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SCHEDULE 14A
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INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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The Corporate Executive Board Company
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[CORPORATE EXECUTIVE BOARD LOGO]
THE CORPORATE EXECUTIVE BOARD COMPANY
2000 PENNSYLVANIA AVENUE, NW
SUITE 6000
WASHINGTON, DC 20006
(202) 777-5193
Dear Stockholders:
On behalf of the Board of Directors and management, I invite you to attend
the Annual Meeting of Stockholders of The Corporate Executive Board Company to
be held at our offices at 2000 Pennsylvania Avenue, NW, Suite 6000, Washington,
DC, 20006, on Wednesday, June 6, 2001, at 9:00 a.m. local time.
The notice of meeting and proxy statement accompanying this letter describe
the specific business to be acted upon.
In addition to the specific matters to be acted upon, there will be a
report on the progress of the Company and an opportunity for questions of
general interest to the stockholders.
It is important that your shares be represented at the meeting. Whether or
not you plan to attend in person, you are requested to mark, sign, date and
promptly return the enclosed proxy card in the envelope provided.
Sincerely yours,
/s/JAMES J. McGonigle
James J. McGonigle
Chief Executive Officer and Chairman
of the Board
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[CORPORATE EXECUTIVE BOARD LOGO]
THE CORPORATE EXECUTIVE BOARD COMPANY
2000 PENNSYLVANIA AVENUE, NW
SUITE 6000
WASHINGTON, DC 20006
(202) 777-5193
May 7, 2001
Dear Stockholders:
We are notifying you that the Annual Meeting of Stockholders (the
"Meeting") of The Corporate Executive Board Company will be held at our offices
at 2000 Pennsylvania Avenue, NW, Suite 6000, Washington, DC, 20006, on
Wednesday, June 6, 2001, at 9:00 a.m. local time. Only stockholders of record at
the close of business on April 25, 2001, are entitled to vote at the Meeting. At
the Meeting we will ask stockholders to act on the following matters:
1. Elect seven directors.
2. Ratify the adoption of The Corporate Executive Board Company 2001
Stock Option Plan.
3. Ratify the appointment of Arthur Andersen LLP as independent
auditors for the fiscal year ending December 31, 2001.
4. Transact any other business that is properly presented at the
Meeting.
Each of these matters is described in more detail in the enclosed Proxy
Statement. We have also enclosed a copy of our Annual Report for the fiscal year
ended December 31, 2000. Please use this opportunity to take part in The
Corporate Executive Board Company's affairs by voting your shares.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE THE ENCLOSED
PROXY CARD AND RETURN IT IN THE ENVELOPE PROVIDED.
Sincerely,
/s/ CLAY M. WHITSON
Clay M. Whitson
Chief Financial Officer, Treasurer
and Secretary
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2001 ANNUAL MEETING OF STOCKHOLDERS
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
TABLE OF CONTENTS
INFORMATION ABOUT THE MEETING, VOTING AND PROXIES........... 1
Date, Time and Place of Meeting........................... 1
Record Date, Outstanding Shares and Quorum................ 1
Voting Rights and Voting of Proxies....................... 1
Solicitation and Voting of Proxies........................ 1
Expenses of Solicitation.................................. 2
Revocation of Proxies..................................... 2
PROPOSAL NO. 1 ELECTION OF DIRECTORS....................... 2
Vote Required for Approval................................ 2
Directors/Nominees........................................ 3
Board of Directors Meetings, Committees and
Compensation........................................... 4
PROPOSAL NO. 2 RATIFY THE ADOPTION OF THE CORPORATE
EXECUTIVE BOARD COMPANY 2001 STOCK OPTION PLAN............ 5
Vote Required for Approval................................ 5
Summary of 2001 Stock Option Plan......................... 5
PROPOSAL NO. 3 RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN
LLP AS INDEPENDENT AUDITORS FOR FISCAL YEAR ENDING
DECEMBER 31, 2001......................................... 9
Vote Required for Approval................................ 9
Disclosure of Auditor Fees................................ 9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 10
EXECUTIVE OFFICERS.......................................... 11
EXECUTIVE COMPENSATION...................................... 12
Summary Compensation Table................................ 12
Option Grants in Fiscal 2000.............................. 13
Option Exercises in 2000 and Year-End Option Values....... 13
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION..... 14
AUDIT COMMITTEE REPORT...................................... 15
STOCK PERFORMANCE GRAPH..................................... 16
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 16
OTHER MATTERS............................................... 17
Stockholder Proposals..................................... 17
Section 16(a) Beneficial Ownership Reporting Compliance... 17
Other Business............................................ 17
APPENDIX A THE CORPORATE EXECUTIVE BOARD COMPANY AUDIT
COMMITTEE CHARTER......................................... A-1
APPENDIX B THE CORPORATE EXECUTIVE BOARD COMPANY 2001 STOCK
OPTION PLAN............................................... B-1
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[CORPORATE EXECUTIVE BOARD LOGO]
---------------------
PROXY STATEMENT
---------------------
MAY 7, 2001
INFORMATION ABOUT THE MEETING, VOTING AND PROXIES
DATE, TIME AND PLACE OF MEETING
The Board of Directors of The Corporate Executive Board Company (the
"Company") is asking for your proxy for use at the Annual Meeting of
Stockholders (the "Meeting") of the Company to be held at our offices at 2000
Pennsylvania Avenue, NW, Suite 6000, Washington, DC, 20006 on Wednesday, June 6,
2001, at 9:00 a.m. local time and any adjournment or postponement of the
Meeting. We are initially mailing this proxy statement and proxy to stockholders
of the Company on or about May 7, 2001.
RECORD DATE, OUTSTANDING SHARES AND QUORUM
Only holders of record of the Company's common stock at the close of
business on April 25, 2001 (called the "Record Date"), will be entitled to vote
at the Meeting. On the Record Date, we had 34,333,157 shares of common stock
outstanding and entitled to vote. As of May 4, 2001 the Company had 34,716,667
shares of common stock outstanding. See Proposal No. 2. If a majority of the
shares outstanding on the Record Date are present at the Meeting, either in
person or by proxy, we will have a quorum at the Meeting. Any shares represented
by proxies that are marked for, against or to abstain from voting on a proposal
will be counted as present in determining whether we have a quorum. If a broker,
bank, custodian, nominee or other record holder of the Company's common stock
indicates on a proxy that it does not have discretionary authority to vote
certain shares on a particular matter, the shares held by that record holder
(referred to as "broker non-votes") will also be counted as present in
determining whether we have a quorum, but will not be counted or entitled to
vote on that particular matter.
VOTING RIGHTS AND VOTING OF PROXIES
Holders of our common stock are entitled to one vote for each share they
held as of the Record Date. Cumulative voting for directors is not permitted.
Directors will be elected by a plurality of the votes cast by the shares of
common stock present at the Meeting (either in person or by proxy), which means
that the seven nominees with the most votes will be elected. Approval of
proposals 2 and 3 requires approval by the holders of a majority of the shares
of common stock present and entitled to vote at the Meeting. Abstentions will
have the same effect as votes against these proposals whereas broker non-votes
will not be counted in determining the number of shares that voted on the
proposals. If you sign and return a proxy but do not give specific voting
instructions on your proxy for a specific proposal, your shares will be voted
"for" each of the proposals.
SOLICITATION AND VOTING OF PROXIES
The proxy included with this Proxy Statement is solicited by the Board of
Directors of the Company for use at the Meeting. You can submit your proxy by
mailing it in the envelope provided. If your proxy is properly completed and
submitted, and it is not revoked before the Meeting, your shares will be voted
at the Meeting according to the instructions indicated on your proxy. If you
sign and return your proxy card but do not give any voting instructions, your
shares will be voted in favor of the election of each of the director nominees
listed in Proposal No. 1 below and in favor of Proposal Nos. 2 and 3. As far as
we know, no other
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matters will be presented at the Meeting. However, if any other matters of
business are properly presented, the proxy holders named on the proxy card are
authorized to vote the shares represented by proxies according to their
judgment.
EXPENSES OF SOLICITATION
The Company will pay the costs of preparing, printing and mailing this
Notice of Annual Meeting of Stockholders and Proxy Statement, the enclosed Proxy
Card and the Company's 2000 Annual Report. We will also reimburse brokerage
firms and others for reasonable expenses incurred by them in connection with
their forwarding of proxy solicitation materials to beneficial owners. The
solicitation of proxies will be conducted primarily by mail, but may also
include telephone, facsimile or oral communications by directors, officers or
regular employees of the Company acting without special compensation. We have
also retained Georgeson Shareholder Communications Inc. to assist in the proxy
solicitation at a cost of approximately $8,500, plus reasonable out-of-pocket
expenses.
REVOCATION OF PROXIES
If you submit the enclosed Proxy Card, you may revoke it at any time before
voting takes place at the Meeting. There are three ways you can revoke your
proxy: (1) deliver to the Secretary of the Company a written notice, dated later
than the proxy you want to revoke, stating that the proxy is revoked; (2)
deliver to the Secretary of the Company a signed proxy with a later date than
the proxy you want to revoke; or (3) attend the Meeting and vote in person.
Communications to the Secretary of the Company should be addressed to Clay M.
Whitson, Chief Financial Officer, Treasurer and Secretary, 2000 Pennsylvania
Avenue, NW, Suite 6000, Washington, DC, 20006. Please note that if your shares
are held of record by a broker, bank or other nominee and you wish to revoke a
previously given proxy, you must contact that entity. If your shares are held of
record by a broker, bank or other nominee and you wish to vote at the Meeting,
prior to the Meeting you must obtain from that entity a proxy covering the
shares you beneficially own.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our Board of Directors currently has six members and one vacancy. At the
Meeting, we will nominate the six current directors for re-election to the Board
of Directors, and will nominate Thomas L. Monahan III to fill the vacancy on the
Board of Directors. We are not aware that any nominee is unable or unwilling to
serve. However, if any nominee is unable or unwilling to serve, the proxy
holders may decide to vote the shares for any substitute nominee.
VOTE REQUIRED FOR APPROVAL
Directors will be elected by the affirmative vote of a plurality of the
shares present at the Meeting, which means that the seven nominees who receive
the most votes will be elected. Your proxy will be voted "for" each of these
seven nominees unless your proxy is marked to withhold authority to vote for any
or all of them.
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DIRECTORS/NOMINEES
The following table shows the Company's nominees for election to the Board
of Directors. Each of the nominees, other than Mr. Monahan, currently serves as
a director. Each nominee, if elected, will serve until the next annual meeting
of Stockholders or until a successor is named and qualified.
DIRECTOR
NAME OF DIRECTOR/NOMINEE AGE PRINCIPAL OCCUPATION SINCE
- ------------------------ --- -------------------- --------
James J. McGonigle...... 37 Chairman of the Board and Chief Executive Officer 1998
of the Company
Michael A. D'Amato...... 47 Executive Vice President, The Advisory Board 1998
Company
Robert C. Hall.......... 69 Former Chief Executive Officer of Thomson 1999
Information and Publishing Group, Thomson
Corporation
David W. Kenny.......... 39 Chairman and Chief Executive Officer, Digitas, 1999
Inc.
Thomas L. Monahan III... 34 General Manager at the Company N/A
Stephen G. Pagliuca..... 46 Managing Director, Bain Capital, Inc. 1999
Harold L. Siebert....... 55 Founder and former Chairman and Chief Executive 1998
Officer, Inforum Inc.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINATED DIRECTORS.
James J. McGonigle has been our Chief Executive Officer and a director
since July 1998, and became Chairman of the Board in April 2001. Mr. McGonigle
is also the Chairman of our Management Operating Committee. From October 1997,
the date of the spin-off of the Company from the Advisory Board Company, until
July 1998, Mr. McGonigle was a General Manager at the Company, and from 1995
until the spin-off, he was a General Manager of the corporate division of The
Advisory Board Company with responsibility for managing the business assumed by
us in the spin-off. From 1990 to 1995, Mr. McGonigle was a consultant in the
Financial Institutions Group at McKinsey & Company. Mr. McGonigle received a
B.A. from the Woodrow Wilson School at Princeton University and a J.D. from
Harvard Law School.
Michael A. D'Amato has been a director since July 1998. From July 1998
until February 1999, Mr. D'Amato served as our Executive Vice President-Finance
and our Secretary. From the date of the spin-off until November 1998, Mr.
D'Amato served as our Chief Financial Officer. Since the spin-off, Mr. D'Amato
also has served as an Executive Vice President of The Advisory Board Company and
the Chief Financial Officer of DGB Enterprises, Inc. From 1996 until July 1998,
he was the Chief Financial Officer of The Advisory Board Company. From 1995 to
1996, Mr. D'Amato served as the Special Advisor to the Chairman of The Advisory
Board Company. From 1982 until 1995, Mr. D'Amato was a partner with Bain &
Company. Mr. D'Amato received a B.S. from Massachusetts Institute of Technology
and an M.B.A. from Harvard Business School.
Robert C. Hall has been a director since February 1999. From 1995 to
January 1999, Mr. Hall served as the Vice President of The Thomson Corporation,
a publicly held information publishing company. From 1990 to 1995, Mr. Hall was
the Chief Executive Officer of Thomson Information and Publishing Group, a
division of The Thomson Corporation involved in professional information and
publishing. From 1985 to 1990, Mr. Hall was the President of Thomson Financial
Services Group, another publishing division of The Thomson Corporation. Mr. Hall
received a B.S. from Iowa State University.
David W. Kenny has been a director since February 1999. Mr. Kenny has
served as Chief Executive Officer of Digitas, Inc., a leader in bricks and
clicks business integration, since September 1997, and as Chairman of the Board
since December 1999. From 1991 to 1997, he was a partner at Bain & Company. Mr.
Kenny received a B.S. from the General Motors Institute and an M.B.A. from
Harvard Business School.
Thomas L. Monahan III has been a General Manager since January 2001. Mr.
Monahan is also a member of our Management Operating Committee. From November
1998 until January 2001, Mr. Monahan served as an Executive Director, Research,
of the Company, and from the spin-off until November 1998, he served as the
Company's Managing Director, Research. Prior to the spin-off, Mr. Monahan served
in similar capacities with The Advisory Board Company, which he joined in
January 1996. Prior to January 1996,
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Mr. Monahan served as a senior consultant for the Deloitte & Touche Consulting
Group, a Director at the Committee for Economic Development and a staff
consultant at Andersen Consulting. Mr. Monahan received a B.A. from Harvard
University and an M.B.A. from New York University.
Stephen G. Pagliuca has been a director since February 1999. Mr. Pagliuca
founded Information Partners for Bain Capital in 1989 and is currently a
Managing Director of Bain Capital, Inc., a private equity investment firm, which
he joined in 1989. Prior to becoming a Managing Director at Bain Capital, he was
a partner at Bain & Company. Currently, he is on the Board of Directors of
Gartner Group, a publicly held information publishing company; Datek Online
Holdings Corp., a financial services company; Dynamic Details, a publicly held
electronics design and manufacturing company; Dade Behring, Inc., a medical
testing systems company; Epoch Senior Living, assisted living facilities; and
IOS Brands, Inc., a publicly held floral and specialty gifts company. Mr.
Pagliuca received a B.A. from Duke University and an M.B.A. from Harvard
Business School.
Harold L. Siebert has been a director since July 1998, and served as
Chairman of the Board from July 1998 until January 2000. From 1996 through July
1998, Mr. Siebert served as Chief Executive Officer and Chairman of Inforum
Inc., a company providing marketing and planning systems for healthcare clients,
and as Executive Vice President of Medstat/Thomson, a healthcare information
company. From 1995 until 1996, Mr. Siebert served as Bureau Chief of TennCare,
the State of Tennessee's Medicaid managed care program. From 1993 until 1995,
Mr. Siebert was a consultant to Medstat/Thomson. In 1988, Mr. Siebert founded
Inforum Inc. and served as its President and Chief Executive Officer from 1988
through 1993. Prior to 1988, he held various senior-level positions at HBO & Co.
and Baxter International. Mr. Siebert received a B.S. from Miami University in
Oxford, Ohio.
BOARD OF DIRECTORS MEETINGS, COMMITTEES AND COMPENSATION
During fiscal 2000, the Board of Directors met three times and took
numerous actions by unanimous written consent. All directors attended 75% or
more of the aggregate number of meetings of the Board and of the committees on
which they served.
The Board has two committees -- an Audit Committee and a Compensation
Committee.
Audit Committee. The members of our Audit Committee are Messrs. Hall,
Kenny and Pagliuca. Mr. Pagliuca serves as chairman of the committee. The Audit
Committee, among other things: makes recommendations to the Board of Directors
concerning the engagement of independent public accountants; monitors and
reviews the activities of our independent accountants; and reviews the adequacy
of our accounting and financial controls as reported by management and the
independent auditors. The Audit Committee operates under a charter that has been
adopted by the Board and which is attached as Appendix A to this Proxy
Statement. The Audit Committee met five times during fiscal 2000.
Compensation Committee. The members of our Compensation Committee are
Messrs. Hall, Kenny and Pagliuca. Mr. Hall serves as chairman of the committee.
The Compensation Committee, among other things: reviews salaries, benefits and
other compensation, including stock-based compensation, of directors, officers
and other key employees and makes recommendations to the Board of Directors
regarding compensation issues; and administers our stock option and stock
incentive plans. The Compensation Committee met three times during fiscal 2000.
The Board of Directors or, to the extent authorized by the Board, the
Compensation Committee, sets directors' compensation under The Corporate
Executive Board Company Directors' Stock Plan and such other arrangements as the
Compensation Committee determines to be appropriate. Each director who is not an
employee, upon election as a non-employee director, receives a one-time grant of
options to purchase 72,240 shares of common stock. Non-employee directors also
receive an annual grant of options to purchase 10,000 shares of common stock and
a $20,000 annual retainer. Directors who are employees of the Company do not
receive additional compensation for their service on the Board. Compensation
paid to Messrs. McGonigle and Monahan for 2000 is described in the section of
this proxy entitled "Executive Compensation."
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PROPOSAL NO. 2
RATIFY THE ADOPTION OF
THE CORPORATE EXECUTIVE BOARD COMPANY 2001 STOCK OPTION PLAN
The Board of Directors has adopted The Corporate Executive Board Company
2001 Stock Option Plan (the "2001 Stock Option Plan") and reserved 2,700,000
shares of common stock for issuance thereunder, subject to shareholder approval.
As of the present date, no options have been granted under the 2001 Stock Option
Plan. One of the Company's primary competitive assets is the quality of its
employees, and the Company invests substantial resources to find, hire and
develop its employees in a highly competitive market for talented people.
Because the Company uses options as its primary means of incentive compensation,
the Board of Directors considers the 2001 Stock Option Plan to be critical to
the Company's ability to attract, retain and motivate its officers and key
employees as the Company continues to grow. The Company relies primarily on
stock options to link compensation to stockholder value and generally has not
paid cash bonuses to its senior officers. As of May 4, 2001, the Company had
34,716,667 shares outstanding, 5,557,458 shares subject to outstanding options,
378,800 shares available for grant to directors and no shares available for
grant to employees under its option plans. Outstanding options potentially
exercisable for 1,368,976 shares will expire within the next two years.
At the annual meeting, the stockholders are being asked to approve the 2001
Stock Option Plan and the reservation of shares for issuance thereunder.
VOTE REQUIRED FOR APPROVAL
Approval of the 2001 Stock Option Plan requires the affirmative vote of a
majority of the shares present and entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE ADOPTION
OF THE CORPORATE EXECUTIVE BOARD COMPANY 2001 STOCK OPTION PLAN.
SUMMARY OF 2001 STOCK OPTION PLAN
The following is a summary of the 2001 Stock Option Plan and is qualified
in its entirety by reference to its full text, a copy of which is attached
hereto as Appendix B.
Overview
The 2001 Stock Option Plan is designed to provide for the grant of stock
options ("Options") that qualify as incentive stock options ("ISOs") under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as
well as Options that do not qualify as incentive stock options ("non-qualified
stock options," or "NQSOs") under Section 422 of the Code.
The 2001 Stock Option Plan has a number of special terms and limitations,
including:
- The exercise price for Options generally must equal the stock's fair
market value on the date the Option is granted;
- The 2001 Stock Option Plan expressly provides that Options granted under
it can not be "repriced";
- 2,700,000 shares are proposed to be available for issuance under the 2001
Stock Option Plan;
- Options are subject to one-year minimum vesting requirements, subject to
exceptions for death or disability of the optionee or upon a change of
control; and
- Stockholder approval is required for certain material amendments to the
2001 Stock Option Plan.
The 2001 Stock Option Plan has various provisions so that Options may, but
need not, qualify for an exemption from the "short swing liability" provisions
of Section 16(b) of the Exchange Act pursuant to Rule 16b-3 and/or qualify as
"performance based compensation" that is exempt from the $1 million limitation
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on the deductibility of compensation under Section 162(m) of the Code. However,
stockholder approval of the class of eligible participants and the per person
annual grant limitation under the 2001 Stock Option Plan is required in order
for Options to qualify as "performance based compensation" under Section 162(m)
of the Code.
Purpose
The purpose of the 2001 Stock Option Plan is to provide participants with
an increased economic and proprietary interest in the Company in order to
encourage those participants to contribute to the success and progress of the
Company.
Eligibility
Options may only be granted to the Company's or its affiliates' current or
prospective employees as defined under SEC regulations.
Administration
The 2001 Stock Option Plan will be administered by the Compensation
Committee of the Board of Directors, although the Board of Directors may
exercise any authority of the Committee under the 2001 Stock Option Plan in lieu
of the Committee's exercise thereof. The Committee may designate subcommittees
and may delegate certain administrative functions to others.
Subject to the express provisions of the 2001 Stock Option Plan, the
Committee has broad authority to administer and interpret the 2001 Stock Option
Plan, including, without limitation, authority to determine who is eligible to
participate in the 2001 Stock Option Plan and to which of such persons, and
when, Options are granted; to determine the number of shares of common stock
subject to Options and the purchase price of such shares under an Option; to
establish and verify the extent of satisfaction of any conditions to
exercisability applicable to an Option; to prescribe, amend and rescind rules
and regulations relating to the 2001 Stock Option Plan; and to do all other
things necessary or desirable in connection with the administration of the 2001
Stock Option Plan.
Stock Subject to the 2001 Stock Option Plan
The aggregate number of shares of common stock issued pursuant to all
Options granted under the 2001 Stock Option Plan may not exceed 2,700,000. In
addition, the aggregate number of shares of common stock subject to Options
granted pursuant to the 2001 Stock Option Plan during any calendar year to any
one participant may not exceed 500,000 shares. All references in the 2001 Stock
Option Plan and in outstanding Options to the number and type of shares or other
securities subject thereto are subject to anti-dilution provisions for
reorganizations, reclassifications, dividends (other than regular, quarterly
cash dividends), or other distributions, stock splits, reverse stock splits,
spin-offs or similar transactions, or if substantially all of the property and
assets of the Company are sold, unless the terms of the transaction provide
otherwise. The aggregate number of shares of common stock issued pursuant to the
2001 Stock Option Plan at any time may equal only the number of shares of common
stock issued upon the exercise of Options and not (i) returned to the Company
upon cancellation, expiration or forfeiture of an award or (ii) delivered
(either actually or by attestation) in payment or satisfaction of the exercise
price or tax obligation with respect to an Option.
Terms and Conditions of Options
Subject to the express provisions of the 2001 Stock Option Plan and as
discussed below, the Compensation Committee has discretion to determine the
exercise price and vesting schedule of Options, the events causing an Option to
expire, the number of shares subject to any Option, the restrictions on
transferability of an Option, and such further terms and conditions, in each
case not inconsistent with the 2001 Stock Option Plan, as may be determined from
time to time by the Committee.
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Exercise Price. In no event may Options be granted with an exercise price
below the stock's fair market value on the date of the grant, unless the
participant pays or foregoes compensation in the amount of any discount. In the
case of a grant of Options intended to qualify as ISOs under Section 422 of the
Code, the Committee may not grant Options with an exercise price of less than
110% of the stock's fair market value on the date the Options are granted if the
participant owns stock of the Company representing more than 10% of the combined
voting power of all classes of stock of the Company. The 2001 Stock Option Plan
expressly provides that the Company may not reprice Options.
Vesting. Unless the Committee provides otherwise, Options granted under
the 2001 Stock Option Plan become exercisable 25% per year beginning one year
after the date of grant. In no event may Options become exercisable sooner than
one year after the date of grant, except in the event of a participant's death
or disability or a change of control (as defined in the applicable Option
agreement.)
Expiration. Unless the Committee provides otherwise, Options granted under
the 2001 Stock Option Plan generally expire within ten years of the date of
grant. Options that are intended to qualify as ISOs under Section 422 of the
Code, however, must expire within ten years of the date of grant, unless such
options are granted to a participant who owns more than 10% of the combined
voting power of all classes of stock of the Company, in which case such Options
must expire within five years of the date of grant.
Transferability, Payment and Other Provisions Applicable to
Options. Unless the Committee provides otherwise, Options granted under the
2001 Stock Option Plan are nontransferable by the optionee other than by will or
the laws of descent and distribution, and are exercisable only by the optionee
during his or her lifetime.
The Committee may permit the common stock purchased upon the exercise of
any Options granted under the 2001 Stock Option Plan, on an individual basis, to
be paid for by cash or any other alternative means. Without limiting the
foregoing, the Company may extend a loan to the optionee to pay the exercise
price and/or any taxes due in connection with the exercise of Options.
The Committee may provide that the shares of stock issued upon exercise of
an Option will be subject to additional conditions or agreements as the
Committee in its discretion may specify before the exercise of the Option,
including deferrals on issuance of shares, conditions on vesting or the
transferability of Options, and forfeiture or repurchase provisions. The
Committee may also provide for the deferred delivery of shares of common stock
upon the exercise of Options, with such deferral generally evidenced by an
unfunded and unsecured obligation of the Company referred to as a "Stock Unit."
A Stock Unit is a bookkeeping entry representing an amount equivalent to the
fair market value of one share of common stock. Settlement of Stock Units upon
expiration of the deferral period shall be made in common stock or otherwise as
determined by the Committee, and the amount to be distributed may be increased
by an interest factor or by dividend equivalents. Until settled, a Stock Unit
will be subject to the anti-dilution provisions described above.
Amendment and Termination
The 2001 Stock Option Plan provides that, unless approved by the Company's
stockholders, the 2001 Stock Option Plan may not be amended to: materially
increase the maximum number of shares of common stock for which Options may be
granted under the 2001 Stock Option Plan; reduce the price at which Options may
be granted below the price currently provided for in the 2001 Stock Option Plan;
reduce the exercise price of outstanding Options; or extend the term of the 2001
Stock Option Plan. Subject to the foregoing limitation and except as otherwise
required by law, the Board of Directors may periodically amend the 2001 Stock
Option Plan without further stockholder approval. Unless earlier terminated by
the Board of Directors, the 2001 Stock Option Plan shall terminate on the tenth
anniversary of its effective date.
Federal Income Tax Consequences
The following discussion of the federal income tax consequences of the 2001
Stock Option Plan is intended to be a summary of applicable federal law as
currently in effect. State and local tax consequences may differ, and tax laws
may be amended or interpreted differently during the term of the 2001 Stock
Option
7
12
Plan or of Options thereunder. Because the federal income tax rules governing
Options are complex and subject to frequent change, and they depend on the
participant's individual circumstances, participants are advised to consult
their tax advisors prior to exercise of Options or dispositions of stock
acquired pursuant to Options.
ISOs and NQSOs are treated differently for federal income tax purposes.
ISOs are intended to satisfy the requirements of Section 422 of the Code. NQSOs
need not satisfy such requirements.
An optionee is not taxed on the grant or, except as described below,
exercise of an ISO. The difference between the exercise price and the fair
market value of the shares on the exercise date, however, will be a preference
item for purposes of the alternative minimum tax, and thus an optionee could be
subject to the alternative minimum tax as a result of the exercise of an ISO. If
an optionee holds the shares acquired upon exercise of an ISO for at least two
years following the option grant date and at least one year following exercise,
the optionee's gain, if any, upon a subsequent disposition of such shares is
long-term capital gain. The measure of the gain is the difference between the
proceeds received on disposition and the optionee's basis in the shares (which
generally equals the exercise price). If an optionee disposes of shares acquired
pursuant to exercise of an ISO before satisfying the one- and two-year holding
periods described above, the optionee may recognize both ordinary income and
capital gain in the year of disposition. The amount of the ordinary income will
be the lesser of (i) the amount realized on disposition less the optionee's
adjusted basis in the shares (usually the exercise price) or (ii) the difference
between the fair market value of the shares on the exercise date and the
exercise price. The balance of the consideration received on such a disposition
will be long-term capital gain if the stock had been held for at least one year
following exercise of the ISO. The Company is not entitled to an income tax
deduction on the grant or exercise of an ISO or on the optionee's disposition of
the shares after satisfying the holding period requirements described above. If
the holding periods are not satisfied, the Company will be entitled to a
deduction in the year the optionee disposes of the shares in an amount equal to
the ordinary income recognized by the optionee.
An optionee is not taxed on the grant of an NQSO. On exercise, however, the
optionee recognizes ordinary income equal to the difference between the option
price and the fair market value of the shares acquired on the date of exercise.
The Company is entitled to an income tax deduction in the year of exercise in
the amount recognized by the optionee as ordinary income. Any gain on subsequent
disposition of the shares is long term capital gain if the shares are held for
at least one year following exercise. The Company does not receive a deduction
for this gain.
Special rules will apply in cases where a recipient of an Option pays the
exercise price of the Option or applicable withholding tax obligations under the
2001 Stock Option Plan by delivering previously owned shares or by reducing the
number of shares otherwise issuable pursuant to the Option. The surrender or
withholding of such shares will in certain circumstances result in the
recognition of income with respect to such shares or a carryover basis in the
shares acquired, and may constitute a disposition for purposes of applying the
ISO holding periods discussed above. The Company generally will be entitled to
withhold any required taxes in connection with the exercise of an Option, and
may require the participant to pay such taxes as a condition to exercise of an
Option.
The terms of the agreements or other documents pursuant to which Options
are granted under the 2001 Stock Option Plan may provide for accelerated vesting
of an Option in connection with a change in ownership or control of the Company.
In that event and depending upon the individual circumstances of the
participant, certain amounts with respect to such Options may constitute "excess
parachute payments" under the "golden parachute" provisions of the Code.
Pursuant to these provisions, a participant will be subject to a 20% excise tax
on any "excess parachute payments" and the Company will be denied any deduction
with respect to such payments. The Company may agree to reimburse participants
for these taxes and for taxes on the amount of such reimbursements. Participants
should consult their tax advisors as to whether accelerated vesting of an Option
in connection with a change of ownership or control of the Company would give
rise to an excess parachute payment.
As described above, Options may qualify as "performance-based compensation"
under Section 162(m) of the Code in order to preserve federal income tax
deductions by the Company with respect to any
8
13
compensation required to be taken into account under Section 162 of the Code
that is in excess of $1 million and paid to a Covered Employee (as defined in
Section 162). Compensation for any year that is attributable to an Option
granted to a Covered Employee and that does not so qualify may not be deductible
by the Company to the extent such compensation, when combined with other
compensation paid to such employee for the year, exceeds $1 million.
Initial Benefits
The Compensation Committee has full discretion to determine the timing and
recipients of any Option grants under the 2001 Stock Option Plan and the number
of shares subject to any such Options, subject to an annual limitation on the
total number of Options that may be granted to any participant. Therefore, the
benefits and amounts that will be received by participants under the 2001 Stock
Option Plan are not presently determinable. No Options have been granted under
the 2001 Stock Option Plan.
PROPOSAL NO. 3
RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
FOR FISCAL YEAR ENDING DECEMBER 31, 2001
We have selected Arthur Andersen LLP as our independent auditors to perform
the audit of the Company's financial statements for the fiscal year ending
December 31, 2001, and we are asking stockholders to ratify our selection. If
the stockholders fail to ratify the selection of Arthur Andersen LLP, that fact
will be taken under advisement by the Audit Committee in determining whether to
retain Arthur Andersen LLP and whether to select them in future years.
Representatives of Arthur Andersen LLP are expected to be present at the
Meeting. They will have the opportunity to make a statement at the Meeting if
they wish to do so, and they will be available to respond to appropriate
questions from stockholders.
VOTE REQUIRED FOR APPROVAL
Approval of the appointment of Arthur Andersen LLP as our independent
auditors requires the affirmative vote of a majority of the shares present and
entitled to vote at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING DECEMBER 31, 2001.
DISCLOSURE OF AUDITOR FEES
The following is a description of the fees billed to the Company by Arthur
Andersen LLP for the fiscal year ended December 31, 2000:
Audit Fees. Audit fees paid by the Company to Arthur Andersen LLP for the
fiscal year ended December 31, 2000, totaled approximately $78,000.
Financial Information Systems Design and Implementation Fees. The Company
did not engage Arthur Andersen LLP to provide advice regarding financial
information systems design and implementation during the fiscal year ended
December 31, 2000.
All Other Fees. Fees billed to the Company by Arthur Andersen LLP during
the fiscal year ended December 31, 2000, for services other than disclosed above
totaled approximately $197,075. Other fees consisted primarily of services in
connection with the Company's secondary stock offering, international and
domestic tax services and employee benefit plan auditing.
9
14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows shares of the Company's common stock that to our
knowledge are beneficially owned as of March 16, 2001, by (i) each stockholder
owning 5% or more of the common stock, (ii) each Named Officer (defined in the
section of this proxy entitled "Executive Compensation"), (iii) each director or
director nominee and (iv) all current directors, director nominees and executive
officers as a group.
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP(1) TOTAL EQUITY STAKE(2)
------------------------ ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------ ---------- ----------- ---------- --------
James J. McGonigle(3).............................. 187,474 * 634,554 1.6%
Michael A. D'Amato(4).............................. 89,320 * 99,320 *
Robert C. Hall(5).................................. 52,240 * 62,240 *
David W. Kenny(5).................................. 65,240 * 75,240 *
Thomas L. Monahan III(6)........................... 55,196 * 229,916 *
Stephen G. Pagliuca(5)............................. 42,240 * 52,240 *
Harold L. Siebert(7)............................... 234,250 * 485,050 1.2%
Derek C. M. van Bever(8)........................... 72,774 * 227,514 *
Sally A. Chang..................................... 491 * 149,311 *
Clay M. Whitson(9)................................. 50,846 * 213,000 *
The TCW Group, Inc./Robert Day(10)................. 3,738,735 11.0% 3,738,735 9.3%
All current directors and executive officers as a
group (10 people)................................ 850,071 2.4% 2,228,385 5.5%
- ---------------
* Indicates ownership of less than 1%.
(1) Unless indicated in the notes, each stockholder has sole voting and
investment power for all shares shown, subject to community property laws
that may apply to create shared voting and investment power.
(2) The total equity stake number column indicates the number of shares owned
assuming the exercise of all options, whether vested or unvested, without
regard to whether or not the options are exercisable within 60 days.
Percentages in the percent column are calculated on a diluted basis,
assuming that all shares subject to options are deemed to be outstanding,
whether vested or unvested and without regard to whether or not the options
are exercisable within 60 days.
(3) Beneficial ownership includes of 164,794 shares issuable upon the exercise
of options held by the stockholder that are currently exercisable or
exercisable within 60 days of March 16, 2001.
(4) Beneficial ownership includes of 83,320 shares issuable upon the exercise
of options held by the stockholder that are currently exercisable or
exercisable within 60 days of March 16, 2001.
(5) Beneficial ownership consists of shares issuable upon the exercise of
options held by the stockholder that are currently exercisable or
exercisable within 60 days of March 16, 2001.
(6) Beneficial ownership includes of 54,880 shares issuable upon the exercise
of options held by the stockholder that are currently exercisable or
exercisable within 60 days of March 16, 2001.
(7) Beneficial ownership includes of 175,050 shares issuable upon the exercise
of options held by the stockholder that are currently exercisable or
exercisable within 60 days of March 16, 2001.
(8) Beneficial ownership includes of 57,710 shares issuable upon the exercise
of options held by the stockholder that are currently exercisable or
exercisable within 60 days of March 16, 2001.
(9) Beneficial ownership includes of 46,846 shares issuable upon the exercise
of options held by the stockholder that are currently exercisable or
exercisable within 60 days of March 16, 2001.
(10) Reported as of December 31, 2000, in a Schedule 13G/A filed on February 14,
2001. The Schedule 13G/A states that The TCW Group, Inc. and Robert Day
share voting and investment power with respect to the shares, and that
shares reported for Robert Day include shares reported for The TCW Group,
Inc. The address of The TCW Group, Inc. and of Robert Day is 865 Figueroa
Street, Los Angeles, CA 90017.
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EXECUTIVE OFFICERS
The following table shows the Company's current executive officers:
OFFICER
NAME OF OFFICER AGE POSITION SINCE
- --------------- --- -------- -------
James J. McGonigle................... 37 Chief Executive Officer and Chairman of the 1998
Board
Derek C. M. van Bever................ 43 Chief Research Officer 1997
Sally A. Chang....................... 36 Chief Marketing Officer 1998
Clay M. Whitson...................... 43 Chief Financial Officer, Secretary and Treasurer 1998
Thomas L. Monahan III................ 34 General Manager 2001
James J. McGonigle's business experience is listed above in the section for
nominees for the Board of Directors.
Derek C. M. van Bever has been our Chief Research Officer since the
spin-off. Mr. van Bever is also a member of our Management Operating Committee.
From 1995 through the date of the spin-off, he served as the Chief Research
Officer of the business assumed by us in the spin-off. Prior to that, he served
in various management capacities with The Advisory Board Company, which he
joined in 1981. Mr. van Bever received a B.A. and an M.A. from the University of
Delaware and an M.B.A. from Harvard Business School.
Sally A. Chang has been our Chief Marketing Officer since January 2000. Ms.
Chang is also a member of our Management Operating Committee. From June 1998
until January 2000, Ms. Chang was our General Manager, Sales and Marketing. From
1992 until June 1998, she served in various management capacities with The
Advisory Board Company, including as General Manager, Health Care Member
Services; General Manager, Health Care Research; and Executive Director,
Research. Prior to 1992, Ms. Chang worked in the corporate planning department
of Fuji Xerox in Tokyo, as a general management consultant with Touche Ross, and
in the mergers and acquisitions group of Drexel Burnham Lambert. Ms. Chang
received an A.B. from Harvard University, an M.A. from the University of
Pennsylvania and an M.B.A. from the Wharton School of Business at the University
of Pennsylvania.
Clay M. Whitson has been our Chief Financial Officer since November 1998,
our Secretary since February 1999 and our Treasurer since July 2000. Mr. Whitson
is also a member of our Management Operating Committee. From 1996 through
October 1998, Mr. Whitson served as the Chief Financial Officer and Treasurer of
PMT Services, Inc., a publicly held credit card processing company. From 1990 to
1996, Mr. Whitson served as the Chief Financial Officer of the Gemala Group, a
diversified conglomerate based in Indonesia. Prior to joining the Gemala Group
in 1990, Mr. Whitson was a director in the Mergers and Acquisitions Department
of The Chase Manhattan Bank, NA. Mr. Whitson received a B.A. from Southern
Methodist University and an M.B.A. from the University of Virginia.
Thomas L. Monahan III's business experience is listed above in the section
for nominees for the Board of Directors.
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EXECUTIVE COMPENSATION
The following table presents certain information concerning compensation
for 1998, 1999 and 2000 for the Chief Executive Officer and the three other most
highly paid executive officers during the last fiscal year (the "Named
Officers"). In addition, information concerning compensation for 2000 is
provided for Mr. Monahan, an officer of the Company who is one of the nominees
for election to the Board of Directors:
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------- NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS(1) OPTIONS COMPENSATION(2)
- ---------------------------- ---- -------- -------- ------------ ---------------
James J. McGonigle(3).............. 2000 $462,000 -- 120,000 --
Chief Executive Officer and 1999 440,000 -- 122,000 --
Chairman of the Board 1998 413,849 $100,000(4) -- --
Derek C. M. van Bever.............. 2000 $400,000 -- 40,000 $850,000
Chief Research Officer 1999 $400,000 -- 35,000 850,000
1998 $394,231 100,000(4) -- 850,000
Sally A. Chang(5).................. 2000 $335,000 -- 40,000 --
Chief Marketing Officer 1999 $325,000 -- 35,000 --
1998 $175,961 100,000(4) 481,600 --
Clay M. Whitson(6)................. 2000 $265,000 -- 30,000 --
Chief Financial Officer,
Secretary and 1999 $250,000 -- -- --
Treasurer 1998 $ 31,730 100,000(7) 344,000 --
Thomas L. Monahan III.............. 2000 $310,000 -- 50,000 --
General Manager and
Director Nominee
- ---------------
(1) We generally do not pay bonuses to our executive officers. However, from
time to time we have paid discretionary bonuses under certain special
circumstances.
(2) Reflects amounts paid to Mr. van Bever in each of 1998, 1999 and 2000 in
connection with the repurchase of certain options of The Advisory Board
Company prior to the time of the spin-off.
(3) Mr. McGonigle was named our Chief Executive Officer in July 1998.
(4) Includes a special bonus paid in connection with our initial public
offering: $40,000 paid by the Company in cash and $60,000 paid in shares of
common stock (valued at the initial public offering price) by the former
stockholder.
(5) Ms. Chang joined us as General Manager, Sales and Marketing, in June 1998.
(6) Mr. Whitson joined us as Chief Financial Officer in November 1998.
(7) Reflects a signing bonus of $100,000 paid to Mr. Whitson upon the
commencement of his employment.
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OPTION GRANTS IN FISCAL 2000
The following table shows information about stock option grants to the
Named Officers and to Mr. Monahan during fiscal 2000. These options are included
in the Summary Compensation Table above. All options were granted with an
exercise price equal to the stock's fair market value on the date of the grant.
The options have ten-year terms. The rules of the Securities and Exchange
Commission require us to show hypothetical gains that the Named Officers would
have for these options at the end of their ten-year terms, assuming annual
compound stock price appreciation of 5% and 10% from the date the option was
originally granted to the end of the option term. These figures do not represent
the Company's estimate or projection of future stock prices.
STOCK OPTION GRANTS IN 2000
INDIVIDUAL GRANTS(1)
----------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SHARES GRANTED TO MARKET PRICE
UNDERLYING EMPLOYEES IN EXERCISE PRICE ON DATE OF EXPIRATION
NAME OPTION GRANTS FISCAL YEAR (PER SHARE) GRANT DATE
- ---- ------------- ------------ -------------- ------------ -------------
James J. McGonigle............ 120,000 7.4% $21.19 $21.19 Feb. 24, 2010
Derek C. M. van Bever......... 40,000 2.5 21.19 21.19 Feb. 24, 2010
Sally A. Chang................ 40,000 2.5 21.19 21.19 Feb. 24, 2010
Clay M. Whitson............... 30,000 1.9 21.19 21.19 Feb. 24, 2010
Thomas L. Monahan III......... 50,000 3.1 21.19 21.19 Feb. 24, 2010
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
OPTION TERM
-----------------------
NAME 5% 10%
- ---- ---------- ----------
James J. McGonigle............ $1,599,153 $4,052,568
Derek C. M. van Bever......... 533,051 1,350,856
Sally A. Chang................ 533,051 1,350,856
Clay M. Whitson............... 399,788 1,013,142
Thomas L. Monahan III......... 666,314 1,688,570
- ---------------
(1) Options granted under The Corporate Executive Board Company 1999 Stock
Option Plan generally become exercisable 25% per year beginning one year
after the date of grant.
OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
The following table shows information about the value realized on option
exercises for each of the Named Officers and for Mr. Monahan during fiscal 2000,
and the value of their unexercised options at the end of fiscal 2000. Value
realized, or gain, is measured as the difference between the exercise price and
market value or the price at which the shares were sold on the date of exercise.
Value at fiscal year end is measured as the difference between the exercise
price and market value on December 29, 2000, which was $39.77 per share.
AGGREGATED OPTION EXERCISES IN 2000
AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ---------- ----------- ------------- ----------- -------------
James J. McGonigle(2).......... 410,526 $8,541,994 110,174 701,700 $4,178,788 $24,423,480
Derek C. M. van Bever.......... 148,750 2,955,400 40,600 246,850 1,573,453 8,536,941
Sally A. Chang................. 249,550 4,323,589 -- 307,050 -- 10,274,012
Clay M. Whitson................ 100,000 1,300,000 14,690 259,310 479,629 8,044,372
Thomas L. Monahan III.......... 96,500 1,878,855 24,050 188,050 863,551 6,098,322
- ---------------
(1) Based on the closing price of our common stock on December 29, 2000, of
$39.77 per share.
(2) Mr. McGonigle's stock option agreement with respect to certain options
provides that the number of shares of common stock issuable pursuant to
those options will be increased if the number of shares of common stock
outstanding on a fully diluted basis exceeds 37,840,000 shares, and again if
the number of shares of common stock outstanding on a fully diluted basis
exceeds 41,280,000 shares. The amount of the increase on each occasion will
be 10% of the sum of the number of shares that remain issuable pursuant to
those options at the time and the number of shares that were issued to him
upon the exercise of those options that he continues to hold at the time.
The exercise price per each additional share on each such date will be the
fair market value of a share of common stock on each such date.
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COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Pursuant to its charter, the Compensation Committee's responsibilities
include developing and administering a compensation policy for senior management
that contains appropriate performance incentives and equity-linked components,
and reviewing annually the performance of the executive officers of the Company.
GENERAL COMPENSATION PRACTICES FOR OFFICERS
Compensation of the Company's executive officers consists primarily of
salary and stock options. The compensation of the Chief Executive Officer, Mr.
McGonigle, and of one other executive officer is determined pursuant to an
employment agreement with those individuals. While the Company may pay
discretionary bonuses from time to time, both in 2000 and generally it has not
paid bonuses. The Compensation Committee establishes salaries based on historic
and comparable pay levels within the Company and on its subjective evaluation of
cost of living increases and comparable pay in the Washington, D.C. region and
for executives with similar skill sets.
The Company relies primarily on stock options to link compensation to
stockholder value. The Compensation Committee generally intends to grant stock
options to the Company's executives on an annual basis and in connection with
other career milestones, such as in connection with assuming added
responsibilities or achieving exceptional performance. Option grants generally
become exercisable in four equal annual installments commencing one year after
the date they are granted. The level of stock options granted generally has been
determined in consultation with senior management and has been based on a
subjective evaluation as to competitive practices for equity-based compensation
and on relative weighting of option grants among recipients at the Company.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Under the terms of his employment agreement, Mr. McGonigle received an
annual salary for 2000 of $462,000. In addition, he was granted an option for
120,000 shares. The Compensation Committee determines the level of options to be
granted to the Chief Executive Officer consistent with the factors discussed
above for other executive officers.
Deductibility of Executive Compensation in Excess of $1 Million
Section 162(m) of the Code generally disallows a federal income tax
deduction to any publicly held corporation for compensation paid in excess of $1
million to each of the five highest paid officers of the corporation unless the
compensation is paid under a predetermined objective performance plan meeting
certain requirements or satisfies one of various other exemptions. The 1999
Stock Option Plan and the 2001 Stock Option Plan are designed so that awards
under these plans can qualify as "performance based compensation" which is not
subject to Section 162(m). The Company does not believe that, other than stock
option grants, its compensation arrangements will result in excess of $1 million
being paid to any of its executive officers. However, the Board may determine to
award compensation in the future that would not be deductible under Section
162(m) in such circumstances as it deems appropriate. Moreover, in light of the
ambiguities and uncertainties under Section 162(m), no assurance can be made
that compensation intended by the Company to satisfy the requirements for
deductibility under Section 162(m) does in fact do so.
COMPENSATION COMMITTEE MEMBERS
Robert C. Hall, Chairman
Stephen G. Pagliuca
David W. Kenny
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AUDIT COMMITTEE REPORT
The Audit Committee reviews the Company's financial reporting process on
behalf of the Board. Management has the primary responsibility for the financial
statements and the reporting process. The Company's independent auditors are
responsible for expressing an opinion on the conformity of the Company's audited
consolidated financial statements to accounting principles generally accepted in
the United States of America.
The Audit Committee members do not serve as professional accountants or
auditors and their functions are not intended to duplicate or to certify the
activities of management and the independent auditors. The Committee serves a
board-level oversight role where it receives information from, consults with and
provides its views and directions to management and the independent auditors on
the basis of the information it receives and the experience of its members in
business, financial and accounting matters.
In this context, the Audit Committee reviewed and discussed with management
and the independent auditors the audited financial statements for the year ended
December 31, 2000 (the "Audited Financial Statements"). The Audit Committee has
discussed with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees). In
addition, the Audit Committee has received from the independent auditors the
written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and discussed with them their
independence from the Company and its management.
Following the reviews and discussions referred to above, the Audit
Committee recommended to the Board that the Audited Financial Statements be
included in the Company's Annual Report on SEC Form 10-K for the year ended
December 31, 2000, for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE MEMBERS
Stephen G. Pagliuca, Chairman
Robert C. Hall
David W. Kenny
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20
STOCK PERFORMANCE GRAPH
The graph below compares the cumulative total stockholder return on the
Company's common stock from the date of the Company's initial public offering
through December 31, 2000, with the cumulative total return on the Merrill Lynch
Business Services Index and the NASDAQ National Market (U.S.) Index for the same
period. The graph assumes that $100 was invested in the Company's common stock
and in each of the other indexes on February 23, 1999 and that any dividends
were reinvested. The comparisons in the graph below are based on historical data
(with the Company's common stock prices based on the closing price on the date
of the initial public offering and thereafter) and are not intended to forecast
the possible future performance of the Company's common stock.
COMPARISON OF THE CUMULATIVE TOTAL RETURN
AMONG THE CORPORATE EXECUTIVE BOARD COMPANY,
THE MERRILL LYNCH BUSINESS SERVICES INDEX AND
THE NASDAQ NATIONAL MARKET (U.S.) INDEX
[PERFORMANCE GRAPH]
THE CORPORATE EXECUTIVE MERRILL LYNCH BUSINESS NASDAQ ANTIONAL MARKET
BOARD SERVICES INDEX (U.S.) INDEX
----------------------- ---------------------- ----------------------
2/23/99 100.00 100.00 100.00
12/31/99 294.00 126.00 174.00
12/31/00 333.00 130.00 104.00
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Administrative Services Agreement. The Advisory Board Company provides
certain administrative services to us pursuant to the Administrative Services
Agreement. The Advisory Board Company is owned by an individual who prior to
February 28, 2000, owned greater than five percent of our common stock. We
believe that the services provided under the Administrative Services Agreement
may be obtained from alternative sources and that the fees pursuant to the
Administrative Services Agreement approximate the cost to internally provide or
otherwise externally source those services. During 2000, The Advisory Board
Company provided an aggregate of $22,000 of services to us under this agreement.
This agreement expired on December 31, 2000.
16
21
Vendor Contracts Agreement. Pursuant to a Vendor Contracts Agreement, we
participate in certain vendor contracts entered into by The Advisory Board
Company for the provision of certain services, such as telecommunications,
mailing and general office services. The Vendor Contracts Agreement specifies
that we will pay the vendor directly if costs can be segregated and billed
separately, or we will reimburse The Advisory Board Company for our reasonably
allocated share of commonly billed costs. This agreement expired on December 31,
2000. We expect to enter into separately negotiated vendor agreements as soon as
reasonably practical, and do not expect to incur material incremental costs.
OTHER MATTERS
STOCKHOLDER PROPOSALS
Under SEC rules, any stockholder who intends to present a proposal at the
Company's next annual meeting of Stockholders must submit the proposal to the
Company, at our principal executive offices, no later than January 7, 2002, and
must satisfy the other requirements of SEC Rule 14a-8 in order for the proposal
to be considered for inclusion in our Proxy Statement and proxy for that
meeting. Any stockholder who wishes to bring a proposal before the Company's
2002 Annual Meeting of Stockholders, but does not wish to include it in the
Company's proxy materials, or wishes to nominate one or more persons to serve as
Directors, must provide written notice of the proposal to the Company's
Secretary, at our principal executive offices, after January 27, 2002, and
before March 23, 2002, and must satisfy the requirements of our bylaws. If a
stockholder making such a proposal does not also satisfy the requirements of SEC
Rule 14a-4(c), the Company may exercise discretionary voting authority over
proxies it solicits in determining how to vote on the proposal.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers, and 10% stockholders to file forms with the SEC
to report their ownership of the Company's stock and any changes in ownership.
Anyone required to file forms with the SEC must also send copies of the forms to
the Company. We have reviewed all forms provided to us. Based on that review and
on written information given to us by our executive officers and directors, we
believe that all Section 16(a) filing requirements were met during fiscal 2000,
other than the following: A Form 4 relating to an exercise of options on 4,375
shares by Derek C. M. van Bever was filed with the SEC one month late.
OTHER BUSINESS
Our Board of Directors does not currently intend to bring any other
business before the Meeting, and is not aware of any other business to be
brought before the Meeting. If any other business is properly brought before the
Meeting, the proxies will be voted in accordance with the judgment of the proxy
holders.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, SIGN, DATE
AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
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APPENDIX A
THE CORPORATE EXECUTIVE BOARD COMPANY
AUDIT COMMITTEE CHARTER
ORGANIZATION
There shall be a committee of the Board of Directors (the "Board") of The
Corporate Executive Board Company (the "Company") to be known as the Audit
Committee (the "Committee"). The Committee shall be composed of at least three
"independent" directors each of whom is appointed annually by the Board. For
purposes hereof, "independent" will mean a director who meets the National
Association of Securities Dealers, Inc. ("NASD") definition of "independence."
Each member of the Committee must be financially literate and one member of the
Committee shall have accounting or related financial management expertise, both
as provided in the NASD rules.
The Committee will meet as often as may be necessary or appropriate in its
judgment, generally four times each year, either in person or telephonically.
The Committee will meet in executive session with the independent auditors at
least annually. The Committee will report to the full Board with respect to its
meetings. The majority of the Committee shall constitute a quorum.
STATEMENT OF POLICY
The Committee shall provide assistance to the Board in fulfilling its
responsibilities relating to the accounting, reporting and financial practices
of the Company. In so doing, it will maintain free and open communication among
the Board, the independent auditors and the financial management of the Company.
The independent auditors will be ultimately accountable to the Board through the
Committee.
RESPONSIBILITIES
In carrying out its responsibilities, the Committee believes its policies
and procedures should remain flexible, in order to best react to changing
conditions and to ensure to the Board and shareholders that the accounting and
reporting practices of the Company are in accordance with all requirements and
are of the highest quality.
In carrying out these responsibilities, the Committee will:
- Recommend to the Board the independent auditors to be nominated, approve
the compensation of the independent auditors, and review and approve the
discharge of the independent auditors.
- Meet with the independent auditors and financial management of the
Company to review the scope of the proposed audit for the current year
and the audit procedures to be utilized, and at the conclusion thereof
review such audit results and any accompanying management letters.
- Review with the independent auditors and financial and accounting
personnel, the adequacy and effectiveness of the accounting and financial
controls of the Company, and any recommendations for the improvement of
such internal control procedures.
- Review the Company's annual audited financial statements with management
and the independent auditors, including a discussion of the auditors'
judgment as to the quality of the Company's accounting principles.
- Review with management and the independent auditor the results of any
significant matters identified as a result of the independent auditor's
interim review procedures prior to the filing of each Form 10-Q or as
soon thereafter as possible. The Committee Chair may perform this
responsibility on behalf of the Committee.
- Review with the independent auditor the written statement from the
auditor of the Company required by Independence Standards Board Standard
No. 1 concerning any relationships between the auditor
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and the Company or any other relationship that may adversely affect the
independence of the auditor, and based on such review, assess the
independence of the auditor.
- Provide reports in the Company's proxy statement required by Securities
and Exchange Commission rules.
- Review the adequacy of the Committee Charter on an annual basis, and
recommend changes if the Committee determines changes are appropriate.
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APPENDIX B
THE CORPORATE EXECUTIVE BOARD COMPANY
2001 STOCK OPTION PLAN
1. PURPOSE
The purpose of The Corporate Executive Board Company 2001 Stock Option Plan
(the "Plan") is to provide Participants with an increased economic and
proprietary interest in the Company in order to encourage those Participants to
contribute to the success and progress of the Company. The Plan provides for the
grant of Options which shall qualify as incentive stock options, as defined in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
for the grant of Options which shall not qualify as incentive stock options
pursuant to Section 422 of the Code.
2. DEFINITIONS
(a) "Administrator" means the Administrator of the Plan in accordance with
Section 11.
(b) "Board of Directors" means the Board of Directors of the Company.
(c) "Common Stock" means the Company's common stock, par value $.01,
subject to adjustment as provided in Section 8.
(d) "Company" means The Corporate Executive Board Company, a Delaware
corporation.
(e) "ISOs" shall mean Options which qualify as incentive stock options
within the meaning of Section 422 of the Code.
(f) "Options" shall mean stock options granted pursuant to the Plan.
(g) "Participants" shall mean those individuals described in Section 3 to
whom Options have been granted from time to time by the Administrator and any
authorized transferee of such individuals.
(h) "Plan" means The Corporate Executive Board Company 2001 Stock Option
Plan.
(i) "Retirement" shall have the meaning specified by the Administrator in
the terms of an option grant or, in the absence of any such term, shall mean
retirement from active employment with the Company or its Subsidiaries (i) at or
after age 55 and with the approval of the Administrator or (ii) at or after age
65. The determination of the Administrator as to an individual's Retirement
shall be conclusive on all parties.
(j) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company where each of the
corporations in the unbroken chain other than the last corporation owns stock
possessing at least 50 percent or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(k) "Total and Permanent Disablement" shall have the meaning specified by
the Administrator in the terms of an option grant or, in the absence of any such
term or in the case of an Option intending to qualify as an ISO, the inability
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months. The determination of the Administrator as to an
individual's Total and Permanent Disablement shall be conclusive on all parties.
3. PARTICIPANTS
Options may be granted to any person who is an employee or prospective
employee of the Company or any of its affiliates. For purposes of this Section
3, the term "employee" shall mean an "employee," as such term is defined in
General Instruction A to Form S-8 under the Securities Act of 1933, as amended.
Options intending to qualify as ISOs may only be granted to employees of the
Company and its Subsidiaries within the meaning of the Code, as selected by the
Administrator. For purposes of this Plan, the Chairman of the Board's
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status as an employee shall be determined by the Board of Directors. Options may
not be granted to directors of the Company or its Subsidiaries unless such
directors otherwise qualify for participation in the Plan.
4. EFFECTIVE DATE AND TERMINATION OF PLAN
This Plan was adopted by the Board of Directors of the Company as of May 7,
2001 (the "Effective Date"). The Plan shall remain available for the grant of
Options until the tenth anniversary of the Effective Date. Notwithstanding the
foregoing, the Plan may be terminated at such earlier time as the Board of
Directors may determine. Termination of the Plan will not affect the rights and
obligations of the Participants and the Company arising under Options
theretofore granted and then in effect.
5. SHARES SUBJECT TO THE PLAN AND TO OPTIONS
The aggregate number of shares of Common Stock issuable pursuant to all
Options granted under the Plan will not exceed 2,700,000 shares of the Company's
Common Stock, or the number and kind of shares of stock or other securities
which shall be substituted or adjusted for such shares as provided in Section 8.
Such shares may be authorized and unissued shares of the Company's Common Stock.
The aggregate number of shares of Common Stock issued pursuant to the Plan at
any time shall equal only the number of shares of Common Stock issued upon the
exercise of Options and not returned to the Company upon the cancellation,
expiration or forfeiture of an award or delivered (either actually or by
attestation) in payment or satisfaction of the purchase price or tax obligation
with respect to an Option. All shares of Common Stock available for issuance
under the Plan may be subject to Options which intend to qualify as ISOs.
6. GRANT, TERMS AND CONDITIONS OF OPTIONS
Options may be granted at any time and from time to time prior to the
termination of the Plan, to Participants selected by the Administrator. No
Participant shall have any rights as a stockholder with respect to any shares of
stock subject to Option hereunder until said shares have been issued. Each
Option shall be evidenced by a written stock option agreement and/or such other
written arrangements as may be approved from time to time by the Administrator.
Options granted pursuant to the Plan need not be identical but each Option must
contain and be subject to the following terms and conditions:
(a) Price: The purchase price under each Option shall be established
by the Administrator, provided that in no event will the purchase price be
less than the fair market value of the Common Stock on the date of grant,
except for Options that the Participant pays for or as to which the
Participant foregoes other compensation equal in value to the amount of
such discount. Notwithstanding the foregoing, in the case of the grant of
an Option intending to qualify as an ISO, if the Participant owns stock
possessing more than 10 percent of the combined voting power of all classes
of stock of the Company or its Subsidiaries (after applying the ownership
attribution rules set forth under Section 422(d) of the Code and any
successor provision), the purchase price of such Option must be no less
than 110 percent of the fair market value of the Common Stock on the date
of grant.
The purchase price of any Option may be paid in cash or any
alternative means acceptable to the Administrator, including an
irrevocable commitment by a broker to pay over such amount from a sale
of the shares issuable under an Option and the acceptance of a
promissory note secured by the number of shares of Common Stock then
issuable upon exercise of the Options.
(b) Duration and Exercise or Termination of Option: Unless the
Administrator provides otherwise, (i) Options shall become exercisable 25
percent per year beginning one year after the date of the grant, provided
that in no event shall any Option become exercisable sooner than one (1)
year after the date of grant except in the event of the Participant's death
or Total and Permanent Disablement or a change in control (as defined in
the applicable Option agreement); and (ii) each Option shall expire within
a period of not more than ten (10) years from the date of grant.
Notwithstanding the foregoing, in the case of the grant of an Option
intending to qualify as an ISO, if the Participant owns stock possessing
more than 10 percent of the combined voting power of all classes of stock
of the Company or its Subsidiaries (after applying the ownership
attribution rules set forth under Section 422(d) of the Code
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and any successor provision), the Option must expire within a period of not
more than five (5) years from the date of grant. Unless provided otherwise
in the agreement evidencing an Option, the vesting period and/or
exercisability of an Option shall be adjusted by the Administrator during
or to reflect the effects of any period during which the Participant is on
an approved leave of absence or is employed on a less than full time basis,
provided that no such adjustment may be made which would result in an
accounting charge to the Company.
(c) Suspension or Termination of Option: Except as otherwise provided
by the Administrator, if at any time (including after a notice of exercise
has been delivered) the Chief Executive Officer or any other person
designated by the Administrator (each such person, an "Authorized Officer")
reasonably believes that a Participant may have committed an act of
misconduct as described in this Section, the Authorized Officer may suspend
the Participant's rights to exercise any Option pending a determination of
whether an act of misconduct has been committed.
Except as otherwise provided by the Administrator, if the
Administrator or an Authorized Officer determines a Participant has
committed an act of embezzlement, fraud, dishonesty, nonpayment of any
obligation owed to the Company or its Subsidiaries, breach of fiduciary
duty or deliberate disregard of the Company or Subsidiary rules resulting
in loss, damage or injury to the Company or its Subsidiaries, or if a
Participant makes an unauthorized disclosure of any Company or Subsidiary
trade secret or confidential information, engages in any conduct
constituting unfair competition, breaches any non-competition agreement,
induces any Company or Subsidiary customer to breach a contract with the
Company or its Subsidiaries, or induces any principal for whom the Company
or its Subsidiaries acts as agent to terminate such agency relationship
(any of the foregoing acts, an "act of misconduct"), neither the
Participant nor his or her estate nor transferee shall be entitled to
exercise any Option whatsoever. In making such determination, the
Administrator or an Authorized Officer shall act fairly and shall give the
Participant an opportunity to appear and present evidence on his or her
behalf at a hearing before the Administrator or the Board of Directors. For
any Participant who is an "executive officer" for purposes of Section 16 of
the Securities Exchange Act of 1934, the determination of the Authorized
Officer shall be subject to the approval of the Administrator.
(d) Termination of Employment: Unless an Option earlier expires upon
the expiration date established pursuant to Section 6(b)(ii), upon the
termination of the Participant's employment, his or her rights to exercise
an Option then held shall be only as follows, unless the Administrator
specifies otherwise:
(1) Death. Upon the death of a Participant while in the employ of
the Company or its Subsidiaries, all of the Participant's Options then
held shall be exercisable by his or her estate, heir or beneficiary at
any time during the twelve (12) months next succeeding the date of
death. Any and all of the deceased Participant's Options that are not
exercised during the twelve (12) months next succeeding the date of
death shall terminate as of the end of such twelve (12) month period.
If a Participant should die within thirty (30) days of his or her
termination of employment with the Company or its Subsidiaries, an
Option shall be exercisable by his or her estate, heir or
beneficiary at any time during the twelve (12) months succeeding
the date of termination, but only to the extent of the number of
shares as to which such Option was exercisable as of the date of
such termination. Any and all of the deceased Participant's Options
that are not exercised during the twelve (12) months succeeding the
date of termination shall terminate as of the end of such twelve
(12) month period. A Participant's estate shall mean his or her
legal representative or other person who so acquires the right to
exercise the Option by bequest or inheritance or by reason of the
death of the Participant.
(2) Total and Permanent Disablement. Upon termination as a result
of the Total and Permanent Disablement of any Participant, all of the
Participant's Options then held shall be exercisable for a period of
twelve (12) months after termination. Any and all Options that are not
exercised during the twelve (12) months succeeding the date of
termination shall terminate as of the end of such twelve (12) month
period.
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(3) Retirement. Upon Retirement of a Participant, the
Participant's Options then held shall be exercisable for a period of
twelve (12) months after Retirement. The number of shares with respect
to which the Options shall be exercisable shall equal the total number
of shares which were exercisable under the Participant's Option on the
date of his or her Retirement. Any and all Options that are
unexercised during the twelve (12) months succeeding the date of
termination shall terminate as of the end of such twelve (12) month
period. Notwithstanding the foregoing, in order to obtain ISO tax
treatment for any Option that otherwise qualifies as an ISO, the
Participant must exercise such Option within three (3) months after
Retirement, after which time the Option shall cease to qualify for tax
treatment as an ISO.
(4) Other Reasons. Upon the date of a termination of a
Participant's employment for any reason other than those stated above
in Sections 6(d)(1), (d)(2) and (d)(3) or as described in Section 6(c)
above, (A) any Option that is unexercisable as of such termination
date shall remain unexercisable and shall terminate as of such date,
and (B) any Option that is exercisable as of such termination date
shall expire the earlier of (i) ninety (90) days following such date
or (ii) the expiration date of such Option.
(5) Termination of Employment. The term "termination of
employment" shall mean ceasing to serve as a full time employee of the
Company, except that an approved leave of absence or approved
employment on a less than full time basis may constitute employment
unless the Administrator provides otherwise. The Administrator shall
determine whether any corporate transaction, such as a sale or
spin-off of a division or subsidiary that employs a Participant, shall
be deemed to result in a termination of employment with the Company
for purposes of any affected Participant's Options, and the
Administrator's decision shall be final and binding.
(e) Transferability of Option: Unless the Administrator specifies
otherwise, each Option shall be nontransferable by the Participant other
than by will or the laws of descent and distribution and shall be
exercisable only by the Participant during his or her lifetime.
(f) No Repricing. Without the approval of stockholders, the Company
shall not reprice any Options. For purposes of this Plan, the term
"reprice" shall mean lowering the exercise price of previously awarded
Options within the meaning of Item 402(i) under Securities and Exchange
Commission Regulation S-K (including canceling previously awarded Options
and regranting them with a lower exercise price).
(g) Conditions and Restrictions Upon Securities Subject to
Options: The Administrator may provide that the shares of Common Stock
issued upon exercise of an Option shall be subject to such further
agreements, restrictions, conditions or limitations as the Administrator in
its discretion may specify prior to the exercise of such Option, including
without limitation, conditions on vesting or transferability, forfeiture or
repurchase provisions and method of payment for the shares issued upon
exercise (including the actual or constructive surrender of Common Stock
already owned by the Participant). Without limiting the foregoing, such
restrictions may address the timing and manner of any resales by the
Participant or other subsequent transfers by the Participant of any shares
of Common Stock issued as a result of the exercise of the Option, including
without limitation (a) restrictions under an insider trading policy, (b)
restrictions designed to delay and/or coordinate the timing and manner of
sales by Participant and other optionholders, and (c) restrictions as to
the use of a specified brokerage firm for such resales or other transfers.
The Administrator may establish rules for the deferred delivery of Common
Stock upon exercise of an Option with the deferral evidenced by use of
"Stock Units" equal in number to the number of shares of Common Stock whose
delivery is so deferred. A "Stock Unit" is a bookkeeping entry representing
an amount equivalent to the fair market value of one share of Common Stock.
Unless the Administrator specifies otherwise, Stock Units represent an
unfunded and unsecured obligation of the Company. Settlement of Stock Units
upon expiration of the deferral period shall be made in Common Stock or
otherwise as determined by the Administrator. The amount of Common Stock,
or other settlement medium, to be so distributed may be increased by an
interest factor or by dividend equivalents. Until a Stock Unit is so
settled, the number of shares of Common Stock
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represented by a Stock Unit shall be subject to adjustment pursuant to
Section 8. Any Stock Units that are settled after the holder's death shall
be distributed to the holder's designated beneficiary(ies) or, if none was
designated, the holder's estate.
(h) Other Terms and Conditions; Tax Code Limitations: Options may
also contain such other provisions, which shall not be inconsistent with
any of the foregoing terms, as the Administrator shall deem appropriate. No
Option, however, nor anything contained in the Plan shall confer upon any
Participant any right to continue in the Company's or its Subsidiaries'
employ or service nor limit in any way the Company's or its Subsidiaries'
right to terminate his or her employment at any time. In the case of
Options intending to qualify as ISOs, Section 422 of the Code provides that
Options shall not be treated as ISOs if and to the extent that the
aggregate fair market value of shares of Common Stock (determined as of the
time of grant) with respect to which such Options are exercisable for the
first time by the Participant during any calendar year (under all plans of
the Company and its subsidiaries) exceeds $100,000, taking Options into
account in the order in which they were granted. For purposes of qualifying
as "performance based compensation" under Code Section 162(m), the
aggregate number of shares of Common Stock subject to Options granted
pursuant to the Plan during any calendar year to any one Participant shall
not exceed 500,000 shares.
7. LOANS
The Company may make loans, at the request of the Participant and in the
sole discretion of the Administrator, for the purpose of enabling the
Participant to exercise Options granted under the Plan and to pay the tax
liability resulting from an Option exercised under the Plan. The Administrator
shall have full authority to determine the terms and conditions of such loans.
Such loans may be secured by the shares received upon exercise of such Option.
8. ADJUSTMENT OF AND CHANGES IN THE STOCK
In the event that the number of shares of Common Stock of the Company shall
be increased or decreased through reorganization, reclassification, combination
of shares, stock splits, reverse stock splits, spin-offs, or the payment of a
stock dividend, (other than regular, quarterly cash dividends) or otherwise,
then each share of Common Stock of the Company which has been authorized for
issuance under the Plan, whether such share is then currently subject to or may
become subject to an Option under the Plan, may be proportionately adjusted to
reflect such increase or decrease, unless the terms of the transaction provide
otherwise. Outstanding Options may also be amended as to price and other terms
if necessary to reflect the foregoing events.
In the event there shall be any other change in the number or kind of the
outstanding shares of Common Stock of the Company, or any stock or other
securities into which such Common Stock shall have been changed, or for which it
shall have been exchanged, whether by reason of merger, consolidation or
otherwise, then the Administrator shall, in its sole discretion, determine the
appropriate adjustment, if any, to be effected. In addition, in the event of
such change described in this paragraph, the Administrator may accelerate the
time or times at which any Option may be exercised and may provide for
cancellation of such accelerated Options which are not exercised within a time
prescribed by the Administrator in its sole discretion. Notwithstanding anything
to the contrary herein, any adjustment to Options granted pursuant to this Plan,
particularly Options intending to qualify as ISOs, shall comply with the
requirements, provisions and restrictions of the Code.
No right to purchase fractional shares shall result from any adjustment in
Options pursuant to this Section 8. In case of any such adjustment, the shares
subject to the Option shall be rounded down to the nearest whole share. Notice
of any adjustment shall be given by the Company to each Participant which shall
have been so adjusted and such adjustment (whether or not notice is given) shall
be effective and binding for all purposes of the Plan.
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9. LISTING OR QUALIFICATION OF STOCK
In the event that the Board of Directors or the Administrator determines in
its discretion that the listing or qualification of the Plan shares on any
securities exchange or quotation or trading system or under any applicable law
or governmental regulation is necessary as a condition to the issuance of such
shares under the Option, the Option may not be exercised in whole or in part
unless such listing, qualification, consent or approval has been unconditionally
obtained.
10. WITHHOLDING
To the extent required by applicable federal, state, local or foreign law,
a Participant shall be required to satisfy, in a manner satisfactory to the
Company, any withholding tax obligations that arise by reason of an Option
exercise or a disqualifying disposition of shares issued upon exercise of an
ISO. The Company shall not be required to issue shares or to recognize the
disposition of such shares until such obligations are satisfied. The
Administrator may permit these obligations to be satisfied by having the Company
withhold a portion of the shares of stock that otherwise would be issued to him
or her upon exercise of the Option, or to the extent permitted, by tendering
shares previously acquired, provided that such will not result in an accounting
charge to the Company or its Subsidiaries.
11. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Administrator who shall be the
Compensation Committee of the Board of Directors or, in the absence of a
Compensation Committee, the Board of Directors itself. Subject to the express
provisions of this Plan, the Administrator shall be authorized and empowered to
do all things necessary or desirable in connection with the administration of
this Plan, including, without limitation: (a) to prescribe, amend and rescind
rules and regulations relating to this Plan and to define terms not otherwise
defined herein; (b) to determine which persons are Participants (as defined in
Section 3 hereof) and to which of such Participants, if any, an Option shall be
granted hereunder and the timing of any such Option grants; (c) to determine the
number of shares of Common Stock subject to an Option and the exercise or
purchase price of such shares; (d) to establish and verify the extent of
satisfaction of any conditions to exercisability applicable to an Option; (e) to
waive conditions to and/or accelerate exercisability of an Option, either
automatically upon the occurrence of specified events (including in connection
with a change of control of the Company) or otherwise in its discretion; (f) to
prescribe and amend the terms of Option grants made under this Plan (which need
not be identical); (g) to determine whether, and the extent to which,
adjustments are required pursuant to Section 8 hereof; and (h) to interpret and
construe this Plan, any rules and regulations under the Plan and the terms and
conditions of any Option granted hereunder, and to make exceptions to any such
provisions in good faith and for the benefit of the Company or its Subsidiaries.
All decisions, determinations and interpretations by the Administrator
regarding the Plan, any rules and regulations under the Plan and the terms and
conditions of any Option granted hereunder, shall be final and binding on all
Participants and optionholders. The Administrator shall consider such factors as
it deems relevant, in its sole and absolute discretion, to making such
decisions, determinations and interpretations including, without limitation, the
recommendations or advice of any officer or other employee of the Company and
such attorneys, consultants and accountants as it may select.
The Administrator may, from time to time, delegate some of its
responsibilities with respect to the administration of the Plan to such persons
as it may designate in its sole discretion but may not delegate authority to
grant Options to a person who is not a member of the Board of Directors. All
actions by such persons shall be treated as if taken by the Administrator.
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12. AMENDMENT OF THE PLAN OR OPTIONS
The Board may amend, alter or discontinue this Plan or any agreement or
other document evidencing an Award made under this Plan but, except as provided
pursuant to the provisions of Section 8, no such amendment shall, without the
approval of the stockholders of the Company:
(a) materially increase the maximum number of shares of Common Stock
for which Options may be granted under this Plan;
(b) reduce the price at which Options may be granted below the price
provided for in Section 6(a);
(c) reduce the exercise price of outstanding Options; or
(d) extend the term of this Plan.
The Board may amend, alter or discontinue the Plan and the Administrator
may amend or alter any Option granted under the Plan, but no amendment or
alteration shall be made which would impair the rights of the holder of any
Option, without such holder's consent, provided that no such consent shall be
required if the Administrator determines in its sole discretion and prior to the
date of any change in control (as defined, if applicable, in the agreement
evidencing such Option) that such amendment or alteration either is required or
advisable in order for the Company, the Plan or the Option to satisfy any law or
regulation or to meet the requirements of or avoid adverse financial accounting
consequences under any accounting standard.
13. TIME OF GRANTING OPTIONS
The effective date of such Option shall be the date on which the grant was
made by the Administrator. Within a reasonable time thereafter, the Company will
deliver the Option to the Participant.
14. NO LIABILITY OF COMPANY
The Company and any affiliate which is in existence or hereafter comes into
existence shall not be liable to a Participant or any other person as to: (a)
the non-issuance or sale of shares of Common Stock as to which the Company has
been unable to obtain from any regulatory body having jurisdiction the authority
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any shares hereunder; and (b) any tax consequence expected, but not realized,
by any Participant or other person due to the receipt, exercise or settlement of
any Option granted hereunder.
15. NON-EXCLUSIVITY OF PLAN
Neither the adoption of this Plan by the Board of Directors nor the
submission of this Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors or
the Administrator to adopt such other incentive arrangements as either may deem
desirable, including without limitation, the granting of restricted stock or
stock options otherwise than under this Plan, and such arrangements may be
either generally applicable or applicable only in specific cases.
16. GOVERNING LAW
This Plan and any agreements or other documents hereunder shall be
interpreted and construed in accordance with the laws of the District of
Columbia and applicable federal law. Any reference in this Plan or in the
agreement or other document evidencing any Options to a provision of law or to a
rule or regulation shall be deemed to include any successor law, rule or
regulation of similar effect or applicability.
17. ARBITRATION OF DISPUTES
In the event a Participant or other holder of an Option believes that a
decision by the Administrator with respect to such person was arbitrary or
capricious, the Participant or optionholder may request arbitration with respect
to such decision. The review by the arbitrator shall be limited to determining
whether the Administrator's decision was arbitrary or capricious. This
arbitration shall be the sole and exclusive review
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permitted of the Administrator's decision. Participants and optionholders
explicitly waive any right to judicial review.
Notice of demand for arbitration shall be made in writing to the
Administrator within 30 days after the applicable decision by the Administrator.
The arbitrator shall be selected by those members of the Board of Directors who
are neither members of the Compensation Committee of the Board of Directors nor
employees of the Company. If there are no such members of the Board of
Directors, the arbitrator shall be selected by the Board of Directors. The
arbitrator shall be an individual who is an attorney licensed to practice law in
the District of Columbia. Such arbitrator shall be neutral within the meaning of
the Commercial Rules of Dispute Resolution of the American Arbitration
Association; provided, however, that the arbitration shall not be administered
by the American Arbitration Association. Any challenge to the neutrality of the
arbitrator shall be resolved by the arbitrator whose decision shall be final and
conclusive. The arbitration shall be administered and conducted by the
arbitrator pursuant to the Commercial Rules of Dispute Resolution of the
American Arbitration Association. The decision of the arbitrator on the issue(s)
presented for arbitration shall be final and conclusive and may be enforced in
any court of competent jurisdiction.
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[CORPORATE EXECUTIVE BOARD LOGO]
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THE CORPORATE EXECUTIVE BOARD COMPANY
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 2001
The undersigned hereby appoints James J. McGonigle and Clay M. Whitson, or
either of them, each with full power of substitution, to represent the
undersigned at the Annual Meeting of Stockholders of The Corporate Executive
Board Company which will be held at our offices at 2000 Pennsylvania Avenue,
NW, Suite 6000, Washington, DC, 20006, on Wednesday, June 6, 2001, at 9:00 a.m.
local time, and at any adjournments or postponements thereof, and to vote the
number of shares the undersigned would be entitled to vote if personally
present at the meeting on the following matters:
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF ALL
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS AND FOR PROPOSALS 2 AND 3.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE CORPORATE
EXECUTIVE BOARD COMPANY. THIS PROXY WILL BE VOTED AS DIRECTED. IN THE ABSENCE OF
DIRECTION, THIS PROXY WILL BE VOTED FOR THE NOMINEES FOR ELECTION AND FOR
PROPOSALS 2 AND 3. IN THEIR DISCRETION, THE PROXY HOLDERS ARE AUTHORIZED TO VOTE
UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT THEREOF TO THE EXTENT AUTHORIZED BY RULE 14a-4(c) PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION AND BY APPLICABLE STATE LAWS (INCLUDING
MATTERS THAT THE PROXY HOLDERS DO NOT KNOW, A REASONABLE TIME BEFORE THIS
SOLICITATION, ARE TO BE PRESENTED).
(CONTINUED, AND TO BE MARKED, DATED AND SIGNED, ON THE OTHER SIDE)
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PLEASE DATE, SIGN AND MAIL YOUR
PROXY CARD BACK AS SOON AS POSSIBLE!
ANNUAL MEETING OF STOCKHOLDERS
THE CORPORATE EXECUTIVE BOARD COMPANY
MAY 7, 2001
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
FOR WITHHOLD
all nominees listed AUTHORITY
(except as indicated) to vote for all
to the contrary nominees listed
1. ELECTION OF
DIRECTORS [ ] [ ]
Nominees: Michael A. D'Amato
Robert C. Hall
David W. Kenny
James J. McGonigle
Thomas L. Monahan III
Stephen G. Pagliuca
Harold L. Siebert
(Instructions: To withhold authority to vote for any named nominee(s), strike a
line through the nominee's name in the list above.)
FOR AGAINST ABSTAIN
2. Ratify the adoption of The Corporate Executive
Board Company 2001 Stock Option Plan [ ] [ ] [ ]
3. Ratify the appointment of Arthur Andersen LLP [ ] [ ] [ ]
as independent auditors for the fiscal year
ending December 31, 2001.
4. Transact any other business that is properly
presented at the meeting or any adjournments
or postponements of the meeting.
Whether or not you plan to attend the meeting in person, you are urged to
complete, date, sign and promptly mail this proxy in the enclosed return
envelope so that your shares may be represented at the meeting.
Signature _______________________________ Dated: ____________________,
Signature (if held jointly) ______________ Dated: ________________, 2001
NOTE: Please sign exactly as your name(s) appear(s) on your stock certificate.
If shares of stock stand of record in the names of two or more persons or in the
name of husband and wife, whether as joint tenants or otherwise, both or all of
such persons should sign the proxy. If shares of stock are held of record by a
corporation, the proxy should be executed by the president or vice president and
the secretary or assistant secretary. Executors, administrators or other
fiduciaries who execute the above proxy for a stockholder should give their full
title. Please date the proxy.