EXHIBIT 10.1
October 21, 1999
Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxxxxxx
Aberdeen Strategic Capital LP
000 Xxxxx Xxxxxx Xxxxx
Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Re: CONSULTING ARRANGEMENT
Dear Messrs. Xxxxxx and Xxxxxxxxxx:
This is to confirm our agreement, effective as of July 22, 1999, that
Aberdeen Strategic Capital LP ("Aberdeen") will provide, and will cause its
affiliates Graver, Bokhof, Xxxxxxx & Xxxxxxxx ("GBGS") and The Cambridge Group
("Cambridge") to provide to The Ultimate Software Group, Inc. (the "Company"),
upon request, those advisory and other services described in your June 23, 1999
letter to me and Xxxxx Xxxxxxxx (the "Aberdeen Letter"), a copy of which is
attached hereto as EXHIBIT A. The Aberdeen Letter is incorporated herein by
reference.
The Company has issued to Aberdeen a Warrant (the "Warrant") for
100,000 shares of the Company's common stock, par value $0.01 per share (the
"Shares"), as sole compensation for the advisory and other services of Aberdeen,
GBGS and Cambridge. The Warrant has an exercise price of $10.00 per share and
shall vest in eight increments of 12,500 Shares every three months; PROVIDED,
that no increment of Shares shall vest if this letter agreement has terminated
before the vesting date for such increment.
The Company has furnished and will furnish to Aberdeen, GBGS and
Cambridge (each, a "Consultant") such information as any such Consultant
believes appropriate to its assignment (all such information so furnished being
the "Information"). The Consultants agree to keep all Information confidential
except Information that (i) is or becomes generally available to the public
(other than as a result of disclosure by any of the Consultants), (ii) was
available to the Consultants on a non-confidential basis prior to its disclosure
by the Company, (iii) becomes available to the Consultants on a non-confidential
basis from a person other than the Company who, to the knowledge of the
Consultants, is not bound by a confidentiality agreement with the Company or
otherwise prohibited from transferring such information to the Consultants, (iv)
the Company agrees may be disclosed, or (v) the Consultants are requested
pursuant to, or required
Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxxxxxx
October 21, 1999
Page 2
by, law, regulation, legal process or regulatory authority to disclose. Upon
termination of this letter agreement or at any time upon the request of the
Company, each Consultant will promptly deliver to the Company all written
Information and all copies and extracts therefrom.
The Company acknowledges and agrees that the Consultants have been
retained to act solely as advisors to the Company. In such capacity, the
Consultants shall act as independent contractors, and any duties of the
Consultants arising out of their engagement pursuant to this letter agreement
shall be owed solely to the Company.
This letter agreement and the Consultants' engagement hereunder may be
terminated by the Company at any time upon written notice, it being understood
that the status of the Consultants as independent contractors, the confidential
treatment of Information by the Consultants and the obligation of the
Consultants to deliver all written Information to the Company shall survive such
termination.
No waiver, amendment or other modification of this Letter Agreement
shall be effective unless in writing and signed by each party to be bound
thereby.
Very truly yours,
/s/ Xxxxx Xxxxxx
-------------------------------------
Xxxxx Xxxxxx
President and Chief Executive Officer
Accepted and Agreed by:
Aberdeen Strategic Capital LP
By: /s/ Xxxxxx X. Xxxxxx
-----------------------
Title: Chief Executive Officer
Date: October 21, 1999
EXHIBIT A
June 23, 1999
Xx. Xxxxx Xxxxxx
Xx. Xxxxx Xxxxxxxx
Ultimate Software Group, Inc.
0000 Xxxxxxxx Xxxx
Xx. Xxxxxxxxxx, XX 00000
Dear Xxxxx and Xxxxx:
We truly enjoyed meeting with you to discuss the benefits of an investment
partnership between your firm and Aberdeen Strategic Capital, Inc. ("Aberdeen").
Aberdeen was formed to provide strategic assistance and improved revenue to its
portfolio companies. Our goals are consistent with your goals; the most
important of which is enhancement of shareholder value. As you prepare for your
next stage of growth, we are confident that we can provide value-added
strategies and solutions through a synergy of three distinct groups.
Aberdeen is equally owned by Graver, Bokhof, Xxxxxxx & Xxxxxxxx (an investment
advisory firm), The Cambridge Group (a marketing and consulting company) and a
select group of individuals who comprise our senior management team. This group
is led by Xxxx Xxxxxx, the former President and Chief Operating Officer of AT&T,
former Chairman and CEO of R.R. Xxxxxxxx & Co. and current Chairman of the Board
of Manpower, Inc. In addition to John's role at Manpower, he also serves on
several other corporate boards including Xxxxxx Laboratories, Deere & Co. and
LaSalle Partners. The collective experience, expertise and global contacts which
Xxxx and the other senior "members" bring to the table is unquestionably
impressive.
X. XXXXXX, BOKHOF, XXXXXXX & XXXXXXXX
Graver, Bokhof, Xxxxxxx & Xxxxxxxx (GBGS) and its affiliates manage in excess of
$1.7 billion of high net worth and institutional funds. The firm currently
employs twenty-five professionals headquartered in Chicago and our newly opened
satellite office in Silicon Valley. GBGS has invested in microcap stocks (issues
of firms with market capitalization of less than $250 million) since 1981.
During that period, the company has created models based on free cash flow
(NOPLAT) analysis and experienced tremendous success providing competitive
returns to investors.
GBGS can serve as a value-added benefactor to Ultimate Software in the following
ways:
1. As buy-side analysts, GBGS can favorably articulate the Ultimate
Software opportunity in order to meet the interests of other buy-side
investors. Extensive Wall Street experience provides a basis for
meaningful communication with investment banks.
2. GBGS can evaluate both your competitive position in the marketplace and
your relative valuation. Once that analysis is completed, it is
possible to position your company against sell-side analysts'
expectations.
3. GBGS, because of its history and contacts on the sell-side, can secure
additional research coverage for Ultimate Software, particularly in the
institutional market. Preliminary discussion with three Wall Street
firms has confirmed the belief that your firm merits increased
attention.
4. GBGS receives voluminous information about industry and economic trends
as well as individual companies. The firm can identify competitive
threats and changes in the marketplace that may adversely impact
Ultimate Software enabling proactive actions versus reactive measures.
5. GBGS has relationships with the Chief Executive Officers of more than
twenty-five companies within Ultimate Software's target market. These
relationships provide a framework for opening doors to significant
sales opportunities. One of the more interesting initiatives, which
might be further pursued, is the Web-Hosted opportunity where Ultimate
Software could be positioned as the human resources/payroll application
of choice.
II. THE CAMBRIDGE GROUP
The Cambridge Group, founded in the mid-1970's by Xxxx Xxxx, is also
headquartered in Chicago and considered to be the premier marketing consulting
firm in the country. The Cambridge Group is credited with developing highly
successful marketing strategies for companies including IBM, Keebler Cookie and
Xxxxxxx Electric. The company has fifty partners and/or consultants who possess
significant industry experience in the areas of financial services, technology,
consumer goods and health care. In addition to many Fortunate 500 clientele,
they frequently work with emerging companies which face unique challenges during
early stages of growth. The firm has particularly differentiated itself with
regards to E-commerce and Internet marketing expertise.
The Cambridge Group would bring the following value-added opportunities to
Ultimate Software:
1. A demand side marketing analysis that is unique in the consulting
industry. Their objective is to partner with management to accurately
define customers and their demands, and to distinctly differentiate
clients' product and services. Additionally, they advise as to how to
maintain particular relevance to the customer as economic, regulatory,
technological and competitive environments change.
2. The Cambridge Group provides management with a fact-based analysis of
customer behavior for use in redirecting sales and marketing resources
in a more focused manner. The "Ultimate" goal is to improve
profitability and increase sales.
3. The Cambridge Group's results position them as one of the most highly
sought after marketing consultants in the industry. The minimum cost
for their service is $250,000 and their average engagement costs about
$1.5 million. Ultimate Software can expect to receive service from the
Cambridge Group, which will substantially exceed their minimum
engagement of $250,000 during the term of Aberdeen's involvement. This
commitment will not include any additional out-of-pocket costs to
Ultimate Software. In this particular situation, Cambridge would be
paid a performance fee through participation in Aberdeen, based on the
success of your common stock price.
4. The Cambridge Group has access to over 200 companies in your market
space and strong relationships with the Chief Executive Officers of
these companies. Clearly, Cambridge can capitalize on their contacts to
assist Ultimate Software in boosting sales and building strategic
alliances.
III. ABERDEEN MEMBERS
In addition to the exceptional talent which Graver, Bokhof, Xxxxxxx & Xxxxxxxx
and The Cambridge Group bring to the table, the Aberdeen members have been
carefully selected. Each possesses the following unique characteristics:
1. A proven record of success in running public companies;
2. A sincere interest in working with smaller companies to help transition
them to larger companies; and
3. A clear understanding of the importance of a positive business culture
and the need to act as team players.
We have selected a marquis member, Xxxx Xxxxxx, to work with Ultimate Software.
Xxxx not only brings a wealth of management and board experience that will be
vital to management during the company's growing pains, but he can also:
1. Provide access to his widespread business contacts for prospective
business. In fact, he currently serves as the Chairman of the Board for
the largest provider of temporary services in the world, Manpower, Inc.
It is worth noting that this firm employs the largest number of
employees of any company in the world. Xxxx has already begun looking
into possible opportunities resulting from the development of a
strategic relationship between Manpower and Ultimate Software.
2. Provide insight into the specific and difficult needs of a growing
company. He grew R.R. Xxxxxxxx from under $1 billion in sales to over
$5 billion in sales during his tenure as Chief Executive Officer and
can prove an invaluable resource to your Board of Directors.
3. Provide critical and objective review of your business plan. Xxxx has
reviewed hundreds of strategic business plans during his career and can
assist management in refining its plan where appropriate.
Finally, the other distinguished members of Aberdeen have access to more than
fifty companies in your target market. Obviously, it is in their best interest
to open these channels of distribution and assist Ultimate Software in
increasing sales.
As we discussed, Aberdeen is prepared to make an initial investment of 170,000
shares of Ultimate Software Group, Inc. This equity position could be sold
either directly from the company or purchased from existing shareholders.
Aberdeen would be issued 100,000 warrants, with a strike price of $10.00 per
share. These warrants would vest at a rate of 12,500 per quarter with a maturity
of four years. Ultimate Software Group, Inc. would retain the right to cancel
all unvested warrants should Aberdeen fail to fulfill its responsibilities. Xxxx
Xxxxxx would waive the right to receive any compensation for his services as a
Director of the Board.
Additionally, Aberdeen would purchase 170,000 shares in the open market.
Xxxxx and Xxxxx, while it is impossible to specifically quantify tangible
benefits, we can say that these resources, if fully costed out, would be valued
at approximately $500,000 to $2.0 million per year. The benefits to Ultimate
Software would include incremental increases in revenue, significant improvement
in profitability and increased visibility on Wall Street for your business
model. While we believe you are solely capable of achieving your objectives, we
are confident that we can accelerate your achieving the goal of becoming a $1
billion company. We welcome the challenge and believe our partnership would
prove a classic "win/win" situation.
We look forward to speaking with you again soon.
Cordially,
/s/ Xxxxxx X. Xxxxxx /s/ Xxxxxx X. Xxxxxxxxxx
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Xxxxxx X. Xxxxxx Xxxxxx X. Xxxxxxxxxx
Chief Executive Officer Senior Managing Director
