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<SEC-DOCUMENT>0000950123-02-012279.txt : 20021227
<SEC-HEADER>0000950123-02-012279.hdr.sgml : 20021227
<ACCEPTANCE-DATETIME>20021227105822
ACCESSION NUMBER: 0000950123-02-012279
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20020930
FILED AS OF DATE: 20021227
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: GARTNER INC
CENTRAL INDEX KEY: 0000749251
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741]
IRS NUMBER: 043099750
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-14443
FILM NUMBER: 02869618
BUSINESS ADDRESS:
STREET 1: 56 TOP GALLANT RD
STREET 2: P O BOX 10212
CITY: STAMFORD
STATE: CT
ZIP: 06904-2212
BUSINESS PHONE: 2039640096
MAIL ADDRESS:
STREET 1: 56 TOP GALLANT RD
STREET 2: P O BOX 10212
CITY: STAMFORD
STATE: CT
ZIP: 06904-2212
FORMER COMPANY:
FORMER CONFORMED NAME: GARTNER GROUP INC
DATE OF NAME CHANGE: 19930823
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>y67368e10vk.txt
<DESCRIPTION>GARTNER, INC.
<TEXT>
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-14443
GARTNER, INC.
(Exact name of Registrant as specified in its charter)
Delaware 04-3099750
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. BOX 10212 06904-2212
56 TOP GALLANT ROAD (Zip Code)
STAMFORD, CT
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 316-1111
Securities Registered Pursuant to Section 12(b) of the Act:
<Table>
<Caption>
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
- -------------- ---------------------
<S> <C>
Common Stock, Class A, $.0005 Par Value New York Stock Exchange
Common Stock, Class B, $.0005 Par Value New York Stock Exchange
</Table>
Securities Registered Pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock held by persons other than those
who may be deemed affiliates of the Registrant, as of November 29, 2002, was
approximately $794.1 million. This calculation does not reflect a determination
that persons are affiliates for any other purposes.
The number of shares outstanding of the Registrant's capital stock as of
November 29, 2002 was 51,747,492 shares of Common Stock, Class A and 30,189,028
shares of Common Stock, Class B.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the 2003 Annual Meeting of
Stockholders of the Registrant currently scheduled to be held on February 13,
2003 are incorporated by reference into Part III of this Report.
<PAGE>
GARTNER, INC.
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<Table>
<S> <C>
PART I
Item 1. Business 3
Item 2. Properties 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters 5
Item 6. Selected Consolidated Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 7a. Quantitative and Qualitative Disclosures about Market Risk 20
Item 8. Consolidated Financial Statements and Supplementary Data 21
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure 21
PART III
Item 10. Directors and Executive Officers of the Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 21
Item 13. Certain Relationships and Related Transactions 21
Item 14. Controls and Procedures 21
PART IV
Item 15. Exhibits, Consolidated Financial Statement Schedule and Reports
on Form 8-K 22
Report by Management 26
Independent Auditors' Report 27
Consolidated Balance Sheets 28
Consolidated Statements of Operations 29
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) 30
Consolidated Statements of Cash Flows 32
Notes to Consolidated Financial Statements 33
Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 as Adopted Pursuant to
Section 302 of the Sarbanes - Oxley Act of 2002 59
Independent Auditors' Report on Consolidated Financial Statement Schedule 61
Schedule II - Valuation and Qualifying Accounts 63
</Table>
2
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Gartner, Inc., founded in 1979, is a leading independent provider of research
and analysis on information technology, computer hardware, software,
communications and related technology industries ("the IT industry"). We provide
comprehensive coverage of the IT industry to approximately 10,000 client
organizations. We are organized into three business segments: research,
consulting and events.
o RESEARCH products and services highlight industry developments, review new
products and technologies, provide quantitative market research, and
analyze industry trends within a particular technology or market sector.
o CONSULTING consists primarily of consulting, measurement engagements and
strategic advisory services (paid one-day analyst engagements) ("SAS"),
which provide assessments of cost performance, efficiency and quality
focused on the IT industry.
o EVENTS consists of various symposia, conferences and exhibitions focused on
the IT industry.
MARKET OVERVIEW
In today's dynamic IT marketplace, vendors continually introduce new products
with a wide variety of standards and shorter life cycles. The users of
technology - almost all organizations - must keep abreast of these new
developments, and make major financial commitments to new IT systems and
products. To plan and purchase effectively, these users of technology need
independent, objective third-party research and consultative services.
While the pace of IT investments has slowed significantly, we believe that
technology accounts for a significant portion of all capital spending. The
intense scrutiny on technology spending ensures our products and services remain
necessary in the current economy because clients still need value-added,
independent and objective research and analysis of the IT market.
MARKET LEADERSHIP. We are a leading provider of independent and objective
research and analysis of the IT industry, and a source of insight about
technology acquisition and deployment. Our global research community provides
provocative thought leadership. We employ more research analysts than any
competitor. Hundreds of our experienced consultants combine our objective,
independent research with a practical, sought-after business perspective focused
on the IT industry. Our events are among the world's largest of their kind:
gathering highly qualified audiences of senior business executives, IT
professionals, purchasers and vendors of IT products and services.
PRODUCTS AND SERVICES
Our principal products and services are Research, Consulting and Events.
o RESEARCH. We devote an experienced research team to significant IT product
categories. Our staff researches, publishes reports and responds to
telephone and e-mail inquiries from clients. Clients receive information
through a number of electronic delivery formats - primarily gartner.com -
as well as CD-ROM and print media. Most clients purchase annually renewable
subscription contracts for our research products. Our research products
include highlights of industry developments and trends, new product and
technology evaluations, quantitative market research, and comparative
analysis of an individual organization's IT operations. We also provide
clients with IT trends and vendor strategies, statistical analysis, growth
projections, and market share rankings of suppliers and vendors. This
information is useful to IT manufacturers and the financial community; it
also helps business leaders formulate, implement and execute their growth
strategies. Our research products and services include our core research
business, Dataquest, Gartner Executive Programs ("EXP") and GartnerG2.
Dataquest helps IT and telecom vendors and investors formulate product and
investment plans, evaluate competition, assess market position, and define
future strategies. Gartner EXP is a program for CIO's and other senior IT
executives, offering concierge-level service and a personalized research
program. GartnerG2 is an advisory service that helps business leaders and
strategists drive business growth and manage technology's impact on
business models and processes.
o CONSULTING. Our consulting staff provides customized project consulting on
the delivery, deployment and management of high-tech products and services.
We offer consulting through eight specialized practices: Enterprise
Solutions, IT Strategy & Management, Architecture & Technology, Human
Capital Management, Strategic Sourcing, Market & Business Strategies,
Public Sector and General Advisory Services. Our measurement services
provide performance management, benchmarking, continuous improvement and
best practices services. SAS engagements, performed by Gartner research
analysts, provide a customized assessment of the client's specific business
requirements.
o EVENTS. Gartner Events include symposia, conferences, and exhibitions that
provide comprehensive coverage of IT issues and forecasts of key IT
industry segments. Our flagship event is Symposia/ITxpo, which is held
twice a year across the world. Fall
3
<PAGE>
Symposium/ITxpo typically takes place in Orlando, Florida; Cannes, France;
Tokyo, Japan; and Sydney, Australia. Spring Symposium/ITxpo typically takes
place in San Diego, California; Florence, Italy; and Johannesburg, South
Africa. Throughout the year, we sponsor other conferences, seminars and
briefings throughout the world. Our events provide premier educational and
networking opportunities for top IT decision-makers and technology
providers.
COMPETITION
We believe that the principal competitive factors that differentiate us from our
competitors are:
o high quality, independence and objectivity of our research and analysis;
o multi-faceted expertise across the IT industry and its technologies, both
legacy and emerging;
o our position as a research company with broad consulting capabilities, and
a consulting firm with research analysts;
o timely delivery of information;
o the ability to offer products that meet changing market needs at
competitive prices; and
o superior customer service.
We believe we compete favorably with respect to each of these factors.
We face competition from a significant number of independent providers of
information products and services. We compete indirectly against consulting
firms and other information providers, including electronic and print media
companies. These indirect competitors could choose to compete directly with us
in the future. Limited barriers to entry exist in the markets in which we do
business. As a result, new competitors may emerge and existing competitors may
start to provide additional or complementary services. Increased competition may
result in us losing market share, diminished value in our products and services,
reduced pricing and increased sales and marketing expenditures.
RESEARCH AND INNOVATION
We are committed to developing leading-edge ideas. We believe that research and
innovation have been major factors in our success and will help us continue to
grow in the future. We use our research to help create, commercialize and
disseminate innovative technology-related research and analysis. Our research,
consulting and events are designed to generate early insights into how
technology can be used to create business solutions for our clients and to
develop business strategies with significant value.
INTELLECTUAL PROPERTY
Our success has resulted in part from proprietary methodologies, software,
reusable knowledge capital and other intellectual property rights. We rely on a
combination of copyright, patent, trademark, trade secret, confidentiality,
non-compete and other contractual provisions to protect our intellectual
property rights. We have policies related to confidentiality and ownership and
to the use and protection of Gartner's intellectual property, and we also enter
into agreements with our employees as appropriate.
We recognize the value of intellectual property in the new marketplace and
vigorously create and protect our intellectual property. We will continue to
vigorously identify, create and protect our intellectual property.
EMPLOYEES
As of September 30, 2002, we had 4,039 employees, of which 769 employees were
located at our headquarters in Stamford, Connecticut; 1,867 were located at our
other facilities in the United States; and 1,403 were located outside of the
United States. None of our employees is represented by a private
non-governmental collective bargaining arrangement. We have experienced no work
stoppages and consider our relations with employees to be favorable. On October
30, 2002, we announced that we expect to make moderate reductions to our
workforce as we continue to align our business resources with revenue
expectations.
ITEM 2. PROPERTIES.
Our headquarters is located in approximately 224,000 square feet of leased
office space in four buildings located in Stamford, CT. These facilities
accommodate research and analysis, marketing, sales, client support, production
and corporate administration. The leases on these facilities expire in 2010. We
have a significant presence in the United Kingdom with approximately 82,000
square feet of leased office space in two buildings located in Egham, UK. We
have 36 domestic and 45 international locations that support our research and
analysis, domestic and international sales efforts and other functions. We
believe that our existing facilities and leases are adequate for our current
needs.
4
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
We are involved in legal proceedings and litigation arising in the ordinary
course of business. We believe the outcome of all current proceedings, claims
and litigation will not have a material effect on our financial position or
results of operations when resolved in a future period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
We did not submit any matter to a vote of our stockholders during the fourth
quarter of the fiscal year covered by this Annual Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of November 29, 2002, there were approximately 111 holders of record of our
Class A Common Stock and approximately 3,721 holders of record of our Class B
Common Stock. Our Class A and Class B Common Stock trade on the New York Stock
Exchange under the symbols IT and ITB, respectively. The Class B Common Stock is
identical in all respects to the Class A Common Stock, except that the Class B
Common Stock is entitled to elect at least 80% of the members of our Board of
Directors. While subject to periodic review, the current policy of our Board of
Directors is to retain all earnings primarily to provide funds for continued
growth.
The following table sets forth the high and low closing prices for our Class A
Common Stock and Class B Common Stock as reported on the New York Stock Exchange
for the periods indicated.
CLASS A COMMON STOCK
<Table>
<Caption>
FISCAL YEAR 2002 FISCAL YEAR 2001
--------------------------- ---------------------------
HIGH LOW HIGH LOW
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First Quarter ended December 31 $ 11.69 $ 8.50 $ 12.38 $ 5.66
Second Quarter ended March 31 $ 13.48 $ 11.00 $ 9.16 $ 6.01
Third Quarter ended June 30 $ 13.45 $ 9.82 $ 11.00 $ 5.80
Fourth Quarter ended September 30 $ 9.82 $ 7.75 $ 11.17 $ 8.40
</Table>
CLASS B COMMON STOCK
<Table>
<Caption>
FISCAL YEAR 2002 FISCAL YEAR 2001
--------------------------- ---------------------------
HIGH LOW HIGH LOW
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
First Quarter ended December 31 $ 11.70 $ 8.07 $ 10.94 $ 4.95
Second Quarter ended March 31 $ 13.20 $ 10.86 $ 8.45 $ 5.81
Third Quarter ended June 30 $ 13.05 $ 9.00 $ 9.81 $ 5.50
Fourth Quarter ended September 30 $ 9.84 $ 7.67 $ 10.60 $ 8.05
</Table>
5
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
<Table>
<Caption>
FISCAL YEAR ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 2002 2001 2000 1999 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Research .................................................. $ 496,403 $ 535,114 $ 509,781 $ 479,045 $ 433,141
Consulting ................................................ 273,692 276,292 216,667 156,444 116,929
Events .................................................... 121,991 132,684 108,589 75,581 49,121
Other ..................................................... 15,088 18,794 27,414 29,768 48,740
---------- ---------- ---------- ---------- ----------
Total revenues ........................................ 907,174 962,884 862,451 740,838 647,931
Total costs and expenses ....................................... 810,799 920,370 778,320 607,470 502,201
---------- ---------- ---------- ---------- ----------
Operating income ............................................... 96,375 42,514 84,131 133,368 145,730
Net gain (loss) on sale of investments ......................... 787 (640) 29,630 -- (1,973)
Net loss from minority-owned investments ....................... (2,365) (26,817) (775) (846) (511)
Interest income ................................................ 1,845 1,616 3,936 9,518 9,650
Interest expense ............................................... (22,869) (22,391) (24,900) (1,272) (94)
Other expense, net ............................................. (170) (3,674) (722) (1,521) (1,681)
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations before income taxes ... 73,603 (9,392) 91,300 139,247 151,121
Provision (benefit) for income taxes ........................... 25,025 (9,172) 36,447 50,976 62,774
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations ....................... 48,578 (220) 54,853 88,271 88,347
Loss from discontinued operation, net of taxes ................. -- (65,983) (27,578) -- --
Extraordinary loss on debt extinguishment, net of taxes ........ -- -- (1,729) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) .............................................. $ 48,578 $ (66,203) $ 25,546 $ 88,271 $ 88,347
========== ========== ========== ========== ==========
Weighted average shares outstanding:
Basic .......................................................... 83,586 85,862 86,564 101,881 100,194
Diluted ........................................................ 130,882 85,862 89,108 104,603 105,699
NET INCOME (LOSS) PER SHARE:
Basic:
Income (loss) from continuing operations .................. $ 0.58 $ (0.00) $ 0.63 $ 0.87 $ 0.88
Loss from discontinued operation .......................... -- (0.77) (0.31) -- --
Extraordinary loss ........................................ -- -- (0.02) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) ......................................... $ 0.58 $ (0.77) $ 0.30 $ 0.87 $ 0.88
========== ========== ========== ========== ==========
Diluted:
Income (loss) from continuing operations .................. $ 0.47 $ (0.00) $ 0.62 $ 0.84 $ 0.84
Loss from discontinued operation .......................... -- (0.77) (0.31) -- --
Extraordinary loss ........................................ -- -- (0.02) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) ......................................... $ 0.47 $ (0.77) $ 0.29 $ 0.84 $ 0.84
========== ========== ========== ========== ==========
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and marketable equity securities ..... $ 124,793 $ 40,378 $ 97,102 $ 88,894 $ 218,684
Fees receivable, net ........................................... 264,843 300,306 323,849 282,047 239,243
Other current assets ........................................... 65,397 105,690 157,823 61,243 53,152
---------- ---------- ---------- ---------- ----------
Total current assets .................................. 455,033 446,374 578,774 432,184 511,079
Property, equipment, and leasehold improvements, net ........... 76,161 100,288 88,402 63,592 50,801
Intangibles and other assets ................................... 293,656 292,340 305,185 307,668 270,991
---------- ---------- ---------- ---------- ----------
Total assets .......................................... $ 824,850 $ 839,002 $ 972,361 $ 803,444 $ 832,871
========== ========== ========== ========== ==========
Deferred revenues .............................................. $ 306,978 $ 351,263 $ 384,966 $ 354,517 $ 288,013
Other current liabilities ...................................... 130,364 152,751 170,051 105,056 116,292
---------- ---------- ---------- ---------- ----------
Total current liabilities ............................. 437,342 504,014 555,017 459,573 404,305
Long-term debt ................................................. 346,300 326,200 307,254 250,000 --
Other liabilities .............................................. 46,098 43,306 35,270 19,385 13,628
Stockholders' equity (deficit) ................................. (4,890) (34,518) 74,820 74,486 414,938
---------- ---------- ---------- ---------- ----------
Total liabilities and stockholders' equity (deficit) ........... $ 824,850 $ 839,002 $ 972,361 $ 803,444 $ 832,871
========== ========== ========== ========== ==========
</Table>
6
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report contains
forward-looking statements. Forward-looking statements are any statements other
than statements of historical fact, including statements regarding our
expectations, beliefs, hopes, intentions or strategies regarding the future. In
some cases, forward-looking statements can be identified by the use of words
such as "may," "will," "expects," "should," "believes," 'plans," "anticipates,"
"estimates," "predicts," "potential," "continue," or other words of similar
meaning. Forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from those discussed in, or
implied by, the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Factors That May
Affect Future Results" below. Readers should not place undue reliance on these
forward-looking statements, which reflect management's opinion only as of the
date on which they were made. Except as required by law, we disclaim any
obligation to review or update these forward-looking statements to reflect
events or circumstances as they occur. Readers should review carefully any risk
factors described in our reports filed with the Securities and Exchange
Commission.
BUSINESS STRATEGY
With the convergence of IT and business, technology has become increasingly more
important - not just to technology professionals, but also to business
executives. We are an independent and objective research and advisory firm that
helps IT and business executives use technology to build, guide, and grow their
enterprises.
We employ a diversified business model that leverages the breadth and depth of
our research intellectual capital while enabling us to maintain and grow our
market-leading position and brand franchise. Our strategy is to align our
resources and our infrastructure to leverage that intellectual capital into
additional revenue streams through effective packaging, campaigning and
cross-selling of our products and services. Our diversified business model
provides multiple entry points and synergies that facilitate increased client
spending on our research, consulting and events. A key strategy is to increase
business volume with our most valuable clients, identifying relationships with
the greatest sales potential and expanding those relationships where possible by
offering strategically relevant research and analysis.
We intend to maintain a balance between (1) generating profitability through a
streamlined cost structure and (2) pursuing opportunities and applying resources
with a strict focus on growing our core research business.
Our primary objectives:
o RIGOROUS EXPENSE CONTROL
o Leverage our global infrastructure to effectively control worldwide
costs;
o Broaden the use of our inside, desk-based sales channel, which has a
lower cost of sales than our other sales channels;
o Eliminate non-strategic, less profitable products, processes and
geographic markets; and
o Reduce our cost of delivery.
o ENHANCED PRODUCTIVITY & CLIENT SATISFACTION
o Continually analyze and assess our client, product and market
portfolios;
o Optimize analyst productivity and consultant utilization measures; and
o Strengthen client retention rates and other indicators of client
satisfaction.
o LONG-TERM RESEARCH GROWTH
o Invest modestly in initiatives aligned with our core competencies that
are capable of delivering results, including - but not limited to
Gartner EXP and GartnerG2;
o Refine product packaging, delivery, marketing, sales and account
management capabilities;
o Increase the percentage of multi-service client relationships;
o Leverage and expand existing client relationships with key
decision-makers for our products and services; and
o Identify and gain new clients within our most important and target
audience.
7
<PAGE>
o FINANCIAL MANAGEMENT
o Increase liquidity and strengthen our balance sheet; and
o Manage capital expenditures, foreign exchange exposure and tax
planning.
BUSINESS MEASURES
Research revenues are derived from subscription contracts for research products.
Revenues from research products are deferred and recognized ratably over the
contract term.
Consulting revenues are recognized primarily on a percentage of completion basis
and on a time and materials basis as work is performed and services are provided
on a contract-by-contract basis.
Events revenues are deferred and recognized upon the completion of the related
symposium, conference or exhibition.
Other revenues includes software licensing fees which are recognized when a
signed non-cancelable software license exists, delivery has occurred, collection
is probable, and the fees are fixed or determinable. Revenue from software
maintenance is deferred and recognized ratably over the term of the maintenance
agreement, which is typically twelve months.
We believe the following business measurements are important performance
indicators for our business segments.
REVENUE CATEGORY BUSINESS MEASUREMENTS
---------------------------- ----------------------------------------
Research CONTRACT VALUE represents the value
attributable to all of our
subscription-related research products
that recognize revenue on a ratable
basis. Contract value is calculated as
the annualized value of all subscription
research contracts in effect at a
specific point in time, without regard
to the duration of the contract.
CLIENT RETENTION RATE represents a
measure of client satisfaction and
renewed business relationships at a
specific point in time. Client retention
is calculated on a percentage basis by
dividing our current clients who were
also clients a year ago, by all clients
from a year ago.
---------------------------- ----------------------------------------
Consulting CONSULTING BACKLOG represents future
revenue to be derived from in-process
consulting, measurement and strategic
advisory services engagements.
---------------------------- ----------------------------------------
Events DEFERRED EVENTS REVENUE represents
billings and relates directly to our
future symposia, conferences and
exhibitions. Events revenues are
deferred and recognized upon the
completion of the related symposium,
conference or exhibition.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
Our quarterly and annual revenue and operating income fluctuate as a result of
many factors, including the timing of the execution of research contracts, the
extent of completion of consulting engagements, the timing of Symposia and other
events, which occur to a greater extent in the quarter ended December 31, the
amount of new business generated, the mix of domestic and international
business, changes in market demand for our products and services, the timing of
the development, introduction and marketing of new products and services, and
competition in the industry. The potential fluctuations in our operating income
could cause period-to-period comparisons of operating results not to be
meaningful and could provide an unreliable indication of future operating
results.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires the application of appropriate
accounting policies. Our significant accounting policies are described in Note 1
in the Notes to Consolidated Financial Statements. Management considers the
policies discussed below to be critical to an understanding of our financial
statements because their application requires complex and subjective judgements
and estimates. Specific risks for these critical accounting policies are
described below.
REVENUE RECOGNITION - We recognize revenue in accordance with SEC Staff
Accounting Bulletin No. 101, Revenue Recognition in
8
<PAGE>
Financial Statements ("SAB 101"). Revenue by significant source is accounted for
as follows:
o Revenues from research products are deferred and recognized ratably
over the applicable contract term;
o Consulting revenues are recognized primarily on a percentage of
completion basis and on a time and materials basis as work is
performed and services are provided on a contract-by-contract basis;
o Events revenues are deferred and recognized upon the completion of the
related symposium, conference or exhibition; and
o Other revenues, principally software licensing fees, are recognized
when a signed non-cancelable software license exists, delivery has
occurred, collection is probable, and the fees are fixed or
determinable.
UNCOLLECTIBLE ACCOUNTS RECEIVABLE - Provisions for bad debts are recognized as
incurred. The measurement of likely and probable losses and the allowance for
uncollectible accounts receivable is based on historical loss experience, aging
of outstanding receivables, an assessment of current economic conditions and the
financial health of specific clients. This evaluation is inherently judgmental
and requires material estimates. These valuation reserves are periodically
re-evaluated and adjusted as more information about the ultimate collectibility
of accounts receivable becomes available. Circumstances that could cause our
valuation reserves to increase include changes in our clients' liquidity and
credit quality, other factors negatively impacting our clients' ability to pay
their obligations as they come due, and the quality of our collection efforts.
Total trade receivables at September 30, 2002 were $271.8 million, against which
an allowance for losses of approximately $7.0 million was provided. Total trade
receivables at September 30, 2001 were $305.9 million, against which an
allowance for losses of approximately $5.6 million was provided.
IMPAIRMENT OF INVESTMENT SECURITIES - A charge to earnings is made when a market
decline below cost is other than temporary. Management regularly reviews each
investment security for impairment based on criteria that include the length of
time and the extent to which market value has been less than cost, the financial
condition and near-term prospects of the issuer, the valuation of comparable
companies and our intent and ability to retain the investment for a period of
time sufficient to allow for any anticipated recovery in market value. Total
investments in equity securities was $12.7 million and $18.5 million at
September 30, 2002 and 2001, respectively (see Note 5 - Investments in the Notes
to the Consolidated Financial Statements).
IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLE ASSETS - The evaluation of goodwill
is performed in accordance with SFAS No. 142, - "Goodwill and Other Intangible
Assets." Among other requirements, this standard eliminated goodwill
amortization upon adoption and required an initial assessment for goodwill
impairment within six months of adoption and at least annually thereafter. The
evaluation of other intangible assets is performed on a periodic basis and
losses are recorded when the assets carrying value is not recoverable through
future cash flows. These assessments require management to estimate future
business operations and market and economic conditions in developing long-term
forecasts. Goodwill is evaluated for impairment at least annually, or whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. Factors we consider important which could trigger a review for
impairment include the following:
o Significant under-performance relative to historical or projected
future operating results;
o Significant changes in the manner of our use of acquired assets or the
strategy for our overall business;
o Significant negative industry or economic trends;
o Significant decline in our stock price for a sustained period, and
o Our market capitalization relative to net book value.
ACCOUNTING FOR INCOME TAXES - As we prepare our consolidated financial
statements, we estimate our income taxes in each of the jurisdictions where we
operate. This process involves estimating our current tax exposure together with
assessing temporary differences resulting from differing treatment of items for
tax and accounting purposes. These differences result in deferred tax assets and
liabilities, which are included within our consolidated balance sheet. We assess
the likelihood that our deferred tax assets will be recovered from future
taxable income, and we establish a valuation allowance, to the extent we believe
that recovery is not likely.
CONTINGENCIES AND OTHER LOSS RESERVES - We establish reserves for severance
costs, contract terminations and asset impairments as a result of actions we
undertake to streamline our organization, reposition certain businesses and
reduce ongoing costs. Estimates of costs to be incurred to complete these
actions, such as future lease payments, sublease income, the fair value of
assets, and severance and related benefits, are based on assumptions at the time
the actions are initiated. To the extent actual costs differ from those
estimates, reserve levels may need to be adjusted. In addition, these actions
may be revised due to changes in business conditions that we did not foresee at
the time such plans were approved.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 2002 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 2001
Total revenues decreased 6% to $907.2 million in fiscal 2002 compared to $962.9
million in fiscal 2001. The fiscal 2001 revenues and cost of services for the
consulting segment have been reclassified to include reimbursable out-of-pocket
expenses in accordance with new accounting requirements adopted in 2002.
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o RESEARCH revenue decreased 7% in fiscal 2002 to $496.4 million, compared to
$535.1 million in fiscal 2001, and comprised approximately 55% and 56% of
total revenues in fiscal 2002 and 2001, respectively.
o CONSULTING revenue decreased 1% to $273.7 million in fiscal 2002, compared
to $276.3 million in fiscal 2001, and comprised approximately 30% and 29%
of total revenues in fiscal 2002 and 2001, respectively.
o EVENTS revenue was $122.0 million in fiscal 2002, a decrease of 8% from the
$132.7 million in fiscal 2001, and comprised approximately 13% of total
revenues in fiscal 2002 versus 14% in fiscal 2001.
o OTHER revenues, consisting principally of software licensing and
maintenance fees, decreased 20% to $15.1 million in fiscal 2002 from $18.8
million in fiscal 2001.
Revenue has declined in our three defined geographic market areas: United States
and Canada, Europe, and Other International. Revenues from sales to United
States and Canadian clients decreased 7% to $595.3 million in fiscal 2002 from
$641.9 million in fiscal 2001. Revenues from sales to European clients decreased
3% to $242.1 million in fiscal 2002 from $250.0 million in fiscal 2001. Revenues
from sales to Other International clients decreased 2% to $69.7 million in
fiscal 2002 from $71.1 million in fiscal 2001.
Cost of services and product development expenses were $403.7 million and $450.5
million for fiscal 2002 and fiscal 2001, respectively. The cost of services and
product development expenses decreased as a percentage of total revenues to 45%
from 47%. The decrease is attributable to reduced personnel costs associated
with headcount reductions, more effective cost management of events and other
cost savings, including reduced travel.
Selling, general and administrative expenses decreased to $345.4 million in
fiscal 2002 from $370.1 million in fiscal 2001. The decrease was due to reduced
payroll associated with lower headcount, reduced travel, telephone and other
infrastructure costs across the entire company.
Depreciation expense increased to $42.5 million in fiscal 2002 from $40.9
million in fiscal 2001, primarily due to the depreciation of significant capital
expenditures in the previous year for internal use software development required
to support the business and also due to the amortization of costs associated
with the launch of gartner.com in January 2001.
Amortization of intangibles of $1.9 million in fiscal 2002 was down from $12.4
million in fiscal 2001. The primary reason for the decrease was the early
adoption of SFAS No. 142. For the year ended September 30, 2001, goodwill
amortization was $9.5 million, and on an after-tax basis, was $8.4 million. As a
result of adoption, diluted earnings per share for the year ended September 30,
2002 improved by $0.09.
During fiscal 2002, we recorded other charges of $17.2 million. Of these
charges, $10.0 million relates to costs and losses associated with our
elimination of excess facilities, principally leased facilities and ongoing
lease costs and losses associated with sub-lease arrangements. In addition,
approximately $5.8 million of these charges are associated with a workforce
reduction announced in January 2002 and are for employee termination severance
payments and related benefits. This workforce reduction resulted in the
elimination of approximately 100 positions, or approximately 2% of our workforce
at the time, and the payment of $5.3 million of termination benefits during the
fiscal year ended September 30, 2002. The remaining $1.4 million relates to the
impairment of certain database-related assets. Other charges totaled $46.6
million for the fiscal year ended September 30, 2001. Of these charges, $24.8
million was associated with our workforce reduction announced in April 2001.
This workforce reduction resulted in the elimination of 383 positions, or
approximately 8% of our workforce at the time, and the payment of $6.4 million
and $18.2 million of termination benefits during the fiscal years ended
September 30, 2002 and 2001, respectively. The $24.8 million charge is comprised
of employee termination severance payments and related benefits. Approximately
$14.3 million of the other charges are associated with the write-down of
goodwill and other long-lived assets to net realizable value as a result of our
decision to discontinue certain unprofitable products, and $7.5 million of the
charge is associated primarily with the write-off of internally developed
systems retired in connection with the launch of gartner.com and seat-based
pricing. At September 30, 2002, $4.7 million remains to be paid, relating to the
other charges recorded in both 2001 and 2002. The payments are expected to be
made primarily over the next two to three years. We are funding all of these
costs out of operating cash flows.
Operating income increased to $96.4 million in fiscal 2002 compared to $42.5
million in fiscal 2001. In fiscal 2002, our United States, Canadian and European
businesses experienced an increase in operating income of 119% and 113%,
respectively. Our Other International business experienced an operating loss for
the year, which was slightly lower than a year ago. On a consolidated basis,
operating income as a percentage of total revenues was 11% and 4%, respectively,
for fiscal 2002 and 2001. Operating income was impacted, in part, by other
charges of $17.2 million and $46.6 million in fiscal 2002 and 2001,
respectively, and additional costs associated with the re-architecture of our
Internet capabilities and our research methodology and delivery processes in
fiscal 2001. Excluding the other charges, operating income for fiscal 2002 and
2001 was 13% and 9%, respectively, of total revenues. We decreased our staff by
approximately 8% in the second half of fiscal 2001 and 2% in mid-fiscal 2002
and, in the fourth quarter of 2001, decreased the expense-to-revenue ratio
associated with our cost of services and selling, general and administrative
expenses through various cost-reduction initiatives. The improvement in
operating income was also impacted by lower amortization of intangibles due to
the adoption of SFAS No. 142. Amortization of goodwill was $9.5 million in
fiscal 2001.
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Net gain (loss) from the sale of investments for the year ended September 30,
2002 reflected the sale of 748,118 shares of CNET Networks, Inc. ("CNET") for
$6.0 million, resulting in a pre-tax gain of $0.8 million. We acquired this
investment as partial consideration for our sale of TechRepublic to CNET in July
2001. Net loss on the sale of investments in fiscal 2001 of $0.6 million
includes the sale of our remaining 1,922,795 shares of Jupiter Media Metrix
("Jupiter") for net cash proceeds of $7.5 million for a pre-tax loss of $5.6
million, offset in part by the sale of shares received from our venture capital
funds, SI Venture Associates ("SI I"), SI Venture Fund II ("SI II") and other
securities for net cash proceeds of $6.9 million for a pre-tax gain of $5.0
million.
Net loss from minority-owned investments in fiscal 2002 and 2001 of $2.4 million
and $26.8 million, respectively, were primarily the result of impairment losses
related to investments owned by us through SI I, SI II and other directly owned
investments for other than temporary declines in value. These investments are
comprised of early to mid-stage IT-based or Internet-enabled companies. We made
an assessment of the carrying value of our investments and determined that
certain investments were in excess of their fair value due to the significance
and duration of the decline in valuation of comparable companies operating in
the internet and technology sectors (see Note 5 - Investments in the Notes to
Consolidated Financial Statements). The impairment factors evaluated by
management may change in subsequent periods, given that the entities underlying
these investments operate in a volatile business environment. In addition, these
entities may require additional financing to meet their cash and operational
needs, however, there can be no assurance that such funds will be available to
the extent needed, at terms acceptable to the entities, if at all. This could
result in additional material non-cash impairment charges in the future. We
intend to sell all of our investments owned through SI I and SI II.
Interest expense increased to $22.9 million in fiscal 2002 from 22.4 million in
fiscal 2001. The increase relates primarily to increased interest expense on the
6% convertible long-term debt compared to fiscal 2001. Interest income of $1.8
million in fiscal 2002 was up from $1.6 million in fiscal 2001 due to a higher
average balance of funds available for investment, offset in part, by lower
interest earnings rates. Other expense, net decreased to $0.2 million in fiscal
2002 from $3.7 million in fiscal 2001. The decrease relates primarily to lower
foreign currency exchange losses of $2.7 and a $0.5 million gain from the sale
of a business in the second quarter of fiscal 2002.
Provision for income taxes on continuing operations was $25.0 million in fiscal
2002 compared to a benefit of $9.2 million in fiscal 2001. The effective tax
rate was 34% for the year ended September 30, 2002. The effective tax rate in
2001, less the impact of a one-time tax benefit of $14.5 million due to the
utilization of foreign tax credits in the second half of 2001 and other charges
and losses on investments and related tax impact, was 37%. The reduction in the
effective tax rate in fiscal 2002 reflects on-going tax planning and the
elimination of non-deductible amortization of goodwill pursuant to the adoption
of SFAS No. 142. A more detailed analysis of the changes in the provision
(benefit) for income taxes is provided in Note 14 - Income Taxes of the Notes to
Consolidated Financial Statements.
Basic income (loss) per share from continuing operations was $0.58 per share in
fiscal 2002 compared to $0.00 per share in fiscal 2001. Diluted income (loss)
per share from continuing operations of $0.47 per share in fiscal 2002 compared
to $0.00 per share in fiscal 2001. The elimination of goodwill amortization in
accordance with SFAS No. 142 improved basic and diluted income per share from
continuing operations by $0.10 and $0.09, respectively, for fiscal 2002 as
compared to fiscal 2001.
SEGMENT ANALYSIS
We evaluate reportable segment performance and allocate resources based on gross
contribution margin. Gross contribution is defined as operating income excluding
certain selling, general and administrative expenses, depreciation, amortization
of intangibles and other charges.
Research
Research revenues of $496.4 million in fiscal 2002 were down 7% from $535.1
million in 2001. The decline in revenues was due to lower demand throughout the
entire technology sector and the overall weakness in the general economy.
Research's gross contribution in fiscal 2002 decreased 7% to $326.3 million from
$352.6 million in fiscal 2001. Research's gross contribution margin was 66% in
fiscal 2002 and 2001. Although revenues declined, gross contribution margin
remained flat, in part due to reductions in expenses. The decline in gross
contribution was due to lower revenues. For 2003, our focus will be on
stabilizing, then growing contract value while maintaining a streamlined cost
structure. Our strategy is to expand our research business with larger clients.
Our research client retention rate was 75% for fiscal 2002 compared to 74% for
fiscal 2001. Total research contract value decreased 11% to approximately $496.0
million at September 30, 2002 from $556.0 million at September 30, 2001. The
decrease in contract value reflects a decline in demand throughout the entire
technology sector as well as overall weakness in the general economy.
Consulting
Consulting revenues of $273.7 million in fiscal 2002 were down 1% from $276.3
million in 2001. Revenues for fiscal 2002 reflect a strategic reduction in
certain client segments and geographies based on market share, competitive
advantage, client size and other factors. The reduction in revenue was partially
offset by increases in average project size and length. Consulting's gross
contribution increased by 13% to $97.9 million in fiscal 2002 from $86.9 million
in fiscal 2001. Consulting's gross contribution margin of 36% in fiscal 2002
increased from 31% in fiscal 2001 primarily due to reduced expenses, higher
utilization rates and higher billing rates. We continue to
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focus on larger engagements and on a limited set of practices and markets in
which we can achieve significant penetration. We have reduced headcount and
eliminated expenses in practice areas and markets where we do not have
sufficient scale and volume.
Consulting backlog decreased 10% to approximately $107.6 million at September
30, 2002 from $119.0 million at September 30, 2001. The decrease in backlog
primarily reflects the overall weakness in the general economy.
Events
Events revenues of $122.0 million in fiscal 2002 were down 8% from $132.7
million in 2001. The decline was primarily due to (1) fewer events due to the
strategic elimination of less profitable and unproven events with the
expectation of obtaining greater attendee and exhibitor participation at
higher-profit events, (2) the overall weakness in the general economy and (3)
lower travel budgets. Events' gross contribution increased by 3% to $65.4
million in fiscal 2002 from $63.6 million in fiscal 2001 with gross contribution
margin of 54% in 2002 compared to 48% in fiscal 2001. The increase in gross
contribution and margin was due to better cost management and the elimination of
less profitable events.
Deferred events revenue decreased 24% to approximately $53.6 million at
September 30, 2002 from $70.5 million at September 30, 2001. The decrease in
deferred events revenue was due primarily to less favorable economic conditions
and to fewer events as described above.
SUBSEQUENT EVENTS
On October 30, 2002, we announced that we expect to incur an estimated charge of
about $25 million in the quarter ending December 31, 2002, for reductions in
facilities and workforce as we continue to align our business resources with
revenue expectations.
On October 30, 2002, we announced that our Board of Directors approved a change
of our fiscal year from September 30 to December 31. The change in fiscal year
end will better align our overall operations with our sales organization, which
was already operating under a December 31 year end to correspond with the year
end of the majority of our clients as well as our competitors. We expect to file
an audited Form 10-K transition report for the three-month period ended December
31, 2002.
FISCAL YEAR ENDED SEPTEMBER 30, 2001 VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 2000
Total revenues increased 12% to $962.9 million in fiscal 2001 compared to $862.5
million in fiscal 2000.
o RESEARCH revenue increased 5% in fiscal 2001 to $535.1 million, compared to
$509.8 million in fiscal 2000, and comprised approximately 56% and 59% of
total revenues in fiscal 2001 and 2000, respectively.
o CONSULTING revenue increased 28% to $276.3 million in fiscal 2001, compared
to $216.7 million in fiscal 2000, and comprised approximately 29% and 25%
of total revenues in fiscal 2001 and 2000, respectively.
o EVENTS revenue was $132.7 million in fiscal 2001, an increase of 22% over
the $108.6 million in fiscal 2000, and comprised approximately 14% of total
revenues in fiscal 2001 versus 13% in fiscal 2000.
o OTHER revenues, consisting principally of software licensing and
maintenance fees, decreased 31% to $18.8 million in fiscal 2001 from $27.4
million in fiscal 2000.
Revenue grew in our three defined geographic market areas: United States and
Canada, Europe, and Other International. Revenues from sales to United States
and Canadian clients increased 13% to $641.9 million in fiscal 2001 from $569.5
million in fiscal 2000. Revenues from sales to European clients increased 8% to
$249.9 million in fiscal 2001 from $231.6 million in fiscal 2000. Revenues from
sales to Other International clients increased by 16% to $71.1 million in fiscal
2001 from $61.4 million in fiscal 2000.
Cost of services and product development expenses were $450.5 million and $395.6
million for fiscal 2001 and fiscal 2000, respectively. The costs of services and
product development expenses increased as a percentage of total revenues to 47%
from 46%. The increase is attributable to growth in personnel costs associated
with the development and delivery of products and services.
Selling, general and administrative expenses increased to $370.1 million in
fiscal 2001 from $341.9 million in fiscal 2000. The increase was due to
recruiting and facilities costs related to the growth in personnel as well as
increases in sales costs associated with revenue growth.
Depreciation expense increased to $40.9 million in fiscal 2001 from $27.8
million in fiscal 2000, primarily due to capital spending and internal use
software development costs required to support business growth, including the
launch of the new gartner.com web site in January 2001. Amortization of
intangibles of $12.4 million in fiscal 2001 was down from $13.0 million in
fiscal 2000.
During 2001, we recorded other charges of $46.6 million. Of these charges, $24.8
million are associated with the workforce reduction announced in April 2001.
This workforce reduction has resulted in the elimination of 383 positions, or
approximately 8% of our workforce. Approximately $14.3 million of the other
charges are associated with the write-down of goodwill and other long-lived
assets
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to net realizable value as a result of the decision to discontinue certain
unprofitable products, and $7.5 million of the charge is associated primarily
with the write-off of internally developed systems in connection with the launch
of gartner.com and seat-based pricing. At September 30, 2001, $6.6 million of
the termination benefits relating to the workforce reduction remained to be
paid. We are funding these costs out of operating cash flows.
Operating income decreased 49% to $42.5 million in fiscal 2001 compared to $84.1
million in fiscal 2000. In fiscal 2001, our United States, Canadian, and
European businesses experienced declines in operating income of 49% and 21%,
respectively. Our Other International business experienced an operating loss for
the year. These operating results were all impacted by the other charges
recorded during fiscal 2001. On a consolidated basis, operating income as a
percentage of total revenues was 4% and 10%, respectively, for fiscal 2001 and
2000. Operating income was impacted, in part, by other charges and costs
associated with the re-architecture of our Internet capabilities and research
methodology and delivery processes, and higher growth in lower margin
consultative services. Excluding the other charges, operating income for fiscal
2001 was 9% of total revenues. We decreased our staff by approximately 8% in the
second half of fiscal 2001 and, in the fourth quarter, decreased the expense to
revenue ratio on selling, general and administrative expense by 2.4 percentage
points as compared to the fourth quarter of last year. As a result of our cost
reduction initiatives, operating margin improved from 8% for the first six
months of the fiscal year to 11% for the second half, all excluding other
charges.
Net loss on sale of investments in fiscal 2001 of $0.6 million includes the sale
of the remaining 1,922,795 shares of Jupiter for net cash proceeds of $7.5
million for a pre-tax loss of $5.6 million, offset in part by the sale of shares
received from our venture capital funds, SI I and SI II for net cash proceeds of
$6.0 million for a pre-tax gain of $5.0 million. Net gain on sale of investments
in fiscal 2000 reflects the sale of 1,995,950 shares of Jupiter for net cash
proceeds of $55.5 million for a pre-tax gain of $42.9 million. This gain was
partially offset by the sale of our 8% investment in NETg, Inc., a subsidiary of
Harcourt, Inc., to an affiliate of Harcourt, Inc. for $36.0 million in cash that
resulted in a pre-tax loss of approximately $6.6 million. We acquired this
investment as consideration for our sale of GartnerLearning in September 1998.
In addition, in fiscal 2000 we settled a claim arising from the sale of
GartnerLearning to NETg, Inc. The claim asserted that we had breached a
contractual commitment under a joint venture to co-produce a product when the
business was sold. The claim was settled for approximately $6.7 million and has
been recorded as a loss on sale of investments.
Net loss from minority-owned investments in fiscal 2001 of $26.8 million was
primarily the result of impairment losses related to investments owned by us
through SI I, SI II and other directly owned investments for other than
temporary declines in value. We made an assessment of the carrying value of our
investments and determined that certain investments were in excess of their fair
value due to the significance and duration of the decline in valuation of
comparable companies operating in the internet and technology sectors (see Note
5 - Investments in the Notes to Consolidated Financial Statements). The
impairment factors evaluated by management may change in subsequent periods,
given that the entities underlying these investments operate in a volatile
business environment. In addition, these entities may require additional
financing to meet their cash and operational needs, however, there can be no
assurance that such funds will be available to the extent needed, at terms
acceptable to the entities, if at all. This could result in additional material
non-cash impairment charges in the future.
Interest expense decreased to $22.4 million in fiscal 2001 from $24.9 million in
fiscal 2000. The decrease related primarily to lower interest rates and lower
revolving credit borrowings compared to fiscal 2000. Interest income of $1.6
million in fiscal 2001 was down from $3.9 million in fiscal 2000 due to a lower
average balance of funds available for investment and due to lower interest
rates. Other expense, net increased to $3.7 million in fiscal 2001 from $0.7
million in fiscal 2000. The increase relates primarily to foreign currency
exchange losses.
Provision for income taxes on continuing operations was a benefit of $9.2
million in fiscal 2001 compared to a provision of $36.4 million in fiscal 2000.
The effective tax rate in 2001, less the impact of a one-time tax benefit of
$14.5 million due to the utilization of foreign tax credits in the second half
of the year and other charges and losses on investments and related tax impact,
was 37% compared to 40% for fiscal 2000. The decrease in the effective tax rate
from fiscal 2000 is due to on-going tax planning initiatives. A more detailed
analysis of the changes in the provision (benefit) for income taxes is provided
in Note 14 of the Notes to Consolidated Financial Statements.
Basic income (loss) per common share from continuing operations was $(0.00) per
common share in fiscal 2001 compared to $0.63 per common share in fiscal 2000.
Diluted income (loss) per common share from continuing operations decreased to
$(0.00) per share in fiscal 2001 compared to $0.62 per share in fiscal 2000.
On July 2, 2001, we sold our subsidiary, TechRepublic, to CNET for approximately
$23.5 million in cash and common stock of CNET, before reduction for certain
termination benefits. The proceeds were $14.3 million in cash and 755,058 shares
of CNET common stock, which had a fair market value of $12.21 per share on July
2, 2001. From July 2, 2001 through September 30, 2001, the market value of the
CNET shares declined substantially; as a result, we recorded a $3.9 million
impairment charge in net loss from minority-owned investments representing an
other than temporary decline in market value of the CNET common stock. The
Consolidated Financial Statements have been restated to reflect the disposition
of the TechRepublic segment as a discontinued operation in accordance with APB
Opinion No. 30. Accordingly, revenues, costs and expenses, assets, liabilities,
and cash flows of TechRepublic have been excluded from the respective captions
in the Consolidated Statements of Operations, Consolidated Balance Sheets and
Consolidated Statements of Cash
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Flows, and have been reported through the date of disposition as "Loss from
discontinued operation," "Net assets of discontinued operation," and "Net cash
used by discontinued operation," for all periods presented. During 2001, we
recorded a pre-tax loss of $66.4 million ($39.9 million after tax) to recognize
the loss on the sale of TechRepublic. This pre-tax loss includes a write-down of
$42.4 million of assets, primarily goodwill, to net realizable value, operating
losses through the date of sale of $6.5 million, severance and related benefits
of $8.3 million, and other sale-related costs and expenses, including costs
associated with the closure of facilities, of $9.2 million.
SEGMENT ANALYSIS
Research
Research revenues grew 5% to $535.1 million in fiscal 2001, as compared to
$509.8 million in the prior fiscal year. The increase was due primarily to
higher client retention in North America, the continued successful migration of
clients from legacy to seat-based pricing, the increased penetration of new
buying centers within existing clients and continued focus on the growth of
GartnerG2 and Gartner EXP. The new pricing structure provides broader access to
research compared to the traditional individual research subscription. During
fiscal 2001, we launched GartnerG2, a new research service designed specifically
to help business executives use technology to enhance business growth and
productivity. Research gross contribution in fiscal 2001 increased to $352.6
million from $341.1 million in fiscal 2000. Gross contribution margin decreased
slightly to 66% in fiscal 2001 from 67% in fiscal 2000, primarily a result of
the investments in gartner.com and the launch of GartnerG2. Gross contribution
margin increased to 67% for the second half of fiscal 2001 from 64% for the
first half, due in large part to cost reduction measures instituted during the
year.
Consulting
Consulting revenues grew 28% to $276.3 million in fiscal 2001 as compared to
$216.7 million in the prior fiscal year. The increase was due primarily to an
increase in the number of projects, increased project size, and increases in
billing rates. Consulting gross contribution increased by 15% to $86.9 million
in fiscal 2001 from $75.7 million in fiscal 2000. Consulting gross contribution
margin of 31% in fiscal 2001 decreased from 35% in fiscal 2000, primarily due to
increases in compensation expense related to the hiring of additional personnel
in the first half of fiscal 2001, coupled by an increase in non-billable
services, such as training, participation in annual symposia events, and
increased selling activity. Gross contribution margin increased to 39% for the
second half of fiscal 2001 from 22% for the first half, due in large part to
cost reduction measures instituted during the year.
Events
Events revenues grew 22% to $132.7 million in fiscal 2001 as compared to $108.6
million in the prior fiscal year. The increase was due to greater attendance at
existing and new events, as well as increased sponsorship and exhibit revenues.
Events' gross contribution increased by 26% to $63.6 million in fiscal 2001 from
$50.6 million in fiscal 2000, with gross contribution margin of 48% in 2001
compared to 47% in fiscal 2000. The increase in gross contribution margin was
due to the leveraging of existing events and an overall increase in sponsorship
and exhibitor sales.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities during fiscal 2002 was $145.6 million,
compared to $73.5 million during fiscal 2001. The increase was primarily due to
significantly higher income from continuing operations, lower amounts of
termination payments associated with workforce reductions and changes in balance
sheet working capital accounts.
Cash used in investing activities totaled $19.4 million for fiscal 2002,
compared to $44.6 million used in fiscal 2001. Cash used in investing activities
during fiscal 2002 and 2001 included $19.6 million and $57.5 million,
respectively, for additions to property, equipment and leasehold improvements.
These additions in fiscal 2002 were primarily the result of investments in
infrastructure systems. These cash uses in fiscal 2002 were partially offset by
proceeds from the sale of marketable securities of $6.0 million. The additions
to property, equipment and leasehold improvements in fiscal 2001 were primarily
the result of investments in gartner.com and other infrastructure systems. These
cash uses in fiscal 2001 were partially offset by proceeds from the sale of
marketable securities and discontinued operations of $14.4 million and $10.5
million, respectively. Cash used for business acquisitions was $4.5 million and
$12.0 million for fiscal 2002 and 2001, respectively.
Cash used in financing activities totaled $40.1 million in fiscal 2002, compared
to $18.9 million in fiscal 2001. The cash used in financing activities in fiscal
2002 resulted primarily from the purchase of treasury stock of $47.0 million
(see discussion below under Stock Repurchases) and the repayment of credit
facility loans ($15.0 million), offset, in part, by proceeds from the exercise
of stock options and the employee stock purchase plan ($22.2 million). The cash
used in financing activities in fiscal 2001 resulted primarily from the purchase
of treasury stock of $37.9 million (see discussion below under Stock
Repurchases), offset in part, by proceeds from credit facility borrowings ($15.0
million) and by proceeds from the exercise of stock options and the employee
stock purchase plan ($9.1 million).
Total cash used by discontinued operations, sold in fiscal 2001, was $34.2
million in fiscal 2001 and $30.1 million in fiscal 2000.
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At September 30, 2002, cash and cash equivalents totaled $124.8 million. The
effect of exchange rates increased cash and cash equivalents by $1.7 million for
the year ended September 30, 2002, and was due to the weakening of the U.S.
dollar against certain foreign currencies. In fiscal 2001, the negative effect
of exchange rates reduced cash and cash equivalents by $0.4 million. Cash and
cash equivalents are expected to decline during the three months ended December
31, 2002, due to the payment of annual bonuses and commissions to our sales
force.
OBLIGATIONS AND COMMITMENTS
We have a $200.0 million unsecured senior revolving credit facility led by
JPMorgan Chase Bank. At September 30, 2002, there were no amounts outstanding
under the facility. We are subject to certain customary affirmative, negative
and financial covenants under this credit facility, and continued compliance
with these covenants preclude us from borrowing the maximum amount of the credit
facility from time to time. As a result of these covenants, our borrowing
availability at September 30, 2002 was $118.9 million.
On April 17, 2000, we issued $300.0 million of 6% convertible subordinated notes
to Silver Lake Partners, L.P. and certain of Silver Lake's affiliates ("SLP") in
a private placement transaction. Interest accrues semi-annually by a
corresponding increase in the face amount of the notes. Accordingly, $46.3
million has been added to the face amount of the notes, resulting in a balance
outstanding of $346.3 million at September 30, 2002. These notes are due and
payable on April 17, 2005.
On or after April 17, 2003, subject to satisfaction of certain customary
conditions, we may redeem all of the convertible notes provided that (1) the
average closing price of our Class A Common Stock for the twenty consecutive
trading days immediately preceding the date the redemption notice is given
equals or exceeds $11.175 (150% of the adjusted conversion price of $7.45 per
share), and (2) the closing price of our Class A Common Stock on the trading day
immediately preceding the date the redemption notice is given also equals or
exceeds $11.175. The redemption price is the face amount of the notes plus all
accrued interest. If we initiate the redemption, SLP has the option of receiving
payment in cash, Class A Common Stock (at a conversion price of $7.45 per
share), or a combination of cash and stock. We are under no obligation to
initiate any such redemption.
Commencing on April 18, 2003, or prior to that date should there be a change in
control of the Company, SLP may convert all or a portion of the notes to stock.
If SLP initiates the conversion, we have the option of redeeming all the notes
for cash at the market price of our Common Stock on the date the notice of
conversion is given. Additionally, if we were to redeem all of the notes for
cash in response to SLP's election to convert the notes to Class A Common Stock,
we would incur a significant earnings charge at the time of the redemption equal
to the difference between the market value of our Class A Common Stock at the
time of redemption at the conversion price of $7.45 per share and the carrying
value of the notes. At September 30, 2002, the notes were convertible into 46.6
million shares with a total market value of $377.1 million, using our September
30, 2002 Class A Common Stock market price of $8.10 per share.
On the maturity date, April 17, 2005, we must satisfy any remaining notes for
cash equal to the face amount of the notes plus accrued interest; if none of the
notes has been redeemed or converted by that date, such amount will be $403.2
million.
We also issue letters of credit in the ordinary course of business. As of
September 30, 2002, we had letters of credit outstanding with JPMorgan Chase
Bank for $3.7 million, The Bank of New York for $2.0 million, and others for
$0.1 million.
We lease various facilities, furniture and computer equipment under operating
lease arrangements expiring between 2003 and 2025. Future commitments under
non-cancelable operating lease agreements are $28 million, $24 million, $21
million, $18 million and $17 million for fiscal 2003, 2004, 2005, 2006 and 2007,
respectively.
The obligations remaining at September 30, 2002 relative to the other charges
recorded in fiscal 2001 and in the second quarter of fiscal 2002 were $4.7
million in the aggregate; $4.1 million is for the costs of facility reductions,
principally lease payments and $0.6 million is for involuntary employee
termination severance and benefits. Payments for involuntary termination
severance and benefits will be made primarily over the next two quarters.
Payments relating to facility reductions will be made over the remaining lease
terms with the majority occurring over the next two to three years.
We had a total remaining investment commitment to SI II of $5.9 million at
September 30, 2002, which may be called by SI II at any time.
We believe that our current cash balances, together with cash anticipated to be
provided by operating activities and borrowings available under the existing
credit facility, will be sufficient for our expected short-term and foreseeable
long-term cash needs in the ordinary course of business. If we were to require
substantial amounts of additional capital to pursue business opportunities that
may arise involving substantial investments of additional capital, or for the
possible redemption of the convertible notes, there can be no assurances that
such capital will be available to us or will be available on commercially
reasonable terms.
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Stock Repurchases
On July 19, 2001, our Board of Directors approved the repurchase of up to $75.0
million of Class A and Class B Common Stock. On July 25, 2002, the Board of
Directors increased the authorized stock repurchase program to $125 million of
our Class A and Class B Common Stock. We expect to make repurchases from time to
time over the next two years through open market purchases, block trades or
otherwise. Repurchases are subject to the availability of the stock, prevailing
market conditions, the trading price of the stock, and our financial
performance. Repurchases will be funded from cash flow from operations and
possible borrowings under our existing credit facility. Through September 30,
2002, we repurchased 6,791,209 shares of our common stock for approximately
$69.8 million out of the $125 million approved for the stock repurchase program
at an average price of $10.28 per share.
Stock repurchases are summarized below:
<Table>
<Caption>
Total Cost Per
Total Shares Cost $000 Share
------------ ------------ ------------
<S> <C> <C> <C>
FISCAL 2000
Recapitalization 4,500,200 $ 49,877 $ 11.08
============ ============ ============
FISCAL 2001
Recapitalization 666,491 $ 5,416 $ 8.13
Stock Repurchase Program:
Purchased from IMS Health, Inc. and
affiliates on August 29, 2001 (1) 1,867,149 $ 18,447 $ 9.88
Open market purchases (1) 458,960 $ 4,325 $ 9.42
Termination of forward purchase agreement
1,164,154 $ 9,705 $ 8.34
------------ ------------ ------------
Total fiscal 2001 4,156,754 $ 37,893 $ 9.12
============ ============ ============
FISCAL 2002
Stock Repurchase Program (1) 4,465,100 $ 47,047 $ 10.54
============ ============ ============
(1) REPRESENTS CUMULATIVE REPURCHASES
PURSUANT TO THE $125 MILLION STOCK
REPURCHASE PROGRAM 6,791,209 $ 69,819 $ 10.28
============ ============ ============
</Table>
FACTORS THAT MAY AFFECT FUTURE RESULTS
We operate in a very competitive and rapidly changing environment that involves
numerous risks and uncertainties, some of which are beyond our control. In
addition, our clients and we are affected by the economy. The following section
discusses many, but not all, of these risks and uncertainties.
Economic Conditions. Our revenues and results of operations are influenced by
economic conditions in general and more particularly by business conditions in
the IT industry. A general economic downturn or recession, anywhere in the
world, could negatively effect demand for our products and services and may
substantially reduce existing and potential client information
technology-related budgets. The current economic downturn in the United States
and globally has led to constrained IT spending which has impacted our business
and may materially and adversely affect our business, financial condition and
results of operations, including the ability to maintain continued customer
renewals and achieve contract value, backlog and deferred events revenue. To the
extent our clients are in the IT industry, the severe decline in that sector has
also had a significant impact on IT spending.
Acts of Terrorism or War. Acts of terrorism, acts of war and other unforeseen
events, may cause damage or disruption to our properties, business, employees,
suppliers, distributors and clients, which could have an adverse effect on our
business, financial condition and operating results. Such events may also result
in an economic slowdown in the United States or elsewhere, which could adversely
affect our business, financial condition and operating results.
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Competitive Environment. We face direct competition from a significant number of
independent providers of information products and services. We also compete
indirectly against consulting firms and other information providers, including
electronic and print media companies, some of which may have greater financial,
information gathering and marketing resources than we do. These indirect
competitors could choose to compete directly with us in the future. In addition,
limited barriers to entry exist in the markets in which we compete. As a result,
additional new competitors may emerge and existing competitors may start to
provide additional or complementary services. Additionally, technological
advances may provide increased competition from a variety of sources. Although
our market share has been increasing, increased competition may result in loss
of market share, diminished value in our products and services, reduced pricing
and increased marketing expenditures. We may not be successful if we cannot
compete effectively on quality of research and analysis, timely delivery of
information, customer service, the ability to offer products to meet changing
market needs for information and analysis, or price.
Renewal of Research Business by Existing Clients. Some of our success depends on
renewals of our subscription-based research products and services, which
constituted 55%, 56% and 59% of our business for the years ended September 30,
2002, 2001 and 2000, respectively. These research subscription agreements have
terms that generally range from twelve to thirty months. Our ability to maintain
contract renewals is subject to numerous factors, including those described in
this Annual Report. Client retention rates were 75%, 74% and 74% for the years
ended September 30, 2002, 2001 and 2000, respectively. Any material decline in
renewal rates could have an adverse impact on our revenues and our financial
condition.
Non-Recurring Consulting Engagements. Consulting segment revenues constituted
30%, 29% and 25% of our business for the years ended September 30, 2002, 2001
and 2000, respectively. Such consulting engagements typically are project-based
and non-recurring. Our ability to replace consulting engagements is subject to
numerous factors, including those described in this Annual Report. Any material
decline in our ability to replace consulting arrangements could have an adverse
impact on our revenues and our financial condition.
Hiring and Retention of Employees. Our success depends heavily upon the quality
of our senior management, research analysts, consultants, sales and other key
personnel. We face competition for the limited pool of these qualified
professionals from, among others, technology companies, market research firms,
consulting firms, financial services companies and electronic and print media
companies, some of which have a greater ability to attract and compensate these
professionals. Some of the personnel that we attempt to hire are subject to
non-compete agreements that could impede our short-term recruitment efforts. Any
failure to retain key personnel or hire and train additional qualified
personnel, as required to support the evolving needs of clients or growth in our
business, could adversely affect the quality of our products and services, and
therefore, our future business and operating results.
Maintenance of Existing Products and Services. We operate in a rapidly evolving
market, and our success depends upon our ability to deliver high quality and
timely research and analysis to our clients. Any failure to continue to provide
credible and reliable information that is useful to our clients could have a
material adverse effect on future business and operating results. Further, if
our predictions prove to be wrong or are not substantiated by appropriate
research, our reputation may suffer and demand for our products and services may
decline. In addition, we must continue to improve our methods for delivering our
products and services in a cost-effective manner. Failure to increase and
improve our electronic delivery capabilities could adversely affect our future
business and operating results.
Introduction of New Products and Services. The market for our products and
services is characterized by rapidly changing needs for information and
analysis. To maintain our competitive position, we must continue to enhance and
improve our products and services, develop or acquire new products and services
in a timely manner, and appropriately position and price new products and
services relative to the marketplace and our costs of producing them. Any
failure to achieve successful client acceptance of new products and services
could have a material adverse effect on our business, results of operations or
financial position.
International Operations. A substantial portion of our revenues is derived from
sales outside of North America, representing 34%, 33% and 34% of our business
for the fiscal years ended September 30, 2002, 2001 and 2000, respectively. As a
result, our operating results are subject to the risks inherent in international
business activities, including general political and economic conditions in each
country, changes in market demand as a result of exchange rate fluctuations and
tariffs and other trade barriers, challenges in staffing and managing foreign
operations, changes in regulatory requirements, compliance with numerous foreign
laws and regulations, different or overlapping tax structures, higher levels of
United States taxation on foreign income, and the difficulty of enforcing client
agreements, collecting accounts receivable and protecting intellectual property
rights in international jurisdictions. We rely on local distributors or sales
agents in some international locations. If any of these arrangements are
terminated by our agent or us, we may not be able to replace the arrangement on
beneficial terms or on a timely basis or clients of the local distributor or
sales agent may not want to continue to do business with us or our new agent.
Branding. We believe that our "Gartner" brand is critical to our efforts to
attract and retain clients and that the importance of brand recognition will
increase as competition increases. We may expand our marketing activities to
promote and strengthen the Gartner brand and may need to increase our marketing
budget, hire additional marketing and public relations personnel, expend
additional sums to protect the brand and otherwise increase expenditures to
create and maintain client brand loyalty. If we fail to effectively promote and
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maintain the Gartner brand, or incur excessive expenses in doing so, our future
business and operating results could be materially and adversely impacted.
Investment Activities. We maintain investments in equity securities in private
and publicly traded companies through direct ownership and through wholly and
partially owned venture capital funds. The companies we invest in are primarily
early to mid-stage IT-based and Internet-enabled businesses. There are numerous
risks related to such investments, due to their nature and the volatile public
markets, including significant delay or failure of anticipated returns. In
addition, these entities may require additional financing to meet their cash and
operational needs; however, there can be no assurance that such funds will be
available to the extent needed at terms acceptable to the entities, if at all.
As a result, our financial results and financial position could be materially
impacted.
Indebtedness. We have incurred significant indebtedness through our $346.3
million convertible notes. Additionally, we have a $200.0 million senior
revolving credit facility under which we can incur significant additional
indebtedness. The affirmative, negative and financial covenants of these debt
facilities, could limit our future financial flexibility. The associated debt
service costs could impair future operating results. Our outstanding debt may
limit the amount of cash or additional credit available to us, which could
restrain our ability to expand or enhance products and services, respond to
competitive pressures or pursue future business opportunities requiring
substantial investments of additional capital. On the maturity date, April 17,
2005, we must satisfy any remaining notes for cash equal to the face amount of
the notes plus accrued interest; if none of the notes have been redeemed or
converted by that date, such amount will be $403.2 million. The payment of this
amount could materially adversely impact our future business and operating
results.
Convertible Notes. Commencing on April 18, 2003, or sooner in certain
circumstances upon a change in control of the Company, the holders of our $346.3
million convertible notes may elect to convert all or a portion of the notes to
shares of our Class A Common Stock. If all or a substantial portion of the notes
are converted, the note holders will own a substantial number of shares of our
Class A Common Stock. At September 30, 2002, the notes were convertible into
46.6 million shares of our Class A Common Stock, which would constitute 36.2% of
our combined Class A and Class B Common Stock, outstanding on that date. This is
based upon the conversion price of $7.45 per share. If the holders elect to
convert the notes, we may redeem them. See "Obligations and Commitments" and
"Indebtedness" above. If we do not redeem the notes and all or a substantial
portion of the notes are converted, the holder of the notes (SLP) will become
our largest shareholder (based upon our shareholder base as of September 30,
2002). This, in turn, may (1) give SLP the ability to exercise significant
control over the Company; (2) create significant dilution for other
shareholders; and (3) may cause volatility in our stock price. If we want to
redeem the convertible notes in response to the note holders' election to
convert, or on our own under certain circumstances, there can be no assurance
that we will be able to obtain sufficient capital on a commercially reasonable
basis, or at all, in order to fund a redemption. Even if we could obtain
sufficient capital to fund a redemption, it could materially adversely impact
our future business and operating results.
Organizational and Product Integration Related to Acquisitions. We have made and
may continue to make acquisitions of, or significant investments in, businesses
that offer complementary products and services. The risks involved in each
acquisition or investment include the possibility of paying more than the value
we derive from the acquisition, dilution of the interests of our current
stockholders or decreased working capital, increased indebtedness, the
assumption of undisclosed liabilities and unknown and unforeseen risks, the
ability to integrate successfully the operations and personnel of the acquired
business, the ability to retain key personnel of the acquired company, the time
to train the sales force to market and sell the products of the acquired
company, the potential disruption of our ongoing business and the distraction of
management from our business. The realization of any of these risks could
adversely affect our business.
Enforcement of Our Intellectual Property Rights. We rely on a combination of
copyright, patent, trademark, trade secret, confidentiality, non-compete and
other contractual provisions to protect our intellectual property rights.
Despite our efforts to protect our intellectual property rights, unauthorized
third parties may obtain and use technology or other information that we regard
as proprietary. Our intellectual property rights may not survive a legal
challenge to their validity or provide significant protection for us. The laws
of certain countries do not protect our proprietary rights to the same extent as
the laws of the United States. Accordingly, we may not be able to protect our
intellectual property against unauthorized third-party copying or use, which
could adversely affect our competitive position. Our employees are subject to
non-compete agreements. When the non-competition period expires, former
employees may compete against us. If a former employee chooses to compete
against us prior to the expiration of the non-competition period, there is no
assurance that we will be successful in our efforts to enforce the non-compete
provision.
Possibility of Infringement Claims. Third parties may assert infringement claims
against us. Regardless of the merits, responding to any such claim could be time
consuming, result in costly litigation and require us to enter into royalty and
licensing agreements which may not be offered or available on reasonable terms.
If a successful claim is made against us and we fail to develop or license a
substitute technology, our business, results of operations or financial position
could be materially adversely affected.
Agreements with IMS Health Incorporated. In connection with our recapitalization
in July 1999, we agreed to certain restrictions on business activity to reduce
the risk to IMS Health and its stockholders of substantial tax liabilities
associated with the spin-off by IMS Health of its equity interest in us. We also
agreed to assume the risk of such tax liabilities if we were to undertake
certain business activities that give rise to the liabilities. As a result, we
may be limited in our ability to undertake acquisitions involving the issuance
of a
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<PAGE>
significant amount of stock unless we were to seek and obtain a ruling from the
IRS that the transaction will not give rise to such tax liabilities. In
addition, we agreed to certain limits on the purchase of our Common Stock under
the terms of the recapitalization.
Potential Fluctuations in Operating Results. Our quarterly and annual operating
income may fluctuate in the future as a result of many factors, including the
timing of the execution of research contracts, which typically occurs in the
fourth calendar quarter, the extent of completion of consulting engagements, the
timing of symposia and other events, which also occur to a greater extent in the
fourth calendar quarter, the amount of new business generated, the mix of
domestic and international business, changes in market demand for our products
and services, the timing of the development, introduction and marketing of new
products and services, and competition in the industry. An inability to generate
sufficient earnings and cash flow, and achieve our forecasts, may impact our
operating and other activities. The potential fluctuations in our operating
income could cause period-to-period comparisons of operating results not to be
meaningful and may provide an unreliable indication of future operating results.
EURO CONVERSION
Effective January 1, 2002, twelve of the fifteen member countries of the
European Union adopted the Euro as their single currency. The participating
countries issued new Euro-denominated bills and coins for use in cash
transactions. Effective July 1, 2002, legacy currency is no longer legal tender
for any transactions in the participating countries. We do not believe that the
translation of financial transactions into Euros has had, or will have, a
significant effect on our results of operations, liquidity or financial
condition. We do not anticipate any material impact from the Euro conversion on
our financial information systems, which accommodate multiple currencies. Costs
associated with the adoption of the Euro have not been and are not expected to
be significant and are being expensed as incurred.
RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2001, the Emerging Issues Task Force reached a consensus on issue
No. 01-14, "Income Statement Characterization of Reimbursements Received for
'Out-of-Pocket' Expenses Incurred." The consensus requires reimbursements
received for out-of-pocket expenses incurred to be characterized as revenue in
the statements of operations. Out-of-pocket expenses are incidental expenses
incurred as part of ongoing operations and include, but are not limited to,
expenses related to airfare, mileage, hotel stays, out-of-town meals,
photocopies and telecommunication and facsimile charges. This consensus must be
applied to financial reporting periods beginning after December 15, 2001 with
reclassification of prior periods for comparability. We adopted the consensus
beginning with the second quarter of our fiscal year that began on January 1,
2002, and in accordance with the consensus, have restated prior periods. For the
years ended September 30, 2002, 2001 and 2000, adoption of the consensus caused
both revenues and cost of services and product development in the consulting
segment to increase by $10.0 million, $10.8 million and $7.9 million,
respectively.
In April 2002, Statement of Financial Accounting Standards No. 145, "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS No. 145") was issued. FASB Statement No. 4
required all gains and losses from the extinguishment of debt to be reported as
extraordinary items and Statement No. 64 related to the same matter. SFAS No.
145 requires gains and losses from certain debt extinguishment to not be
reported as extraordinary items when the use of debt extinguishment is part of
the risk management strategy. Statement No. 44 was issued to establish
transitional requirements for motor carriers relative to intangible assets.
Those transitions are completed, therefore Statement 44 is no longer necessary.
SFAS No. 145 also amends Statement No. 13 requiring sale-leaseback accounting
for certain lease modifications. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002, which will be our 2003 fiscal year. The provisions
relating to sale-leaseback are effective for transactions after May 15, 2002.
The adoption of SFAS No. 145 is not expected to have a material impact on our
financial position or results of operations. Upon adoption, in 2003, the
extraordinary loss from the extinguishment of debt, net of taxes of $1.8
million, or $(0.02) per share in fiscal 2000 will be reclassified to continuing
operations.
In July 2002, Statement of Financial Accounting Standards No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS 146") was issued.
This Statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force Issue
("EITF") 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The principal difference between SFAS 146 and EITF 94-3 relates
to the timing of liability recognition. Under SFAS 146, a liability for a cost
associated with an exit or disposal activity is recognized when the liability is
incurred. Under EITF 94-3, a liability for an exit cost was recognized at the
date of an entity's commitment to an exit plan. The provisions of SFAS 146 are
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this statement is not expected to have a material impact
on our financial position or results of operations as approval and finalization
of our recent workforce and facility reductions announced on October 30, 2002
were initiated prior to the SFAS 146 effective date.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
As of September 30, 2002, we have exposure to market risk for changes in
interest rates primarily from borrowings under long-term debt which consists of
a $200.0 million unsecured senior revolving credit facility with JPMorgan Chase
Bank and $346.3 million of 6% convertible subordinated notes (see Note 10--Debt
in the Notes to Consolidated Financial Statements). At September 30, 2002, there
were no amounts outstanding under the revolving credit facility. Under the
revolving credit facility, the interest rate on borrowings is LIBOR plus an
additional 100 to 200 basis points based on our debt-to-EBITDA ratio. We believe
that an increase or decrease of 10% in the effective interest rate on available
borrowings from our senior revolving credit facility, if fully utilized, would
not have a material effect on our future results of operations. If markets were
to decline, we could be required to accrue interest on the 6% convertible debt
that would exceed those based on current market rates. Each 25 basis point
decrease in interest would have an associated annual opportunity cost of
approximately $0.9 million based on the September 30, 2002 balance. Each 25
basis point increase or decrease in interest rates would have an approximate
$0.5 million annual effect under the revolving credit facility if fully
utilized.
Forward Purchase Agreements
Beginning in 1997, we entered into a series of forward purchase agreements that
extended through May 2003 to offset the dilutive effect of stock-based employee
compensation plans. These agreements were settled quarterly on a net basis in
either shares of Class A Common Stock or cash, at the Company's option. During
the year ended September 30, 2001, two settlements resulted in our issuance of
491,789 shares of Class A Common Stock and our payment of approximately $64,000
in cash. During the quarter ended June 30, 2001, we reacquired 1,164,154 shares
of Class A Common Stock for approximately $9.7 million through an early
termination of the remaining forward purchase agreements. As of September 30,
2001, there were no remaining commitments under these forward purchase
agreements.
Investment Risk
We are exposed to market risk as it relates to changes in the market value of
our equity investments. We invest in equity securities of public and private
companies directly and through SI I, a wholly-owned affiliate, and SI II, of
which we own 34%. SI I and SI II are engaged in making venture capital
investments in early to mid-stage IT-based or Internet-enabled companies (see
Note 5 - Investments in the Notes to the Consolidated Financial Statements). As
of September 30, 2002, we had investments in equity securities totaling $12.7
million. Unrealized losses of $945,000 have been recorded net of deferred taxes
of $630,000 as a separate component of accumulated other comprehensive income in
the stockholders' equity section of the Consolidated Balance Sheets. These
investments are inherently risky as the businesses are typically in early
development stages and may never develop. Further, certain of these investments
are in publicly traded companies whose shares are subject to significant market
price volatility. Adverse changes in market conditions and poor operating
results of the underlying investments may result in us incurring additional
losses or an inability to recover the original carrying value of our
investments. If there were a 100% adverse change in the value of our equity
portfolio as of September 30, 2002, this would result in a non-cash impairment
charge of $12.7 million. We intend to sell all of our investments owned through
SI I and SI II.
Foreign Currency Exchange Risk
We face two risks related to foreign currency exchange: translation risk and
transaction risk. Amounts invested in our foreign operations are translated into
U.S. dollars at the exchange rates in effect at the balance sheet date. The
resulting translation adjustments are recorded as a component of accumulated
other comprehensive income (loss) in the stockholders' equity (deficit) section
of the Consolidated Balance Sheets. Our foreign subsidiaries generally collect
revenues and pay expenses in currencies other than the United States dollar.
Since the functional currency of our foreign operations are generally
denominated in the local currency of our subsidiaries, the foreign currency
translation adjustments are reflected as a component of stockholders' equity and
do not impact operating results. Revenues and expenses in foreign currencies
translate into higher or lower revenues and expenses in U.S. dollars as the U.S.
dollar weakens or strengthens against other currencies. Therefore, changes in
exchange rates may negatively affect our consolidated revenues and expenses (as
expressed in U.S. dollars) from foreign operations. Currency transaction gains
or losses arising from transactions in currencies other than the functional
currency are included in results of operations.
From time to time we enter into foreign currency forward exchange contracts or
other derivative financial instruments to hedge the effects of adverse
fluctuations in foreign currency exchange rates. During fiscal 2002, we had a
contract requiring us to sell U.S. dollars and purchase Japanese yen. The
contract was for $1.0 million, a one-year term that expired on September 27,
2002, and contained a forward exchange rate of 114.26 Japanese yen. The foreign
currency forward contract was entered into to offset the foreign exchange
effects of our Japanese yen inter-company payable, which had a value of $1.0
million. On September 27, 2002, we settled this contract by paying $50,000. At
September 30, 2002, we had two foreign currency forward contracts outstanding.
Foreign exchange forward contracts are reflected at fair value with gains and
losses recorded currently in earnings.
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The following table presents information about our foreign currency forward
contracts outstanding as of September 30, 2002, expressed in U.S. dollar
equivalents.
<Table>
<Caption>
UNREALIZED GAIN (LOSS)
FORWARD EXCHANGE AT SEPTEMBER 30, 2002
CURRENCY PURCHASED CURRENCY SOLD CONTRACT AMOUNT RATE $000 EXPIRATION DATE
- ------------------ ------------- --------------- ---------------- ---------------------- ---------------
<S> <C> <C> <C> <C> <C>
Swiss Francs U.S. Dollars $4.0 million 1.4980 $52 October 24, 2002
Norwegian Krona U.S. Dollars $2.4 million 7.5184 $39 October 24, 2002
</Table>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our consolidated financial statements and schedule supporting such consolidated
financial statements, as of September 30, 2002 and 2001 and for each of the
years in the three-year period ended September 30, 2002, together with the
reports of KPMG LLP, independent auditors, dated October 29, 2002, are included
in this Annual Report beginning on Page 25.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required to be furnished pursuant to this item will be set forth
under the captions "Proposal One: Election of Directors," "Executive Officers"
and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Definitive
Proxy Statement to be filed with the Securities and Exchange Commission in
connection with our 2003 Annual Meeting of Stockholders currently scheduled to
be held on February 13, 2003 (the "Proxy Statement"). If the Proxy Statement is
not filed with the Commission by January 28, 2003, such information will be
included in an amendment to this Annual Report filed by January 28, 2003.
ITEM 11. EXECUTIVE COMPENSATION.
The information required to be furnished pursuant to this item is incorporated
by reference from the information set forth under the caption "Executive
Compensation" in the Proxy Statement or if the Proxy Statement is not filed with
the Commission by January 28, 2003, such information will be included in an
amendment to this Annual Report filed by January 28, 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information required to be furnished pursuant to this item will be set forth
under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement or if the Proxy Statement is not filed with
the Commission by January 28, 2003, such information will be included in an
amendment to this Annual Report filed by January 28, 2003.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required to be furnished pursuant to this item will be set forth
under the caption "Certain Relationships and Transactions" in the Proxy
Statement or if the Proxy Statement is not filed with the Commission by January
28, 2003, such information will be included in an amendment to this Annual
Report filed by January 28, 2003.
ITEM 14. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures.
We have established disclosure controls and procedures that are designed to
ensure that the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934, as amended (the "Act"), is recorded,
processed, summarized and reported in a timely manner. Specifically, these
controls and procedures ensure that the information is accumulated and
communicated to our executive management team, including our chief executive
officer and our chief financial officer, to allow timely decisions regarding
required disclosure.
21
<PAGE>
Within 90 days prior to the filing of our Annual Report on Form 10-K for the
fiscal year ended September 30, 2002, the Company conducted an evaluation, under
the supervision and with the participation of our management, including our
chief executive officer and chief financial officer, of the effectiveness and
design of our disclosure controls and procedures. Based upon that evaluation,
our chief executive officer and chief financial officer have concluded that the
Company's disclosure controls and procedures are effective in alerting them in a
timely manner to material Company information required to be disclosed by us in
reports filed under the Act.
(b) Changes in Internal Controls.
Subsequent to the date of the evaluation, there have been no significant changes
in the Company's internal controls or in other factors that could significantly
affect internal controls and procedures, nor were any corrective actions
required with regard to significant deficiencies and material weaknesses.
PART IV
ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) 1. and 2. Consolidated Financial Statements and Schedules
The independent auditors' report, consolidated financial statements and
financial statement schedule listed in the Index to Consolidated Financial
Statements and Schedule on page 25 hereof are filed as part of this report,
beginning on page 26 hereof.
All other financial statement schedules not listed in the Index have been
omitted because the information required is not applicable or is shown in the
financial statements or notes thereto.
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1a(6) Amended and Restated Certificate of Incorporation-July
16, 1999.
3.1b(7) Certificate of Amendment of the Restated Certificate of
Incorporation-February 1, 2001.
3.1c(4) Certificate of Designation, Preferences and Rights of
Series A Junior Participating Preferred Stock and Series
B Junior Participating Preferred Stock of the
Company-March 1, 2000.
3.2(6) Amended Bylaws, as amended through April 14, 2000.
4.1(7) Form of Certificate for Common Stock, Class A-as of
February 2001.
4.2(7) Form of Certificate for Common Stock, Class B-as of
February 2001.
4.3* Amended and Restated Rights Agreement, dated as of
August 31, 2002, between the Company and Mellon Investor
Services LLC, as Rights Agent, with related Exhibits.
4.4a(7) Amended and Restated Credit Agreement dated July 17,
2000 by and among the Company and certain financial
institutions, including Chase Manhattan Bank in its
capacity as a lender and as agent for the lenders.
4.4b* Amendment No. 3 to the Amended and Restated Credit
Agreement dated as of May 30, 2002.
10.1(1) Form of Indemnification Agreement.
10.2a(5) Securities Purchase Agreement dated as of March 21, 2000
between the Company, Silver Lake Partners, L.P., Silver
Lake Technology Investors, L.L.C. and other parties
thereto.
22
<PAGE>
10.2b(5) Amendment to the Securities Purchase Agreement dated as
of April 17, 2000 between the Company, Silver Lake
Partners, L.P., Silver Lake Technology Investors, and
the other parties thereto.
10.2c(7) Letter Agreement dated September 6, 2001 relating to the
Securities Purchase Agreement and 6% Convertible Junior
Subordinated Promissory Notes.
10.2d* Form of Amended and Restated 6% Convertible Junior
Subordinated Promissory Note due April 17, 2005.
10.2e* Amended and Restated Securityholders Agreement dated as
of July 12, 2002 among the Company, Silver Lake
Partners, L.P. and other parties thereto.
10.3a(2) Lease dated December 29, 1994 between Soundview Farms
and the Company for premises at 56 Top Gallant Road, 70
Gatehouse Road, and 88 Gatehouse Road, Stamford,
Connecticut.
10.3b(3) Lease dated May 16, 1997 between Soundview Farms and the
Company for premises at 56 Top Gallant Road, 70
Gatehouse Road, 88 Gatehouse Road and 10 Signal Road,
Stamford, Connecticut (amendment to lease dated December
29, 1994, see exhibit 10.3a).
10.4(6)+ 1993 Director Stock Option Plan as amended and restated
on April 14, 2000.
10.5(9)+ 2002 Employee Stock Purchase Plan.
10.6(3)+ 1994 Long Term Stock Option Plan, as amended and
restated on October 12, 1999.
10.7(3)+ 1998 Long Term Stock Option Plan, as amended and
restated on October 12, 1999.
10.8(3)+ 1996 Long Term Stock Option Plan, as amended and
restated on October 12, 1999.
10.9*+ Employment Agreement between Michael D. Fleisher and the
Company as of October 1, 2002.
10.10(6)+ Employment Agreement between Regina M. Paolillo and the
Company as of July 1, 2000.
10.11*+ Employment Agreement between Maureen O'Connell and the
Company dated as of October 15, 2002 and effective as of
September 23, 2002.
10.12a(6)+ Employment Agreement between Robert E. Knapp and the
Company dated as of August 7, 2000.
10.12b(7)+ Addendum No. 1 to Employment Agreement between Robert E.
Knapp and the Company as of February 1, 2001.
10.13(8)+ Employment Agreement between Steven Tait and the Company
dated as of June 15, 2001.
21.1* Subsidiaries of Registrant.
23.1* Independent Auditors' Consent.
24.1 Power of Attorney (see Signature Page).
23
<PAGE>
* Filed with this document.
+ Management compensation plan or arrangement.
- ----------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-67576), as amended, effective October 4, 1993.
(2) Incorporated by reference from the Company's Annual Report on Form 10-K as
filed on December 21, 1995.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K
filed on December 22, 1999.
(4) Incorporated by reference from the Company's Form 8-K dated March 1, 2000
as filed on March 7, 2000.
(5) Incorporated by reference from the Company's Form 8-K dated April 17, 2000
as filed on April 25, 2000.
(6) Incorporated by reference from the Company's Annual Report on Form 10-K as
filed on December 29, 2000.
(7) Incorporated by reference from the Company's Annual Report on Form 10-K as
filed on December 28, 2001.
(8) Incorporated by reference from the Company's Form 10-Q as filed on February
13, 2002.
(9) Incorporated by reference from the Company's Form S-8 dated as filed on
June 26, 2002.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the fiscal quarter ended
September 30, 2002.
24
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
GARTNER, INC.
CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<S> <C>
Report by Management............................................................................................... 26
Independent Auditors' Report....................................................................................... 27
Consolidated Balance Sheets as of September 30, 2002 and 2001...................................................... 28
Consolidated Statements of Operations for Years Ended September 30, 2002, 2001 and 2000 ........................... 29
Consolidated Statements of Stockholders' Equity (Deficit) and Comprehensive Income (Loss) for Years Ended
September 30, 2002, 2001 and 2000 .............................................................................. 30 & 31
Consolidated Statements of Cash Flows for Years Ended September 30, 2002, 2001 and 2000............................ 32
Notes to Consolidated Financial Statements......................................................................... 33
Certification Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 as Adopted Pursuant to Section 302
of the Sarbanes - Oxley Act of 2002............................................................................. 59 & 60
Independent Auditors' Report on Consolidated Financial Statement Schedule.......................................... 61
Schedule II--Valuation and Qualifying Accounts, Years Ended September 30, 2002, 2001 and 2000...................... 63
</Table>
25
<PAGE>
Report by Management
Management's Responsibility for Financial Reporting
Management has prepared and is responsible for the integrity and
objectivity of the consolidated financial statements and related information
included in the Annual Report. The consolidated financial statements, which
include amounts based on management's best judgments and estimates, were
prepared in conformity with generally accepted accounting principles. Financial
information elsewhere in this Annual Report is consistent with that in the
consolidated financial statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance at reasonable cost that assets are safeguarded and
transactions are properly executed and recorded for the preparation of reliable
financial information. The internal control system is augmented with written
policies and procedures, an organizational structure providing division of
responsibilities, careful selection and training of qualified financial people
and a program of periodic audits performed by both internal auditors and
independent public accountants.
The Audit Committee of the Board of Directors, composed solely of
non-employee directors, meets regularly with management, internal auditors and
our independent accountants to ensure that each is meeting its responsibilities
and to discuss matters concerning internal controls and financial reporting.
Both the independent and internal auditors have unrestricted access to the Audit
Committee.
/s/ Michael D. Fleisher
- --------------------------------
Michael D. Fleisher
Chairman of the Board and Chief Executive Officer
/s/ Maureen E. O'Connell
- --------------------------------
Maureen E. O'Connell
Chief Financial Officer
26
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Gartner, Inc.:
We have audited the accompanying consolidated balance sheets of Gartner,
Inc. and subsidiaries as of September 30, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity (deficit) and
comprehensive income (loss) and cash flows for each of the years in the
three-year period ended September 30, 2002. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gartner,
Inc. and subsidiaries as of September 30, 2002 and 2001, and the results of
their operations and their cash flows for each of the years in the three-year
period ended September 30, 2002, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Notes 1 and 8, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" in the year
ended September 30, 2002.
/s/ KPMG LLP
New York, New York
October 29, 2002
27
<PAGE>
GARTNER, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
SEPTEMBER 30,
------------------------------
2002 2001
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................................ $ 124,793 $ 37,128
Marketable equity securities ..................................................... -- 3,250
Fees receivable, net of allowances of $7,000 in 2002 and $5,600 in 2001 .......... 264,843 300,306
Deferred commissions ............................................................. 26,366 34,822
Prepaid expenses and other current assets ........................................ 39,031 70,868
------------ ------------
Total current assets .......................................................... 455,033 446,374
Property, equipment and leasehold improvements, net ................................. 76,161 100,288
Goodwill ............................................................................ 222,427 216,856
Intangible assets, net .............................................................. 2,731 5,377
Other assets ........................................................................ 68,498 70,107
------------ ------------
Total assets ..................................................................... $ 824,850 $ 839,002
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities ......................................... $ 130,364 $ 137,751
Deferred revenues ................................................................ 306,978 351,263
Short-term debt ................................................................ -- 15,000
------------ ------------
Total current liabilities ..................................................... 437,342 504,014
------------ ------------
Long-term convertible debt .......................................................... 346,300 326,200
Other liabilities ................................................................... 46,098 43,306
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock:
$.01 par value, authorized 5,000,000 shares; none issued or outstanding .......... -- --
Common stock:
$.0005 par value, authorized 166,000,000 shares of Class A Common Stock and
84,000,000 shares of Class B Common Stock; issued 79,986,681 shares of Class
A Common Stock (77,737,660 in 2001) and 40,689,648 shares of Class B Common
Stock in 2002 and in 2001 ........................................................ 60 59
Additional paid-in capital .......................................................... 366,723 342,216
Unearned compensation, net .......................................................... (3,467) (5,145)
Accumulated other comprehensive loss, net ........................................... (14,085) (14,961)
Accumulated earnings ................................................................ 164,661 116,083
Treasury stock, at cost, 28,210,725 shares of Class A Common Stock (26,621,154 in
2001) and 10,453,520 shares of Class B Common Stock (8,141,820 in 2001) .......... (518,782) (472,770)
------------ ------------
Total stockholders' equity (deficit) ............................................. (4,890) (34,518)
------------ ------------
Total liabilities and stockholders' equity (deficit) .......................... $ 824,850 $ 839,002
============ ============
</Table>
See Notes to Consolidated Financial Statements.
28
<PAGE>
GARTNER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Research ..................................................... $ 496,403 $ 535,114 $ 509,781
Consulting ................................................... 273,692 276,292 216,667
Events ....................................................... 121,991 132,684 108,589
Other ........................................................ 15,088 18,794 27,414
---------- ---------- ----------
Total revenues ............................................ 907,174 962,884 862,451
Costs and expenses:
Cost of services and product development ..................... 403,718 450,471 395,603
Selling, general and administrative .......................... 345,382 370,096 341,874
Depreciation ................................................. 42,504 40,873 27,839
Amortization of intangibles .................................. 1,949 12,367 13,004
Other charges ................................................ 17,246 46,563 --
---------- ---------- ----------
Total costs and expenses .................................. 810,799 920,370 778,320
---------- ---------- ----------
Operating income ................................................ 96,375 42,514 84,131
Net gain (loss) on sale of investments .......................... 787 (640) 29,630
Net loss from minority-owned investments ........................ (2,365) (26,817) (775)
Interest income ................................................. 1,845 1,616 3,936
Interest expense ................................................ (22,869) (22,391) (24,900)
Other expense, net .............................................. (170) (3,674) (722)
---------- ---------- ----------
Income (loss) from continuing operations before income taxes .... 73,603 (9,392) 91,300
Provision (benefit) for income taxes ............................ 25,025 (9,172) 36,447
---------- ---------- ----------
Income (loss) from continuing operations ........................ 48,578 (220) 54,853
Discontinued operation, net of taxes:
Loss from discontinued operation ............................. -- (26,059) (27,578)
Loss on disposal of discontinued operation ................... -- (39,924) --
---------- ---------- ----------
Loss from discontinued operation ......................... -- (65,983) (27,578)
---------- ---------- ----------
Income (loss) before extraordinary item ......................... 48,578 (66,203) 27,275
Extraordinary loss on debt extinguishment, net of taxes ......... -- -- (1,729)
---------- ---------- ----------
Net income (loss) ............................................... $ 48,578 $ (66,203) $ 25,546
========== ========== ==========
Net income (loss) per share:
Basic:
Income (loss) from continuing operations ..................... $ 0.58 $ (0.00) $ 0.63
Loss from discontinued operation .......................... -- (0.30) (0.31)
Loss on disposal of discontinued operation ................ -- (0.47) --
Extraordinary loss ........................................ -- -- (0.02)
---------- ---------- ----------
Net income (loss) ......................................... $ 0.58 $ (0.77) $ 0.30
========== ========== ==========
Diluted:
Income (loss) from continuing operations .................. $ 0.47 $ (0.00) $ 0.62
Loss from discontinued operation .......................... -- (0.30) (0.31)
Loss on disposal of discontinued operation ................ -- (0.47) --
Extraordinary loss ........................................ -- -- (0.02)
---------- ---------- ----------
Net income (loss) ......................................... $ 0.47 $ (0.77) $ 0.29
========== ========== ==========
Weighted average shares outstanding:
Basic ........................................................ 83,586 85,862 86,564
========== ========== ==========
Diluted ...................................................... 130,882 85,862 89,108
========== ========== ==========
</Table>
See Notes to Consolidated Financial Statements.
29
<PAGE>
GARTNER, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DEFICIT) AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
ACCUMULATED
OTHER
ADDITIONAL UNEARNED COMPREHENSIVE
PREFERRED COMMON PAID-IN COMPENSATION, INCOME (LOSS)
STOCK STOCK CAPITAL NET NET
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1999 ...................... $ -- $ 58 $ 314,829 $ (8,280) $ (3,830)
Net income ......................................... -- -- -- -- --
Foreign currency translation adjustments ........... -- -- -- -- (11,667)
Net unrealized gain on marketable investments,
net of tax benefit of $12,084 ............... -- -- -- -- 15,496
Comprehensive income ......................... -- -- -- -- --
Issuance of 1,379,306 shares of Class A
Common Stock upon exercise of stock
options ......................................... -- 1 8,091 -- --
Issuance from treasury stock of 394,279
shares of Class A Common Stock for
purchases by employees .......................... -- -- 5,008 -- --
Tax benefits of stock transactions with
employees ....................................... -- -- 4,179 -- --
Net share settlement of 155,792 shares of
Class A Common Stock on forward
purchase agreement .............................. -- -- -- -- --
Net cash settlement paid on forward purchase
agreement ....................................... -- -- (8,200) -- --
Restricted stock net of forfeitures of 27,500
shares of Class A Common Stock .................. -- -- (719) 719 --
Acquisition of 2,493,500 shares of Class A and
2,006,700 shares of Class B
Common Stock .................................... -- -- -- -- --
Increase in carrying value of Jupiter Media
Metrix .......................................... -- -- 8,321 -- --
Issuance of 2,074 shares of Class A Common
Stock issued for services rendered .............. -- 42 -- --
Option to purchase subsidiary shares ............... -- -- 1,000 -- --
Return of 37,013 shares of Class A Common
Stock related to acquisitions ................... -- -- (723) -- --
Issuance of subsidiary stock related to an
acquisition .................................... -- -- 2,000 -- --
Amortization of unearned compensation .............. -- -- 1,110 --
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2000 ...................... -- 59 333,828 (6,451) (1)
Net loss ........................................... -- -- -- -- --
Foreign currency translation adjustments ........... -- -- -- -- 1,627
Change in net unrealized loss on
marketable investments, net of
tax benefit of $12,811 .......................... -- -- -- -- (16,587)
Comprehensive loss ........................... -- -- -- -- --
Issuance of 592,832 shares of Class A Common
Stock upon exercise of stock options .......... -- -- 3,650 -- --
Issuance from treasury stock of 769,085
shares of Class A Common Stock for
purchases by employees .......................... -- -- 5,374 -- --
Tax benefits of stock transactions with
employees ....................................... -- -- 1,331 -- --
Net settlement paid of 491,789
shares of Class A Common Stock
and $64 on forward purchase agreement ........... -- -- (73) -- --
Acquisition of 4,144,666 shares of Class A and
12,088 shares of Class B Common Stock .......... -- -- -- -- --
Elimination of minority interest from
sale of discontinued operation ................ -- -- (2,056) -- --
Issuance of subsidiary stock upon
exercise of stock options ....................... -- -- 56 -- --
Compensation from modification of
stock options related to employee
terminations .................................... -- -- 261 -- --
Amortization of unearned compensation .............. -- -- -- 1,151 --
Issuance of 81,290 shares of Class A
Common Stock upon earnout of restricted
shares and forfeiture of unvested restricted
share awards .................................... -- -- (155) 155 --
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2001 ...................... -- 59 342,216 (5,145) (14,961)
<Caption>
TOTAL
STOCKHOLDERS'
ACCUMULATED TREASURY EQUITY
EARNINGS STOCK (DEFICIT)
------------ ------------ ------------
<S> <C> <C> <C>
Balance at September 30, 1999 ...................... $ 156,740 $ (385,031) $ 74,486
Net income ......................................... 25,546 -- 25,546
Foreign currency translation adjustments ........... -- -- (11,667)
Net unrealized gain on marketable investments,
net of tax benefit of $12,084 ............... -- -- 15,496
------------
Comprehensive income ......................... -- -- 29,375
Issuance of 1,379,306 shares of Class A
Common Stock upon exercise of stock
options ......................................... -- -- 8,092
Issuance from treasury stock of 394,279
shares of Class A Common Stock for
purchases by employees .......................... -- 8 5,016
Tax benefits of stock transactions with
employees ....................................... -- -- 4,179
Net share settlement of 155,792 shares of
Class A Common Stock on forward
purchase agreement .............................. -- -- --
Net cash settlement paid on forward purchase
agreement ....................................... -- -- (8,200)
Restricted stock net of forfeitures of 27,500
shares of Class A Common Stock .................. -- -- --
Acquisition of 2,493,500 shares of Class A and
2,006,700 shares of Class B
Common Stock .................................... -- (49,877) (49,877)
Increase in carrying value of Jupiter Media
Metrix .......................................... -- -- 8,321
Issuance of 2,074 shares of Class A Common
Stock issued for services rendered .............. -- -- 42
Option to purchase subsidiary shares ............... -- -- 1,000
Return of 37,013 shares of Class A Common
Stock related to acquisitions ................... -- (1) (724)
Issuance of subsidiary stock related to an
acquisition .................................... -- -- 2,000
Amortization of unearned compensation .............. -- -- 1,110
------------ ------------ ------------
Balance at September 30, 2000 ...................... 182,286 (434,901) 74,820
Net loss ........................................... (66,203) -- (66,203)
Foreign currency translation adjustments ........... -- -- 1,627
Change in net unrealized loss on
marketable investments, net of
tax benefit of $12,811 .......................... -- -- (16,587)
------------
Comprehensive loss ........................... -- -- (81,163)
Issuance of 592,832 shares of Class A Common
Stock upon exercise of stock options .......... -- -- 3,650
Issuance from treasury stock of 769,085
shares of Class A Common Stock for
purchases by employees .......................... -- 15 5,389
Tax benefits of stock transactions with
employees ....................................... -- -- 1,331
Net settlement paid of 491,789
shares of Class A Common Stock
and $64 on forward purchase agreement ........... -- 9 (64)
Acquisition of 4,144,666 shares of Class A and
12,088 shares of Class B Common Stock .......... -- (37,893) (37,893)
Elimination of minority interest from
sale of discontinued operation ................ -- -- (2,056)
Issuance of subsidiary stock upon
exercise of stock options ....................... -- -- 56
Compensation from modification of
stock options related to employee
terminations .................................... -- -- 261
Amortization of unearned compensation .............. -- -- 1,151
Issuance of 81,290 shares of Class A
Common Stock upon earnout of restricted
shares and forfeiture of unvested restricted
share awards .................................... -- -- --
------------ ------------ ------------
Balance at September 30, 2001 ...................... 116,083 (472,770) (34,518)
</Table>
30
<PAGE>
<Table>
<S> <C> <C> <C> <C> <C>
Net income ......................................... -- -- -- -- --
Foreign currency translation adjustments ........... -- -- -- -- (69)
Change in net unrealized loss on
marketable investments, net of
tax benefit of $630 ............................. -- -- -- -- 945
Comprehensive income ......................... -- -- -- -- --
Issuance of 1,989,049 shares of Class A Common
Stock upon exercise of stock options .......... -- 1 17,730 -- --
Issuance from treasury stock of 560,861
shares of Class A Common Stock for
purchases by employees .......................... -- -- 3,400 -- --
Tax benefits of stock transactions with
employees ....................................... -- -- 2,280 -- --
Acquisition of 2,153,400 shares of Class A and
2,311,700 shares of Class B Common Stock ....... -- -- -- -- --
Issuance of 3,159 shares of Class A
Common Stock for directors compensation ......... -- -- 55 -- --
Compensation from modification of
stock options related to employee
terminations .................................... -- -- 1,403 -- --
Amortization of unearned compensation .............. -- -- -- 1,317 --
Issuance of 81,613 shares of Class A
Common Stock upon earnout of restricted
shares and forfeiture of unvested restricted
share awards .................................... -- -- (361) 361 --
------------ ------------ ------------ ------------ ------------
Balance at September 30, 2002 ...................... $ -- $ 60 $ 366,723 $ (3,467) $ (14,085)
============ ============ ============ ============ ============
<Caption>
<S> <C> <C> <C>
Net income ......................................... 48,578 -- 48,578
Foreign currency translation adjustments ........... -- -- (69)
Change in net unrealized loss on
marketable investments, net of
tax benefit of $630 ............................. -- -- 945
------------
Comprehensive income ......................... -- -- 49,454
Issuance of 1,989,049 shares of Class A Common
Stock upon exercise of stock options .......... -- 5 17,736
Issuance from treasury stock of 560,861
shares of Class A Common Stock for
purchases by employees .......................... -- 1,030 4,430
Tax benefits of stock transactions with
employees ....................................... -- -- 2,280
Acquisition of 2,153,400 shares of Class A and
2,311,700 shares of Class B Common Stock ....... -- (47,047) (47,047)
Issuance of 3,159 shares of Class A
Common Stock for directors compensation ......... -- -- 55
Compensation from modification of
stock options related to employee
terminations .................................... -- -- 1,403
Amortization of unearned compensation .............. -- -- 1,317
Issuance of 81,613 shares of Class A
Common Stock upon earnout of restricted
shares and forfeiture of unvested restricted
share awards .................................... -- -- --
------------ ------------ ------------
Balance at September 30, 2002 ...................... $ 164,661 $ (518,782) $ (4,890)
============ ============ ============
</Table>
See Notes to Consolidated Financial Statements.
31
<PAGE>
GARTNER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
2002 2001 2000
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income (loss) ................................................................. $ 48,578 $ (66,203) $ 25,546
Adjustments to reconcile net income (loss) to cash provided by operating activities
of continuing operations:
Loss from discontinued operation .................................................. -- 65,983 27,578
Depreciation ...................................................................... 42,504 40,873 27,839
Amortization of intangibles ....................................................... 1,949 12,367 13,004
Non-cash compensation ............................................................. 2,720 1,151 2,151
Tax benefit associated with employee exercise of stock options .................... 2,280 1,331 4,179
Provision for doubtful accounts ................................................... 9,119 5,037 4,256
Deferred tax (benefit) expense .................................................... 4,066 (34,973) (10,159)
Net loss (gain) on sale of investments ............................................ (787) 640 (29,630)
Net loss from minority-owned investments .......................................... 2,365 26,817 775
Accretion of interest and amortization of debt issuance costs ..................... 22,116 20,802 9,520
Non-cash charges associated with impairment of long-lived assets .................. 1,424 18,888 --
Net gain from sale of business .................................................... (493) -- --
Extraordinary loss on debt extinguishment, net of tax benefit ..................... -- -- 1,729
Acquisition-related tax benefit applied to reduce goodwill ........................ -- 158 966
Changes in assets and liabilities, excluding effects of acquisitions and
discontinued operation:
Fees receivable ................................................................... 31,180 19,634 (51,633)
Deferred commissions .............................................................. 9,046 11,902 (16,552)
Prepaid expenses and other current assets ......................................... 26,069 (26,039) (4,500)
Other assets ...................................................................... 1,930 (2,559) (11,245)
Accounts payable and accrued liabilities .......................................... (7,628) 13,147 73,514
Deferred revenues ................................................................. (50,886) (35,488) 36,993
---------- ---------- ----------
Cash provided by operating activities ................................................ 145,552 73,468 104,331
---------- ---------- ----------
Investing activities:
Payments for businesses acquired (excluding cash acquired) ........................ (4,537) (12,011) (115,162)
Proceeds from sale of investments ................................................. 6,025 14,437 91,516
Proceeds from sale of business .................................................... 239 -- --
Payments for investments .......................................................... (1,508) -- (20,427)
Addition of property, equipment, leasehold improvements and capitalized software .. (19,639) (57,546) (54,565)
Net proceeds from sale of discontinued operation .................................. -- 10,501 --
---------- ---------- ----------
Cash used in investing activities .................................................... (19,420) (44,619) (98,638)
---------- ---------- ----------
Financing activities:
Proceeds from the exercise of stock options ....................................... 17,736 3,706 8,092
Proceeds from Employee Stock Purchase Plan ........................................ 4,430 5,389 5,016
Net cash settlement on forward purchase agreement ................................. -- (64) (8,200)
Purchases of treasury stock ....................................................... (47,047) (37,893) (49,877)
Proceeds from issuance of debt .................................................... -- 15,000 420,000
Payments on debt .................................................................. (15,000) -- (370,000)
Capitalized payments for debt issuance costs ...................................... (238) (5,000) (3,993)
---------- ---------- ----------
Cash (used in) provided by financing activities ...................................... (40,119) (18,862) 1,038
---------- ---------- ----------
Net increase in cash and cash equivalents ............................................ 86,013 9,987 6,731
Cash used by discontinued operation .................................................. -- (34,203) (30,096)
Effect of exchange rates on cash and cash equivalents ................................ 1,652 (354) (3,831)
Cash and cash equivalents, beginning of period ....................................... 37,128 61,698 88,894
---------- ---------- ----------
Cash and cash equivalents, end of period ............................................. $ 124,793 $ 37,128 $ 61,698
========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .......................................................................... $ 753 $ 1,589 $ 14,964
Income taxes paid, net of refunds received. The 2002 amount is net of $26,650 of
refunds ........................................................................... $ (7,614) $ 14,729 $ 13,685
Supplemental schedule of non-cash investing and financing activities:
Stock issued by Company and subsidiary in connection with acquisitions ............ $ -- $ -- $ 2,000
Option to purchase subsidiary shares issued by Company ............................ $ -- $ -- $ 1,000
</Table>
See Notes to Consolidated Financial Statements.
32
<PAGE>
GARTNER, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The fiscal year of Gartner, Inc. (the "Company")
represents the period from October 1 through September 30. References to 2002,
2001 and 2000, unless otherwise indicated, are to the respective fiscal year.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its majority-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Investments in companies in which the Company owns less than 50% but has the
ability to exercise significant influence over operating and financial policies
are accounted for using the equity method. All other investments for which the
Company does not have the ability to exercise significant influence are
accounted for under the cost method of accounting. The results of operations for
acquisitions of companies accounted for using the purchase method have been
included in the Consolidated Statements of Operations beginning on the closing
date of acquisition.
REVENUE AND COMMISSION EXPENSE RECOGNITION. The Company typically
enters into annually renewable subscription contracts for research products.
Revenue from research products is deferred and recognized ratably over the
applicable contract terms. The majority of research contracts are billable upon
signing, absent special terms granted on a limited basis from time to time. All
research contracts are non-cancelable and non-refundable, except for government
contracts that have a 30-day cancellation clause but have not produced material
cancelations to date. With the exception of certain government contracts which
permit termination and contracts with special billing terms, it is the Company's
policy to record the entire amount of the contract that is billable as a fee
receivable at the time the contract is signed, which represents a legally
enforceable claim, and a corresponding amount as deferred revenue. For those
government contracts that permit termination, the Company bills the client the
full amount billable under the contract but only records a receivable equal to
the earned portion of the contract. In addition, the Company only records
deferred revenue on these government contracts when cash is received. Deferred
revenue attributable to government contracts were $28.9 million and $24.5
million at September 30, 2002 and 2001, respectively. In addition, at September
30, 2002 and 2001, the Company had not recognized receivables or deferred
revenues relating to government contracts that permit termination of $7.7
million and $13.3 million, respectively, which had been billed but not yet
collected. The Company records the commission obligation related to research
contracts upon the signing of the contract and amortizes the corresponding
deferred commission expense over the contract period in which the related
revenues are earned.
Consulting revenues, primarily derived from consulting, measurement and
strategic advisory services (paid one-day analyst engagements), are recognized
primarily on a percentage of completion basis and on a time and materials basis
as work is performed and services are provided on a contract by contract basis.
Events revenue is deferred and recognized upon the completion of the
related symposium, conference or exhibition. In addition, the Company defers
certain costs directly related to events and expenses these costs in the period
during which the related symposium, conference or exhibition occurs. The
Company's policy is to defer only those costs, primarily prepaid site and
production services costs, which are incremental and are directly attributable
to a specific event. Other costs of organizing and producing the Company's
events, primarily Company personnel and non-event specific expenses, are
expensed in the period incurred. At the end of each fiscal quarter, management
assesses on an event-by-event basis whether expected direct costs of producing a
scheduled event will exceed expected revenues. If such costs are expected to
exceed revenues, the Company records the expected loss in the period determined.
Other revenues includes software licensing fees which are recognized
when a signed non-cancelable software license exists, delivery has occurred,
collection is probable, and the Company's fees are fixed or determinable.
Revenue from software maintenance is deferred and recognized ratably over the
term of each maintenance agreement, which is typically twelve months.
CASH AND CASH EQUIVALENTS. All highly liquid investments with original
maturities of three months or less are classified as cash equivalents. The
carrying value of these investments approximates fair value based upon their
short-term maturity. Investments with maturities of more than three months are
classified as marketable securities.
INVESTMENTS IN EQUITY SECURITIES. The Company accounts for its
investments in publicly traded equity securities under Statement of Financial
Accounting Standards ("SFAS ") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities. These investments, which meet the criteria for
classification as available for sale, are recorded at fair value and are
included as Marketable Equity Securities on the Consolidated Balance Sheets
given the Company's ability and intent to sell such investments within a one
year period. Unrealized gains and losses on these marketable investments are
recorded, net of tax, as a component of Accumulated other comprehensive income
(loss), net within the Stockholders' equity (deficit) section of the
Consolidated Balance Sheets. Realized gains and losses are recorded in Net gain
(loss) from sale of investments within the Consolidated Statements of
Operations. The cost of equity securities sold is based on specific
identification. The Company assesses the need to record impairment losses on
investments and records such losses when the impairment of an investment is
determined to be other than temporary in nature. In making this assessment, the
Company considers the significance and duration of the decline in value and the
valuation of comparable companies operating in the
33
<PAGE>
Internet and technology sectors. The impairment factors the Company evaluates
may change in subsequent periods, since the entities underlying these
investments operate in a volatile business environment. In addition, these
entities may require additional financing to meet their cash and operational
needs; however, there can be no assurance that such funds will be available to
the extent needed at terms acceptable to the entities, if at all. These
impairment losses are reflected in Net loss from minority-owned investments
within the Consolidated Statements of Operations. Investments for which the
Company does not have the ability to exercise significant influence are
accounted for under the cost method of accounting. Accordingly, these
investments are carried at the lower of cost or net realizable value and are
included in Other assets in the Consolidated Balance Sheets (see Note 5 -
Investments). The equity method is used to account for investments in entities
that are not majority-owned and that the Company does not control but does have
the ability to exercise significant influence.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS. Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation and
amortization. Property and equipment are depreciated using the straight-line
method over the estimated useful lives of the assets. Leasehold improvements are
amortized using the straight-line method over the shorter of the estimated
useful lives of the assets or the remaining term of the related leases.
SOFTWARE DEVELOPMENT COSTS. The Company capitalizes certain computer
software development costs and enhancements after the establishment of
technological feasibility, limited to the net realizable value of the software
product, and ceases capitalization when the software product is available for
general release to clients. Until these products reach technological
feasibility, all costs related to development efforts are charged to expense.
Once technological feasibility has been determined, additional costs incurred in
development, including coding, testing, and documentation, are capitalized.
Amortization of software development costs is provided on a product-by-product
basis over the estimated economic life of the software, generally two years,
using the straight-line method. Amortization of capitalized computer software
development costs begins when the products are available for general release to
customers. Additionally, the Company capitalizes certain costs incurred to
purchase or to create and implement internal use software. Periodic reviews are
performed to ensure that unamortized capitalized software development costs
remain recoverable from future revenue.
GOODWILL AND INTANGIBLE ASSETS. Intangible assets include, non-compete
agreements, trademarks and tradenames. Goodwill represents the excess of the
purchase price of acquired businesses over the estimated fair value of the
tangible and identifiable intangible net assets acquired. Effective October 1,
2001, the Company adopted early SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 eliminates goodwill amortization upon adoption and
requires an initial assessment for goodwill impairment within six months after
initial adoption and at least annually thereafter. No goodwill amortization was
recognized during the year ended September 30, 2002. The Company completed its
initial transitional goodwill impairment assessment in the second fiscal quarter
of 2002 and determined that there was no impairment of goodwill and no
impairment charge to be recorded as a cumulative effect of a change in
accounting principle in accordance with SFAS No. 142. Non-compete agreements are
being amortized on a straight-line basis over the period of the agreement
ranging from two to five years. Tradenames are being amortized on a
straight-line basis over their estimated useful lives ranging from nine to
twelve years. In addition, no impairment was recognized as a result of the
Company's annual evaluation.
IMPAIRMENT OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS. The Company
reviews long-lived assets and intangible assets other than goodwill for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the respective asset may not be recoverable. Such evaluation
may be based on a number of factors including current and projected operating
results and cash flows, changes in management's strategic direction as well as
other economic and market variables. Management's policy regarding long-lived
assets and intangible assets other than goodwill is to evaluate the
recoverability of these assets by determining whether the balance can be
recovered through undiscounted future operating cash flows. Should events or
circumstances indicate that the carrying value might not be recoverable based on
undiscounted future operating cash flows, an impairment loss would be
recognized. The amount of impairment, if any, is measured based on the
difference between projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds and the carrying
value of the asset (see Note 6 -- Other Charges).
FOREIGN CURRENCY TRANSLATION. All assets and liabilities of foreign
subsidiaries are translated into U.S. dollars at fiscal year-end exchange rates.
The resulting translation adjustments are recorded as foreign currency
translation adjustments, as a component of Accumulated other comprehensive
income (loss) within the stockholders' equity (deficit) section of the
Consolidated Balance Sheets. Income and expense items are translated at average
exchange rates for the year. Currency transaction gains or losses arising from
transactions denominated in currencies other than the functional currency are
included in results of operations within Other expense, net within the
Consolidated Statements of Operations.
INCOME TAXES. Deferred tax assets and liabilities are recognized based
on differences between the book and tax basis of assets and liabilities using
presently enacted tax rates. The provision for income taxes is the sum of the
amount of income tax paid or payable for the year as determined by applying the
provisions of enacted tax laws to taxable income for that year and the net
changes during the year in deferred tax assets and liabilities. Undistributed
earnings of subsidiaries outside of the U.S. amounted to approximately $40.0
million as of September 30, 2002 and will either be indefinitely reinvested or
remitted substantially free of U.S. tax. Accordingly, no material provision has
been made for taxes that may be payable upon remittance of such earnings, nor is
it practicable to determine the amount of any liability. The Company credits
additional paid-in capital for realized tax benefits arising from stock
transactions with employees. The
34
<PAGE>
tax benefit on a nonqualified stock option is equal to the tax effect of the
difference between the market price of the Company's common stock on the date of
exercise and the exercise price.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The Company's financial
instruments include cash and cash equivalents, fees receivable, accounts
payable, and accruals which are short-term in nature. The carrying amounts of
these financial instruments approximate their fair value. Investments in
publicly traded equity securities are valued based on quoted market prices.
Investments in equity securities that are not publicly traded are valued at the
lower of cost or net realizable value, which approximates fair market value.
Long-term convertible debt consists of 6% convertible subordinated
notes (see Note 10--Debt). Although there were no amounts outstanding at
September 30, 2002 under a senior revolving credit facility, the carrying amount
of any such borrowings would approximate fair value as the rates of interest on
the revolving credit facility approximate current market rates of interest for
similar instruments with comparable maturities.
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially
subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents, marketable equity securities and fees receivable.
Concentrations of credit risk with respect to fees receivable are limited due to
the large number of clients comprising the client base and their dispersion
across many different industries and geographic regions.
USE OF ESTIMATES. The preparation of consolidated financial statements
in conformity with generally accepted accounting principles in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities and disclosures, if any, of contingent
assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates. Estimates are used when accounting for such
items as allowance for doubtful accounts, investments, depreciation,
amortization, income taxes and certain accrued liabilities.
RECENTLY ISSUED ACCOUNTING STANDARDS. In November 2001, the Emerging
Issues Task Force reached a consensus on issue No. 01-14, "Income Statement
Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses
Incurred." The consensus requires reimbursements received for out-of-pocket
expenses incurred to be characterized as revenue in the statements of
operations. Out-of-pocket expenses are incidental expenses incurred as part of
ongoing operations and include, but are not limited to, expenses related to
airfare, mileage, hotel stays, out-of-town meals, photocopies and
telecommunication and facsimile charges. This consensus must be applied to
financial reporting periods beginning after December 15, 2001 with
reclassification of prior periods for comparability. The Company adopted the
consensus beginning with the second quarter of fiscal 2002, and in accordance
with the consensus, reclassified prior periods. For the years ended September
30, 2002, 2001 and 2000, adoption of the consensus caused both revenues and cost
of services and product development in the consulting segment to increase by
$10.0 million, $10.8 million and $7.9 million, respectively.
In April 2002, Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections" ("SFAS No. 145") was issued. FASB Statement
No. 4 required all gains and losses from the extinguishment of debt to be
reported as extraordinary items and Statement No. 64 related to the same matter.
FAS 145 requires gains and losses from certain debt extinguishment to not be
reported as extraordinary items when the use of debt extinguishment is part of
the risk management strategy. Statement No. 44 was issued to establish
transitional requirements for motor carriers relative to intangible assets.
Since those transitions are completed, Statement 44 is no longer applicable.
SFAS No. 145 also amends Statement No. 13 requiring sale-leaseback accounting
for certain lease modifications. SFAS No. 145 is effective for fiscal years
beginning after May 15, 2002 (fiscal 2003 for Gartner). The provisions relating
to sale-leaseback are effective for transactions after May 15, 2002. The
adoption of SFAS No. 145 is not expected to have a material impact on the
Company's financial position or results of operations. Upon adoption, in 2003,
the extraordinary loss from the extinguishment of debt, net of taxes of $1.8
million or $(0.02) per share in fiscal 2000 will be reclassified to continuing
operations.
In July 2002, Statement of Financial Accounting Standards No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS 146") was issued.
This Statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies Emerging Issues Task Force Issue
("EITF") 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." The principle difference between SFAS 146 and EITF 94-3 relates
to the timing of liability recognition. Under SFAS 146, a liability for a cost
associated with an exit or disposal activity is recognized when the liability is
incurred. Under EITF 94-3, a liability for an exit cost was recognized at the
date of an entity's commitment to an exit plan. The provisions of SFAS 146 are
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this statement is not expected to have a material impact
on the Company's financial position or results of operations as approval of the
Company's workforce and facility reductions announced on October 30, 2002 were
initiated prior to the SFAS No. 146 effective date (see Note 18 - Subsequent
Events - Unaudited).
35
<PAGE>
2--BUSINESS ACQUISITIONS
FISCAL 2002
On June 10, 2002, the Company acquired the remaining 49.9% of People3,
Inc., a leading authority on IT human capital. People3 has been integrated with
the Company's consulting segment. Prior to this acquisition, the Company owned
50.1% of People3 and consolidated its assets and liabilities and results of
operations with those of the Company. Revenues in fiscal 2002 were approximately
$6.9 million. The purchase price was $3.9 million, of which $0.2 million was
allocated to non-compete agreements, $0.3 million was allocated to
database-related assets and $3.4 million was allocated to goodwill. The
non-compete agreements are being amortized over the three-year non-compete
agreement. The database-related assets are being amortized over their estimated
useful life of five years.
During fiscal 2002, the Company completed additional acquisitions for
total consideration of approximately $0.7 million, of which $0.1 million was
allocated to tangible assets, $0.8 million was allocated to goodwill, $0.2
million was allocated to non-compete agreements and $0.4 million was allocated
to liabilities assumed. The non-compete agreements are being amortized over the
five-year non-compete agreement.
FISCAL 2001
On October 2, 2000, the Company acquired all of the assets and assumed
the liabilities of Solista Global LLC ("Solista") for approximately $9.0 million
in cash. Solista is a provider of strategic consulting services that merge
technology and business expertise to help clients build strategies for the
digital world. The acquisition was accounted for by the purchase method and the
purchase price was allocated to the assets acquired and the liabilities assumed,
based upon estimated fair values at the date of the acquisition. The excess
purchase price over the fair value of amounts assigned to the net tangible
assets acquired was approximately $6.5 million, of which $6.0 million was
allocated to goodwill. In addition, $0.5 million of the purchase price was
allocated to non-compete agreements which are being amortized over three years.
See Note 6 - Other Charges.
During fiscal 2001, the Company completed additional acquisitions for
consideration of $3.0 million in cash. The largest of these was the acquisition
of an events business for approximately $2.6 million.
FISCAL 2000
On December 10, 1999, the Company acquired all of the assets and
assumed the liabilities of Rendall and Associates, Inc. ("Rendall") for $12.0
million in cash. Rendall provides strategic planning advice, feasibility and
competitive analysis and research on the telecommunications market,
technologies, regulation and public policies. Additionally, Rendall provides
technical expertise in broadband technologies. The acquisition was accounted for
by the purchase method and the purchase price was allocated to the assets
acquired and the liabilities assumed, based upon estimated fair values at the
date of the acquisition. The excess purchase price over the fair value of
amounts assigned to the net tangible assets acquired was approximately $11.1
million, of which $9.9 million was allocated to goodwill. In addition, $1.2
million of the purchase price was allocated to a non-compete agreement, which is
being amortized over 5 years.
On November 30, 1999, the Company acquired all the outstanding shares
of Computer Financial Consultants Limited ("CFC") for $16.0 million in cash. CFC
provides senior executives in IT and purchasing with assistance intended to
enhance the procurement of IT related products and services. The acquisition was
accounted for by the purchase method and the purchase price was allocated to the
assets acquired and the liabilities assumed, based upon estimated fair values at
the date of the acquisition. The excess purchase price over the fair value of
amounts assigned to the net tangible assets acquired was approximately $11.6
million, of which $11.0 million was allocated to goodwill. In addition, $0.6
million of the purchase price was allocated to a non-compete agreement, which is
being amortized over 5 years.
During fiscal 2000, the Company completed additional acquisitions for
consideration of $87.1 million in cash and a $1.0 million note payable,
including the acquisition of TechRepublic for $75.8 million (see Note 3 -
Discontinued Operation).
3--DISCONTINUED OPERATION
On July 2, 2001, the Company sold its subsidiary, TechRepublic, to CNET
for approximately $23.5 million in cash and common stock of CNET, before
reduction for certain termination benefits of $3.9 million. The gross proceeds
were $14.3 million in cash and 755,058 shares of CNET common stock, which had a
fair market value of $12.21 per share on July 2, 2001. The Consolidated
Financial Statements of the Company have been restated to reflect the
disposition of the TechRepublic segment as a discontinued operation in
accordance with APB Opinion No. 30. Accordingly, revenues, costs and expenses,
assets, liabilities, and cash flows of TechRepublic have been excluded from the
respective captions in the Consolidated Statements of Operations, Consolidated
Balance Sheets and Consolidated Statements of Cash Flows, and have been reported
through the date of disposition as "Loss from discontinued operation," "Net
assets of discontinued operation," and "Net cash used by discontinued
operation," for all periods presented.
36
<PAGE>
During 2001, the Company recorded a pre-tax loss of $66.4 million
($39.9 million after tax) to recognize the loss on the sale. This pre-tax loss
includes a write-down of $42.4 million of assets, primarily goodwill, to net
realizable value, operating losses through the date of sale of $6.5 million,
severance and related benefits of $8.3 million, and other sale-related costs and
expenses, including costs associated with the closure of facilities, of $9.2
million.
Summarized financial information for the discontinued operation is as
follows (in thousands):
Statements of Operations Data
<Table>
<Caption>
Year Ended September 30,
-----------------------------------
2001 2000
------------ ------------
<S> <C> <C>
Revenues $ 12,368 $ 4,077
============ ============
Loss before income taxes $ (32,574) $ (35,199)
(Benefit) for income taxes (6,515) (7,621)
------------ ------------
Loss from discontinued operation, net $ (26,059) $ (27,578)
============ ============
Loss on disposal before income taxes $ (66,436) $ --
(Benefit) for income taxes (26,512) --
------------ ------------
Loss on disposal of discontinued operation, net $ (39,924) $ --
============ ============
</Table>
37
<PAGE>
4--NET GAIN (LOSS) ON SALE OF INVESTMENTS
During the year ended September 30, 2002, the Company sold 748,118
shares of CNET for $6.0 million resulting in a pre-tax gain of $0.8 million.
During the year ended September 30, 2001, the Company sold its
remaining 1,922,795 shares of Jupiter Media Metrix ("Jupiter") for net cash
proceeds of $7.5 million at an average price of $3.91 per share for a pre-tax
loss of $5.6 million. In addition the Company received additional stock
distributions from its investment in SI Venture Associates, LLC ("SI I"), and SI
Venture Fund II, LP ("SI II"). During the year ended September 30, 2001, the
Company sold a portion of the shares received from SI I and SI II, and other
securities, for net cash proceeds of $6.9 million for a pre-tax gain of $5.0
million.
On June 30, 2000, the Company sold its 8% investment in NETg, Inc.
("NETg") for $36.0 million in cash to an affiliate of Harcourt, Inc. resulting
in a pre-tax loss of approximately $6.6 million. The Company received the cash
proceeds on July 7, 2000. In addition, the Company recorded an additional loss
in connection with a negotiated settlement of a joint venture agreement
associated with the sale of GartnerLearning for approximately $6.7 million.
On October 7, 1999, Jupiter completed its initial public offering at
$21.00 per share of common stock. Upon completion of Jupiter's initial public
offering, the Company owned 4,028,503 shares of Jupiter's outstanding common
stock. The change in the Company's proportionate share of Jupiter's equity
resulted in the Company's write-up of the investment by approximately $15.4
million and increases in deferred tax liability and additional paid-in capital
of approximately $7.1 million and $8.3 million, respectively. During fiscal
2000, the Company's ownership interest decreased below 20% of Jupiter's
outstanding common stock. Because the Company had concluded it no longer
exercised significant influence over Jupiter, it changed its method of
accounting for this investment from the equity method to the cost method. During
the year ended September 30, 2000, the Company sold 1,995,950 shares for net
cash proceeds of $55.5 million at an average price of $27.81 per share for a
pre-tax gain of $42.9 million. In September 2000, Jupiter merged with Media
Metrix, Inc., creating Jupiter. Jupiter shareholders received 0.946 shares of
Jupiter for each share of Jupiter that they owned. At the date of the merger,
the Company owned 2,032,553 shares of the former Jupiter, which were exchanged
for shares of Jupiter.
38
<PAGE>
5--INVESTMENTS
A summary of the Company's investments in marketable equity securities and
other investments at September 30, 2002 and 2001 is as follows (in thousands):
<Table>
<Caption>
Gross Gross
As of September 30, 2002: Unrealized Unrealized
- ------------------------- Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Marketable equity securities available for sale $ -- -- $ -- $ --
Other investments 12,921 -- (244) 12,677
------------ ------------ ------------ ------------
Total $ 12,921 $ (244) $ 12,677
============ ============ ============ ============
</Table>
<Table>
<Caption>
Gross Gross
As of September 30, 2001: Unrealized Unrealized
- ------------------------- Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Marketable equity securities available for sale $ 5,287 $ 2 $ (2,039) $ 3,250
Other investments 15,030 426 (208) 15,248
------------ ------------ ------------ ------------
Total $ 20,317 $ 428 $ (2,247) $ 18,498
============ ============ ============ ============
</Table>
CNET Shares
At September 30, 2001, marketable equity securities were comprised of
755,058 shares of CNET received in connection with the sale of TechRepublic,
which had a fair value of $12.21 per share, or $9.2 million on July 2, 2001, the
closing date. Subsequent to the closing, the market value of the CNET shares
declined substantially; accordingly, in the fourth quarter of fiscal 2001, the
Company recorded a $3.9 million impairment charge in net loss from
minority-owned investments, representing an other than temporary decline in
market value of the CNET common stock. At September 30, 2001, these shares were
reflected in the Consolidated Balance Sheets at their fair market value of $3.3
million after giving effect to an additional $2.0 million of unrealized losses.
During fiscal 2002, 748,118 shares of CNET were sold for $6.0 million at an
average price per share of $8.05 resulting in a pre-tax gain of $0.8 million.
The remaining 6,940 CNET shares were written off for a loss of $49 thousand.
SI and Other Investments - Related Party
In addition to equity securities owned directly by the Company and
through SI I, a wholly owned affiliate, the Company also owns 34% of SI II. Both
entities are venture capital funds engaged in making investments in early to
mid-stage IT-based or Internet-enabled companies. Both entities are managed by
SI Services Company, L.L.C., an entity controlled by the Company's former
Chairman of the Board, who continues as an employee and Chairman Emeritus of the
Company, and certain of the Company's former officers and employees. Management
fees paid to SI Services Company, L.L.C. are approximately $1.2 million per
year. In addition, the Company provides access to research and the use of
certain office space at no cost to SI Services Company, L.L.C. The Company had a
total original investment commitment to SI I and SI II of $10.0 million and
$30.0 million, respectively. The commitment to SI I was fully funded in prior
years. Of the $30.0 million commitment to SI II, $7.4 million remained unfunded
at September 30, 2001. On July 1, 2002, $1.5 million of the remaining commitment
was funded. The $5.9 million commitment remaining at September 30, 2002 may be
called by SI at any time.
Other investments is comprised of investments in SI I, SI II and
cost-based investments. The carrying value of the Company's investments held by
SI I and SI II were $2.5 million and $5.5 million, respectively, at September
30, 2002. The carrying value of other cost-based investments was $4.7 million at
September 30, 2002. The other cost-based investments represent the Company's 9%
investment in Trusecure Corporation, a company that provides internet security
assurance through awareness and continuous certification of products and
systems. Trusecure's revenues were $29 million for the year ended December 31,
2001. The Company sells certain Trusecure services. The value of Trusecure
services sold by the Company were $3.7 million, $1.2 million and $0.2 million in
fiscal 2002, 2001 and 2000, respectively.
The Company's share of equity gains in SI I and SI II was $0.2 million
for the year ended September 30, 2002 and was a loss of $0.3 million and $0.5
million for the years ended September 30, 2001 and 2000, respectively. During
the year ended September 30, 2002, the Company recognized impairment losses of
$2.5 million, in connection with the Company's decision to actively pursue the
sale of the investments held in the SI funds. During the year ended September
30, 2001, the Company recognized impairment losses of $26.5 million. These
impairment losses related to equity securities owned through SI I and SI II for
other than temporary declines in the value of
39
<PAGE>
certain investments are reflected in "Net loss from minority-owned investments"
in the Consolidated Statements of Operations. The Company made an assessment of
the carrying value of its investments and determined that certain investments
were in excess of their fair value due to the significance and duration of the
decline and due to the valuation of comparable companies operating in the
Internet and technology sectors. The impairment factors the Company evaluated
may change in subsequent periods, since the entities underlying these
investments operate in a volatile business environment. In addition, these
entities may require additional financing to meet their cash and operational
needs; however, there can be no assurance that such funds will be available to
the extent needed at terms acceptable to the entities, if at all. This could
result in additional material non-cash impairment charges in the future.
6--OTHER CHARGES
During 2002, the Company recorded other charges of $17.2 million. Of these
charges, $10.0 million relates to costs and losses associated with the
elimination of excess facilities, principally leased facilities and ongoing
lease costs and losses associated with sub-lease arrangements. In addition,
approximately $5.8 million of these charges are associated with the Company's
workforce reduction announced in January 2002 and are for employee termination
severance payments and related benefits. This workforce reduction has resulted
in the elimination of approximately 100 positions, or approximately 2% of the
Company's workforce, and the payment of $5.3 million of termination benefits
during the fiscal year ended September 30, 2002. The remaining $1.4 million
relates to the impairment of certain database-related assets.
During 2001, the Company recorded other charges of $46.6 million. Of
these charges, $24.8 million are associated with the Company's workforce
reduction announced in April 2001. This workforce reduction has resulted in the
elimination of 383 positions, or approximately 8% of the Company's workforce,
and the payment of $6.4 million and $18.2 million of termination severance
payments and related benefits during the fiscal years ended September 30, 2002
and 2001, respectively. Approximately $14.3 million of the other charges are
associated with the write-down of goodwill and other long-lived assets to net
realizable value as a result of the Company's decision to discontinue certain
unprofitable products, and $7.5 million of the charge is associated primarily
with the write-off of internally developed systems in connection with the launch
of gartner.com and seat-based pricing. At September 30, 2002, $0.6 million of
the aggregate termination benefits relating to the workforce reduction remain to
be paid, primarily in the quarters ended December 31, 2002 and March 31, 2003.
The Company is funding these costs out of operating cash flows.
Following is a reconciliation of the other charges recorded in fiscal 2002 and
2001 (in thousands):
<Table>
<Caption>
Accrued Accrued
liability at liability at
September 30, Additions in Non-cash September 30,
2001 Fiscal 2002 charges Payments 2002
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Facilities reductions $ -- $ 10,014 $ (2,663) $ (3,263) $ 4,088
Workforce reductions:
Fiscal 2001 6,599 -- -- (6,365) 234
Fiscal 2002 -- 5,808 (120)(1) (5,264) 424
Asset impairment -- 1,424 (1,424) -- --
------------ ------------ ------------ ------------ ------------
Total $ 6,599 $ 17,246 $ (4,207) $ (14,892) $ 4,746
============ ============ ============ ============ ============
</Table>
<Table>
<Caption>
Accrued Accrued
liability at liability at
September 30, Additions in Non-cash September 30,
2000 Fiscal 2001 charges Payments 2001
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Workforce reductions $ -- $ 24,780 $ -- $ (18,181) $ 6,599
Asset impairment and other
costs -- 21,783 (18,888) (2,895) --
-------------- -------------- -------------- -------------- --------------
Total $ -- $ 46,563 $ (18,888) $ (21,076) $ 6,599
============== ============== ============== ============== ==============
</Table>
(1) The non-cash charges for the 2002 workforce reductions result from the
establishment of a new measurement date for certain stock options upon the
modification of their exercise term.
40
<PAGE>
7--PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Property, equipment and leasehold improvements, less accumulated depreciation
and amortization consist of the following (in thousands):
<Table>
<Caption>
September 30,
Useful ------------------------------
Life (Years) 2002 2001
------------ ------------ ------------
<S> <C> <C> <C>
Computer equipment and software 2-3 $ 128,795 $ 117,062
Furniture and equipment 3-8 39,381 49,040
Leasehold improvements 2-15 37,510 39,758
------------ ------------
205,686 205,860
Less - accumulated depreciation and amortization (129,525) (105,572)
------------ ------------
$ 76,161 $ 100,288
============ ============
</Table>
At September 30, 2002 and 2001, capitalized development costs for
internal use software were $15.6 million and $27.3 million, respectively, net of
accumulated amortization of $27.4 million and $24.7 million, respectively.
Amortization of capitalized internal software development costs totaled $15.7
million, $14.3 million and $7.2 million in fiscal 2002, 2001 and 2000,
respectively.
41
<PAGE>
8--INTANGIBLE ASSETS, NET
Effective October 1, 2001, the Company adopted early SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 eliminates goodwill amortization upon
adoption and requires an initial assessment for goodwill impairment within six
months after initial adoption and at least annually thereafter. Accordingly, no
goodwill amortization was recognized during the fiscal year ended September 30,
2002. The Company completed its initial transitional goodwill impairment
assessment in the second fiscal quarter of 2002 and determined that there was no
impairment of goodwill and no impairment charge to be recorded as a cumulative
effect of a change in accounting principle in accordance with SFAS No. 142.
The following table reconciles the reported net income (loss) and income (loss)
per share from continuing operations to the respective pro forma amount adjusted
to exclude goodwill amortization.
<Table>
<Caption>
In thousands, except per share Year ended September 30,
-----------------------------------------------
2002 2001 2000
------------ ------------ ------------
<S> <C> <C> <C>
INCOME (LOSS) FROM CONTINUING OPERATIONS:
Reported income (loss) from continuing operations $ 48,578 $ (220) $ 54,853
Add back: Goodwill amortization, net of taxes -- 8,396 8,985
------------ ------------ ------------
Adjusted income from continuing operations $ 48,578 $ 8,176 $ 63,838
============ ============ ============
BASIC INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS:
Reported income (loss) from continuing operations $ 0.58 $ (0.00) $ 0.63
Add back: Goodwill amortization, net of taxes -- 0.10 0.11
------------ ------------ ------------
Adjusted income from continuing operations $ 0.58 $ 0.10 $ 0.74
============ ============ ============
DILUTED INCOME (LOSS) PER SHARE FROM CONTINUING OPERATIONS:
Reported income (loss) from continuing operations $ 0.47 $ (0.00) $ 0.62
Add back: Goodwill amortization, net of taxes -- 0.09 0.10
------------ ------------ ------------
Adjusted income from continuing operations $ 0.47 $ 0.09 $ 0.72
============ ============ ============
</Table>
42
<PAGE>
Included in the Company's balance sheet as of September 30, 2002 and 2001 are
the following categories of acquired intangible assets (in thousands).
September 30, 2002
<Table>
<Caption>
Amortization Accumulated
Period (Years) Gross cost amortization Net
------------ ------------ ------------
<S> <C> <C> <C> <C>
Goodwill
Research $ 152,609 $ (30,042) $ 122,567
Consulting 75,712 (8,631) 67,081
Events 33,699 (3,001) 30,698
Other 2,579 (498) 2,081
------------ ------------ ------------
Total goodwill 264,599 (42,172) 222,427
Intangible assets with finite lives
Non-compete agreements 2 - 5 12,829 (10,648) 2,181
Trademarks and tradenames 9 - 12 1,804 (1,254) 550
------------ ------------ ------------
Total $ 279,232 $ (54,074) $ 225,158
============ ============ ============
</Table>
September 30, 2001
<Table>
<Caption>
Amortization Accumulated
Period (Years) Gross cost amortization Net
------------ ------------ ------------
<S> <C> <C> <C> <C>
Goodwill
Research $ 149,887 $ (29,750) $ 120,137
Consulting 72,962 (8,742) 64,220
Events 33,419 (3,001) 30,418
Other 2,579 (498) 2,081
------------ ------------ ------------
Total goodwill 258,847 (41,991) 216,856
Intangible assets with finite lives
Non-compete agreements 2 - 5 12,567 (8,948) 3,619
Trademarks and tradenames 9 - 12 3,442 (1,684) 1,758
------------ ------------ ------------
Total $ 274,856 $ (52,623) $ 222,233
============ ============ ============
</Table>
Amortization related to intangible assets with finite lives was $1.9 million,
$2.8 million and $3.4 million for the fiscal years ended September 30, 2002,
2001 and 2000, respectively. In accordance with SFAS No. 142, the Company
reassessed the useful lives of all other intangible assets. There were no
changes to such lives and there are no expected residual values associated with
these intangible assets. Non-compete agreements are amortized over the term of
the individual contracts, generally two to five years, and trademarks and
tradenames are amortized over a period of nine to twelve years.
Estimated future amortization expense for the next five years is as follows (in
thousands):
<Table>
<Caption>
Year ended September 30,
------------------------
<S> <C>
2003 $ 1,228
2004 $ 624
2005 $ 181
2006 $ 87
2007 $ 29
</Table>
43
<PAGE>
9--ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (in
thousands):
<Table>
<Caption>
September 30,
-----------------------------
2002 2001
------------ ------------
<S> <C> <C>
Taxes payable $ 22,955 $ 25,628
Payroll and related benefits payable 43,114 35,529
Commissions payable 14,504 19,987
Accounts payable 12,829 14,509
Other accrued liabilities 36,962 42,098
------------ ------------
$ 130,364 $ 137,751
============ ============
</Table>
10--DEBT
On July 16, 1999, the Company entered into an unsecured Credit
Agreement with JPMorgan Chase Bank, as administrative agent for the
participating financial institutions thereunder, providing for a maximum of
$500.0 million of credit facilities, consisting of a $350.0 million term loan
and a $150.0 million senior revolving credit facility. On February 25, 2000, the
Company modified certain financial and other covenants to permit the issuance of
convertible debt. Loans under the revolving facility were to be available for
five years maturing on July 16, 2004, subject to certain customary conditions on
the date of any such loan. On July 17, 2000, the Company entered into a second
amendment to the Credit Agreement. Under this amendment, the Company agreed to
refinance all existing indebtedness and to repay in full and terminate the term
loans drawn under the existing Credit Agreement. At September 30, 2002, the
Company had a senior revolving credit facility, as amended, totaling a maximum
aggregate principal amount of up to $200.0 million. In connection with the
extinguishment of the $350.0 million term loan, the Company wrote off $1.7
million, net of the related tax benefit of $1.2 million, of deferred debt
issuance costs in the fourth quarter of fiscal 2000. The charge was recorded as
an extraordinary loss on debt extinguishment.
At September 30, 2002, there were no amounts outstanding under the
revolving credit facility. At September 30, 2001, $15.0 million was outstanding
under the revolving credit facility. A commitment fee of 0.30% to 0.50% is paid
on the unused revolving credit amount. Pursuant to certain financial covenants
of the revolving credit facility, the Company had $118.9 million of available
borrowings at September 30, 2002. The weighted average interest rate on
borrowings, which were only outstanding during October and November of 2001, was
3.6% for the year ended September 30, 2002. The weighted average interest rate
on borrowings was 6.8% for the year ended September 30, 2001.
On April 17, 2000, the Company issued in a private placement
transaction, $300.0 million of 6% convertible subordinated notes (the
"convertible notes") to Silver Lake Partners, L.P. ("Silver Lake") and certain
of Silver Lake's affiliates. The convertible notes mature in April 2005 and
accrue interest at 6% per annum. Interest accrues semi-annually by a
corresponding increase in the face amount of the convertible notes commencing
September 15, 2000. Accordingly, $46.3 million has been added to the face amount
of the convertible notes' balance outstanding as of September 30, 2002.
As part of the transaction, two Silver Lake representatives were
elected to the Company's ten-member Board of Directors. The Company also granted
to Silver Lake the right to acquire 5% of any Company subsidiary that is spun
off or spun out at 80% of the initial public offering price. The Company valued
the option at $1.0 million, which was recorded as a discount to the convertible
notes, and is being amortized to interest expense over the five-year term.
On April 18, 2000, $200.0 million of the proceeds were used to pay down
term loan borrowings under the Credit Agreement with JPMorgan Chase Bank. The
Company incurred $7.9 million of transaction and advisory fees related to the
transaction. These fees were accounted for as debt issuance costs and are being
amortized over the five-year term of the debt using the effective interest
method.
The convertible notes were originally convertible into shares of the
Company's Class A Common Stock, commencing April 17, 2003, at an initial price
of $15.87 per share. In accordance with the original terms of the note, on the
first anniversary date of issuance of the convertible notes, April 17, 2001, the
conversion price was adjusted, or reset, to be equal to the lower of the initial
conversion price of $15.87 per share, or the average closing price over the
thirty trading day period ending April 17, 2001 if less than $14.43, a price
equal to a 10% premium to the average closing price over that same period. On
April 17, 2001, the conversion price was reduced to $7.45 per share. The number
of shares of Class A Common Stock issuable upon conversion of the notes as of
September 30, 2002 was 46.6 million shares with a total market value of $377.1
million, using the Company's September 30, 2002 market price of $8.10 per share.
44
<PAGE>
On or after April 17, 2003, subject to satisfaction of certain
customary conditions, the Company may redeem all of the convertible notes for
cash provided that (1) the average closing price of the Class A Common Stock for
the twenty consecutive trading days immediately preceding the date the
redemption notice is given equals or exceeds 150% of the adjusted conversion
price of $7.45 per share, and (2) the closing price of the Class A Common Stock
on the trading day immediately preceding the date the redemption notice is given
also equals or exceeds 150% of the adjusted conversion price. The redemption
price is the face amount of the notes plus all accrued interest. If the Company
initiates the redemption, Silver Lake has the option of receiving payment in
cash, stock, or a combination of cash and stock.
Commencing on April 18, 2003, Silver Lake may elect to convert all or a
portion of the notes to stock. If Silver Lake initiates the conversion, the
Company has the option of redeeming all such notes for cash at a price based on
the number of shares into which the notes would be converted and the market
price on the date the notice of conversion is given.
On the maturity date, April 17, 2005, the Company must satisfy any
remaining notes for cash.
The Company issues letters of credit in the ordinary course of
business. At September 30, 2002, the Company had outstanding letters of credit
with JPMorgan Chase Bank for $3.7 million, The Bank of New York for $2.0
million and with others for $0.1 million.
11--COMMITMENTS AND CONTINGENCIES
The Company leases various facilities, furniture and computer equipment
under operating lease arrangements expiring between 2002 and 2025. Future
minimum annual payments under non-cancelable operating lease agreements at
September 30, 2002 are as follows (in thousands):
<Table>
<Caption>
Year Ended September 30,
- -----------------------
<S> <C>
2003 $ 28,444
2004 24,001
2005 21,317
2006 18,318
2007 17,199
Thereafter 108,092
-------------
Total minimum lease payments $ 217,371
=============
</Table>
Rental expense for operating leases was $27.6 million, $26.9 million,
and $22.4 million for the years ended September 30, 2002, 2001 and 2000,
respectively. The Company has commitments with two facilities management
companies for printing, copying, mailroom and other related services, which
expires during 2003. The minimum obligation under the service agreements is $1.6
million in the aggregate for 2003.
The Company is involved in legal proceedings and litigation arising in
the ordinary course of business. The Company believes the outcome of all current
proceedings, claims and litigation will not have a material effect on the
Company's financial position or results of operations when resolved in a future
period.
12--STOCKHOLDERS' EQUITY (DEFICIT)
CAPITAL STOCK. Class A Common Stock and Class B Common Stock
stockholders are entitled to one vote per share on all matters to be voted by
stockholders and vote together as a single class, other than with respect to the
election of directors. Class A Common Stock stockholders are entitled to one
vote per share on the election of Class A directors, which constitute no more
than 20% of the directors, and Class B Common Stock stockholders are entitled to
one vote per share on the election of Class B directors, which constitute at
least 80% of the directors.
STOCK OPTION PLANS. The Company's 1991 Stock Option Plan expired on
April 25, 2001. As a result, as of September 30, 2002 and 2001, no options were
available for future grant under this plan.
In January 1993, the Company adopted the 1993 Director Option Plan, a
stock option plan for directors, and reserved an aggregate of 1,200,000 shares
of Class A Common Stock for issuance under this plan. The plan currently
provides for the automatic grant of 15,000 options to purchase shares of Class A
Common Stock to each non-employee director upon first becoming an outside
director and the automatic grant of an option to purchase an additional 7,000
shares of Class A Common Stock annually based on continuous service as an
outside director. The exercise price of each option granted under the plan is
equal to the fair market value of the Class A Common Stock at the date of grant.
Options granted are subject to yearly vesting over a three-year period after the
date of grant. Non-employee directors are also compensated in common stock
equivalents payable under this plan. At September 30, 2002 and 2001, 384,995 and
420,738 options were available for grant, respectively.
45
<PAGE>
In October 1994, the Board of Directors and stockholders of the Company
approved the adoption of a Long-Term Stock Option Plan and the reservation of an
aggregate of 6,560,000 shares of Class A Common Stock for issuance thereunder.
The purpose of the plan is intended to provide to senior personnel long-term
equity participation in the Company as an incentive to promote the long-term
success of the Company. The exercise price of each option granted under the plan
is equal to the fair market value of the Class A Common Stock at the date of
grant. Prior to 2001, options granted under the plan vest and become fully
exercisable five years following the date of grant, based on continued
employment, and have a term of ten years from the date of grant assuming
continued employment. Vesting and exercisability accelerates upon achievement of
certain financial performance targets determined by the Board of Directors. If
the financial performance targets are met for the year of grant in accordance
with parameters as set by the Board at its sole discretion, 25% of the shares
granted become exercisable on the first anniversary date following the date of
grant and, if cumulative financial performance targets are met for both the
first and second years following the date of grant, a second 25% become
exercisable three years following the date of grant. If cumulative financial
performance targets are met for all three years following the date of grant, a
third 25% become exercisable on the fourth anniversary date following the date
of grant and the final 25% become exercisable on the fifth anniversary following
the date of grant. Based on cumulative performance through 2002, 1,186,000
shares were exercisable on September 30, 2002. An additional 62,500, shares not
subject to accelerated vesting, were exercisable on September 30, 2002. Options
granted in 2001 and 2002 under the 1994 plan vest over four years, with 25%
vesting after one year and the remaining 75% vesting monthly over the next three
years. At September 30, 2002 and 2001, 30,250 and 419,250 options were available
for grant, respectively.
In October 1996, the Company adopted the 1996 Long Term Stock Option
Plan. Under the terms of the plan, the Board of Directors may grant
non-qualified and incentive options, entitling employees to purchase shares of
the Company's common stock at the fair market value at the date of option grant.
A total of 1,800,000 shares of Class A Common Stock was reserved for issuance
under this plan. All options granted under the plan vest and become fully
exercisable six years following the date of grant, based on continued
employment, and have a term of ten years from the date of grant assuming
continued employment. Prior to 2002, vesting and exercisability accelerates upon
achievement of certain financial performance targets determined by the Board of
Directors. If financial performance targets are met in the year of grant in
accordance with parameters as set by the Board at its sole discretion, 25% of
the shares granted become exercisable on the third anniversary date following
the date of grant. If cumulative financial performance targets are met for both
the first and second years following the date of grant, a second 25% become
exercisable three years following the date of grant. If financial performance
targets are met cumulatively for all three years following the date of grant, a
third 25% become exercisable on the fourth anniversary date following the date
of grant and the final 25% become exercisable on the fifth anniversary following
the date of grant. Based on cumulative performance for 1997 to 1999, 697,000
options were exercisable on September 30, 2002. No additional acceleration of
vesting is possible. Options granted in 2002 under the 1996 plan vest over four
years, with 25% vesting after one year and the remaining 75% vesting monthly
over the next three years. At September 30, 2002 and 2001, 568,458 and 952,125
options to purchase common stock were available for grant, respectively.
In October 1998, the Company adopted the 1998 Long Term Stock Option Plan. Under
the terms of the plan, the Board of Directors may grant non-qualified and
incentive options, entitling employees to purchase shares of the Company's
common stock at the fair market value at the date of option or restricted stock
grant. A total of 2,500,000 shares of Class A Common Stock was reserved for
issuance under this plan. Options currently granted under the plan generally
vest and become fully exercisable six years following the date of grant, based
on continued employment, and have a term of ten years from the date of grant
assuming continued employment. Vesting and exercisability accelerates upon
achievement of certain financial performance targets determined by the Board of
Directors. If financial performance targets are met in the year of grant in
accordance with parameters as set by the Board at its sole discretion, 25% of
the shares granted become exercisable on the third anniversary date following
the date of grant. If cumulative financial performance targets are met for both
the first and second years following the date of grant, a second 25% become
exercisable three years following the date of grant. If financial performance
targets are met cumulatively for all three years following the date of grant, a
third 25% become exercisable on the fourth anniversary date following the date
of grant and the final 25% become exercisable on the fifth anniversary following
the date of grant. Based on cumulative 2002 performance, no vesting has
accelerated. At September 30, 2002 and 2001, 1,024,344 and 838,509 options to
purchase common stock were available for grant, respectively.
In November 1999, the Company adopted the 1999 Stock Option Plan. Under
the terms of the plan, the Board of Directors may grant non-qualified and
incentive stock options and other awards to eligible employees and consultants.
The Company's directors and most highly compensated executive officers are not
eligible for awards under the plan. A total of 20,000,000 shares of Class A
Common Stock was reserved for issuance under this plan. Substantially all of the
options currently granted under the plan vest and become fully exercisable each
year for three years in equal installments following the date of grant, based on
continued employment, and have a term of ten years from the date of grant
assuming continued employment. On July 25, 2002, the Board of Directors approved
an amendment to the plan increasing the shares reserved by 3,500,000 to
23,500,000. At September 30, 2002 and 2001, 3,990,266 and 2,767,349 options to
purchase common stock were available for grant, respectively.
A summary of stock option activity under the plans and agreement
through September 30, 2002 follows:
46
<PAGE>
<Table>
<Caption>
Class A
Common Stock Weighted
Under Average Exercise
Option Price
--------------- ---------------
<S> <C> <C>
Outstanding at September 30, 1999 17,789,568 $ 17.475
Granted 18,256,310 $ 11.859
Exercised (1,379,306) $ 5.886
Canceled (4,099,846) $ 17.240
--------------- ---------------
Outstanding at September 30, 2000 30,566,726 $ 14.669
Granted 10,339,620 $ 8.207
Exercised (592,832) $ 6.156
Canceled (5,330,390) $ 13.859
--------------- ---------------
Outstanding at September 30, 2001 34,983,124 $ 13.029
Granted 5,629,441 $ 9.416
Exercised (1,989,049) $ 8.918
Canceled (4,617,199) $ 14.115
--------------- ---------------
Outstanding at September 30, 2002 34,006,317 $ 12.524
=============== ===============
</Table>
Options for the purchase of 17,590,919 and 12,935,484 shares of Class A
Common Stock were exercisable at September 30, 2002 and 2001, respectively.
The following table summarizes information about stock options outstanding at
September 30, 2002:
<Table>
<Caption>
Outstanding Exercisable
----------------------------------- -----------------------------------
Weighted Average
Remaining Weighted Weighted
Range of Number Contractual Life Average Number Average
Exercise Prices Outstanding (Years) Exercise Price Exercisable Exercise Price
- --------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
$ 1.00 - 7 95 6,658,334 7.11 $ 7.53 2,793,029 $ 7.34
$ 7.99 - 9 94 6,669,026 8.80 $ 9.07 789,515 $ 9.10
$10.09 - 10.31 7,056,177 7.11 $ 10.31 4,750,763 $ 10.31
$10.40 - 16.96 6,065,240 7.55 $ 14.10 3,557,072 $ 14.59
$17.44 - 22.71 7,132,400 5.80 $ 20.27 5,297,900 $ 19.95
$23.90 - 37.29 425,140 4.39 $ 29.14 402,640 $ 29.07
--------------- ---------------
34,006,317 $ 12.52 17,590,919 $ 13.98
=============== ===============
</Table>
EMPLOYEE STOCK PURCHASE PLANS. In January 1993, the Company adopted an
employee stock purchase plan, and reserved an aggregate of 4,000,000 shares of
Class A Common Stock for issuance under this plan. In March 2002, shareholders
approved the 2002 Employee Stock Purchase Plan with substantially identical
terms. Eligible employees are permitted to purchase Class A Common Stock through
payroll deductions, which may not exceed 10% of an employee's compensation (or
$21,250 in any calendar year), at a price equal to 85% of the Class A Common
Stock price as reported by the NYSE at the beginning or end of each offering
period, whichever is lower. Eligible international employees can purchase shares
at a price that is calculated monthly with no corresponding discount. During the
years ended September 30, 2002 and 2001, 560,861 and 769,085 shares were issued
from treasury stock at an average purchase price of $7.90 and $7.01 per share,
respectively, in conjunction with these plans. At September 2002, 3,722,256
shares were available for purchase under the 2002 plan. At September 30, 2002
and 2001, 403,629 and 676,994 shares were also available for purchase under the
1993 plan.
RESTRICTED STOCK AWARDS. Beginning in 1998, the Company granted
restricted stock awards under the 1991 Stock Option Plan and the 1998 Long Term
Stock Option Plan. The restricted stock awards vest in six equal installments
with the first installment vesting two years after the grant and then annually
thereafter for five years. Recipients are not required to provide consideration
to the Company other than rendering service and have the right to vote the
shares and to receive dividends. The restricted stock may not be sold by the
employee during the vesting period. In 1999, the Company also awarded 40,500
stock options under the 1998 Long Term Stock Option Plan with an exercise price
of $1.00 per share that vest on the same basis as the restricted stock awards to
certain international employees. Such stock options had a weighted average fair
market value of $22.81 per stock option on the date of grant. At September 30,
2002, a total of 178,167 restricted shares of Class A Common Stock were
outstanding at a weighted average market value, as of the original award date,
of $23.31 per share. At September 30, 2001, a total of 271,666 restricted shares
of Class A Common Stock were outstanding at a weighted average market value, as
of the original award date, of $23.14 per share. There were no awards of
restricted stock in 2002 and 2001. In 2000, the Company awarded restricted stock
of 50,000 shares with a fair market value of $13.00 per share. During 2002,
there were forfeitures and acceleration of awards of 11,836 shares and 9,335
shares, respectively. At September 30, 2002, the aggregate unamortized
compensation expense for restricted stock awards and the $1 stock option grants
was $3.5 million and is included as Unearned
47
<PAGE>
compensation in the Consolidated Balance Sheets. During 2001, there were
forfeitures and acceleration of awards of 64,593 shares and 9,581 shares,
respectively. Total compensation expense recognized for the restricted stock
awards and option grants was $1.3 million, $1.1 million and $1.1 million for
2002, 2001 and 2000, respectively.
DEFERRED COMPENSATION EMPLOYEE STOCK TRUST. The Company has
supplemental deferred compensation arrangements for the benefit of certain
officers, managers and other key employees. These arrangements are funded by
life insurance contracts, which have been purchased by the Company. The plan
permits the participants to diversify their investments. The value of the assets
held, managed and invested, pursuant to the agreement was $8.1 million and $7.8
million at September 30, 2002 and 2001, respectively, and are included in other
assets. The corresponding deferred compensation liability of $9.6 million and
$8.8 million at September 30, 2002 and 2001, is recorded at the fair market
value of the shares held in a rabbi trust and adjusted, with a corresponding
charge or credit to compensation cost, to reflect the fair value of the amount
owed to the employee. Total compensation expense recognized for the plan in
fiscal 2002 was $0.6 million, compared to $0.1 million of income in 2001.
FORWARD PURCHASE AGREEMENTS. Beginning in 1997, the Company entered
into a series of forward purchase agreements to effect the repurchase of
1,800,000 of its Class A Common Stock. These agreements were settled quarterly
at the Company's option on a net basis in either shares of its own Class A
Common Stock or cash. To the extent that the market price of the Company's Class
A Common Stock on a settlement date is higher (lower) than the forward purchase
price, the net differential is received (paid) by the Company. During the year
ended September 30, 2000, four settlements resulted in the Company receiving
155,792 shares of Class A Common Stock and paying approximately $8.2 million in
cash. During the year ended September 30, 2001, two settlements resulted in the
Company delivering 491,789 shares of Class A Common Stock and paying
approximately $64,000 in cash. During June 2001, the Company terminated the
forward purchase agreement by reacquiring 1,164,154 shares of Class A Common
Stock for approximately $9.7 million. There were no forward purchase agreements
outstanding at September 30, 2002.
STOCK REPURCHASES. On July 19, 2001, the Company's Board of Directors
approved the repurchase of up to $75.0 million of Class A and Class B Common
Stock. On July 25, 2002, the Company's Board of Directors increased the
authorized stock repurchase program from the previously approved $75 million to
up to $125 million of its Class A and Class B Common Stock.
48
<PAGE>
Stock repurchases are summarized below:
<Table>
<Caption>
Total Cost Per
Total Shares Cost $000 Share
-------------- -------------- --------------
<S> <C> <C> <C>
FISCAL 2000
Recapitalization 4,500,200 $ 49,877 $ 11.08
============== ============== ==============
FISCAL 2001
Recapitalization 666,491 $ 5,416 $ 8.13
Stock Repurchase Program:
Purchased from IMS Health, Inc. and
affiliates on August 29, 2001 (1) 1,867,149 $ 18,447 $ 9.88
Open market purchases (1) 458,960 $ 4,325 $ 9.42
Termination of forward purchase agreement
1,164,154 $ 9,705 $ 8.34
-------------- -------------- --------------
Total fiscal 2001 4,156,754 $ 37,893 $ 9.12
============== ============== ==============
FISCAL 2002
Stock Repurchase Program 4,465,100 $ 47,047 $ 10.54
============== ============== ==============
(1) REPRESENTS CUMULATIVE REPURCHASES
PURSUANT TO THE $125 MILLION STOCK
REPURCHASE PROGRAM 6,791,209 $ 69,819 $ 10.28
============== ============== ==============
</Table>
As of September 30, 2002, the Company repurchased 6,791,209 shares of its
outstanding common stock at a cost of approximately $69.8 million at an average
price of $10.28 per share.
STOCK BASED COMPENSATION. The Company applies the provisions of APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations in accounting for stock-based compensation plans. Accordingly,
no compensation cost has been recognized for the Company's fixed stock option
plans. Pursuant to the requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation", the following are
the pro forma net income (loss) and net income (loss) per share for the years
ended September 30, 2001, 2000, and 1999 had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant date for grants under those plans (in thousands, except per share data):
<Table>
<Caption>
Year Ended September 30, 2002 2001 2000
- ----------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss)
As reported $ 48,578 $ (66,203) $ 25,546
Pro forma $ 20,230 $ (106,370) $ (3,325)
Net income (loss) per diluted
share
As reported $ 0.47 $ (0.77) $ 0.29
Pro forma $ 0.25 $ (1.24) $ (0.04)
------------ ------------ ------------
</Table>
49
<PAGE>
The fair value of the Company's stock plans used to compute pro forma
net income (loss) and diluted per share disclosures is the estimated fair value
at grant date using the Black-Scholes option pricing model. The following
weighted-average assumptions were utilized for stock options granted or
modified:
<Table>
<Caption>
2002 2001 2000
-------------- -------------- --------------
<S> <C> <C> <C>
Expected life (in years) 3.5 3.1 3.1 - 5.2
Expected volatility .50 .65 .44
Risk free interest rate 3.2% 3.2% 5.76% - 6.08%
Expected dividend yield 0.00% 0.00% 0.00%
</Table>
The weighted average fair values of the Company's stock options granted
in the years ended September 30, 2002, 2001 and 2000 are $3.67, $3.77 and $6.63,
respectively.
13--COMPUTATION OF EARNINGS PER SHARE FROM CONTINUING OPERATIONS
Basic earnings per share ("EPS") is computed by dividing income (loss)
from continuing operations by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution of
securities that could share in earnings. When the exercise of stock options is
antidilutive they are excluded from the calculation.
The following table sets forth the reconciliation of the basic and
diluted earnings per share computations (in thousands, except per share).
<Table>
<Caption>
Year Ended September 30, 2002 2001 2000
- ----------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
Income (loss) from continuing operations $ 48,578 $ (220) $ 54,853
Add-back after-tax interest on convertible long-term debt 12,380 -- --
---------- ---------- ----------
Income (loss) from continuing operations applicable to common stock $ 60,958 $ (220) $ 54,853
========== ========== ==========
- ------------------------------------------------------------------------------------------------------------------------------------
Denominator:
Denominator for basic income (loss) per share - weighted average number of
common shares outstanding 83,586 85,862 86,564
Effect of dilutive securities:
Weighted average number of common shares under convertible long-term debt 45,320 -- --
Weighted average number of option and other compensation shares outstanding 1,976 -- 2,544
---------- ---------- ----------
Dilutive potential common shares 47,296 -- 2,544
---------- ---------- ----------
Denominator for diluted income (loss) per share - adjusted weighted average
number of common shares outstanding 130,882 85,862 89,108
========== ========== ==========
Income (loss) per share from continuing operations:
Basic $ 0.58 $ (0.00) $ 0.63
========== ========== ==========
Diluted $ 0.47 $ (0.00) $ 0.62
========== ========== ==========
</Table>
For the year ended September 30, 2002, options to purchase 14.5 million
shares of Class A Common Stock of the Company with exercise prices greater than
the average fair market value of $10.57 were not included in the computation of
diluted income per share because the effect would have been antidilutive. For
the year ended September 30, 2001, options to purchase 35.0 million shares of
Class A Common Stock of the Company were not included in the computation of
diluted loss per share because the effect would have been antidilutive. For the
year ended September 30, 2000, options to purchase 14.3 million shares of Class
A Common Stock of the Company with exercise prices greater than the average fair
market value of $13.78 were not included in the computation of diluted income
(loss) per share because the effect would have been antidilutive. For the years
ended September 30, 2002, 2001 and 2000, unvested restricted stock awards were
not included in the computation of diluted income (loss) per share because the
effect would have been antidilutive. Additionally, convertible notes outstanding
for the year ended September 30, 2001 and 2000, representing 30.5 million and
8.8 million common shares, if converted, and the related interest expense of
$18.8 million and $8.2 million, respectively, were not included in the
computation of diluted income (loss) per share because the effect would have
been antidilutive.
50
<PAGE>
14--INCOME TAXES
Following is a summary of the components of income (loss) before provision
(benefit) for income taxes, loss from discontinued operations and extraordinary
loss (in thousands):
<Table>
<Caption>
Year Ended September 30,
---------------------------------------------
2002 2001 2000
------------ ------------ ------------
<S> <C> <C> <C>
U.S. $ 35,330 $ (132,522) $ 27,016
Non-U.S 38,273 24,120 26,204
------------ ------------ ------------
Total 73,603 (108,402) 53,220
Extraordinary loss on debt extinguishment -- -- 2,881
Loss from discontinued operation -- 99,010 35,199
------------ ------------ ------------
Income (loss) from continuing operations before income taxes $ 73,603 $ (9,392) $ 91,300
============ ============ ============
</Table>
The provision (benefit) for income taxes on the above income consists of the
following components (in thousands):
<Table>
<Caption>
Year Ended September 30,
----------------------------------------------
2002 2001 2000
------------ ------------ ------------
<S> <C> <C> <C>
Current tax expense from operations:
U.S. federal $ 5,591 $ 9,192 $ 23,556
State and local 1,361 4,862 11,660
Foreign 11,649 10,258 7,211
------------ ------------ ------------
Total current 18,601 24,312 42,427
Deferred tax expense (benefit):
U.S. federal 3,330 (29,355) (5,768)
State and local 911 (4,782) (2,754)
Foreign (175) (836) (1,637)
------------ ------------ ------------
Total deferred 4,066 (34,973) (10,159)
------------ ------------ ------------
Total current and deferred 22,667 (10,661) 32,268
Benefit of stock transactions with employees 2,280 1,331 4,179
Benefit of purchased tax benefits applied to reduce goodwill 78 158 --
------------ ------------ ------------
Income tax expense (benefit) on continuing operations 25,025 (9,172) 36,447
Current taxes from extraordinary loss:
U.S. federal tax expense on debt extinguishment -- -- (922)
State and local tax expense on debt extinguishment -- -- (230)
Current taxes from loss on discontinued operations:
U.S. federal -- (33,522) (7,985)
State and local -- (1,585) (287)
Deferred tax expense (benefit) from loss on discontinued operations:
U.S. federal -- 137 (135)
State and local -- 178 (180)
Benefit of purchased tax benefits applied to reduce goodwill on loss from
discontinued operation -- 1,765 966
------------ ------------ ------------
$ 25,025 $ (42,199) $ 27,674
============ ============ ============
</Table>
51
<PAGE>
Current and long-term deferred tax assets and liabilities are comprised of the
following (in thousands):
<Table>
<Caption>
September 30,
-----------------------------
2002 2001
------------ ------------
<S> <C> <C>
Depreciation and amortization $ 6,988 $ 5,426
Expense accruals for book purposes 21,717 29,530
Loss and credit carryforwards 32,947 26,832
Equity interest 98 727
Other 3,183 4,078
------------ ------------
Gross deferred tax asset 64,933 66,593
------------ ------------
Intangible assets (1,000) (1,215)
------------ ------------
Gross deferred tax liability (1,000) (1,215)
------------ ------------
Valuation allowance (29,156) (26,072)
------------ ------------
Net deferred tax asset $ 34,777 $ 39,306
============ ============
</Table>
Current and long-term net deferred tax assets were $3.7 million and $31.1
million as of September 30, 2002 and were $9.9 million and $29.4 million as of
September 30, 2001, respectively, and are included in Prepaid expenses and other
current assets and Other assets in the Consolidated Balance Sheets.
The valuation allowance relates to domestic state and local and foreign tax net
operating loss and capital loss carryforwards that more likely than not will
expire unutilized. The net increase in the valuation allowance of approximately
$3.1 million in the current year results primarily from the net increase in
state and local net operating losses. Approximately $2.4 million of the
valuation allowance will reduce additional paid-in-capital upon subsequent
recognition of any related tax benefits related to stock options.
The differences between the U.S. federal statutory income tax rate and the
Company's effective tax rate on income (loss) from continuing operations are:
<Table>
<Caption>
Year ended September 30,
------------------------------------------------
2002 2001 2000
------------ ------------ ------------
<S> <C> <C> <C>
Statutory tax rate 35.0% (35.0%) 35.0%
State income taxes, net of federal benefit 2.4 3.6 6.9
Foreign income taxed at a different rate (1.8) 13.2 (2.5)
Non-deductible goodwill and direct acquisition costs -- 18.1 2.2
Non-taxable income (0.2) (0.3) (0.1)
Exempt foreign trading gross receipts (0.4) (13.5) (0.8)
Non-deductible meals and entertainment expense 0.6 5.6 0.6
Officers life insurance 0.5 12.7 (0.3)
Valuation allowance on losses from minority-owned investments 0.5 88.5 --
Utilization of foreign tax credits (1.5) (185.1) --
Other items (1.1) (5.5) (1.0)
------------ ------------ ------------
Effective tax rate 34.0% (97.7%) 40.0%
============ ============ ============
</Table>
As of September 30, 2002, the Company had U.S. federal capital loss
carryforwards of $21.9 million, of which $19.2 million will expire in four years
and the remaining $2.7 million will expire in five years, foreign tax credit
carryforwards of $8.8 million which will expire in four years and other federal
tax credit carryforwards of $1.8 million which can be carried forward
indefinitely. The Company had state and local tax net operating loss
carryforwards of $121.2 million, of which $26.1 million will expire within one
to five years, $22.3 million will expire within six to fifteen years, and $72.8
million will expire within sixteen to twenty years. The Company also had $72.3
million in state and local capital loss carryforwards that will expire in four
years. Lastly, the Company had foreign tax loss carryforwards of $5.1 million of
which $1.4 million will expire in one to five years and $3.7 million that can be
carried forward indefinitely.
52
<PAGE>
15--EMPLOYEE BENEFITS
The Company has a savings and investment plan covering substantially
all domestic employees. The Company contributes amounts to this plan based upon
the level of the employee contributions. In addition, the Company also
contributes fixed and discretionary amounts based on employee participation and
attainment of operating margins set by the Board of Directors. Amounts expensed
in connection with the plan totaled $9.5 million, $10.5 million, and $8.5
million for the years ended September 30, 2002, 2001 and 2000, respectively.
16--SEGMENT INFORMATION
The Company previously managed its business in four reportable segments
organized on the basis of differences in its related products and services. With
the discontinuance and sale of TechRepublic (see Note 3--Discontinued
Operation), three reportable segments remain: research, consulting and events.
Research consists primarily of subscription-based research products. Consulting
consists primarily of consulting, measurement engagements and strategic advisory
services. Events consists of various symposia, conferences and exhibitions.
The Company evaluates reportable segment performance and allocates
resources based on gross contribution margin. Gross contribution, as presented
below, is defined as operating income excluding certain selling, general and
administrative expenses, depreciation, amortization of intangibles and other
charges. The accounting policies used by the reportable segments are the same as
those used by the Company.
The Company earns revenue from clients in many countries. Other than
the United States, the Company's country of domicile, there is no individual
country in which revenues from external clients represent 10% or more of the
Company's consolidated revenues. Additionally, no single client accounted for
10% or more of total revenue and the loss of a single client, in management's
opinion, would not have a material adverse effect on revenues.
The Company does not identify or allocate assets, including capital
expenditures, by operating segment. Accordingly, assets are not being reported
by segment because the information is not available by segment and is not
reviewed in the evaluation of performance or making decisions in the allocation
of resources.
53
<PAGE>
The following tables present information about reportable segments (in
thousands). The "Other" column includes certain revenues and corporate and other
expenses (primarily selling, general and administrative) unallocated to
reportable segments, expenses allocated to operations that do not meet the
segment reporting quantitative threshold, and other charges. There are no
intersegment revenues:
<Table>
<Caption>
Year Ended September 30, 2002 Research Consulting Events Other Consolidated
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 496,403 $ 273,692 $ 121,991 $ 15,088 $ 907,174
Gross contribution 326,345 97,924 65,405 9,316 498,990
Corporate and other expenses (402,615)
Net gain on sale of investments 787
Net loss from minority-owned investments (2,365)
Interest income 1,845
Interest expense (22,869)
Other expense, net (170)
Income from continuing operations before
income taxes $ 73,603
</Table>
<Table>
<Caption>
Year Ended September 30, 2001 Research Consulting Events Other Consolidated
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 535,114 $ 276,292 $ 132,684 $ 18,794 $ 962,884
Gross contribution 352,574 86,949 63,625 4,227 507,375
Corporate and other expenses (464,861)
Net loss on sale of investments (640)
Net loss from minority-owned investments (26,817)
Interest income 1,616
Interest expense (22,391)
Other expense, net (3,674)
Loss from continuing operations before
income taxes $ (9,392)
</Table>
<Table>
<Caption>
Year Ended September 30, 2000 Research Consulting Events Other Consolidated
- ---------------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 509,781 $ 216,667 $ 108,589 $ 27,414 $ 862,451
Gross contribution 341,061 75,652 50,604 11,231 478,548
Corporate and other expenses (394,417)
Net gain on sale of investments 29,630
Net loss from minority-owned investments (775)
Interest income 3,936
Interest expense (24,900)
Other expense, net (722)
Income from continuing operations before
income taxes $ 91,300
</Table>
The Company's consolidated revenues are generated primarily through
direct sales to clients by domestic and international sales forces and a network
of independent international distributors. The Company defines "Europe Revenues"
as revenues attributable to clients located in England and the European region
and "Other International Revenues" as revenues attributable to all areas located
outside of the United States, Canada and Europe. Most products and services of
the Company are provided on an integrated worldwide basis. Because of the
integration of products and services delivery, it is not practical to separate
precisely the revenues and operating income (loss) of the Company by geographic
location. Accordingly, the separation set forth in the table below is based upon
internal allocations, which involve certain management estimates and judgments.
54
<PAGE>
European identifiable tangible assets consist primarily of the assets
of the European subsidiaries and include the accounts receivable balances
carried directly by the subsidiaries located in England, France and Germany. All
other European customer receivables are maintained by, and therefore are
included as identifiable assets of, the United States operations.
Summarized information by geographic location is as follows (in thousands):
<Table>
<Caption>
Year Ended September 30, 2002 2001 2000
- ------------------------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
United States and Canada:
Revenues $ 595,331 $ 641,877 $ 569,488
Operating income $ 69,640 $ 31,773 $ 62,903
Operating income, excluding other charges $ 77,181 $ 67,450 $ 62,903
Identifiable tangible assets $ 404,308 $ 423,738 $ 476,755
Long-lived assets $ 304,031 $ 321,832 $ 341,648
Europe:
Revenues $ 242,099 $ 249,953 $ 231,576
Operating income $ 29,691 $ 13,918 $ 17,577
Operating income, excluding other charges $ 36,668 $ 23,826 $ 17,577
Identifiable tangible assets $ 156,853 $ 155,855 $ 171,420
Long-lived assets $ 57,008 $ 59,171 $ 56,918
Other International:
Revenues $ 69,744 $ 71,054 $ 61,387
Operating income (loss) $ (2,956) $ (3,177) $ 3,651
Operating income (loss), excluding other charges $ (228) $ (2,199) $ 3,651
Identifiable tangible assets $ 38,531 $ 37,176 $ 32,846
Long-lived assets $ 8,778 $ 11,625 $ 10,383
</Table>
55
<PAGE>
17--QUARTERLY FINANCIAL DATA - (UNAUDITED)
(in thousands, except per share data)
<Table>
<Caption>
Year Ended September 30, 2002 1st 2nd 3rd 4th
- ------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 249,395 $ 201,095 $ 236,157 $ 220,527
Operating income (loss) (1) $ 33,947 $ (1,371) $ 34,678 $ 29,121
Income (loss) from continuing operations $ 19,043 $ (4,316) $ 18,255 $ 15,596
Income (loss) from discontinued operation, net of taxes -- -- -- --
Net income (loss) $ 19,043 $ (4,316) $ 18,255 $ 15,596
Diluted earnings (loss) per common share (3):
Income (loss) from continuing operations $ 0.17 $ (0.05) $ 0.16 $ 0.15
Income (loss) on discontinued operation -- -- -- --
Net income (loss) $ 0.17 $ (0.05) $ 0.16 $ 0.15
</Table>
<Table>
<Caption>
Year Ended September 30, 2001 1st 2nd 3rd 4th
- ------------------------------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 257,779 $ 227,276 $ 250,075 $ 227,754
Operating income (loss)(1) $ 30,180 $ 8,021 $ (3,459) $ 7,772
Income (loss) from continuing operations (2) $ 17,697 $ (1,382) $ (10,219) $ (6,316)
Income (loss) from discontinued operation, net of taxes $ (13,800) $ (52,198) $ 1,765 $ (1,750)
Net income (loss) (2) $ 3,897 $ (53,580) $ (8,454) $ (8,066)
Diluted earnings (loss) per common share (3):
Income (loss) from continuing operations $ 0.20 $ (0.02) $ (0.12) $ (0.08)
Income (loss) on discontinued operation $ (0.16) $ (0.60) $ 0.02 $ (0.02)
Net income (loss) $ 0.04 $ (0.62) $ (0.10) $ (0.10)
</Table>
(1) Includes other charges of $17.2 million in the quarter ended March 31,
2002, $31.1 million in the quarter ended March 31, 2001 and $15.5
million in the quarter ended September 30, 2001.
(2) Includes net losses from minority-owned investments of $2.5 million for
the quarter ended June 30, 2002 and $1.7 million, $3.4 million, $6.6
million and $15.1 million for each of the four quarters in the fiscal
year ended September 30, 2001. Also includes benefits for income taxes
from the utilization of foreign tax credits of $2.9 million in the
quarter ended June 30, 2001 and $11.6 million in the quarter ended
September 30, 2001.
(3) The aggregate of the four quarters' diluted earnings per common share
does not total the reported full fiscal year amount due to the effect
of dilutive securities and rounding.
18--SUBSEQUENT EVENTS - UNAUDITED
On October 30, 2002, the Company announced that it expected to incur a
charge of about $25 million in the quarter ending December 31, 2002, for
reductions in facilities and workforce as the Company continues to align
business resources with revenue expectations.
On October 30, 2002, the Company announced that the Board of Directors
approved a change of the Company's fiscal year from September 30 to December 31.
The change in fiscal year-end will better align overall operations with the
sales organization, which was already operating under a December 31 year-end to
correspond with the majority of its clients as well as its competitors. The
Company intends to file an audited Form 10-K transition report for the
three-month period ended December 31, 2002.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this Report on Form 10-K to be signed on its behalf by the
undersigned, duly authorized, in Stamford, Connecticut, on December 27, 2002.
Gartner, Inc.
Date: December 27, 2002 By: /s/ MICHAEL D. FLEISHER
------------------------
Michael D. Fleisher
Chairman of the Board, Chief
Executive Officer and President
POWER OF ATTORNEY
Each person whose signature appears below appoints Michael D. Fleisher and
Maureen E. O'Connell and each of them, acting individually, as his or her
attorney-in-fact, each with full power of substitution, for him or her in all
capacities, to sign all amendments to this Report on Form 10-K, and to file the
same, with appropriate exhibits and other related documents, with the Securities
and Exchange Commission. Each of the undersigned, ratifies and confirms his or
her signatures as they may be signed by his or her attorney-in-fact to any
amendments to this Report.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
<Table>
<Caption>
NAME TITLE DATE
<S> <C> <C>
/s/ MICHAEL D. FLEISHER Director and Chairman of the Board, December 27, 2002
- ---------------------------- Chief Executive Officer and President
Michael D. Fleisher (Principal Executive Officer)
/s/ MAUREEN E. O'CONNELL Executive Vice President Chief December 27, 2002
- ---------------------------- Financial and Administrative Officer
Maureen E. O'Connell (Principal Financial and Accounting
Officer)
/s/ ANNE SUTHERLAND FUCHS Director December 27, 2002
- ----------------------------
Anne Sutherland Fuchs
/s/ WILLIAM O. GRABE Director December 27, 2002
- ----------------------------
William O. Grabe
/s/ MAX D. HOPPER Director December 27, 2002
- ----------------------------
Max D. Hopper
/s/ GLENN HUTCHINS Director December 27, 2002
- ----------------------------
Glenn Hutchins
/s/ STEPHEN G. PAGLIUCA Director December 27, 2002
- ----------------------------
Stephen G. Pagliuca
</Table>
57
<PAGE>
<Table>
<S> <C> <C>
/s/ JAMES C. SMITH Director December 27, 2002
- ----------------------------
James C. Smith
/s/ DAVID J. ROUX Director December 27, 2002
- ----------------------------
David J. Roux
/s/ DENNIS G. SISCO Director December 27, 2002
- ----------------------------
Dennis G. Sisco
/s/ MAYNARD G. WEBB, JR. Director December 27, 2002
- ----------------------------
Maynard G. Webb, Jr.
</Table>
58
<PAGE>
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(1) I have reviewed this annual report on Form 10-K of Gartner, Inc.;
(2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed,
based on my most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors:
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
(6) The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Michael D. Fleisher
- -------------------------------
Michael D. Fleisher
Chief Executive Officer
December 27, 2002
59
<PAGE>
CERTIFICATION PURSUANT TO
RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
(1) I have reviewed this annual report on Form 10-K of Gartner, Inc.;
(2) Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
annual report;
(3) Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this annual report;
(4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the
Evaluation Date;
(5) The registrant's other certified officers and I have disclosed,
based on my most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors;
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
(6) The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
/s/ Maureen E. O'Connell
- -----------------------------------
Maureen E. O'Connell
Chief Financial Officer
December 27, 2002
60
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>3
<FILENAME>y67368exv4w3.txt
<DESCRIPTION>AMENDED AND RESTATED RIGHTS AGREEMENT
<TEXT>
<PAGE>
GARTNER, INC.
AND
MELLON INVESTOR SERVICES LLC,
AS RIGHTS AGENT
AMENDED AND RESTATED RIGHTS AGREEMENT
DATED AS OF AUGUST 31, 2002
<PAGE>
AMENDED AND RESTATED RIGHTS AGREEMENT
This Amended and Restated Rights Agreement (the "Agreement"), is
entered into as of August 31, 2002, by and between Gartner, Inc., a Delaware
corporation (f/k/a Gartner Group, Inc.) (the "Company"), and Mellon Investor
Services LLC, a New Jersey limited liability company, as successor Rights Agent
of Fleet National Bank (the "Rights Agent"), and amends and restates the Rights
Agreement, dated as of February 10, 2000, as amended, by and between the Company
and Fleet National Bank (f/k/a Bank Boston, N.A.).
On February 9, 2000 (the "Rights Dividend Declaration Date"), the Board
of Directors of the Company authorized and declared a dividend of one Class A
Preferred Share Purchase Right (a "Class A Right") for each Class A Common Share
(as hereinafter defined) of the Company outstanding as of the Close of Business
(as hereinafter defined) and one Class B Preferred Share Purchase Right (a
"Class B Right") (the Class A Rights and Class B Rights being collectively
referred to as "Rights") for each Class B Common Share outstanding (as
hereinafter defined) on February 25, 2000 (the "Record Date"), each Class A
Right representing the right to purchase one one-thousandth of a share of Series
A Junior Participating Preferred Stock (as such number may be adjusted pursuant
to the provisions of this Agreement), and each Class B Right representing the
right to purchase one one-thousandth of a share of Series B Junior Participating
Preferred Stock (as such number may be adjusted pursuant to the terms of this
Agreement), in each case having the rights, preferences and privileges set forth
in the form of Certificate of Designations of Rights, Preferences and Privileges
of Series A Junior Participating Preferred Stock and Series B Junior
Participating Preferred Stock attached hereto as Exhibit A, upon the terms and
subject to the conditions herein set forth, and further authorized and directed
the issuance of one Class A Right and one Class B Right (as such number may be
adjusted pursuant to the provisions of this Agreement) with respect to each
Class A Common Share and each Class B Common Share, respectively, that shall
become outstanding between the Record Date and the earlier of the Distribution
Date and the Expiration Date (as such terms are hereinafter defined), and in
certain circumstances after the Distribution Date.
NOW, THEREFORE, in consideration of the promises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of (i) 20% or more of the Class A Common Shares then
outstanding, or (ii) 20% of the Class B Common Shares then outstanding, or (iii)
15% of the Company's Common Shares then outstanding (each such share ownership
amount herein referred to as a "Threshold Amount"), but shall not include any
Excluded Person (as such term is hereinafter defined) or any Excepted Person (as
such term is hereinafter defined) but in the case of an Excepted Person only for
so long as such Person continues to meet the definition of an Excepted Person,
as determined by the Board of Directors of the Company in its good faith
discretion. Notwithstanding the foregoing, no Person shall be deemed to be an
Acquiring Person as the result of an acquisition of Common Shares by the Company
which, by reducing the
-2-
<PAGE>
number of shares outstanding, increases the proportionate number of shares
beneficially owned by such Person to a Threshold Amount; provided, however, that
if a Person shall become the Beneficial Owner of a Threshold Amount then
outstanding by reason of share purchases by the Company and shall, after such
share purchases by the Company, become the Beneficial Owner of any additional
Common Shares of the Company (other than pursuant to a dividend or distribution
paid or made by the Company on the outstanding Common Shares in Common Shares or
pursuant to a split or subdivision of the outstanding Common Shares), then such
Person shall be deemed to be an Acquiring Person unless upon becoming the
Beneficial Owner of such additional Common Shares of the Company such Person
does not beneficially own a Threshold Amount. Notwithstanding the foregoing, (i)
if the Company's Board of Directors determines in good faith that a Person who
would otherwise be an Acquiring Person, as defined pursuant to the foregoing
provisions of this paragraph (a), has become such inadvertently (including,
without limitation, because (A) such Person was unaware that it beneficially
owned a percentage of the Common Shares that would otherwise cause such Person
to be an Acquiring Person, as defined pursuant to the foregoing provisions of
this paragraph (a), or (B) such Person was aware of the extent of the Common
Shares it beneficially owned but had no actual knowledge of the consequences of
such beneficial ownership under this Agreement) and without any intention of
changing or influencing control of the Company, and if such Person divested or
divests as promptly as practicable a sufficient number of Common Shares so that
such Person would no longer be an Acquiring Person, as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be or to have become an "Acquiring Person" for any purposes of this
Agreement; and (ii) if, as of February 10, 2000, any Person is the Beneficial
Owner of a Threshold Amount, such Person shall not be or become an Acquiring
Person, as defined pursuant to the foregoing provisions of this paragraph (a),
unless and until such time as such Person shall become the Beneficial Owner of
additional Common Shares (other than pursuant to a dividend or distribution paid
or made by the Company on the outstanding Common Shares in Common Shares or
pursuant to a split or subdivision of the outstanding Common Shares), unless,
upon becoming the Beneficial Owner of such additional Common Shares, such Person
is not then the Beneficial Owner of a Threshold Amount; and (iii) if after
February 10, 2000 any Person or any of such Person's Affiliates or Associates,
becomes the Beneficial Owner of a Threshold Amount pursuant to (or as
contemplated by) an agreement that has been approved by the Board of Directors
of the Company prior to such Person becoming an Acquiring Person, neither (i)
such Person or any of such Person's Affiliates or Associates nor (ii) any
transferee of such Person or such Person's Affiliates or Associates, provided
that in the case of this subclause (ii) such transferee is not, either before or
after giving effect to each such transfer, the Beneficial Owner of (x) 25% or
more of the Class A Common Shares, (y) 20% or more of the Class B Common Shares
or (z) 20% or more of the Company's Common Shares then outstanding, shall be or
become an Acquiring Person, as defined pursuant to the foregoing provisions of
this paragraph (a), unless and until such time as such Person or such Person's
Affiliates, Associates or transferees shall become the Beneficial Owner of
additional Common Shares (other than pursuant to a dividend or distribution paid
or made by the Company on the outstanding Common Shares in Common Shares or
pursuant to a split or subdivision of the outstanding Common Shares), unless,
upon becoming the Beneficial Owner of such additional Common Shares, such Person
is not then the Beneficial Owner of a Threshold Amount.
(b) "Adjustment Fraction" shall have the meaning set forth in
Section 11(a)(i) hereof.
-3-
<PAGE>
(c) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on the date of this Agreement.
(d) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or indirectly, for purposes
of Section 13(d) of the Exchange Act and Rule 13d-3 thereunder (or any
comparable or successor law or regulation);
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (other than customary agreements with
and between underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion rights,
exchange rights, rights (other than the Rights), warrants or options, or
otherwise; provided, however, that a Person shall not be deemed pursuant to this
Section 1(d)(ii)(A) to be the Beneficial Owner of, or to beneficially own, (1)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, or (2) securities
which a Person or any of such Person's Affiliates or Associates may be deemed to
have the right to acquire pursuant to any merger or other acquisition agreement
between the Company and such Person (or one or more of its Affiliates or
Associates) if such agreement has been approved by the Board of Directors of the
Company prior to there being an Acquiring Person; or (B) the right to vote
pursuant to any agreement, arrangement or understanding; provided, however, that
a Person shall not be deemed the Beneficial Owner of, or to beneficially own,
any security under this Section 1(d)(ii)(B) if the agreement, arrangement or
understanding to vote such security (1) arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules and
regulations of the Exchange Act and (2) is not also then reportable on Schedule
13D under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person (or any Affiliate or Associate thereof) with
which such Person or any of such Person's Affiliates or Associates has any
agreement, arrangement or understanding, whether or not in writing (other than
customary agreements with and between underwriters and selling group members
with respect to a bona fide public offering of securities) for the purpose of
acquiring, holding, voting (except to the extent contemplated by the proviso to
Section 1(d)(ii)(B)) or disposing of any securities of the Company; provided,
however, that in no case shall an officer or director of the Company be deemed
(x) the Beneficial Owner of any securities beneficially owned by another officer
or director of the Company solely by reason of actions undertaken by such
persons in their capacity as officers or directors of the Company or (y) the
Beneficial Owner of securities held of record by the trustee of any employee
benefit plan of the Company or any Subsidiary of the Company for the benefit of
any employee of the Company or any Subsidiary of the Company, other than the
officer or director, by reason of any influence that such officer or director
may have over the voting of the securities held in the plan.
-4-
<PAGE>
(e) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the States of New Jersey, New
York or Connecticut are authorized or obligated by law or executive order to
close.
(f) "Close of Business" on any given date shall mean 5:00
P.M., Connecticut time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., Connecticut time, on the next
succeeding Business Day.
(g) "Common Shares" when used with reference to the Company
shall mean the Class A Common Shares and the Class B Common Shares,
collectively. Common Shares when used with reference to any Person other than
the Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other Person is a Subsidiary of
another Person, the Person or Persons which ultimately control such
first-mentioned Person.
(h) "Class A Common Shares" shall mean shares of the Company's
Common Stock, Class A, par value $0.0005.
(i) "Class B Common Shares" shall mean shares of the Company's
Common Stock, Class B, par value $0.0005.
(j) "Class A Rights Certificate" shall mean a certificate
substantially in the form attached hereto as Exhibit B.
(k) "Class B Rights Certificate" shall mean a certificate
substantially in the form attached hereto as Exhibit C.
(l) "Common Stock Equivalents" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(m) "Company" shall mean Gartner, Inc., a Delaware
corporation, subject to the terms of Section 13(a)(iii)(C) hereof.
(n) "Current Per Share Market Price" on any security (a
"Security" for purposes of this definition), for all computations other than
those made pursuant to Section 11(a)(iii) hereof, shall mean the average of the
daily closing prices per share of such Security for the thirty (30) consecutive
Trading Days immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the Current Per Share Market Price
of any Security on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the ten (10) consecutive Trading
Days immediately prior to such date; provided, however, that in the event that
the Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (i) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares or (ii) any subdivision, combination or
reclassification of such Security, and prior to the expiration of the applicable
thirty (30) Trading Day or ten (10) Trading Day period, after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the Current Per
Share Market Price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The
-5-
<PAGE>
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last sale price or, if such
last sale price is not reported, the average of the high bid and low asked
prices in the over-the-counter market, as reported by Nasdaq or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company. If on any such date no market maker is making
a market in the Security, the fair value of such shares on such date as
determined in good faith by the Board of Directors of the Company (which
determination shall be described in a statement filed with the Rights Agent)
shall be used. If the Series A Preferred Shares are not publicly traded, the
Current Per Share Market Price of the Series A Preferred Shares shall be
conclusively deemed to be the Current Per Share Market Price of the Class A
Common Shares as determined pursuant to this Section 1(n), as appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after February 10, 2000, multiplied by 1,000, and if the Series B
Preferred Shares are not publicly traded, the Current Per Share Market Price of
the Series B Preferred Shares shall be conclusively determined to be the Current
Per Share Market Price of the Class B Common Shares as determined pursuant to
this Section 1(n), as appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after February 10, 2000, multiplied by
1000. If a Security is not publicly held or so listed or traded, Current Per
Share Market Price shall mean the fair value per share as determined in good
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent and shall be conclusive for
all purposes.
(o) "Current Value" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(p) "Distribution Date" shall mean the earlier of (i) the
Close of Business on the tenth day after the Shares Acquisition Date (or, if the
tenth day after the Shares Acquisition Date occurs before the Record Date, the
Close of Business on the Record Date) or (ii) the Close of Business on the tenth
Business Day (or such later date as may be determined by action of the Company's
Board of Directors) after the date that a tender or exchange offer by any Person
(other than the Company, any Subsidiary of the Company, any employee benefit
plan of the Company or of any Subsidiary of the Company, or any Person or entity
organized, appointed or established by the Company for or pursuant to the terms
of any such plan) is first published or sent or given within the meaning of Rule
14d-2(a) of the General Rules and Regulations under the Exchange Act, if,
assuming the successful consummation thereof, such Person would be an Acquiring
Person.
(q) "Equivalent Shares" shall mean Preferred Shares and any
other class or series of capital stock of the Company which is entitled to the
same rights, privileges and preferences as the Preferred Shares.
-6-
<PAGE>
(r) "Excepted Percentage" applicable to any Excepted Person
shall, at any particular time, be a percentage of the then outstanding number of
shares of the Subject Class beneficially owned by such Person, which percentage
shall be equal to the sum of (A) the lesser of (i) the percentage of the
outstanding shares of the Subject Class beneficially owned by such Person on
February 10, 2000 and (ii) the lowest percentage of the outstanding shares of
the Subject Class beneficially owned by such Person at any time hereafter, plus
(B) 1% of the outstanding shares of the Subject Class.
(s) "Excepted Person" shall mean any Passive Investor that as
of February 10, 2000 is the Beneficial Owner of 20% or more of the outstanding
Class A Common Shares or Class B Common Shares (the applicable class being
referred to as the "Subject Class"); so long as such Passive Investor (i)
continues to be a Passive Investor, (ii) does not become the Beneficial Owner of
shares of the Subject Class in excess of the Excepted Percentage; and (iii) does
not become the Beneficial Owner of less than 19% of the then outstanding shares
of the Subject Class.
(t) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(u) "Exchange Ratio" shall have the meaning set forth in
Section 24(a) hereof.
(v) "Excluded Person" shall mean the Company, any Subsidiary
of the Company or any employee benefit plan of the Company or of any Subsidiary
of the Company, or any entity holding Common Shares for or pursuant to the terms
of any such plan.
(w) "Exercise Price" shall have the meaning set forth in
Section 4(a) hereof.
(x) "Expiration Date" shall mean the earliest of (i) the Close
of Business on the Final Expiration Date, (ii) the Redemption Date, or (iii) the
time at which the Board of Directors of the Company orders the exchange of the
Rights as provided in Section 24 hereof.
(y) "Final Expiration Date" shall mean February 25, 2010.
(z) "Interested Person" with respect to a Transaction shall
mean any Person who (i) is or will become an Acquiring Person if the Transaction
were to be consummated or an Affiliate or Associate of such a Person, and (ii)
is, or directly or indirectly proposed, nominated or financially supported a
director of the Company in office at the time of consideration of the
Transaction in question who was elected by written consent of stockholders.
(aa) "Nasdaq" shall mean the National Association of
Securities Dealers, Inc. Automated Quotations System.
(bb) "Passive Investor" shall mean a Person required by Rule
13d-1(a) of Regulation D-G promulgated under the Exchange Act, as amended to
file a statement on Schedule 13D in respect of such Person's beneficial
ownership of the Company's Common Shares, but who may, in lieu of filing such
statement on Schedule 13D, file a statement on Schedule 13G pursuant to Rule
13d-1(b) or Rule 13d-1(c) of Regulation D-G.
-7-
<PAGE>
(cc) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(dd) "Post-Event Transferee" shall have the meaning set forth
in Section 7(e) hereof.
(ee) "Pre-Event Transferee" shall have the meaning set forth
in Section 7(e) hereof.
(ff) "Preferred Shares" shall mean the Series A Preferred
Shares and the Series B Preferred Shares.
(gg) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
(hh) "Record Date" shall have the meaning set forth in the
recitals at the beginning of this Agreement.
(ii) "Redemption Date" shall have the meaning set forth in
Section 23(a) hereof.
(jj) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(kk) "Right" shall mean a Class A Right or a Class B Right and
the term "Rights" shall mean all Class A Rights and Class B Rights.
(ll) "Rights Agent" shall mean Mellon Investor Services LLC,
or its successor or replacement as provided in Sections 19 and 21 hereof.
(mm) "Rights Certificate" shall mean either a Class A Right
Certificate or Class B Right Certificate, in the forms attached hereto as
Exhibits B and C, respectively, and the term "Rights Certificates" shall have a
corresponding meaning.
(nn) "Rights Dividend Declaration Date" shall have the meaning
set forth in the recitals at the beginning of this Agreement.
(oo) "Section 11(a)(ii) Trigger Date" shall have the meaning
set forth in Section 11(a)(iii) hereof.
(pp) "Section 13 Event" shall mean any event described in
clause (i), (ii) or (iii) of Section 13(a) hereof.
(qq) "Securities Act" shall mean the Securities Act of 1933,
as amended.
(rr) "Series A Preferred Shares" shall mean shares of Series A
Junior Participating Preferred Stock, par value $0.01 per share, of the Company.
(ss) "Series B Preferred Shares" shall mean shares of Series B
Junior Participating Preferred Stock, par value $0.01 per share, of the Company.
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(tt) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) under the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such; provided that, if such Person is determined not to have become an
Acquiring Person pursuant to Section 1(a) hereof, then no Shares Acquisition
Date shall be deemed to have occurred.
(uu) "Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
(vv) "Subsidiary" of any Person shall mean any corporation or
other entity of which an amount of voting securities sufficient to elect a
majority of the directors or Persons having similar authority of such
corporation or other entity is beneficially owned, directly or indirectly, by
such Person, or any corporation or other entity otherwise controlled by such
Person.
(ww) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(xx) "Summary of Rights" shall mean a summary of this
Agreement substantially in the form attached hereto as Exhibit D.
(yy) "Total Exercise Price" shall have the meaning set forth
in Section 4(a) hereof.
(zz) "Trading Day" shall mean a day on which the principal
national securities exchange on which a referenced security is listed or
admitted to trading is open for the transaction of business or, if a referenced
security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(aaa) "Transaction" shall mean any merger, consolidation or
sale of assets described in Section 13(a) hereof or any acquisition of Common
Shares which would result in a Person becoming an Acquiring Person.
(bbb) A "Triggering Event" shall be deemed to have occurred
upon any Person becoming an Acquiring Person.
Section 2. Appointment of Rights Agent. The Company hereby appoints the
Rights Agent to act as agent for the Company in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such co-Rights Agents as it may deem
necessary or desirable upon ten (10) days prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any such co-Rights Agent.
Section 3. Issuance of Rights Certificates.
(a) Until the Distribution Date, (i) the Class A Rights and
the Class B Rights will be evidenced (subject to the provisions of Sections 3(b)
and 3(c) hereof) by the certificates for Class A Common Shares and Class B
Common Shares, respectively, registered in the names of the holders thereof
(which certificates shall also be deemed to be Rights Certificates) and not by
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separate Rights Certificates and (ii) the right to receive Rights Certificates
will be transferable only in connection with the transfer of Common Shares.
Until the earlier of the Distribution Date or the Expiration Date, the surrender
for transfer of such certificates for Common Shares shall also constitute the
surrender for transfer of the Rights associated with the Common Shares
represented thereby. As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested
and provided with all necessary information, send) by first-class,
postage-prepaid mail, to each record holder of Common Shares as of the Close of
Business on the Distribution Date, at the address of such holder shown on the
records of the Company, a Rights Certificate evidencing one Class A Right and
one Class B Right for each Class A Common Share or Class B Common Share so held,
respectively, subject to adjustment as provided herein. In the event that an
adjustment in the number of Rights per Common Share has been made pursuant to
Section 11 hereof, then at the time of distribution of the Rights Certificates,
the Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of the Distribution Date, the Rights will be evidenced
solely by such Rights Certificates and may be transferred by the transfer of the
Rights Certificates as permitted hereby, separately and apart from any transfer
of Common Shares, and the holders of such Rights Certificates as listed in the
records of the Company or any transfer agent or registrar for the Rights shall
be the record holders thereof. The Company shall promptly notify the Rights
Agent in writing upon the occurrence of the Distribution Date and, if such
notification is given orally, the Company shall confirm same in writing on or
prior to the Business Day next following. Until such notice is received by the
Rights Agent, the Rights Agent may presume conclusively for all purposes that
the Distribution Date has not occurred.
(b) On the Record Date or as soon as practicable thereafter,
the Company will send a copy of the Summary of Rights by first-class, postage-
prepaid mail, to each record holder of Common Shares as of the Close of Business
on the Record Date, at the address of such holder shown on the records of the
Company's transfer agent and registrar. With respect to certificates for Common
Shares outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby.
(c) Unless the Board of Directors of the Company by resolution
adopted at or before the time of the issuance of any Common Shares specifies to
the contrary, Rights shall be issued in respect of all Common Shares that are
issued after the Record Date but prior to the earlier of the Distribution Date
or the Expiration Date or, in certain circumstances provided in Section 22
hereof, after the Distribution Date. Certificates representing such Common
Shares shall also be deemed to be certificates for Rights, and shall bear the
following legend:
THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO
CERTAIN RIGHTS AS SET FORTH IN AN AMENDED AND RESTATED RIGHTS AGREEMENT
BETWEEN GARTNER, INC., AND MELLON INVESTOR SERVICES
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LLC, AS SUCCESSOR RIGHTS AGENT OF FLEET NATIONAL BANK, DATED AS OF
AUGUST 31, 2002 (AS AMENDED, SUPPLEMENTED OR OTHERWISE MODIFIED FROM
TIME TO TIME, THE "RIGHTS AGREEMENT"), THE TERMS OF WHICH ARE HEREBY
INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICES OF GARTNER, INC. UNDER CERTAIN
CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL
BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED
BY THIS CERTIFICATE. GARTNER, INC., WILL MAIL TO THE HOLDER OF THIS
CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT
OF A WRITTEN REQUEST THEREFOR. UNDER CERTAIN CIRCUMSTANCES SET FORTH IN
THE RIGHTS AGREEMENT, RIGHTS ISSUED TO, OR HELD BY, ANY PERSON WHO IS,
WAS OR BECOMES AN ACQUIRING PERSON OR ANY AFFILIATE OR ASSOCIATE
THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT), WHETHER
CURRENTLY HELD BY OR ON BEHALF OF SUCH PERSON OR BY ANY SUBSEQUENT
HOLDER, MAY BECOME NULL AND VOID.
With respect to such certificates containing the foregoing legend,
until the earlier of (i) the Distribution Date or (ii) the Expiration Date, the
Rights associated with the Common Shares represented by such certificates shall
be evidenced by such certificates alone, and the surrender for transfer of any
such certificate shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby.
(d) In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4. Form of Rights Certificates.
(a) The Class A Rights Certificates and the Class B Rights
Certificates (and the forms of election to purchase Class A Common Shares and
Class B Common Shares and of assignment to be printed on the reverse thereof)
shall be substantially in the forms of Exhibit B and Exhibit C hereto,
respectively, and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and which do not affect the rights, duties or responsibilities of
the Rights Agent and are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or a national market system, on which the Rights may from time to time
be listed or included, or to conform to usage. Subject to the provisions of
Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed,
shall be dated as of the Record Date (or in the case of Rights issued with
respect to Common Shares issued by the Company after the Record Date, as of the
date of issuance of such Common Shares) and on their face shall entitle the
holders thereof to purchase such number of one-thousandths of a Series A
Preferred Share (in the case of the Class A Rights) or Series B Preferred Share
(in the case of the Class B Rights) as shall be set forth therein at the price
set forth therein (such exercise price per one one-thousandth of a Preferred
Share being
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hereinafter referred to as the "Exercise Price" and the aggregate Exercise Price
of all Series A Preferred Shares or Series B Preferred Shares, as the case may
be, issuable upon exercise of one Right being hereinafter referred to as the
"Total Exercise Price"), but the number and type of securities purchasable upon
the exercise of each Right and the Exercise Price shall be subject to adjustment
as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or
Section 22 hereof that represents Rights beneficially owned by: (i) an Acquiring
Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee
of an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Company's Board of Directors has determined
is part of a plan, arrangement or understanding which has as a primary purpose
or effect avoidance of Section 7(e) hereof, and any Rights Certificate issued
pursuant to Section 6 or Section 11 hereof upon transfer, exchange, replacement
or adjustment of any other Rights Certificate referred to in this sentence,
shall contain (to the extent feasible) the following legend:
THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE
BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR
AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE
DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE
AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE
CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF THE RIGHTS AGREEMENT.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its Chief Executive Officer, its Chief
Financial Officer, its President or any Vice President, either manually or by
facsimile signature, and by the Secretary or an Assistant Secretary of the
Company, either manually or by facsimile signature, and shall have affixed
thereto the Company's seal (if any) or a facsimile thereof. The Rights
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Rights Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Rights Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Rights
Certificates on behalf of the Company had not ceased to be such officer of the
Company; and any Rights Certificate may be signed on behalf of the Company by
any person who, at the actual date of the execution of such Rights Certificate,
shall be a proper officer of the Company to sign such Rights Certificate,
although at the date of the execution of this Agreement any such person was not
such an officer.
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<PAGE>
(b) Following the Distribution Date and receipt by the Rights
Agent of written notice of such Distribution Date and all necessary information,
the Rights Agent will keep or cause to be kept, at its office designated for
such purposes, books for registration and transfer of the Rights Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Rights Certificates, the number of Rights evidenced on
its face by each of the Rights Certificates and the date of each of the Rights
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Sections 7(e), 14 and 24
hereof, at any time after the Close of Business on the Distribution Date, and at
or prior to the Close of Business on the Expiration Date, any Rights Certificate
or Rights Certificates may be transferred, split up, combined or exchanged for
another Rights Certificate or Rights Certificates, entitling the registered
holder to purchase a like number of one-thousandths of a Preferred Share (or,
following a Triggering Event, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Rights Certificates surrendered then
entitled such holder to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Rights Certificates
shall make such request in writing delivered to the Rights Agent, and shall
surrender the Rights Certificate or Rights Certificates to be transferred, split
up, combined or exchanged at the office of the Rights Agent designated for such
purpose. Neither the Rights Agent nor the Company shall be obligated to take any
action whatsoever with respect to the transfer of any such surrendered Rights
Certificate until the registered holder shall have completed and signed the
certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company or the Rights Agent shall reasonably request.
Thereupon the Rights Agent shall, subject to Sections 7(e), 14 and 24 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment from a Rights holder of a sum sufficient to cover any tax or
charge that may be imposed in connection with any transfer, split up,
combination or exchange of Rights Certificates. The Rights Agent shall have no
duty or obligation under this Section 6 unless and until the Rights Agent is
satisfied that all such taxes and/or governmental charges have been paid.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or destruction,
of indemnity or security satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Rights Certificate if mutilated, the Company will make and deliver a new
Rights Certificate of like tenor to the Rights Agent for countersignature and
delivery to the registered holder in lieu of the Rights Certificate so lost,
stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Exercise Price; Expiration Date of
Rights.
(a) Subject to Sections 7(e), 23(b) and 24(b) hereof, the
registered holder of any Rights Certificate may exercise the Rights evidenced
thereby (except as otherwise provided herein)
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in whole or in part at any time after the Distribution Date and prior to the
Close of Business on the Expiration Date by surrender of the Rights Certificate,
with the form of election to purchase on the reverse side thereof duly and
properly executed, to the Rights Agent at the office of the Rights Agent
designated for such purpose, together with payment of the Exercise Price for
each one-thousandth of a Preferred Share (or, following a Triggering Event,
other securities, cash or other assets as the case may be) as to which the
Rights are exercised.
(b) The Exercise Price for each one-thousandth of a Series A
Preferred Share issuable pursuant to the exercise of a Class A Right and the
Exercise Price for each one-thousandth of a Series B Preferred Share issuable
pursuant to the exercise of a Class B Right shall in each case initially be
Ninety Dollars ($90.00), shall be subject to adjustment from time to time as
provided in Sections 11 and 13 hereof, and shall be payable in lawful money of
the United States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing
exercisable Rights, with the form of election to purchase duly and properly
executed, accompanied by payment of the Exercise Price for the number of
one-thousandths of a Preferred Share (or, following a Triggering Event, other
securities, cash or other assets as the case may be) to be purchased and an
amount equal to any applicable tax or charge required to be paid by the holder
of such Rights Certificate in accordance with Section 9(e) hereof, the Rights
Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A)
requisition from any transfer agent of the Preferred Shares (or make available,
if the Rights Agent is the transfer agent for the Preferred Shares) a
certificate or certificates for the number of one-thousandths of a Series A
Preferred Share or Series B Preferred Share, as the case may be (or, following a
Triggering Event, other securities, cash or other assets as the case may be), to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests or (B) if the Company shall have elected to
deposit the total number of one-thousandths of a Series A Preferred Share or
Series B Preferred Share, as the case may be (or, following a Triggering Event,
other securities, cash or other assets as the case may be), issuable upon
exercise of the Rights hereunder with a depositary agent, requisition from the
depositary agent depositary receipts representing such number of one-thousandths
of a Series A Preferred Share or Series B Preferred Share, as the case may be
(or, following a Triggering Event, other securities, cash or other assets as the
case may be), as are to be purchased (in which case certificates for the
respective Preferred Shares (or, following a Triggering Event, other securities,
cash or other assets as the case may be) represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt thereof, deliver such cash to or
upon the order of the registered holder of such Rights Certificate. The payment
of the Exercise Price (as such amount may be reduced (including to zero)
pursuant to Section 11(a)(iii) hereof) and an amount equal to any applicable tax
or charge required to be paid by the holder of such Rights Certificate in
accordance with Section 9(e) hereof, may be made in cash or by certified bank
check, cashier's check or bank draft payable to the order of the Company. In the
event that the Company is obligated to issue securities of the Company other
than Preferred Shares, pay cash and/or distribute other property pursuant to
Section 11(a)
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hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when necessary to comply with this Agreement. The Company
shall provide the Rights Agent with written instructions prior to the
distribution of such securities.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Rights
Certificate or to his or her duly authorized assigns, subject to the provisions
of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, from and after the first occurrence of a Triggering Event, any Rights
beneficially owned by (i) an Acquiring Person or an Associate or Affiliate of an
Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee after the Acquiring Person
becomes such (a "Post-Event Transferee"), (iii) a transferee of an Acquiring
Person (or of any such Associate or Affiliate) who becomes a transferee prior to
or concurrently with the Acquiring Person becoming such and receives such Rights
pursuant to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or to
any Person with whom the Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a transfer
which the Company's Board of Directors has determined is part of a plan,
arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e) (a "Pre-Event Transferee") or (iv) any subsequent
transferee receiving transferred Rights from a Post-Event Transferee or a Pre-
Event Transferee, either directly or through one or more intermediate
transferees, shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise. The Company shall
use all reasonable efforts to ensure that the provisions of this Section 7(e)
and Section 4(b) hereof are complied with, but shall have no liability to any
holder of Rights Certificates or to any other Person as a result of its failure
to make any determinations with respect to an Acquiring Person or any of such
Acquiring Person's Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder upon the occurrence of
any purported exercise as set forth in this Section 7 unless such registered
holder shall, in addition to having complied with the requirements of Section
7(a) above, have (i) properly completed and signed the certificate contained in
the form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or
Affiliates or Associates thereof as the Company or the Rights Agent shall
reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and
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retirement, and the Rights Agent shall so cancel and retire, any Rights
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all canceled Rights
Certificates to the Company, or shall, at the written request of the Company,
destroy such canceled Rights Certificates, and in such case shall deliver a
certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Preferred Shares.
(a) The Company covenants and agrees that it will use its best
efforts to cause to be reserved and kept available out of its authorized and
unissued Preferred Shares not reserved for another purpose (and, following the
occurrence of a Triggering Event, out of its authorized and unissued Common
Shares and/or other securities), the number of Preferred Shares of each series
(and, following the occurrence of the Triggering Event, Common Shares and/or
other securities) that will be sufficient to permit the exercise in full of all
outstanding Rights.
(b) If the Company shall hereafter list any of its Preferred
Shares on a national securities exchange, then so long as the Preferred Shares
(and, following the occurrence of a Triggering Event, Common Shares and/or other
securities) issuable and deliverable upon exercise of the Rights may be listed
on such exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable (but only to the extent that it
is reasonably likely that the Rights will be exercised), all shares reserved for
such issuance to be listed on such exchange upon official notice of issuance
upon such exercise. The Company will not so list the Series A Preferred Shares
or Series B Preferred Shares without so listing shares of both series.
(c) The Company shall use its best efforts to (i) file, as
soon as practicable following the earliest date after the first occurrence of a
Triggering Event in which the consideration to be delivered by the Company upon
exercise of the Rights is described in Section 11(a)(ii) or Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Securities Act with respect to
the securities purchasable upon exercise of the Rights on an appropriate form,
(ii) cause such registration statement to become effective as soon as
practicable after such filing and (iii) cause such registration statement to
remain effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of (A) the date as of which the Rights are no
longer exercisable for such securities and (B) the date of expiration of the
Rights. The Company may temporarily suspend, for a period not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement stating, and notify
the Rights Agent in writing, that the exercisability of the Rights has been
temporarily suspended, as well as a public announcement and written notification
to the Rights Agent at such time as the suspension is no longer in effect. The
Company will also take such action as may be appropriate under, or to ensure
compliance with, the securities or "blue sky" laws of the various states in
connection with the exercisability of the Rights. Notwithstanding any provision
of this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction, unless the requisite qualification in such jurisdiction shall have
been obtained, or an exemption therefrom shall be available, and until a
registration statement has been declared effective.
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(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares (or other
securities of the Company) delivered upon exercise of Rights shall, at the time
of delivery of the certificates for such securities (subject to payment of the
Exercise Price), be duly and validly authorized and issued and fully paid and
nonassessable shares.
(e) The Company further covenants and agrees that it will pay
when due and payable any and all taxes and governmental charges which may be
payable in respect of the original issuance or delivery of the Rights
Certificates or of any Preferred Shares (or other securities of the Company)
upon the exercise of Rights. The Company shall not, however, be required to pay
any tax or charge which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Shares (or other
securities of the Company) in a name other than that of, the registered holder
of the Rights Certificate evidencing Rights surrendered for exercise or to issue
or to deliver any certificates or depositary receipts for Preferred Shares (or
other securities of the Company) upon the exercise of any Rights until any such
tax or charge shall have been paid (any such tax or charge being payable by the
holder of such Rights Certificate at the time of surrender) or until it has been
established to the Company's or the Rights Agent's reasonable satisfaction that
no such tax or charge is due.
Section 10. Record Date. Each Person in whose name any certificate for
a number of one-thousandths of a Preferred Share (or other securities of the
Company) is issued upon the exercise of Rights shall for all purposes be deemed
to have become the holder of record of Preferred Shares (or other securities of
the Company) represented thereby on, and such certificate shall be dated, the
date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Total Exercise Price with respect to which the
Rights have been exercised (and any applicable taxes or governmental charges)
was made; provided, however, that if the date of such surrender and payment is a
date upon which the transfer books of the Company are closed, such Person shall
be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
transfer books of the Company are open. Prior to the exercise of the Rights
evidenced thereby, the holder of a Rights Certificate shall not be entitled to
any rights of a holder of Preferred Shares (or other securities of the Company)
for which the Rights shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided herein.
Section 11. Adjustment of Exercise Price, Number of Shares or Number of
Rights. The Exercise Price, the number and kind of shares or other property
covered by each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 11.
(a) (i) Anything in this Agreement to the contrary
notwithstanding, in the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on any series of Preferred Shares payable
in Preferred Shares, (B) subdivide the outstanding Preferred Shares of any
series, (C) combine the outstanding Preferred Shares of any series (by reverse
stock split or otherwise) into a smaller number of Preferred Shares, or (D)
issue any shares of its capital stock in a reclassification of any series of
Preferred Shares (including any such reclassification in
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connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), then, in each such event, except as otherwise
provided in this Section 11 and Section 7(e) hereof: (1) the Exercise Price in
effect at the time of the record date for such dividend or of the effective date
of such subdivision, combination or reclassification shall be adjusted so that
the Exercise Price thereafter shall equal the result obtained by dividing the
Exercise Price in effect immediately prior to such time by a fraction (the
"Adjustment Fraction"), the numerator of which shall be the total number of
Preferred Shares of such series (or shares of capital stock issued in such
reclassification of Preferred Shares) outstanding immediately following such
time and the denominator of which shall be the total number of Preferred Shares
of such series outstanding immediately prior to such time; provided, however,
that in no event shall the consideration to be paid upon the exercise of one
Right be less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of such Right; and (2) the number of
one-thousandths of a Preferred Share (or share of such other capital stock)
issuable upon the exercise of each Right shall equal the number of
one-thousandths of a Preferred Share (or share of such other capital stock) as
was issuable upon exercise of such Right immediately prior to the occurrence of
the event described in clauses (A)- (D) of this Section 11(a)(i), multiplied by
the Adjustment Fraction; provided, however, that, no such adjustment shall be
made pursuant to this Section 11(a)(i) to the extent that there shall have
simultaneously occurred an event described in clause (A), (B), (C) or (D) of
Section 11(n) with a proportionate adjustment being made thereunder. Each Class
A Common Share that shall become outstanding after an adjustment has been made
pursuant to this Section 11(a)(i) shall have associated with it the number of
Class A Rights, exercisable at the Exercise Price and for the number of
one-thousandths of a Series A Preferred Share (or shares of such other capital
stock) as one Class A Common Share has associated with it immediately following
the adjustment made pursuant to this Section 11(a)(i) and each Class B Common
Share that shall become outstanding after an adjustment has been made pursuant
to this Section 11(a)(i) shall have associated with it the number of Class B
Rights, exercisable at the Exercise Price and for the number of one-thousandths
of a Series B Preferred Share (or shares of such other capital stock) as one
Class B Common Share has associated with it immediately following the adjustment
made pursuant to this Section 11(a)(i).
(ii) Subject to Section 24 of this Agreement, in the
event a Triggering Event shall have occurred, then promptly following such
Triggering Event each holder of a Class A Right or a Class B Right, except as
provided in Section 7(e) hereof, shall thereafter have the right to receive for
each such Right, upon exercise thereof in accordance with the terms of this
Agreement and payment of the Total Exercise Price in effect immediately prior to
the occurrence of the Triggering Event, in lieu of a number of one-thousandths
of a Series A Preferred Share (in the case of the Class A Rights) or
one-thousandths of a Series B Preferred Share (in the case of the Class B
Rights), such number of Class A Common Shares or Class B Common Shares,
respectively, as shall equal the result obtained by multiplying the Exercise
Price in effect immediately prior to the occurrence of the Triggering Event by
the number of one-thousandths of a Preferred Share for which such Right was
exercisable (or would have been exercisable if the Distribution Date had
occurred) immediately prior to the first occurrence of a Triggering Event, and
dividing that product by 50% of the Current Per Share Market Price for Class A
Common Shares (in the case of the Class A Rights) or 50% of the Current Per
Share Market Price for Class B Common Shares (in the case of the Class B Rights)
on the date of occurrence of the Triggering Event; provided, however, that the
Exercise Price and the number of Class A Common Shares or Class B Common Shares
of the Company so receivable upon exercise of a Class A Right or Class B Right,
respectively, shall be
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subject to further adjustment as appropriate in accordance with Section 11(e)
hereof to reflect any events occurring in respect of the Common Shares of the
Company after the occurrence of the Triggering Event.
(iii) In lieu of issuing Common Shares in accordance
with Section 11(a)(ii) hereof, the Company may, if the Company's Board of
Directors determines that such action is necessary or appropriate and not
contrary to the interest of holders of Rights (and, in the event that the number
of Common Shares which are authorized by the Company's Certificate of
Incorporation but not outstanding or reserved for issuance for purposes other
than upon exercise of the Rights are not sufficient to permit the exercise in
full of the Rights, or if any necessary regulatory approval for such issuance
has not been obtained by the Company, the Company shall): (A) determine the
excess of (1) the value of the Common Shares issuable upon the exercise of a
Right (the "Current Value") over (2) the Exercise Price (such excess, the
"Spread") and (B) with respect to each Right, make adequate provision to
substitute for such Common Shares, upon exercise of the Rights, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities of the Company
(including, without limitation, shares or units of shares of any series of
preferred stock which the Company's Board of Directors has deemed to have the
same value as Common Shares (such shares or units of shares of preferred stock
are herein called "Common Stock Equivalents")), except to the extent that the
Company has not obtained any necessary stockholder or regulatory approval for
such issuance, (4) debt securities of the Company, except to the extent that the
Company has not obtained any necessary stockholder or regulatory approval for
such issuance, (5) other assets or (6) any combination of the foregoing, having
an aggregate value equal to the Current Value, where such aggregate value has
been determined by the Company's Board of Directors based upon the advice of a
nationally recognized investment banking firm selected by the Company's Board of
Directors; provided, however, if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Triggering Event and (y)
the date on which the Company's right of redemption pursuant to Section 23(a)
expires (the later of (x) and (y) being referred to herein as the "Section
11(a)(ii) Trigger Date"), then the Company shall be obligated to deliver, upon
the surrender for exercise of a Right and without requiring payment of the
Exercise Price, Common Shares (to the extent available), except to the extent
that the Company has not obtained any necessary stockholder or regulatory
approval for such issuance, and then, if necessary, cash, which shares and/or
cash have an aggregate value equal to the Spread. If the Company's Board of
Directors shall determine in good faith that it is likely that sufficient
additional Common Shares could be authorized for issuance upon exercise in full
of the Rights or that any necessary regulatory approval for such issuance will
be obtained, the thirty (30) day period set forth above may be extended to the
extent necessary, but not more than ninety (90) days after the Section 11(a)(ii)
Trigger Date, in order that the Company may seek stockholder approval for the
authorization of such additional shares or take action to obtain such regulatory
approval (such period, as it may be extended, the "Substitution Period"). To the
extent that the Company determines that some action need be taken pursuant to
the first and/or second sentences of this Section 11(a)(iii), the Company (x)
shall provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights and (y) may suspend the exercisability of
the Rights until the expiration of the Substitution Period in order to seek any
authorization of additional shares, to take any action to obtain any required
regulatory approval and/or to decide the appropriate form of distribution to be
made pursuant to such first sentence and to determine the value thereof. In the
event of any such suspension, the Company shall issue a public
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announcement stating, and notify the Rights Agent in writing, that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement and written notification to the Rights Agent at such time as the
suspension is no longer in effect. For purposes of this Section 11(a)(iii), the
value of the Class A Common Shares shall be the Current Per Share Market Price
of the Class A Common Shares on the Section 11(a)(ii) Trigger Date, the value of
the Class B Common Shares shall be the Current Per Share Market Price of the
Class B Common Shares on the Section 11(a)(ii) Trigger Date, and the value of
any Common Stock Equivalent shall be deemed to have the same value as the Common
Shares of the relevant class on such date.
(b) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the issuance of rights, options or
warrants to all holders of Preferred Shares entitling such holders (for a period
expiring within forty-five (45) calendar days after such record date) to
subscribe for or purchase Preferred Shares or Equivalent Shares or securities
convertible into Preferred Shares or Equivalent Shares at a price per share (or
having a conversion price per share, if a security convertible into Preferred
Shares or Equivalent Shares) less than the then Current Per Share Market Price
of the Preferred Shares or Equivalent Shares on such record date, then, in each
such case, the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares and Equivalent Shares (if any) outstanding on such record date,
plus the number of Preferred Shares or Equivalent Shares, as the case may be,
which the aggregate offering price of the total number of Preferred Shares or
Equivalent Shares, as the case may be, to be offered or issued (and/or the
aggregate initial conversion price of the convertible securities to be offered
or issued) would purchase at such current market price, and the denominator of
which shall be the number of Preferred Shares and Equivalent Shares (if any)
outstanding on such record date, plus the number of additional Preferred Shares
or Equivalent Shares, as the case may be, to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
initially convertible); provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Company's
Board of Directors, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding and conclusive for all purposes on
the Rights Agent and the holders of the Rights. Preferred Shares and Equivalent
Shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed, and in the event that
such rights, options or warrants are not so issued, the Exercise Price shall be
adjusted to be the Exercise Price which would then be in effect if such record
date had not been fixed. The Company shall not effect any of the foregoing
corporate actions set forth in this Section 11(b) with respect to the Series A
Preferred Shares or Series B Preferred Shares without taking similar action with
respect to each such series.
(c) In case the Company shall, at any time after the date of
this Agreement, fix a record date for the making of a distribution to all
holders of the Preferred Shares or of any class or series of Equivalent Shares
(including any such distribution made in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation) of
evidences of indebtedness or assets (other than a regular quarterly cash
dividend, if any, or a dividend payable in
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Preferred Shares) or subscription rights, options or warrants (excluding those
referred to in Section 11(b)), then, in each such case, the Exercise Price to be
in effect after such record date shall be determined by multiplying the Exercise
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the Current Per Share Market Price of a Preferred
Share or an Equivalent Share on such record date, less the fair market value per
Preferred Share or Equivalent Share (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent and which shall be conclusive for all purposes) of
the portion of the cash, assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to a Preferred
Share or Equivalent Share, as the case may be, and the denominator of which
shall be such Current Per Share Market Price of a Preferred Share or Equivalent
Share on such record date; provided, however, that in no event shall the
consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. Such adjustments shall be made successively whenever such
a record date is fixed, and in the event that such distribution is not so made,
the Exercise Price shall be adjusted to be the Exercise Price which would have
been in effect if such record date had not been fixed. The Company shall not
effect any of the foregoing corporate actions set forth in this Section 11(c)
with respect to the Series A Preferred Shares or Series B Preferred Shares
without taking similar action with respect to each such series.
(d) Anything herein to the contrary notwithstanding, no
adjustment in the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least 1% in the Exercise Price; provided,
however, that any adjustments which by reason of this Section 11(d) are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one-thousandth of a Common Share or other
share or one hundred-thousandth of a Preferred Share, as the case may be.
Notwithstanding the first sentence of this Section 11(d), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which requires such adjustment or
(ii) the Expiration Date.
(e) If as a result of an adjustment made pursuant to Section
11(a) or 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right and, if required, the Exercise Price thereof, shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Preferred Shares contained in
this Section 11, and the provisions of Sections 7, 9, 10, 13 and 14 with respect
to the Preferred Shares shall apply on like terms to any such other shares.
(f) All Rights originally issued by the Company subsequent to
any adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(g) Unless the Company shall have exercised its election as
provided in Section 11(h), upon each adjustment of the Exercise Price as a
result of the calculations made in Section 11(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of
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Series A Preferred Shares (in the case of Class A Rights) or Series B Preferred
Shares (in the case of Class B Rights) (calculated to the nearest one
hundred-thousandth of a share) obtained by (i) multiplying (x) the number of
Preferred Shares covered by such Right immediately prior to this adjustment, by
(y) the Exercise Price in effect immediately prior to such adjustment of the
Exercise Price, and (ii) dividing the product so obtained by the Exercise Price
in effect immediately after such adjustment of the Exercise Price.
(h) The Company may elect on or after the date of any
adjustment of the Exercise Price as a result of the calculations made in Section
11(b) or (c) to adjust the number of Rights, in substitution for any adjustment
in the number of Preferred Shares purchasable upon the exercise of a Right. Each
of the Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one-thousandths of a Preferred Share for which the
Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one hundred-thousandth) obtained by
dividing the Exercise Price in effect immediately prior to adjustment of the
Exercise Price by the Exercise Price in effect immediately after adjustment of
the Exercise Price. The Company shall make a public announcement of its election
to adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made, with prompt
written notice thereof to the Rights Agent. This record date may be the date on
which the Exercise Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(h), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Exercise
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(i) Irrespective of any adjustment or change in the Exercise
Price or the number of Preferred Shares issuable upon the exercise of the
Rights, the Rights Certificates theretofore and thereafter issued may continue
to express the Exercise Price per one one-thousandth of a Preferred Share and
the number of one-thousandths of a Preferred Share which were expressed in the
initial Rights Certificates issued hereunder.
(j) Before taking any action that would cause an adjustment
reducing the Exercise Price below the par or stated value, if any, of the number
of one-thousandths of a Preferred Share issuable upon exercise of the Rights,
the Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue as
fully paid and nonassessable shares such number of one-thousandths of a
Preferred Share at such adjusted Exercise Price.
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(k) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer (with prompt written notice
thereof to the Rights Agent) until the occurrence of such event the issuing to
the holder of any Right exercised after such record date of the number of
one-thousandths of a Preferred Share and other capital stock or securities of
the Company, if any, issuable upon such exercise over and above the number of
one-thousandths of a Preferred Share and other capital stock or securities of
the Company, if any, issuable upon such exercise on the basis of the Exercise
Price in effect prior to such adjustment; provided, however, that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares (fractional or
otherwise) upon the occurrence of the event requiring such adjustment.
(l) Anything in this Section 11 to the contrary
notwithstanding, prior to the Distribution Date, the Company shall be entitled
to make such reductions in the Exercise Price, in addition to those adjustments
expressly required by this Section 11, as and to the extent that it in its sole
discretion shall determine to be advisable in order that any (i) consolidation
or subdivision of the Preferred or Common Shares, (ii) issuance wholly for cash
of any Preferred or Common Shares at less than the current market price, (iii)
issuance wholly for cash of Preferred or Common Shares or securities which by
their terms are convertible into or exchangeable for Preferred or Common Shares,
(iv) stock dividends or (v) issuance of rights, options or warrants referred to
in this Section 11, hereafter made by the Company to holders of its Preferred or
Common Shares shall not be taxable to such stockholders.
(m) The Company covenants and agrees that, after the
Distribution Date, it will not, except as permitted by Sections 23, 24 or 27
hereof, take (or permit to be taken) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(n) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Class A Common Shares or Class B
Common Shares payable in Class A Common Shares or Class B Common Shares, (B)
subdivide the outstanding Class A Common Shares or Class B Common Shares, (C)
combine the outstanding Class A Common Shares or Class B Common Shares (by
reverse stock split or otherwise) into a smaller number of Class A Common Shares
or Class B Common Shares, or (D) issue any shares of its capital stock in a
reclassification of the Class A Common Shares or Class B Common Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), then,
in each such event, except as otherwise provided in this Section 11(a) and
Section 7(e) hereof: (1) each Class A Common Share or Class B Common Share (or
shares of capital stock issued in such reclassification of the Common Shares)
outstanding immediately following such time shall have associated with it the
number of Rights as were associated with one Class A Common Share or Class B
Common Share, as the case may be, immediately prior to the occurrence of the
event described in clauses (A)-(D) above; (2) the Exercise Price in effect at
the time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that the
Exercise Price thereafter shall equal the result obtained by multiplying the
Exercise Price in effect immediately prior to such time by a fraction, the
numerator of which shall be the total number of Class A Common Shares or Class B
Common Shares, as the case may be, outstanding immediately prior to the event
described
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in clauses (A)-(D) above, and the denominator of which shall be the total number
of such outstanding immediately after such event; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of such Right; and (3) the number of one-thousandths of a
Class A Preferred Share or Class B Preferred Share, as the case may be (or
shares of such other capital stock), issuable upon the exercise of each Right
outstanding after such event shall equal the number of one-thousandths of a
Class A Preferred Share or Class B Preferred Share, as the case may be (or
shares of such other capital stock) as were issuable with respect to one Right
immediately prior to such event. Each Class A Common Share and Class B Common
Share that shall become outstanding after an adjustment has been made pursuant
to this Section 11(n) shall have associated with it the number of Class A Rights
or Class B Rights, as the case may be, exercisable at the Exercise Price and for
the number of one-thousandths of a Class A Preferred Share or Class B Preferred
Share, as the case may be (or shares of such other capital stock) as one Class A
Common Share or Class B Common Share, as the case may be, has associated with it
immediately following the adjustment made pursuant to this Section 11(n). If an
event occurs which would require an adjustment under both this Section 11(n) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(n)
shall be in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii) hereof.
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.
Whenever an adjustment is made as provided in Sections 11 and 13 hereof, the
Company shall promptly (a) prepare a certificate setting forth such adjustment
and a brief statement of the facts and computations accounting for such
adjustment, (b) file with the Rights Agent and with each transfer agent for the
Preferred Shares a copy of such certificate and (c) mail a brief summary thereof
to each holder of a Rights Certificate in accordance with Section 26 hereof.
Notwithstanding the foregoing sentence, the failure of the Company to make such
certification or give such notice shall not affect the validity of such
adjustment or the force or effect of the requirement for such adjustment. The
Rights Agent shall be fully protected in relying on any such certificate and on
any adjustment or statement contained therein and shall have no duty or
liability with respect to and shall not be deemed to have knowledge of such
adjustment unless and until it shall have received such certificate.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following a Triggering Event, directly
or indirectly:
(i) the Company shall consolidate with, or merge with
and into, any other Person (other than a wholly-owned Subsidiary of the Company
in a transaction the principal purpose of which is to change the state of
incorporation of the Company and which complies with Section 11(m) and 11(n)
hereof);
(ii) any Person shall consolidate with the Company,
or merge with and into the Company and the Company shall be the continuing or
surviving corporation of such consolidation or merger and, in connection with
such merger, all or part of the Common Shares shall be changed into or exchanged
for stock or other securities of any other Person (or of the Company); or
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(iii) the Company shall sell or otherwise transfer
(or one or more of its Subsidiaries shall sell or otherwise transfer), in one or
more transactions, assets or earning power aggregating 50% or more of the assets
or earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person or Persons (other than the Company or one or more of its wholly-
owned Subsidiaries in one or more transactions, each of which individually (and
together) complies with Section 11(m) hereof), then, concurrent with and in each
such case,
(A) each holder of a Right (except as
provided in Section 7(e) hereof) shall thereafter have the right to receive,
upon the exercise thereof at a price equal to the Total Exercise Price
applicable immediately prior to the occurrence of the Section 13 Event in
accordance with the terms of this Agreement, such number of validly authorized
and issued, fully paid, nonassessable and freely tradable Common Shares of the
Principal Party (as hereinafter defined), free of any liens, encumbrances,
rights of first refusal or other adverse claims, as shall be equal to the result
obtained by dividing such Total Exercise Price by 50% of the Current Per Share
Market Price of the Common Shares of such Principal Party on the date of
consummation of such Section 13 Event, provided, however, that the Exercise
Price and the number of Common Shares of such Principal Party so receivable upon
exercise of a Right shall be subject to further adjustment as appropriate in
accordance with Section 11(e) hereof;
(B) such Principal Party shall thereafter be
liable for, and shall assume, by virtue of such Section 13 Event, all the
obligations and duties of the Company pursuant to this Agreement;
(C) the term "Company" shall thereafter be
deemed to refer to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal Party
following the first occurrence of a Section 13 Event;
(D) such Principal Party shall take such
steps (including, but not limited to, the reservation of a sufficient number of
its Common Shares) in connection with the consummation of any such transaction
as may be necessary to ensure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its Common Shares
thereafter deliverable upon the exercise of the Rights; and
(E) upon the subsequent occurrence of any
consolidation, merger, sale or transfer of assets or other extraordinary
transaction in respect of such Principal Party, each holder of a Right shall
thereupon be entitled to receive, upon exercise of a Right and payment of the
Total Exercise Price as provided in this Section 13(a), such cash, shares,
rights, warrants and other property which such holder would have been entitled
to receive had such holder, at the time of such transaction, owned the Common
Shares of the Principal Party receivable upon the exercise of such Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.
(F) For purposes hereof, the "earning power"
of the Company and its Subsidiaries shall be determined in good faith by the
Company's Board of Directors on the basis
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of the operating earnings of each business operated by the Company and its
Subsidiaries during the three fiscal years preceding the date of such
determination (or, in the case of any business not operated by the Company or
any Subsidiary during three full fiscal years preceding such date, during the
period such business was operated by the Company or any Subsidiary).
(b) For purposes of this Agreement, the term "Principal Party"
shall mean:
(i) in the case of any transaction described in
clause (i) or (ii) of Section 13(a) hereof: (A) the Person that is the issuer of
the securities into which the Common Shares are converted in such merger or
consolidation, or, if there is more than one such issuer, the issuer the Common
Shares of which have the greatest aggregate market value of shares outstanding,
or (B) if no securities are so issued, (x) the Person that is the other party to
the merger, if such Person survives said merger, or, if there is more than one
such Person, the Person the Common Shares of which have the greatest aggregate
market value of shares outstanding or (y) if the Person that is the other party
to the merger does not survive the merger, the Person that does survive the
merger (including the Company if it survives) or (z) the Person resulting from
the consolidation; and
(ii) in the case of any transaction described in
clause (iii) of Section 13(a) hereof, the Person that is the party receiving the
greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if more than one Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred and each such portion would, were it not for the other
equal portions, constitute the greatest portion of the assets or earning power
so transferred, or if the Person receiving the greatest portion of the assets or
earning power cannot be determined, whichever of such Persons is the issuer of
Common Shares having the greatest aggregate market value of shares outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Shares of such Person are not at such time or
have not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Shares of which are and have been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Shares of which are and have been so registered, the term "Principal
Party" shall refer to whichever of such Persons is the issuer of Common Shares
having the greatest aggregate market value of shares outstanding, or (3) if such
Person is owned, directly or indirectly, by a joint venture formed by two or
more Persons that are not owned, directly or indirectly by the same Person, the
rules set forth in clauses (1) and (2) above shall apply to each of the owners
having an interest in the venture as if the Person owned by the joint venture
was a Subsidiary of both or all of such joint venturers, and the Principal Party
in each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such interests.
(c) The Company shall not consummate any Section 13 Event
unless the Principal Party shall have a sufficient number of authorized Common
Shares that have not been issued or reserved for issuance to permit the exercise
in full of the Rights in accordance with this Section 13 and unless prior
thereto the Company and such issuer shall have executed and delivered to the
Rights Agent a supplemental agreement confirming that such Principal Party
shall, upon consummation of such Section 13 Event, assume this Agreement in
accordance with Sections 13(a)
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and 13(b) hereof, that all rights of first refusal or preemptive rights in
respect of the issuance of Common Shares of such Principal Party upon exercise
of outstanding Rights have been waived, that there are no rights, warrants,
instruments or securities outstanding or any agreements or arrangements which,
as a result of the consummation of such transaction, would eliminate or
substantially diminish the benefits intended to be afforded by the Rights and
that such transaction shall not result in a default by such Principal Party
under this Agreement, and further providing that, as soon as practicable after
the date of such Section 13 Event, such Principal Party will:
(i) prepare and file a registration statement under
the Securities Act with respect to the Rights and the securities purchasable
upon exercise of the Rights on an appropriate form, use its best efforts to
cause such registration statement to become effective as soon as practicable
after such filing and use its best efforts to cause such registration statement
to remain effective (with a prospectus at all times meeting the requirements of
the Securities Act) until the Expiration Date, and similarly comply with
applicable state securities laws;
(ii) use its best efforts to list (or continue the
listing of) the Rights and the securities purchasable upon exercise of the
Rights on a national securities exchange or to meet the eligibility requirements
for quotation on Nasdaq and list (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on Nasdaq; and
(iii) deliver to holders of the Rights historical
financial statements for such Principal Party which comply in all respects with
the requirements for registration on Form 10 (or any successor form) under the
Exchange Act.
In the event that at any time after the occurrence of a Triggering
Event some or all of the Rights shall not have been exercised at the time of a
transaction described in this Section 13, the Rights which have not theretofore
been exercised shall thereafter be exercisable in the manner described in
Section 13(a) (without taking into account any prior adjustment required by
Section 11(a)(ii)).
(d) In case the "Principal Party" for purposes of Section
13(b) hereof has provision in any of its authorized securities or in its
Certificate of Incorporation or by-laws or other instrument governing its
corporate affairs, which provision would have the effect of (i) causing such
Principal Party to issue (other than to holders of Rights pursuant to Section 13
hereof), in connection with, or as a consequence of, the consummation of a
Section 13 Event, Common Shares or Equivalent Shares of such Principal Party at
less than the then Current Per Share Market Price thereof or securities
exercisable for, or convertible into, Common Shares or Equivalent Shares of such
Principal Party at less than such then Current Per Share Market Price, or (ii)
providing for any special payment, tax or similar provision in connection with
the issuance of the Common Shares of such Principal Party pursuant to the
provisions of Section 13 hereof, then, in such event, the Company hereby agrees
with each holder of Rights that it shall not consummate any such transaction
unless prior thereto the Company and such Principal Party shall have executed
and delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall have been canceled, waived
or amended, or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with or as a consequence
of, the consummation of the proposed transaction.
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(e) The Company covenants and agrees that it shall not, at any
time after the Distribution Date, effect or permit to occur any Section 13
Event, if (i) at the time or immediately after such Section 13 Event there are
any rights, warrants or other instruments or securities outstanding or
agreements in effect which would substantially diminish or otherwise eliminate
the benefits intended to be afforded by the Rights, (ii) prior to,
simultaneously with or immediately after such Section 13 Event, the stockholders
of the Person who constitutes, or would constitute, the "Principal Party" for
purposes of Section 13(b) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates or (iii)
the form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights.
(f) The provisions of this Section 13 shall similarly apply to
successive mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of
Rights or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered holders of
the Rights Certificates with regard to which such fractional Rights would
otherwise be issuable, an amount in cash equal to the same fraction of the
current market value of a whole Right. For the purposes of this Section 14(a),
the current market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable, as determined pursuant to
the second sentence of Section 1(n) hereof.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of the Rights or to
distribute certificates which evidence fractional Preferred Shares (other than
fractions that are integral multiples of one one-thousandth of a Preferred
Share). Interests in fractions of Preferred Shares in integral multiples of one
one-thousandth of a Preferred Share may, at the election of the Company, be
evidenced by depositary receipts, pursuant to an appropriate agreement between
the Company and a depositary selected by it; provided, that such agreement shall
provide that the holders of such depositary receipts shall have all the rights,
privileges and preferences to which they are entitled as beneficial owners of
the Preferred Shares represented by such depositary receipts. In lieu of
fractional Preferred Shares that are not integral multiples of one
one-thousandth of a Preferred Share, the Company shall pay to the registered
holders of Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of a Preferred Share. For purposes of this Section 14(b), the current
market value of a Preferred Share shall be one thousand times the closing price
of a Common Share (as determined pursuant to the second sentence of Section 1(n)
hereof) for the Trading Day immediately prior to the date of such exercise.
(c) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares upon the exercise or exchange of Rights. In lieu of such fractional
Common Shares, the Company shall pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the current market value of a Common
Share. For purposes of this
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Section 14(c), the current market value of a Common Share shall be the closing
price of a Common Share (as determined pursuant to the second sentence of
Section 1(n) hereof) for the Trading Day immediately prior to the date of such
exercise.
(d) The holder of a Right by the acceptance of the Right
expressly waives his or her right to receive any fractional Rights or any
fractional shares (other than fractions that are integral multiples of one
one-thousandth of a Preferred Share) upon exercise of a Right.
Section 15. Rights of Action. (a) All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
this Agreement, are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Shares); and any registered holder of any Rights Certificate (or, prior
to the Distribution Date, of the Common Shares), without the consent of the
Rights Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights evidenced by such Rights Certificate in
the manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach by the Company of this Agreement and will be
entitled to specific performance of the obligations under, and injunctive relief
against actual or threatened violations by the Company of, the obligations of
any Person subject to this Agreement.
(b) Notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of its inability to perform
any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, judgment, decree or ruling (whether
interlocutory or final) issued by a court or by a governmental, regulatory,
self-regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining performance of such obligation;
provided, however, that the Company must use all reasonable efforts to have any
such injunction, order, judgment, decree or ruling lifted or otherwise
overturned as soon as possible.
Section 16. Agreement of Rights Holders. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office of the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate forms
and certificates fully executed; and
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(c) subject to Sections 6(a) and 7(f) hereof, the Company and
the Rights Agent may deem and treat the Person in whose name the Rights
Certificate (or, prior to the Distribution Date, the associated Common Shares
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Shares certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any notice to the
contrary.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose to be the holder of the Preferred Shares
or any other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Rights Certificate be construed to confer upon the holder of any
Rights Certificate, as such, any of the rights of a stockholder of the Company
or any right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration, preparation, delivery,
amendment and execution of this Agreement and the exercise and performance of
its duties hereunder. The Company also agrees to indemnify the Rights Agent for,
and to hold it harmless against, any loss, liability, damage, judgment, fine,
penalty, claim, demand, settlement, cost or expense (including, without
limitation, the reasonable fees and expenses of legal counsel), incurred without
gross negligence, bad faith or willful misconduct as determined by a final,
non-appealable order, judgment, decree or ruling of a court of competent
jurisdiction on the part of the Rights Agent, for any action taken, suffered or
omitted by the Rights Agent in connection with the acceptance, administration,
exercise and performance of its duties under this Agreement, including, without
limitation, the costs and expenses of defending against any claim of liability
in the premises. The provisions of this Section 18 and Section 20 below shall
survive the termination of this Agreement and the exercise, termination and the
expiration of the Rights and the removal of the Rights Agent. The Company shall
pay the costs and expenses incurred in enforcing this right of indemnification.
Anything to the contrary notwithstanding, in no event shall the Rights Agent be
liable for special, punitive, indirect, consequential or incidental loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Rights Agent has been advised of the likelihood of such loss or damage.
Any liability of the Rights Agent under this Agreement will be limited to the
amount of fees paid by the Company to the Rights Agent.
(b) The Rights Agent shall be authorized and protected and
shall incur no liability for, or in respect of any action taken, suffered or
omitted by it in connection with, its acceptance and administration of this
Agreement and the exercise and performance of its duties hereunder, in
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reliance upon any Rights Certificate or certificate for the Preferred Shares or
Common Shares or for other securities of the Company, instrument of assignment
or transfer, power of attorney, endorsement, affidavit, letter, notice,
direction, consent, certificate, statement or other paper or document believed
by it to be genuine and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons, or otherwise upon the advice of
counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of Rights Agent.
(a) Any Person into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the
shareholder services business of the Rights Agent or any successor Rights Agent,
shall be the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of any of the
parties hereto; provided, however, that such Person would be eligible for
appointment as a successor Rights Agent under the provisions of Section 21
hereof. In case at the time such successor Rights Agent shall succeed to the
agency created by this Agreement, any of the Rights Certificates shall have been
countersigned but not delivered, any such successor Rights Agent may adopt the
countersignature of the predecessor Rights Agent and deliver such Rights
Certificates so countersigned; and in case at that time any of the Rights
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates either in the name of the predecessor
Rights Agent or in the name of the successor Rights Agent; and in all such cases
such Rights Certificates shall have the full force provided in the Rights
Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be
changed and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Rights Certificates so countersigned; and in
case at that time any of the Rights Certificates shall not have been
countersigned, the Rights Agent may countersign such Rights Certificates either
in its prior name or in its changed name; and in all such cases such Rights
Certificates shall have the full force provided in the Rights Certificates and
in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes only
the duties and obligations expressly imposed by this Agreement (and no implied
duties) upon the following terms and conditions, by all of which the Company and
the holders of Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company or an employee of the Rights Agent), and the
advice or opinion of such counsel shall be full and complete authorization and
protection to the Rights Agent and the Rights Agent shall incur no liability for
or in respect of any action taken, suffered or omitted by it and in accordance
with such advice or opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter (including, without limitation, the
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identity of any Acquiring Person and the determination of Current Per Share
Market Price) be proved or established by the Company prior to taking, suffering
or omitting any action hereunder, such fact or matter (unless other evidence in
respect thereof be herein specifically prescribed) may be deemed to be
conclusively proved and established by a certificate signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Chief Financial Officer, the Secretary or any Assistant Secretary
of the Company and delivered to the Rights Agent; and such certificate shall be
full and complete authorization and protection to the Rights Agent and the
Rights Agent shall incur no liability for or in respect of any action taken,
suffered or omitted by it under the provisions of this Agreement in reliance
upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own gross negligence, bad faith or willful
misconduct as determined by a final, non-appealable order, judgment, decree or
ruling of a court of competent jurisdiction.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Rights Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any liability or
responsibility in respect of the validity of this Agreement or the execution and
delivery hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible or liable for any breach
by the Company of any covenant or condition contained in this Agreement or in
any Rights Certificate; nor shall it be responsible or liable for any change in
the exercisability of the Rights or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Sections 3, 11,
13, 23 or 24, or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of Rights
evidenced by Rights Certificates after receipt by the Rights Agent of a
certificate furnished pursuant to Section 12 describing such change or
adjustment, upon which the Rights Agent may rely); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Rights Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Secretary or any
Assistant Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and such instructions shall be full
authorization and protection to the Rights Agent and it shall not be liable for
or in respect of any action taken, suffered or omitted by it in accordance with
instructions of any such officer or for any delay in acting while waiting for
those
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instructions. The Rights Agent shall be fully authorized and protected in
relying upon the most recent instructions received by any such officer. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken, suffered or omitted by the Rights Agent under this Agreement and the
date on and/or after which such action shall be taken or suffered or such
omission shall be effective. The Rights Agent shall not be liable for any action
taken or suffered by, or omission of, the Rights Agent in accordance with a
proposal included in any such application on or after the date specified in such
application (which date shall not be less than five (5) Business Days after the
date any officer of the Company actually receives such application, unless any
such officer shall have consented in writing to an earlier date) unless, prior
to taking any such action (or the effective date in the case of an omission),
the Rights Agent shall have received written instructions in response to such
application specifying the action to be taken, suffered or omitted.
(h) The Rights Agent and any stockholder, director, Affiliate,
officer or employee of the Rights Agent may buy, sell or deal in any of the
Rights or other securities of the Company or become pecuniarily interested in
any transaction in which the Company may be interested, or contract with or lend
money to the Company or otherwise act as fully and freely as though it were not
the Rights Agent under this Agreement. Nothing herein shall preclude the Rights
Agent or any such stockholder, Affiliate, director, officer or employee from
acting in any other capacity for the Company or for any other Person.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
(through its directors, officers and employees) or by or through its attorneys
or agents, and the Rights Agent shall not be answerable or accountable for any
act, default, neglect or misconduct of any such attorneys or agents or for any
loss to the Company or any other Person resulting from any such act, default,
neglect or misconduct absent gross negligence, bad faith or willful misconduct,
as determined by a final, non-appealable order, judgment, decree or ruling of a
court of competent jurisdiction, in the selection and continued employment
thereof.
(j) No provision of this Agreement shall require the Rights
Agent to expend or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder or in the exercise of its
rights if it believes that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case may be, has either
not been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon thirty (30) days' notice in writing mailed to the Company and to each
transfer agent of the Preferred Shares and the Common Shares known to the Rights
Agent by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. The Company may remove the Rights Agent or any
successor Rights
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Agent upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Preferred Shares and the Common Shares by registered or certified mail, and to
the holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall fail
to make such appointment within a period of thirty (30) days after giving notice
of such removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his or her Rights
Certificate for inspection by the Company), then the registered holder of any
Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be (i) a Person organized and doing
business under the laws of the United States or of any state of the United
States, in good standing, which is authorized under such laws to exercise stock
transfer powers and is subject to supervision or examination by federal or state
authority and which has at the time of its appointment as Rights Agent a
combined capital and surplus of at least $50 million or (ii) an Affiliate of a
Person described in (i). After appointment, the successor Rights Agent shall be
vested with the same powers, rights, duties and responsibilities as if it had
been originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Preferred Shares and the Common Shares, and mail a notice thereof in writing
to the registered holders of the Rights Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Rights Certificates evidencing Rights in such form
as may be approved by its Board of Directors to reflect any adjustment or change
in the Exercise Price and the number or kind or class of shares or other
securities or property purchasable under the Rights Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Shares following the Distribution Date and
prior to the redemption or expiration of the Rights, the Company (a) shall, with
respect to Common Shares so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement or upon the exercise,
conversion or exchange of other securities of the Company outstanding at
February 10, 2000 or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company and (b) may, in any other case, if deemed
necessary or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued and this sentence shall be null and void ab initio if, and to
the extent that, such issuance or this sentence would create a significant risk
of or result in material adverse tax consequences to the Company or the Person
to whom such Rights Certificate would be issued or would create a significant
risk of or result in such options' or employee plans' or arrangements' failing
to qualify for otherwise available special tax treatment
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and (ii) no such Rights Certificate shall be issued if, and to the extent that,
appropriate adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption.
(a) The Company may, at its option and with the approval of
the Board of Directors of the Company, at any time prior to the Close of
Business on the earlier of (i) the tenth day following the Shares Acquisition
Date (or such later date as may be determined by action of the Company's Board
of Directors and publicly announced by the Company) and (ii) the Final
Expiration Date, redeem all but not less than all the then outstanding Rights at
a redemption price of $0.001 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring after February 10,
2000 (such redemption price being herein referred to as the "Redemption Price")
and the Company may, at its option, pay the Redemption Price either in Class A
Common Shares (with respect to Class A Rights) or Class B Common Shares (with
respect to Class B Rights) (based on the Current Per Share Market Price thereof
at the time of redemption) or cash. Such redemption of the Rights by the Company
may be made effective at such time, on such basis and with such conditions as
the Board of Directors of the Company in its sole discretion may establish. The
date on which the Board of Directors of the Company elects to make the
redemption effective shall be referred to as the "Redemption Date."
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent, and without any further action and without any
notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption (with a
copy of the notice given to the Rights Agent); provided, however, that the
failure to give or any defect in, any such notice shall not affect the validity
of such redemption. Within ten (10) days after the action of the Board of
Directors of the Company ordering the redemption of the Rights, the Company
shall give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice to all such holders at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the Company nor any of its Affiliates or Associates may
redeem, acquire or purchase for value any Rights at any time in any manner other
than that specifically set forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common Shares prior to the
Distribution Date.
Section 24. Exchange.
(a) Subject to applicable laws, rules and regulations, and
subject to subsection 24(c) below, the Company may, at its option, by action of
the Board of Directors of the Company, at any time after the occurrence of a
Triggering Event, exchange all or part of the then outstanding and exercisable
Class A Rights and Class B Rights (which shall not include Rights that have
become null and void pursuant to the provisions of Section 7(e) hereof) for
Class A Common Shares and Class B Common Shares, respectively, at an exchange
ratio of one Common Share per Right, appropriately
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adjusted to reflect any stock split, stock dividend or similar transaction
occurring after February 10, 2000 (such exchange ratio being hereinafter
referred to as the "Exchange Ratio"). Notwithstanding the foregoing, the Board
of Directors shall not be empowered to effect such exchange at any time after
any Acquiring Person, together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the Class A Common Shares
or 50% or more of the Class B Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to subsection 24(a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of the
holders of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall give public notice of any such exchange with prompt written
notice thereof to the Rights Agent; provided, however, that the failure to give,
or any defect in, such notice shall not affect the validity of such exchange.
The Company shall mail a notice of any such exchange to all of the holders of
such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the exchange of the Common Shares for
Rights will be effected and, in the event of any partial exchange, the number of
Rights which will be exchanged. Any partial exchange shall be effected pro rata
based on the number of Rights (other than Rights which have become null and void
pursuant to the provisions of Section 7(e) hereof) held by each holder of
Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with Section 24(a), the Company
shall either take such action as may be necessary to authorize additional Common
Shares for issuance upon exchange of the Rights or alternatively, at the option
of the Board of Directors of the Company, with respect to each Right (i) pay
cash in an amount equal to the Current Value (as hereinafter defined), in lieu
of issuing Common Shares in exchange therefor, or (ii) issue debt or equity
securities or a combination thereof, having a value equal to the Current Value,
in lieu of issuing Common Shares in exchange for each such Right, where the
value of such securities shall be determined by a nationally recognized
investment banking firm selected by majority vote of the Board of Directors of
the Company, or (iii) deliver any combination of cash, property, Common Shares
and/or other securities having a value equal to the Current Value in exchange
for each Right. For purposes of this Section 24(c) only, the Current Value shall
mean the product of the Current Per Share Market Price of Common Shares on the
date of the occurrence of the event described above in subparagraph (a),
multiplied by the number of Common Shares for which the Right otherwise would be
exchangeable if there were sufficient shares available. To the extent that the
Company determines that some action need be taken pursuant to clauses (i), (ii)
or (iii) of this Section 24(c), the Board of Directors of the Company may
temporarily suspend the exercisability of the Rights for a period of up to sixty
(60) days following the date on which the event described in Section 24(a) shall
have occurred, in order to seek any authorization of additional Common Shares
and/or to decide the appropriate form of distribution to be made pursuant to the
above provision and to determine the value thereof. In the event of any such
suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, with prompt written
notice thereof to the Rights Agent.
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<PAGE>
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, there shall be paid to the
registered holders of the Rights Certificates with regard to which such
fractional Common Shares would otherwise be issuable, an amount in cash equal to
the same fraction of the current market value of a whole Common Share (as
determined pursuant to the second sentence of Section 1(n) hereof).
(e) The Company may, at its option, by majority vote of the
Board of Directors of the Company, at any time before any Person has become an
Acquiring Person, exchange all or part of the then outstanding Rights for rights
of substantially equivalent value, as determined reasonably and with good faith
by the Board of Directors of the Company, based upon the advice of one or more
nationally recognized investment banking firms.
(f) Immediately upon the action of the Board of Directors
ordering the exchange of any Rights pursuant to subsection 24(e) of this Section
24 and without any further action and without any notice, the right to exercise
such Rights shall terminate and the only right thereafter of a holder of such
Rights shall be to receive that number of rights in exchange therefor as has
been determined by the Board of Directors of the Company in accordance with
subsection 24(e) above. The Company shall give public notice of any such
exchange and shall provide the Rights Agent with a copy of such notice;
provided, however, that the failure to give, or any defect in, such notice shall
not affect the validity of such exchange. The Company shall mail a notice of any
such exchange to all of the holders of such Rights at their last addresses as
they appear upon the registry books of the transfer agent for the Common Shares
of the Company, with prompt written notice thereof to the Rights Agent. Any
notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Rights will be effected.
Section 25. Notice of Certain Events.
(a) In case the Company shall propose to effect or permit to
occur any Triggering Event or Section 13 Event, the Company shall give notice
thereof to the Rights Agent and to each holder of Rights in accordance with
Section 26 hereof at least twenty (20) days prior to occurrence of such
Triggering Event or such Section 13 Event.
(b) In case any Triggering Event or Section 13 Event shall
occur, then, in any such case, the Company shall as soon as practicable
thereafter give to the Rights Agent and to each holder of a Rights Certificate,
in accordance with Section 26 hereof, a notice of the occurrence of such event,
which shall specify the event and the consequences of the event to holders of
Rights under Sections 11(a)(ii) and 13 hereof.
Section 26. Notices. Notices or demands authorized by this Agreement to
be given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
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<PAGE>
Gartner, Inc.
56 Top Gallant Road
Stamford, Connecticut 06904
Attn: Chief Executive Officer
with a copy to:
Gartner, Inc.
56 Top Gallant Road
Stamford, Connecticut 06904
Attn: General Counsel
and
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry Sonsini, Esq.
Subject to the provisions of Section 21 hereof, any notice or demand
authorized by this Agreement to be given or made by the Company or by the holder
of any Rights Certificate to or on the Rights Agent shall be sufficiently given
or made if sent by first-class mail, postage prepaid, addressed (until another
address is filed in writing with the Company) as follows:
Mellon Investor Services LLC
44 Wall Street, 6th Floor
New York, New York 10005
Attention: Relationship Manager
with a copy to:
Mellon Investor Services LLC
85 Challenger Road
Ridgefield Park, New Jersey 07660
Attention: General Counsel
Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to the holder of any Rights Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. Prior to the occurrence of a
Distribution Date and subject to the penultimate sentence of this Section 27,
the Company may supplement or amend this Agreement in any respect without the
approval of any holders of Rights and the Rights Agent shall, if the Company so
directs, execute such supplement or amendment. From and after the
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<PAGE>
occurrence of a Distribution Date and subject to the penultimate sentence of
this Section 27, the Company and the Rights Agent may from time to time
supplement or amend this Agreement without the approval of any holders of Rights
in order to (i) cure any ambiguity, (ii) correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) shorten or lengthen any time period hereunder, or (iv)
to change or supplement the provisions hereunder in any manner that the Company
may deem necessary or desirable and that shall not adversely affect the
interests of the Rights Agent or the holders of Rights (other than an Acquiring
Person or an Affiliate or Associate of an Acquiring Person); provided, this
Agreement may not be supplemented or amended to lengthen, pursuant to clause
(iii) of this sentence, (A) a time period relating to when the Rights may be
redeemed at such time as the Rights are not then redeemable or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights
(other than an Acquiring Person or an Affiliate or Associate of an Acquiring
Person). Upon the delivery of a certificate from an appropriate officer of the
Company and, if requested by the Rights Agent, an opinion of counsel, that
states that the proposed supplement or amendment is in compliance with the terms
of this Section 27 and such supplement or amendment does not affect the Rights
Agent's own rights, duties, immunities, liabilities or obligations, the Rights
Agent shall execute such supplement or amendment. Prior to the Distribution
Date, the interests of the holders of Rights shall be deemed coincident with the
interests of the holders of Common Shares.
Section 28. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 29. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of Common
Shares or any other class of capital stock outstanding at any particular time,
including for purposes of determining the particular percentage of such
outstanding Common Shares of which any Person is the Beneficial Owner, shall be
made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General
Rules and Regulations under the Exchange Act. The Board of Directors of the
Company shall have the exclusive power and authority to administer this
Agreement and to exercise all rights and powers specifically granted to the
Board of Directors of the Company, or the Company, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including a determination to redeem or not
redeem the Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
of Directors of the Company in good faith, shall (x) be final, conclusive and
binding on the Company, the Rights Agent, the holders of the Rights Certificates
and all other parties and (y) not subject the Board to any liability to the
holders of the Rights. The Rights Agent is entitled always to assume the
Company's Board of Directors acted in good faith and shall be fully protected
and incur no liability in reliance thereon.
Section 30. Benefits of this Agreement. Nothing in this Agreement shall
be construed to give to any Person other than the Company, the Rights Agent,
successors to such parties and the registered holders of the Rights Certificates
(and, prior to the Distribution Date, the Common
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<PAGE>
Shares) any legal or equitable right, remedy or claim under this Agreement; but
this Agreement shall be for the sole and exclusive benefit of the Company, the
Rights Agent and the registered holders of the Rights Certificates (and, prior
to the Distribution Date, the Common Shares).
Section 31. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated;
provided, however, that notwithstanding anything in this Agreement to the
contrary, if any such term, provision, covenant or restriction is held by such
court or authority to be invalid, void or unenforceable and the Board of
Directors of the Company determines in its good faith judgment that severing the
invalid language from this Agreement would adversely affect the purpose or
effect of this Agreement, the right of redemption set forth in Section 23 hereof
shall be reinstated and shall not expire until the Close of Business on the
tenth day following the date of such determination by the Board of Directors.
Section 32. Governing Law. This Agreement and each Right and each
Rights Certificate issued hereunder 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 to
be made and performed entirely within such State; provided, however, that all
provisions regarding the rights, duties and obligations of the Rights Agent
shall be governed by and construed in accordance with the laws of the State of
New York applicable to contracts made and to be performed entirely within such
State.
Section 33. Counterparts. This Agreement may be executed in any number
of counterparts and each of 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 34. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"COMPANY" GARTNER, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
"RIGHTS AGENT" MELLON INVESTOR SERVICES LLC
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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EXHIBIT A
CERTIFICATE OF DESIGNATIONS OF RIGHTS,
PREFERENCES AND PRIVILEGES OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK AND SERIES B JUNIOR
PARTICIPATING PREFERRED STOCK
OF GARTNER GROUP, INC.
The undersigned, Michael D. Fleisher and Cathy S. Satz do hereby
certify:
1. That they are the duly elected and acting President and Secretary of
Gartner Group, Inc., a Delaware corporation (the "Corporation").
2. That pursuant to the authority conferred upon the Board of Directors
by the Certificate of Incorporation of the said Corporation, the said Board of
Directors on February 9, 2000 adopted the following resolution creating a series
of ________ shares of Preferred Stock designated as Series A Junior
Participating Preferred Stock and a series of _____ shares of Preferred Stock
designated as Series B Junior Participating Preferred Stock .
"RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, the Board of
Directors does hereby provide for the issue of Series A Junior Participating
Preferred Stock and Series B Junior Participating Preferred Stock of the
Corporation (collectively, the "Junior Preferred Stock"), and does hereby fix
and herein state and express the designations, powers, preferences and relative
and other special rights and the qualifications, limitations and restrictions of
such series of such stock as follows (all terms used herein which are defined in
the Certificate of Incorporation shall be deemed to have the meanings provided
herein):
Section 1. Designation and Amount. The shares of the two series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock")and "Series B Junior Participating Preferred Stock" (the
"Series B Preferred Stock"), respectively, each such series having par value
$0.01 per share, and the number of shares constituting each such series shall be
_______________ and __________________, respectively.
Section 2. Proportional Adjustment. In the event the Corporation shall
at any time after the issuance of any share or shares of Junior Preferred Stock
(i) declare any dividend on Common Stock of the Corporation ("Common Stock")
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the Corporation shall simultaneously effect a
proportional adjustment to the number of outstanding shares of Series A
Preferred Stock and Series B Preferred Stock.
<PAGE>
Section 3. Dividends and Distributions.
(a) Subject to the prior and superior right of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock and Series B Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock and Series B
Preferred Stock shall each be equally entitled to receive when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of March, June,
September and December, in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Preferred Stock or Series B Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to 1,000 times the aggregate per share
amount of all cash dividends, and 1,000 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock or
Series B Preferred Stock.
(b) The Corporation shall declare a dividend or distribution
on the Junior Preferred Stock as provided in paragraph (a) above immediately
after it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock) and shall not pay a dividend or make
a distribution on the Series A Preferred Stock or the Series B Preferred Stock
without paying an equal dividend or distribution on each such series.
(c) Dividends shall begin to accrue on outstanding shares of
Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Junior Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Junior Preferred Stock entitled to receive
a quarterly dividend and before such Quarterly Dividend Payment Date, in either
of which events such dividends shall begin to accrue from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Junior Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
Section 4. Voting Rights. The holders of shares of Junior Preferred
Stock shall have the following voting rights:
(a) Each share of Junior Preferred Stock shall entitle the
holder thereof to 1,000 votes on all matters submitted to a vote of the
stockholders of the Corporation, except that with
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<PAGE>
respect to the election of directors, holders of Junior Preferred Stock, voting
together with the holders of Class A Common Stock, shall be entitled to elect
that number of directors which constitutes 20% of the authorized number of
members of the Board of Directors (or, if such 20% is not a whole number, then
the nearest lower whole number of directors that is closest to 20% of such
membership).
(b) Except as otherwise provided herein or by law, the holders
of shares of Junior Preferred Stock and the holders of shares of Common Stock
shall vote together as one class on all matters submitted to a vote of the
stockholders of the Corporation.
(c) Except as required by law, holders of Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 5. Certain Restrictions.
(a) The Corporation shall not declare any dividend on, make
any distribution on, or redeem or purchase or otherwise acquire for
consideration any shares of Common Stock after the first issuance of a share or
fraction of a share of Junior Preferred Stock unless concurrently therewith it
shall declare a dividend on the Junior Preferred Stock as required by Section 3
hereof.
(b) Whenever quarterly dividends or other dividends or
distributions payable on the Junior Preferred Stock as provided in Section 3 are
in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Junior Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire for consideration
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock;
(ii) declare or pay dividends on, make any other
distributions on any shares of stock ranking on a parity (either as to dividends
or upon liquidation, dissolution or winding up) with Junior Preferred Stock,
except dividends paid ratably on the Junior Preferred Stock and all such parity
stock on which dividends are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Junior Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock of
the Corporation ranking junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Junior Preferred Stock;
(iv) purchase or otherwise acquire for consideration
any shares of Junior Preferred Stock, or any shares of stock ranking on a parity
with the Junior Preferred Stock, except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of
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<PAGE>
Directors) to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among the
respective series or classes.
(c) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (a) of
this Section 5, purchase or otherwise acquire such shares at such time and in
such manner.
Section 6. Reacquired Shares. Any shares of Junior Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
the conditions and restrictions on issuance set forth herein and, in the
Certificate of Incorporation, as then amended.
Section 7. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, the holders of shares
of Junior Preferred Stock shall be entitled to receive an aggregate amount per
share equal to 1000 times the aggregate amount to be distributed per share to
holders of shares of Common Stock plus an amount equal to any accrued and unpaid
dividends on such shares of Junior Preferred Stock.
Section 8. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Junior Preferred Stock shall at the same time be similarly exchanged or changed
in an amount per share equal to 1,000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
Section 9. No Redemption. The shares of Junior Preferred Stock shall
not be redeemable.
Section 10. Ranking. The Junior Preferred Stock shall rank junior to
all other series of the Corporation's Preferred Stock as to the payment of
dividends and the distribution of assets, unless the terms of any such series
shall provide otherwise.
Section 11. Amendment. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would materially
alter or change the powers, preference or special rights of the Junior Preferred
Stock so as to affect them adversely without the affirmative vote of the holders
of the outstanding shares of Junior Preferred Stock, voting separately as a
class.
Section 12. Fractional Shares. Junior Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise
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<PAGE>
voting rights, receive dividends, participate in distributions and to have the
benefit of all other rights of holders of Junior Preferred Stock.
RESOLVED FURTHER, that the President or any Vice President and the
Secretary or any Assistant Secretary of the Corporation be, and they hereby are,
authorized and directed to prepare and file a Certificate of Designations of
Rights, Preferences and Privileges in accordance with the foregoing resolution
and the provisions of Delaware law and to take such actions as they may deem
necessary or appropriate to carry out the intent of the foregoing resolution."
We further declare under penalty of perjury that the matters set forth
in the foregoing Certificate of Designations are true and correct of our own
knowledge.
Executed at Stamford, Connecticut on February ____, 2000.
-------------------------------
President
-------------------------------
Secretary
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<PAGE>
EXHIBIT B
FORM OF CLASS A RIGHTS CERTIFICATE
Certificate No. RA-__ ____________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF (i) February 25, 2010, (ii) THE
DATE TERMINATED BY THE COMPANY OR (iii) THE DATE THE COMPANY EXCHANGES
THE RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES,
RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE
OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID
IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH RIGHTS
AGREEMENT.]*
RIGHTS CERTIFICATE
GARTNER, INC.
This certifies that ______________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Amended and Restated Rights Agreement dated as of August ___,
2002 (the "Rights Agreement"), between Gartner, Inc., a Delaware corporation
(the "Company"), and Mellon Investor Services LLC, as successor Rights Agent of
Fleet National Bank (the "Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., Connecticut time, on February 25, 2010, at
the office of the Rights Agent designated for such purpose, or at the office of
its successor as Rights Agent, one one-thousandth (1/1,000) of a fully
- ----------
* The portion of the legend in bracket shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
paid non-assessable share of Series A Junior Participating Preferred Stock, par
value $0.01 per share, (the "Preferred Shares"), of the Company, at an Exercise
Price of Ninety Dollars ($90.00) per one-thousandth of a Preferred Share (the
"Exercise Price"), upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase and related Certificate duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of one-
thousandths of a Preferred Share which may be purchased upon exercise hereof)
set forth above are the number and Exercise Price as of February 10, 2000, based
on the Preferred Shares as constituted at such date. As provided in the Rights
Agreement, the Exercise Price and the number and kind of Preferred Shares or
other securities which may be purchased upon the exercise of the Rights
evidenced by this Rights Certificate are subject to modification and adjustment
upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Rights Certificate (i) may be redeemed by the Company, at its option, at
a redemption price of $0.001 per Right or (ii) may be exchanged by the Company
in whole or in part for Class A Common Shares, substantially equivalent rights
or other consideration as determined by the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate amount of securities as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a Preferred
Share will be issued upon the exercise of any Right or Rights evidenced hereby
but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until
-2-
<PAGE>
the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until the Rights Agent shall have countersigned it.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of __________________________.
ATTEST: GARTNER, INC.
By: By:
------------------------- -----------------------
Secretary President
Countersigned:
MELLON INVESTOR SERVICES LLC,
as Rights Agent
By:
--------------------------
Its:
-------------------------
-3-
<PAGE>
Form of Reverse Side of Class A Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Class A Rights Certificate)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto
-----------------------------------------------------------
(Please print name and address of transferee)
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
this Class A Rights Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_______________________________ Attorney, to transfer the within Class A Rights
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: ,
-------------- -----
-------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended. Guarantees by a notary
public are not acceptable.
Form of Reverse Side of Class A Rights Certificate -- continued
NOTICE
<PAGE>
The signature in the foregoing Forms of Assignment and Election must
conform to the name as written upon the face of this Class A Rights Certificate
in every particular, without alteration or enlargement or any change whatsoever.
-2-
<PAGE>
Form of Reverse Side of Class A Rights Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Class A Rights Certificate)
To:
--------------------------
The undersigned hereby irrevocably elects to exercise
_________________________ Class A Rights represented by this Class A Rights
Certificate to purchase the number of one-thousandths of a Preferred Share
issuable upon the exercise of such Class A Rights and requests that certificates
for such number of one-thousandths of a Preferred Share issued in the name of:
Please insert social security
or other identifying number:
------------------------------
-----------------------------------------------------------
(Please print name and address)
-----------------------------------------------------------
-----------------------------------------------------------
If such number of Class A Rights shall not be all the Class A Rights
evidenced by this Class A Rights Certificate, a new Class A Rights Certificate
for the balance remaining of such Class A Rights shall be registered in the name
of and delivered to:
Please insert social security
or other identifying number:
-------------------------
-----------------------------------------------------------
(Please print name and address)
-----------------------------------------------------------
-----------------------------------------------------------
Dated:
---------------- --------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended. Guarantees by a notary
public are not acceptable.
<PAGE>
CLASS A CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Class A Rights Certificate [ ] is [ ] is not being sold,
assigned and transferred by or on behalf of a Person who is or was an Acquiring
Person, or an Affiliate or Associate of any such Person (as such terms are
defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Class A Rights evidenced by this Class A Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of any such Person.
Dated: ,
--------------- -----
--------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended. Guarantees by a notary
public are not acceptable.
<PAGE>
EXHIBIT C
FORM OF CLASS B RIGHTS CERTIFICATE
Certificate No. RB-__ ____________ Rights
NOT EXERCISABLE AFTER THE EARLIER OF (i) FEBRUARY 25, 2010 (ii) THE
DATE TERMINATED BY THE COMPANY OR (iii) THE DATE THE COMPANY EXCHANGES
THE RIGHTS PURSUANT TO THE RIGHTS AGREEMENT. THE RIGHTS ARE SUBJECT TO
REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER RIGHT ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES,
RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR
ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME
NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE
OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING
PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH
TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS
CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID
IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH RIGHTS
AGREEMENT.]*
RIGHTS CERTIFICATE
GARTNER, INC.
This certifies that ______________________________, or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Amended and Restated Rights Agreement dated as of August ___,
2002 (the "Rights Agreement"), between Gartner, Inc., a Delaware corporation
(the "Company"), and Mellon Investor Services LLC, as successor Rights Agent of
Fleet National Bank (the "Rights Agent"), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5:00 P.M., Connecticut time, on February, 25, 2010, at
the office of the Rights Agent designated for such purpose, or at the office of
its successor as Rights Agent, one one-thousandth (1/1,000) of a fully
- ----------
* The portion of the legend in bracket shall be inserted only if applicable
and shall replace the preceding sentence.
<PAGE>
paid non-assessable share of Series B Junior Participating Preferred Stock, par
value $0.01 per share, (the "Preferred Shares"), of the Company, at an Exercise
Price of Ninety Dollars ($90.00) per one-thousandth of a Preferred Share (the
"Exercise Price"), upon presentation and surrender of this Rights Certificate
with the Form of Election to Purchase and related Certificate duly executed. The
number of Rights evidenced by this Rights Certificate (and the number of one-
thousandths of a Preferred Share which may be purchased upon exercise hereof)
set forth above are the number and Exercise Price as of February 10, 2000, based
on the Preferred Shares as constituted at such date. As provided in the Rights
Agreement, the Exercise Price and the number and kind of Preferred Shares or
other securities which may be purchased upon the exercise of the Rights
evidenced by this Rights Certificate are subject to modification and adjustment
upon the happening of certain events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Rights Certificate (i) may be redeemed by the Company, at its option, at
a redemption price of $0.001 per Right or (ii) may be exchanged by the Company
in whole or in part for Class B Common Shares, substantially equivalent rights
or other consideration as determined by the Company.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing Rights entitling the holder to purchase a like
aggregate amount of securities as the Rights evidenced by the Rights Certificate
or Rights Certificates surrendered shall have entitled such holder to purchase.
If this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or Rights
Certificates for the number of whole Rights not exercised.
No fractional portion of less than one one-thousandth of a Preferred
Share will be issued upon the exercise of any Right or Rights evidenced hereby
but in lieu thereof a cash payment will be made, as provided in the Rights
Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Shares or of any other securities of the Company which may at any time
be issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until
-2-
<PAGE>
the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until the Rights Agent shall have countersigned it.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of __________________________.
ATTEST: GARTNER, INC.
By: By:
-------------------------- -----------------------
Secretary President
Countersigned:
MELLON INVESTOR SERVICES LLC,
as Rights Agent
By:
---------------------------
Its:
--------------------------
-3-
<PAGE>
Form of Reverse Side of Class B Rights Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Class B Rights Certificate)
FOR VALUE RECEIVED ____________________________________ hereby sells,
assigns and transfers unto
-----------------------------------------------------------
(Please print name and address of transferee)
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
this Class B Rights Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_______________________________ Attorney, to transfer the within Class B Rights
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: ,
--------------- ----- --------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended. Guarantees by a notary
public are not acceptable.
<PAGE>
Form of Reverse Side of Class B Rights Certificate -- continued
NOTICE
The signature in the foregoing Forms of Assignment and Election must conform to
the name as written upon the face of this Class B Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to
exercise the Class B Rights Certificate)
To:
--------------------------
The undersigned hereby irrevocably elects to exercise
_________________________ Class B Rights represented by this Class B Rights
Certificate to purchase the number of one-thousandths of a Preferred Share
issuable upon the exercise of such Class B Rights and requests that certificates
for such number of one-thousandths of a Preferred Share issued in the name of:
Please insert social security
or other identifying number:
-----------------------
-----------------------------------------------------------
(Please print name and address of transferee)
-----------------------------------------------------------
-----------------------------------------------------------
If such number of Class B Rights shall not be all the Class B Rights
evidenced by this Class B Rights Certificate, a new Class B Rights Certificate
for the balance remaining of such Class B Rights shall be registered in the name
of and delivered to:
Please insert social security
or other identifying number:
-----------------------
-----------------------------------------------------------
(Please print name and address of transferee)
-----------------------------------------------------------
-----------------------------------------------------------
Dated: ,
--------------- -----
-2-
<PAGE>
------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended. Guarantees by a notary
public are not acceptable.
-3-
<PAGE>
CLASS B CERTIFICATE
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Class B Rights evidenced by this Class B Rights Certificate
[ ] are [ ] are not being exercised by or on behalf of a Person who is or was an
Acquiring Person or an Affiliate or Associate of any such Person (as such terms
are defined in the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Class B Rights evidenced by this Class B Rights
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of any such Person.
Dated: ,
--------------- -----
----------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by an eligible guarantor institution (a
bank, stockbroker, savings and loan association or credit union with membership
in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
of the Securities Exchange Act of 1934, as amended. Guarantees by a notary
public are not acceptable.
<PAGE>
EXHIBIT D
RIGHTS PLAN
GARTNER, INC.
Summary of Rights
<Table>
<S> <C>
Distribution and Transfer of Rights, The Board of Directors of Gartner, Inc. (the "Company")
Rights Certificate: has declared a dividend of one Class A Right and one Class
B Right, respectively, for each share of Class A Common
Stock and Class B Common Stock (the "Rights") outstanding.
Prior to the Distribution Date referred to below, the
Rights will be evidenced by and trade with the certificates
for the Common Stock. (You will not receive a new
certificate evidencing the Rights). After the Distribution
Date, the Company will mail Rights certificates to the
Company's stockholders and the Rights will become
transferable apart from the Common Stock.
Distribution Date: Class A Rights and Class B Rights, respectively, will
separate from the Class A Common Stock and Class B Common
Stock and become exercisable on the eleventh day after (a)
a person or group (with certain exceptions) acquires
beneficial ownership of (i) 20% or more of the Company's
Class A Common Stock), (ii) 20% or more of the Company's
Class B Common Stock, or (iii) 15% of the Company's Common
Stock (each, a "Threshold Amount"), or (b) a person or
group announces a tender or exchange offer, the
consummation of which would result in ownership by a person
or group of a Threshold Amount . The Board of Directors may
extend the date on which the Rights become exercisable.
Stockholders who own in excess of a Threshold Amount on the
date of this Agreement will not cause the Rights to become
exercisable based on their current ownership.
</Table>
<PAGE>
<Table>
<S> <C>
Preferred Stock Purchasable Upon Exercise of Rights: After the Distribution Date, (i) each Class A Right will
entitle the holder to purchase for $90, one one-thousandth
of a share of the Company's Series A Preferred Stock with
economic terms similar to that of one share of the
Company's Class A Common Stock; and (ii) each Class B
Right will entitle the holder to purchase for $90, one
one-thousandth of a share of the Company's Series B
Preferred Stock with economic terms similar to that of one
share of the Company's Class B Common Stock.
Flip-In:
If an "Acquiring Person" (as defined in the Rights
Agreement) obtains a Threshold Amount, then each Right
(other than Rights owned by an Acquiring Person or its
affiliates) will entitle the holder thereof to purchase,
for the Exercise Price, a number of corresponding shares of
the Company's Class A Common Stock or Class B Common Stock
having a then current market value of twice the Exercise
Price. For example, if the stock is trading at a price of
$30.00 per share, the Right will enable the holder to
purchase $180.00 of stock (or 6 shares) for the $90.00
exercise price. Alternatively, the board of directors may
elect to exchange Rights held by persons other than the
proposed acquirer for Common Stock.
Flip-Over:
If, after an Acquiring Person obtains a Threshold
Amount, (a) the Company merges into another entity, (b) an
acquiring entity merges into the Company or (c) the Company
sells more than 50% of the Company's assets or earning
power, then each Right (other than Rights owned by an
Acquiring Person or its affiliates) will entitle the holder
thereof to purchase, for the Exercise Price, a number of
shares of Common Stock of the Person engaging in the
transaction having a then current market value of twice the
Exercise Price. For example, if the stock is
</Table>
-2-
<PAGE>
<Table>
<S> <C>
trading at a price of $30.00 per share, the Right will
enable the holder to purchase $180.00 of stock (or 6
shares) for the $90.00 exercise price. Alternatively, the
board of directors may elect to exchange Rights held by
persons other than the proposed acquirer for Common Stock.
Exchange Provision: At any time after the date an Acquiring Person obtains a
Threshold Amount and prior to the acquisition by the
Acquiring Person of 50% of the outstanding Class A Common
Stock or 50% of the outstanding Class B Common Stock, the
Board of Directors of the Company may exchange the Rights
(other than Rights owned by the Acquiring Person or its
affiliates), in whole or in part, for shares of Common
Stock of the Company at an exchange ratio of one share of
Class A Common Stock per Class A Right and one share of
Class B Common Stock per Class B Right (in each case
subject to adjustment).
Redemption of the Rights: Rights will be redeemable at the Company's option for
$0.001 per Right at any time on or prior to the tenth day
(or such later date as may be determined by the Board of
Directors) after public announcement that a Person has
acquired beneficial ownership of a Threshold Amount.
Expiration of the Rights: The Rights expire on the earliest of (a) February 25, 2010,
(b) exchange or redemption of the Rights as described
above.
Amendment of Terms of Rights: The terms of the Rights and the Rights Agreement may be
amended in any respect without the consent of the Rights
holders on or prior to the Distribution Date; thereafter,
the terms of the Rights and the Rights Agreement may be
amended without the consent of the Rights holders in order
to cure any ambiguities or to make changes which do not
adversely affect the interests of Rights holders (other
than the Acquiring Person).
Voting Rights: Rights will not have any voting rights.
Anti-Dilution Provisions: Rights will have the benefit of certain customary
anti-dilution provisions.
</Table>
-3-
<PAGE>
<Table>
<S> <C>
Taxes: The Rights distribution should not be taxable for federal
income tax purposes. However, following an event which
renders the Rights exercisable or upon redemption of the
Rights, stockholders may recognize taxable income.
</Table>
The foregoing is a summary of certain principal terms of the
Stockholder Rights Plan only and is qualified in its entirety by reference to
the detailed terms of the Amended and Restated Rights Agreement dated as of
August ___, 2002, between the Company and Mellon Investor Services LLC, as
Rights Agent.
-4-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4.B
<SEQUENCE>4
<FILENAME>y67368exv4w4wb.txt
<DESCRIPTION>AMENDMENT NO. 3 TO AMENDED/RESTATED CREDIT AGMT.
<TEXT>
<PAGE>
EXECUTION COPY
AMENDMENT NO. 3, dated as of May 30, 2002 (this
"Amendment"), in respect of the Credit Agreement dated as of
July 16, 1999, as amended and restated as of July 17, 2000 (as
heretofore amended, the "Credit Agreement" and, as amended by
this Amendment, the "Amended Credit Agreement"), among
Gartner, Inc. (the "Borrower"), the Lenders party thereto and
JPMorgan Chase Bank, as Administrative Agent (in such
capacity, the "Administrative Agent").
The Borrower has requested that the Credit Agreement be amended to
effect the amendments set forth below, and the parties hereto are willing so to
amend the Credit Agreement. Each Capitalized term used but not defined herein
has the meaning assigned thereto in the Amended Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms and
subject to the conditions set forth herein, as follows:
SECTION 1. Amendments. Upon the effectiveness of this Amendment as
provided in Section 3 below, the Credit Agreement shall be amended as follows:
(a) Section 6.01(f) (A) of the Credit Agreement is hereby
amended by replacing the amount "$10 million" therein with the amount
"$15 million".
(b) Section 6.05 of the Credit Agreement is hereby amended by
deleting "and" from the end of clause (c) thereof, replacing the period
at the end of clause (d) thereof with "; and", and inserting the
following clause at the end thereof:
"(e) the sale by the Borrower of its ownership
interest in the SI Venture Fund."
(c) Section 6.08 of the Credit Agreement is hereby amended by
replacing the phrase "after the Initial Effective Date does not exceed
$50 million" in clause (vii) therein with the phrase "after May 29,
2002 does not exceed $50 million".
<PAGE>
SECTION 2. Representations and Warranties. The Borrower represents and
warrants as of the date hereof to each of the Lenders that:
(a) Before and after giving effect to this Amendment, the
representations and warranties set forth in the Credit Agreement and the other
Loan Documents are true and correct in all material respects with the same
effect as if made on the date hereof, except to the extent such representations
and warranties expressly relate to an earlier date.
(b) Immediately before and after giving effect to this Amendment, no
Event of Default or Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. The amendments set forth in
Section 1 of this Amendment shall become effective, as of the date hereof, on
the date (the "Amendment Closing Date") on which the Administrative Agent shall
have received (a) counterparts of this Amendment that, when taken together, bear
the signatures of the Borrower, the Administrative Agent, the Subsidiary Loan
Parties and the Required Lenders, (b) an amendment fee, for distribution to each
Lender that has returned a signed counterpart of this Amendment to the
Administrative Agent or its counsel by 5:00 p.m. New York City time on May 30,
2002, equal to 0.125% of the aggregate Commitments of each such signing Lender
and (c) payment of all fees and expenses (to the extent invoiced prior to the
Amendment Closing Date) payable to JPMorgan Chase Bank and J.P. Morgan
Securities Inc. in connection with this Amendment. The provisions of Section 1
shall terminate and cease to be of any force or effect if the Amendment Closing
Date shall not have occurred on or prior to June 5, 2002.
SECTION 4. Agreement Except as specifically stated herein, the
provisions of the Credit Agreement are and shall remain in full force and
effect. As used therein, the terms "Credit Agreement", "herein", "hereunder",
"hereinafter", "hereto", "hereof" and words of similar import shall, unless the
context otherwise requires, refer to the Amended Credit Agreement. The
Subsidiary Loan Parties are executing this Amendment to confirm that their
obligations under the Guarantee Agreement, the Pledge Agreement and the
Indemnity, Subrogation and Contribution Agreement remain in full force and
effect with respect to the Amended Credit Agreement and all references in the
Guarantee Agreement, the Pledge Agreement and the Indemnity, Subrogation and
Contribution Agreement to the Credit
<PAGE>
Agreement shall hereafter be deemed to refer to the Amended Credit Agreement.
SECTION 5. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original but all of which when
taken together shall constitute but one contract.
SECTION 7. Expenses. The Borrower agrees to reimburse the
Administrative Agent for all reasonable out-of-pocket expenses incurred by it in
connection with this Amendment, including the reasonable fees, charges and
disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized officers
as of the day and year first written above.
GARTNER, INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Assistant Secretary
COMPUTER AND COMMUNICATION
INFORMATION GROUP, INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
DATAQUEST INCORPORATED,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
GARTNER (KOREA) INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
DECISION DRIVERS, INC,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
<PAGE>
GARTNER FUND I, INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Assistant Secretary
GARTNER ENTERPRISES LTD.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
GARTNER SHAREHOLDINGS INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
G.G. GLOBAL HOLDINGS, INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Assistant Secretary
G.G. CREDIT INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Assistant Secretary
G.G. WEST CORPORATION,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Assistant Secretary
GRIGGS-ANDERSON, INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Assistant Secretary
<PAGE>
THE RESEARCH BOARD, INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
THE WARNER GROUP,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
VISION EVENTS INTERNATIONAL,
INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Secretary
G.G. CANADA, INC.,
by /s/ CATHY SATZ
------------------------------
Name: Cathy Satz
Title: Assistant Secretary
JPMORGAN CHASE BANK,
individually and as
Administrative Agent,
by /s/ T. DAVID SHORT
------------------------------
Name: T. David Short
Title: Vice President
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
CREDIT SUISSE FIRST BOSTON
By /s/ ROBERT HETU
------------------------------------------
Name: ROBERT HETU
Title: DIRECTOR
By /s/ MARK HERON
------------------------------------------
Name: MARK HERON
Title: ASSOCIATE
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
Name of Institution
Fleet National Bank
--------------------------------------------
by /s/ LARISA B. CHILTON
------------------------------------------
Name: LARISA B. CHILTON
Title: VICE PRESIDENT
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
Name of Institution
The Bank of New York
--------------------------------------------
by /s/ MELINDA A. WHITE
------------------------------------------
Name: Melinda A. White
Title: Vice President
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 24, 2002
Name of Institution
Wachovia Bank, NA
--------------------------------------------
by /s/ ELIZABETH WITHERSPOON
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Name: Elizabeth Witherspoon
Title: Vice President
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
Name of Institution
IBM Credit Corporation
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by /s/ THOMAS S. CUCCIO
------------------------------------------
Name: Thomas S. Cuccio
Title: Manager of Credit
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
Name of Institution
[ILLEGIBLE]
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by /s/ RONNIE PALMER
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Name: Ronnie Palmer
Title: Bank Officer
by /s/ MICHAELA KLEIN, 212
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Name: MICHAELA KLEIN, 212
Title: SENIOR VICE PRESIDENT
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
Name of Institution
Bank One, NA (Main Office Chicago)
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by /s/ JEFFREY LEDBETTER
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Name: Jeffrey Ledbetter
Title: Director
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
Name of Institution
COMERICA BANK
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by /s/ JOHN M. COSTA
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Name: John M. Costa
Title: First Vice President
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
Name of Institution
MIZUHO CORPORATE BANK, Ltd.
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by /s/ ANDREAS PANTELI
------------------------------------------
Name: Andreas Panteli
Title: SVP
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
Name of Institution
SunTrust Bank
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by /s/ KAREN C. COPELAND
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Name: Karen C. Copeland
Title: Vice President
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002
DEUTSCHE BANK AG NEW YORK BRANCH
AND/OR CAYMAN ISLANDS BRANCH
by /s/ DAVID G. DICKINSON, JR.
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Name: David G. Dickinson, Jr.
Title: Vice President
/s/ CHRISTOPHER S. HALL
------------------------------------------
Name: Christopher S. Hall
Title: Managing Director
<PAGE>
Signature Page to GARTNER, INC.
Amendment No. 3 dated as of
May 30, 2002