsidiaries on a consolidated basis. Additionally, all annual Financial Statements shall be audited statements. ARTICLE V Miscellaneous Section V.1. Survival of Representations and Warranties. All representations and warranties made in this Amendment or any other document executed in connection herewith shall survive the execution and delivery of this Amendment, and no investigation by Lender or any closing shall affect the representations and warranties or the right of Lender to rely upon them. Section V.2. Reference to Agreement. Each of the Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Agreement as amended hereby, are hereby amended so that any reference in such documents to the Agreement shall mean a reference to the Agreement as amended hereby. FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 4 5 Section V.3. Expenses of Lender. As provided in the Agreement, Borrower agrees to pay on demand all reasonable costs and expenses incurred by Lender in connection with the preparation, negotiation, and execution of this Amendment and any other documents executed pursuant hereto and any and all amendments, modifications, and supplements thereto, including without limitation the costs and reasonable fees of Lender's legal counsel, and all costs and expenses incurred by Lender in connection with the enforcement or preservation of any rights under the Agreement, as amended hereby, or any other document executed in connection therewith, including without limitation the costs and reasonable fees of Lender's legal counsel. Section V.4. Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. Section V.5. Applicable Law. This Amendment and all other documents executed pursuant hereto shall be deemed to have been made and to be performable in Dallas, Dallas County, Texas and shall be governed by and construed in accordance with the laws of the State of Texas. Section V.6. Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of Lender, Borrower, Guarantor and their respective successors and assigns, except Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of Lender. Section V.7. Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. Section V.8. Effect of Waiver. No consent or waiver, express or implied, by Lender to or for any breach of or deviation from any covenant, condition or duty by Borrower or any obligated party shall be deemed a consent or waiver to or of any other breach of the same or any other covenant, condition or duty. Section V.9. Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. Section V.10. Non-Application of Chapter 346 of Texas Finance Code. The provisions of Chapter 346 of the Texas Finance Code, as amended (formerly Chapter 15 of the Texas Credit Code (Vernon's Texas Civil Statutes), Article 5069-15), are specifically declared by the parties not to be applicable to this Amendment or any of the Loan Documents or the transactions contemplated hereby. FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 5 6 Section V.11. ENTIRE AGREEMENT. THE AGREEMENT, THIS AMENDMENT AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THE AGREEMENT OR THIS AMENDMENT EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THIS AMENDMENT, AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. [Remainder of page left intentionally blank] FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 6 7 Executed as of the date first written above. BORROWER: THOMAS GROUP, INC., a Delaware corporation By: -------------------------------------- J. Thomas Williams, Chief Executive Officer and President LENDER: COMERICA BANK-TEXAS By: -------------------------------------- David Terry, Vice President The undersigned guarantors hereby (i) consent and agree to this Amendment and (ii) confirm and agree that the Guaranty of each Guarantor is in full force and effect and is the legal, valid and binding obligation of each of the undersigned guarantors enforceable against each such guarantor in accordance with its terms. Additionally, Thomas Group Information Technologies, Inc., formerly Thomas Group Acquisition, Corp. ("TGA"), agrees that it has succeeded to all guarantee liabilities of Bermac Communications, Inc. ("BERMAC") by reason of the merger of Bermac into TGA; TGA subsequently changed its name to Thomas Group Information Technologies, Inc. GUARANTORS: THOMAS GROUP GMBH By: -------------------------------------- Philip J. Lovell, Managing Director THOMAS GROUP (SWITZERLAND) GMBH By: --------------------------------------- Robert French, Managing Director FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 7 8 THOMAS GROUP OF LOUISIANA, INC. By: ---------------------------------------- Alexander W. Young, President THOMAS GROUP INFORMATION TECHNOLOGIES, INC., formerly Thomas Group Acquisition, Corp., and successor-by-merger to Bermac Communications, Inc. By: ----------------------------------------- Alexander W. Young, President THOMAS GROUP ASIA PRIVATE LIMITED By: ---------------------------------------- Alexander W. Young, Officer THOMAS GROUP OF SWEDEN, INC. By: ---------------------------------------- J. Thomas Williams, President THOMAS GROUP HONG KONG, LIMITED By: ---------------------------------------- Herbert D. Locke, Officer FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 8 9 ANNEX I FIRST AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING CREDIT LOAN AGREEMENT - Page 9 EX-27 6 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1999 JUN-30-1999 9,610 0 10,340 396 0 23,995 3,014 0 30,584 5,731 0 0 0 65 21,732 30,584 30,462 30,462 17,734 26,951 0 0 (66) 3,577 1,429 2,148 0 0 0 2,148 .43 .43
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