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EXHIBIT 10.19
"LIQUID MARKETS" AGREEMENT
THIS "LIQUID MARKETS" AGREEMENT (this "Agreement") is made as of _______
________ (the "Effective Date"), between The Advisory Board Company, a Maryland
corporation (the "Company"), and ___________ (the "Optionee").
R E C I T A L S
A. The Company adopted the Stock-Based Incentive Compensation Plan
(the "Original Plan"), as of March 1, 1994, to provide for the grant to certain
employees of the Company ("Participants") of options ("Original Options") to
purchase shares of Class B Nonvoting Stock, $0.01 par value, of the Company (the
"Stock").
B. As a Participant, Optionee was granted Original Options as
reflected in the stock option agreement between the Optionee and the Company
(the "Original Option Agreement").
C. The Original Options are not transferable. None of the Original
Options have vested. As a result, it has been impossible for the Optionee to
liquidate the Original Options.
D. In order to create greater liquidity for the Optionee, to reward
the Optionee for past and continuing contributions to the Company, and to
provide further incentives for the Optionee to remain with the Company and
continue making such contributions in the future, the Company has offered the
Optionee an opportunity to (i) sell all or part of the Original Options to the
Company immediately, and/or (ii) with respect to those Original Options which
are not sold, to modify all or part of such Original Options (such modified
Original Options are hereinafter referred to as "Continuing Options"), as
described in that certain Continuing Stock Option Agreement (the "Continuing
Option Agreement") and that certain Continuing Stock-Based Incentive
Compensation Plan (the "Continuing Option Plan") attached hereto as Exhibits A
and B, respectively.
E. The Number of Options Granted that the Optionee currently owns
is which the Optionee desires to currently owns is treat as follows:
1. Number of Options Sold as
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provided for herein;
2. Original Options modified as
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Continuing Options as described herein.
F. The Optionee acknowledges that he or she is an employee of the
Company with substantial knowledge concerning the performance, operations and
future opportunities relating to the Company. The Optionee further acknowledges
that he or she has been briefed on the past and potential future performance of
the Company by Xxxxxxx X. Xxxxxx and/or other senior executives of the Company,
and that the Optionee had the opportunity to ask Xxxxxxx X. Xxxxxx, other senior
executives of the Company, and/or the Company's auditors, Xxxxxx Xxxxxxxx LLP,
whatever questions the Optionee desired concerning the financial and operational
performance and expectations of the Company. Finally, the Optionee acknowledges
that all future operating
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results are impossible to predict and that no representation is being made by
the Company or Xxxxxx Xxxxxxxx LLP with respect to the accuracy or completeness
of any forecast regarding the future.
AGREEMENTS
1. DEFINITIONS. Capitalized terms used herein shall have the
following meanings:
"Agreement" is defined in the preamble.
"Agreement Not to Compete" is that certain Agreement Concerning
Exclusive Services, Confidential Information, Business Opportunities,
Non-Competition, Non-Solicitation and Work Product between the Optionee and the
Company attached as Exhibit C.
"Cash Shortage" is the condition that exists when, in the judgment of
the Company, the Company's cash reserves may prove insufficient to (i) cover the
Company's working capital and other obligations as they come due, including
obligations pursuant to any stock option agreement, continuing options
agreement, or liquid markets agreement entered into by the Company and any other
obligation of the Company to its employees; (ii) maintain sufficient cash
reserves to pay unforeseeable costs that may arise; and at the same time (iii)
make payments to Optionee pursuant to this Agreement.
"Cause" for termination is the commission of an act of fraud, theft or
dishonesty against the Company; arrest or conviction for any felony; arrest or
conviction for any misdemeanor involving moral turpitude which might, in the
Company's opinion, cause embarrassment to the Company; misconduct; substance
abuse; insubordination; violation of Company policy; willful or repeated
non-performance or substandard performance of duties; violation of any District
of Columbia, state or federal laws, rules or regulations in connection with or
during performance of work; or Performance Inconsistent with Past Levels of
Contribution, as defined below.
"Company" is defined in the preamble.
"Continuing Options" is defined as "Options" in the Continuing Option
Agreement.
"Continuing Option Agreement" is that certain agreement between Optionee
and the Company defined in Recital D and attached hereto as Exhibit A.
"Continuing Option Plan" is that certain employee stock-based incentive
compensation plan of the Company defined in Recital D and attached hereto as
Exhibit B.
"Disability" shall mean a serious and permanent medical incapacity or
disability that precludes the Optionee from performing professional work. The
Company, at its option and expense, shall be entitled to retain a physician
reasonably acceptable to the Optionee to confirm the existence of such
incapacity or disability. The Chairman of the Board of Directors of the Company
reserves the right to define Disability in a more liberal manner.
"Earn Out Payment" is defined in Section 3(b).
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"Effective Date" is defined in the preamble.
"Exercise Price" is defined in the Original Option Agreement.
"Fiscal Year" or "FY" is the Company's fiscal year ending March 31 of
each year or such other date as shall be designated by the Company in its sole
and absolute discretion.
"Income from Operations" is the income from operations (or similar
entry) shown on the audited financial statements of the Company for each Fiscal
Year, not including any compensation income or expense relating to any payments
made in connection with the sale of any Original Options pursuant to this
Agreement.
"Initial Payment" is defined in Section 3(a).
"Market Rate" is a floating rate equal to the Prime Rate as quoted in
The Wall Street Journal and as adjusted from time to time but not to exceed 10%
per annum.
"Number of Options Granted" is defined in Section 2.
"Number of Options Sold" is defined in Section 2(a).
"Optionee" is defined in the preamble.
"Original Option Agreement" is defined in Recital B.
"Original Options" is defined in Recital A.
"Original Plan" is defined in Recital A.
"Participants" is defined in Recital A.
"Performance Inconsistent with Past Levels of Contribution" is any
neglect of, or refusal or inability to, perform the Optionee's duties or
responsibilities with respect to the Company with the same level of contribution
as in past periods of employment; or any insubordination, dishonesty, negligence
or malfeasance in the performance of such duties and responsibilities; or the
taking of actions which impair the Optionee's ability to perform such duties and
responsibilities; or any material violation of Company rules or regulations.
"Purchase Price" is defined in Section 3.
"Restrictions for Protecting the Company" is defined in Section 4.
"Stock" is defined in Recital A.
"Stockholders' Agreement" means that certain Continuing Stockholders'
Agreement of the Company setting forth, inter alia, certain rights, preferences
and privileges of and restrictions on any shares that may be received pursuant
to exercise of the Continuing Options.
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"Voluntary Resignation Date" means the date on which the Optionee
voluntarily resigns from employment with the Company. Voluntary Resignation Date
shall not include the date on which the Optionee ceases to be employed by the
company due to death or a Disability.
2. NUMBER OF OPTIONS SOLD AND CONTINUING OPTIONS. Optionee was
granted the number of Original Options set forth in Recital E. above (the
"Number of Options Granted") pursuant to the Original Plan. Optionee hereby
agrees to the following regarding those Original Options:
a. Optionee agrees to sell to the Company the number of Original
Options set forth in Recital E.l. above (the "Number of Options Sold"), in
exchange for the Purchase Price, as defined below, to be paid to Optionee
according to the terms of Section 3 below, subject to the Restrictions for
Protecting the Company, as defined below; and
b. Optionee agrees to modify the number of Original Options set
forth in Recital E.2. above to be henceforth treated as Continuing Options
pursuant to the Continuing Option Agreement attached hereto as Exhibit A, which
the Optionee agrees to executed simultaneously with this Agreement. If the
Number of Options Sold, as defined in subparagraph a. above, combined with the
number of Continuing Options exceeds the Number of Options Granted, the Number
of Options Sold shall be presumed correct and the number of Continuing Options
shall be adjusted as necessary to make the Number of Options Sold plus the
number of Continuing Options equal the Number of Options Granted.
c. Optionee agrees to execute the Agreement Not to Compete,
attached hereto as Exhibit C, which is additional consideration for this
Agreement. No payments under Section 3 shall be paid until Optionee executes the
Agreement Not to Compete.
3. PAYMENTS TO BE MADE BY THE COMPANY. The Company agrees to pay to
Optionee an Initial Payment and Earn Out Payment with respect to the Number of
Options Sold (together, the "Purchase Price"), as described below.
a. Initial Payment. The Company shall pay to Optionee an initial
payment (the "Initial Payment") to be paid in two installments beginning
immediately.
(i) The amount of the Initial Payment per option shall be
Fifty-five (55) Dollars minus the Exercise Price, as defined in the
Original Option Agreement. For further clarity, the total Initial
Payment shall equal the difference between Fifty-five (55) Dollars and
the Exercise Price, multiplied by the Number of Options Sold.
(ii) Unless either of the two following circumstances occur,
twenty-five percent (25%) of the Initial Payment shall be paid no later
than December 31, 1995 and seventy-five percent (75%) of the Initial
Payment shall be paid by December 31, 1996:
(a) If the Optionee is terminated for Cause before
March 31, 1998 or a Voluntary Resignation Date occurs before
March 31, 1998, the Optionee will forfeit the right to any
portion of the Initial Payment that has not been paid to the
Optionee as of the date of Optionee's termination for Cause or
the Voluntary Resignation Date, as appropriate. However, if
Optionee is terminated without
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Cause prior to March 31, 1998 or ceases to be employed by the
Company as the result of death or a Disability, the Optionee
will not forfeit his or her right to the Initial Payment. If
Optionee is still employed by the Company on March 31, 1998,
Optionee will not forfeit the right to the Initial Payment due
to resignation or termination after that date, provided a
Voluntary Resignation Date does not occur without the Optionee
providing the Company with at least ten (10) months prior notice
of his or her intention to resign. If a Voluntary Resignation
Date occurs without the Optionee providing the Company with ten
(10) months prior notice, Optionee will forfeit the right to any
portion of the Initial Payment that has not been paid to the
Optionee as of the Voluntary Resignation Date.
(b) If one or more of the circumstances resulting in
Restrictions for Protecting the Company, as enumerated in
Section 4, occurs, payment of the Initial Payment will be
delayed to the extent provided in Section 4. Except as provided
in Section 3(a) (ii) (a), the Initial Payment shall not be
forfeited as a result of a Restriction for Protecting the
Company.
b. Earn Out Payment. The Company shall pay to Optionee an
additional payment (the "Earn Out Payment") based on the Company's Income from
Operations for the Fiscal Year ending March 31, 1998.
(i) The amount of the Earn Out Payment shall depend on the
level of Income from Operations for FY 1998. If the FY 1998 Income from
Operations is less than Ten Million Dollars ($10,000,000) the amount of
the Earn Out Payment will be Zero Dollars ($0). If the FY 1998 Income
from Operations is equal to or greater than Ten Million Dollars
($10,000,000), the amount of the Earn Out Payment will be as follows:
EARN OUT PAYMENT PER
FY 1998 INCOME FROM OPERATIONS OPTION SOLD
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$10,000,000-$15,999,999 $36
$16,000,000-$19,999,999 $41
$20,000,000-$2l,999,999 $57
$22,000,000-$23,999,999 $67
$24,000,000-$25,999,999 $80
$26,000,000-$27,999,999 $89
$28,000,000-$29,999,999 $99
$30,000,000 or over $110
(ii) The Earn Out Payment shall be paid to Optionee by
December 31, 1998, unless either of the two following circumstances
occurs:
(a) If Optionee is terminated for Cause before March
31, 1998 or a Voluntary Resignation Date occurs before March 31,
1998, the Optionee will forfeit the right to any portion of the
Earn Out Payment. However, if the
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Optionee is terminated without Cause prior to March 31, 1998 or
the Optionee ceases to be employed by the Company as the result
of death or a Disability, the Optionee will not forfeit the
right to the Earn Out Payment as a result of that termination.
If the Optionee is still employed by the Company on March 31,
1998, the Optionee will not forfeit the right to the Earn Out
Payment due to resignation or termination after that date,
provided a Voluntary Resignation Date does not occur without the
Optionee providing the Company with at least ten (10) months
prior notice of his or her intention to resign. If a Voluntary
Resignation Date occurs without the Optionee providing the
Company with ten (10) months prior notice, Optionee will forfeit
the right to any portion of the Earn Out Payment that has not
been paid to Optionee as of the Voluntary Resignation Date.
(b) If one or more of the circumstances resulting in
Restrictions for Protecting the Company, as enumerated in
Section 4, occurs, the Earn Out Payment shall be delayed to the
extent provided in Section 4. Except as provided in Section 3(b)
(ii) (a), the Earn Out Payment shall not be forfeited as a
result of a Restriction for Protecting the Company.
4. RESTRICTIONS FOR PROTECTING THE COMPANY. The following three (3)
restrictions ("Restrictions for Protecting the Company") will result in delay of
payment of all or part of the Purchase Price under the circumstances described
below:
a. No payment under Sections 3.a. and 3.b. above shall be made in
any Fiscal Year in which the Company's Income from Operations for each of the
two preceding Fiscal Years did not exceed its Income from Operations for the
immediately preceding Fiscal Year by at least ten percent (10%). For more
certainty, the Company's annual Income from Operations must grow by a minimum of
ten percent (10%) for two consecutive Fiscal Years before the Company shall make
any payments under Sections 3.a. and 3.b.. No interest shall accrue during the
period of delay due to this restriction. Any payment delayed due to this
restriction shall be made by December 31 of the first year in which the
Company's Income from Operations for the two preceding Fiscal Years satisfy the
criteria of this subsection a., unless such payment is further delayed pursuant
to another Restriction for Protecting the Company.
b. No payment under Sections 3.a. and 3.b. above shall be made in
any Fiscal Year in which the Company's Income from Operations for the
immediately prior Fiscal Year is less than Ten Million Dollars ($10,000,000). No
interest shall accrue during the period of delay due to this restriction. Any
payment delayed due to this restriction shall be made by December 31 of the
first Fiscal Year after the Fiscal Year in which the Company's Income from
Operations satisfy the criteria of this subsection b., unless such payment is
further delayed pursuant to another Restriction for Protecting the Company.
c. No payment under Sections 3.a. and 3.b. above shall be made if
the Company determines it is suffering from a Cash Shortage. Any payment that
would otherwise be made during a period of Cash Shortage shall be delayed for a
period of six (6) months, after which time the Company shall either make any
payments that had been delayed or determine that the Company continues to suffer
from a Cash Shortage. Interest shall accrue at Market Rate during any period of
delay solely due to this restriction.
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5. NONTRANSFERABILITY. The right to all or any portion of the
Purchase Price shall not be transferable by the Optionee except, after the
Optionee's death, to his or her spouse, child, estate, personal representative,
heir or successor. More particularly (but without limiting the generality of the
foregoing), the right to all or any portion of the Purchase Price may not be
assigned, transferred (except as aforesaid), pledged or hypothecated in any way
(whether by operation of law or otherwise), and shall not be subject to
execution, attachment or similar process. Any assignment, transfer, pledge,
hypothecation or other disposition of the right to all or any portion of the
Purchase Price contrary to the provisions hereof, and the levy of any attachment
or similar process upon such right to the Purchase Price that would otherwise
effect a change in the ownership of the right to all or any portion of the
Purchase Price, shall terminate any further obligation the Company has with
respect to any unpaid portion of the Purchase Price; provided, however, that in
the case of the involuntary levy of any attachment or similar involuntary
process upon the Option, the Optionee shall have thirty (30) days after notice
thereof to cure such levy or process before the Company's obligation with
respect to the Purchase Price terminates. This Agreement shall be binding on and
enforceable against any person who is a permitted transferee pursuant to the
first sentence of this Section.
6. TAXES. The Company may, in its discretion, make such provisions
and take such steps as it may deem necessary or appropriate for the withholding
of all federal, state, local and other taxes required by law to be withheld with
respect to payment of the Purchase Price, including but not limited to,
deducting the amount of any such withholding taxes from any other amount then or
thereafter payable to the Optionee, requiring the Optionee to pay to the Company
the amount required to be withheld or to execute such documents as the Committee
deems necessary or desirable to enable it to satisfy its withholding
obligations, or any other reasonable means.
7. NOTICES. All notices, requests, demands and other communications
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given if personally delivered, telexed or telecopied to, or, if mailed,
when received by, the other party, if to the Company at its principal executive
offices addressed to the attention of the Company's Chairman of the Board of
Directors, and if to Optionee at his or her address as it appears on the books
of the Company (or at such other address as shall be given in writing by
Optionee or his or her permitted transferee to the Company).
8. AMENDMENTS AND WAIVERS. This Agreement may be amended, and any
provision hereof may be waived, only by a writing signed by the party to be
charged.
9. ENTIRE AGREEMENT. This Agreement, together with the Continuing
Option Plan, the Continuing Option Agreement, the Agreement Not to Compete, and
the Stockholders' Agreement, sets forth the entire agreement and understanding
between the parties as to the subject matter hereof (including, but not limited
to, any rights of the Optionee to any value or appreciation in value of the
Company or its capital stock) and supersedes all prior oral and written and all
contemporaneous oral discussions, agreements and understandings of any kind or
nature.
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10. HEADINGS. The headings preceding the text of the sections hereof
are inserted solely for convenience of reference, and shall not constitute a
part of this Agreement, nor shall they affect its meaning, construction or
effect.
11. FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement.
12. GOVERNING LAW. All terms of and rights under this Agreement
shall be governed by and construed in accordance with the internal law of the
State of Maryland, without giving effect to principles of conflicts of law.
13. ARBITRATION. The parties shall endeavor to settle all disputes
by amicable negotiations. Any claim, dispute, disagreement or controversy that
arises among the parties relating to this Agreement (excluding enforcement by
the Company of its rights under the Agreement Not to Compete) that is not
amicably settled shall be resolved by arbitration, as follows:
a. Any such arbitration shall be heard in the District of Columbia,
before a panel consisting of one (1) to three (3) arbitrators, each of whom
shall be impartial. Except as the parties may otherwise agree, all arbitrators
shall be appointed in the first instance by the appropriate official in the
District of Columbia office of the American Arbitration Association or, in the
event of his or her unavailability by reason of disqualification or otherwise,
by the appropriate official in the New York City office of the American
Arbitration Association. In determining the number and appropriate background of
the arbitrators, the appointing authority shall give due consideration to the
issues to be resolved, but his or her decision as to the number of arbitrators
and their identity shall be final. Except as otherwise provided in this Section
13, all of the arbitration proceedings shall be conducted in accordance with the
rules of the arbitrators.
b. An arbitration may be commenced by any party to this Agreement
by the service of a written request for arbitration upon the other affected
parties. Such request for arbitration shall summarize the controversy or claim
to be arbitrated, and shall be referred by the complaining party to the
appointing authority for appointment of arbitrators ten (10) days following such
service or thereafter. If the panel of arbitrators is not appointed by the
appointing authority within thirty (30) days following such reference, any party
may apply to any court within the District of Columbia for an order appointing
arbitrators qualified as set forth above.
c. All attorneys' fees and costs of the arbitration shall in the
first instance be borne by the respective party incurring such costs and fees,
but the arbitrators shall have the discretion to award costs and/or attorneys'
fees as they deem appropriate under the circumstances. The parties hereby
expressly waive punitive damages, and under no circumstances shall an award
contain any amount that in any way reflects punitive damages.
d. Judgment on the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
e. It is intended that controversies or claims submitted to
arbitration under this Section 13 shall remain confidential, and to that end it
is agreed by the parties that neither the
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facts disclosed in the arbitration, the issues arbitrated, nor the views or
opinions of any persons concerning them, shall be disclosed to third persons at
any time, except to the extent necessary to enforce an award or judgment or as
required by law or in response to legal process or in connection with such
arbitration.
14. ACTIONS BY THE COMPANY. Any reference within this Agreement to
an action, judgment, conclusion, or determination by the Company shall mean an
action, judgment, conclusion, or determination of the Board of Directors of the
Company or its authorized representative(s).
15. BINDING EFFECT. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective permitted successors and
assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
THE ADVISORY BOARD COMPANY
By:
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Name: Xxxxx X. Xxxxxxx
Title: Chairman
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OPTIONEE
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