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Exhibit 10.15
EARNOUT AGREEMENT
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THIS AGREEMENT ("Agreement") is made this 3rd day of April 1998 among
CONLEY, CANITANO & ASSOC., INC., an Ohio corporation ("CCAi"), KELLY-LEVEY &
ASSOCIATES, INC., a Kentucky corporation (the "Company"), and ANTHONY KELLY,
GARY LEVEY, RONNIE CRUMPLER (collectively the "Controlling Shareholders").
R E C I T A L S:
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WHEREAS, CCAi, the Company and the Controlling Shareholders are parties
to the Stock Purchase Agreement dated as of April 3, 1998 (the "Purchase
Agreement") pursuant to which CCAi acquired all of the capital stock of the
Company from the shareholders of the Company;
WHEREAS, each of the shareholders of the Company other than the
Controlling Shareholders are parties to Minority Share Purchase Agreements dated
as of April 3, 1998 (the "Minority Share Purchase Agreements") (the Purchase
Agreement and the Minority Share Purchase Agreements collectively referred to as
the "Purchase Agreement");
WHEREAS, pursuant to the terms of the Purchase Agreement, an additional
sum not to exceed One Million One Million One Hundred Twenty Six Thousand Five
Hundred Thirty Four Dollars ($1,126,534) (the "Kelly Earnout Consideration") is
payable to Anthony F. Kelly ("Kelly") subject to Kelly complying with the
Noncompetition Agreement between CCAi and Kelly, dated April 3, 1998 (the "Kelly
Non-Compete");
WHEREAS, pursuant to the terms of the Purchase Agreement, an additional
sum not to exceed Three Million Three Hundred Seventy Three Thousand Four
Hundred Sixty Six Dollars ($3,373,466) (the "Shareholders' Earnout
Consideration") (the Kelly Earnout Consideration and the Shareholders' Earnout
Consideration, collectively the "Earnout Consideration") is payable to the
shareholders of the Company other than Anthony F. Kelly (collectively the
"Shareholders") if certain target financial goals are met; and
WHEREAS, the parties desire to define the target financial goals for
the payment of the Earnout Consideration.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto do hereby
agree as follows:
1. DEFINITIONS. Wherever used in this Agreement, the following words and phrases
shall have the meaning set forth below unless the context plainly requires a
different meaning:
a. "AVERAGE BILLABLE DAYS" means 220 days per year.
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b. "CAUSE" shall have the meaning ascribed to it in each
individual Shareholder's employment agreement with
CCAi; PROVIDED, HOWEVER, if such Shareholder's
employment agreement with CCAi does not define
"Cause", then "Cause" shall mean:
(i) misappropriating any funds or property
of CCAi, committing fraud or embezzlement or
engaging in any criminal or illegal activity
having a material adverse effect on CCAi;
(ii) except for providing services to CCAi
in exchange for compensation in accordance
with the terms of the Shareholder's
employment agreement, attempting to obtain
material personal gain, profit or enrichment
at the expense of CCAi or from any
transaction in which the Shareholder has an
interest which is known by the Shareholder
to be adverse to the interest of CCAi; (iii)
being convicted of a felony; (iv) committing
any material breach of the Shareholder's
employment agreement with CCAi; provided
such breach continues for a period of 30
days after CCAi shall have notified the
Shareholder in writing of such breach; or
(v) performing or committing any act
intended by the Shareholder to cause a
material adverse effect on CCAi, including,
without limitation, acts of sexual
harassment, provided such act continues
unremedied for a period of 30 days after
CCAi shall have notified the Shareholder in
writing of such act.
c. "CCAI" means Conley, Canitano & Assoc., Inc.
d. "CCAI AVERAGE BILLABLE RATE" means $1,300 per day.
e. "CLOSING DATE" means April 3, 1998.
f. "CONTRIBUTION MARGIN" means 45%.
g. "EARNOUT PERIOD" means collectively the Year One
Earnout Period and the Year Two Earnout Period.
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h. "TARGET CONTRIBUTION MARGIN (IN DOLLARS)" means
collectively the Year One Target Contribution Margin
(in dollars) and the Year Two Target Contribution
Margin (in dollars).
i. "KELLY" means Anthony F. Kelly.
j. "KELLY EARNOUT CONSIDERATION" means $1,126,534,
payable in three equal annual payments of $375,511 on
April 3 of each year commencing on April 3, 1999 with
the third and final payment of $375,512 on April 3,
2001, as described in Section 2(a).
k. "KELLY EARNOUT PAYMENTS" shall have the meaning
ascribed to it in Section 2(a).
l. "KELLY PAYMENT DATES" shall have the meaning ascribed
to it in Section 2(a).
m. "KLA" OR THE "COMPANY" means Kelly-Levey &
Associates, Inc.
n. "KLA CONTRIBUTION MARGIN (IN DOLLARS)" means
collectively the Year One KLA Contribution Margin (in
dollars) and the Year Two KLA Contribution Margin (in
dollars).
o. "KLA EMPLOYEES" means those employees of KLA who sign
an employment agreement with CCAi as of April 3, 1998
and are full-time employees of CCAi, and all
additional employees who become employees or
representatives of CCAi as a result of a direct or
indirect referral by a KLA Employee.
p. "KLA CONTRIBUTION MARGIN (IN DOLLARS)" means the
applicable Year One or Year Two KLA Revenues less the
applicable Year One or Year Two KLA Employee Cost.
q. "KLA EMPLOYEE COST" means the total actual hourly
cost of each KLA Employee (other than Ronnie
Crumpler, Gary Levey, Brad Wolfe and John Banta)
during the applicable Earnout Period, as determined
using the Toni Moorman Formula.
r. "SHAREHOLDERS" means all of the shareholders of KLA
other than Anthony F. Kelly.
s. "SHAREHOLDER PAYMENT DATES" shall have the meaning
ascribed to it in Section 3(a).
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t. "SUCCESS FEE" means the net bonuses paid by a
customer in excess of normal time and expense
generated directly or indirectly by the KLA
Employees.
u. "TARGET CONTRIBUTION MARGIN (IN DOLLARS)" means
collectively the Year One Target Contribution Margin
(in dollars) and the Year Two Target Contribution
Margin (in dollars).
v. "TARGET REVENUES" means collectively the Year One
Target Revenues and the Year Two Target Revenues.
w. "TERMINATION EVENTS" means, with respect to any
Shareholder, the occurrence of one of the following
events: (i) the Shareholder is terminated by the
Company or CCAi with Cause; or (ii) the Shareholder
voluntarily terminates his or her employment with the
Company or CCAi.
x. "TONI MOORMAN FORMULA" means the total actual hourly
cost of all of the KLA Employees, determined for each
KLA Employee as follows:
(A) the KLA Employee's annual base salary;
divided by (B) 1840; multiplied by (C) 1.12;
plus (D) either (1) $11.50 for consultants;
(2) $17.50 for Managing Associates; or (3)
$15.50 for Application Associates.
y. "YEAR ONE BREAK EVEN CONTRIBUTION MARGIN" means
$2,841,696 plus the Year One KLA Turnover
Contribution Margin Adjustment.
z. "YEAR ONE EARNOUT PERIOD" means the earnout period
commencing April 4, 1998 and ending on April 3, 1999.
aa. "YEAR ONE EARNOUT RATIO" means
(A) (1) the Year One KLA Contribution
Margin, minus (2) the Year One Break Even
Contribution Margin; divided by (B) (1) the
Year One Target Contribution Margin; minus
(2) the Year One Break Even Contribution
Margin.
bb. "YEAR ONE KLA CONTRIBUTION MARGIN (IN DOLLARS)"
means:
(A) the Year One KLA Revenues; less (B) the
Year One KLA Employee Cost
cc. "YEAR ONE KLA EMPLOYEE CLIENT CONTRIBUTION MARGIN (IN
DOLLARS)" means:
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(A) all revenue derived during the Year One
Earnout Period from CCAi employees (other
than KLA Employees) on projects or with
clients referred or developed directly or
indirectly by KLA Employees; less the total
employee cost for all CCAi employees working
on the foregoing projects and/or clients
during the Year One Earnout Period, as
determined using the Toni Moorman Formula.
dd. "YEAR ONE KLA EMPLOYEE COSTS" means the total actual
cost of all KLA Employees other than Ronnie Crumpler,
Gary Levey, Brad Wolfe and John Banta during the Year
One Earnout Period as determined by the Toni Moorman
Formula.
ee. "YEAR ONE KLA REVENUES" means the actual revenue
generated by all of the KLA Employees during the Year
One Earnout Period determined as follows:
(A) the total actual hours billed by all KLA
Employees during the Year One Earnout
Period; multiplied by (B) the actual hourly
rate charged to customers for the services
performed by each KLA Employee during the
Year One Earnout Period; plus (C) ANY
ADDITIONAL SUCCESS FEES OR BONUSES GENERATED
BY THE KLA EMPLOYEES DURING THE YEAR ONE
EARNOUT PERIOD; plus (D) the Year One KLA
Employee Client Contribution Margin (in
dollars); plus (E) the Year One SAP Book
Revenues during the Year One Earnout Period.
ff. "YEAR ONE KLA TURNOVER CONTRIBUTION MARGIN
ADJUSTMENT" means that amount, if any, by which the
Year One Target Contribution Margin (in dollars)
shall be increased based upon the turnover of KLA
Employees during the Year One Earnout Period as
follows:
Turnover/ Increase in Year One Target
Number of Contribution Margin
KLA Employees Per Employee*
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less than 4 0
5-7 $50,000
8-9 $75,000
greater than 9 $150,000
* The first 4 employees lost shall not count towards the Contribution
Margin increase.
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gg. "YEAR ONE SAP BOOK REVENUES" means all revenues
derived during the Year One Earnout Period from the
SAP/R/3 Book written by the KLA Employees.
hh. "YEAR ONE SHAREHOLDERS' EARNOUT CONSIDERATION" means
up to $1,180,713.
ii. "YEAR ONE TARGET CONTRIBUTION MARGIN (IN DOLLARS)"
means (A) $5,920,200 (45% of the Year One Target
Revenues); plus (B) the Year One KLA Turnover
Contribution Margin Adjustment, if any.
jj. "YEAR ONE TARGET REVENUE" means $13,156,000
determined as follows:
(A) 46 KLA Employees; multiplied by (B) the
Average Billable Days; multiplied by (C) the
CCAi Average Billable Rate.
kk. "YEAR TWO BREAK EVEN CONTRIBUTION MARGIN" means
$3,243,240 plus the Year Two KLA Turnover
Contribution Margin Adjustment.
ll. "YEAR TWO EARNOUT RATIO" means:
(A)(1) the Year Two KLA Contribution Margin;
minus (2) the Year Two Break Even
Contribution Margin, divided by (B)(1) the
Year Two Target Contribution Margin; minus
(2) the Year Two Break Even Contribution
Margin.
mm. "YEAR TWO KLA CONTRIBUTION MARGIN (IN DOLLARS)"
means:
(A) the Year Two KLA Revenues; less (B) the
Year Two KLA Employee Cost
nn. "YEAR TWO KLA EMPLOYEE CLIENT CONTRIBUTION MARGIN (IN
DOLLARS)" means:
(A) all revenue derived during the Year Two
Earnout Period from CCAi employees (other
than KLA Employees) on projects or with
clients referred or developed directly or
indirectly by KLA Employees less the total
employee costs for all CCAi employees
working on the foregoing projects and/or
clients during the Year Two Earnout Period,
as determined using the Toni Moorman
Formula.
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oo. "YEAR TWO KLA EMPLOYEE COSTS" means the total actual
cost of all KLA Employees other than Ronnie Crumpler,
Gary Levey, Brad Wolfe and John Banta during the Year
Two Earnout Period as determined by the Toni Moorman
Formula.
pp. "YEAR TWO KLA REVENUES" means the actual revenue
generated by all of the KLA Employees during the Year
Two Earnout Period determined as follows:
(A) the total actual hours billed by all KLA
Employees during the Year Two Earnout
Period; multiplied by (B) the actual hourly
rate charged to customers for the services
performed by each KLA Employee during the
Year Two Earnout Period; plus (C) any
additional success fees or bonuses generated
by the KLA Employees during the Year Two
Earnout Period; plus (D)Year Two KLA
Employee Client Contribution Margin (in
dollars); plus (E) Year Two SAP Book
Revenues during the Year Two Earnout Period.
qq. "YEAR TWO KLA TURNOVER CONTRIBUTION MARGIN" means
that amount, if any, by which the Year Two Target
Contribution Margin (in dollars) shall be increased
based upon the turnover of KLA Employees during the
Year Two Earnout Period as follows:
Turnover/ Increase in Year Two Target
Number of Contribution Margin
KLA Employees (In Dollars)
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less than 6 0
6-9 $50,000
10-12 $75,000
greater than 12 $150,000
rr. "YEAR TWO SAP BOOK REVENUES" means all revenues
derived during the Year Two Earnout Period from the
SAP/R/3 Book written by the KLA Employees.
ss. "YEAR TWO SHAREHOLDERS' EARNOUT CONSIDERATION" means
up to $2,192,753, plus any Year One Shareholders'
Earnout Consideration not earned by the Shareholders
during the Year One Earnout Period.
tt. "YEAR TWO TARGET CONTRIBUTION MARGIN (IN DOLLARS)"
means (A) $6,949,800 (45% of the Year Two Target
Revenue); plus (B) the Year Two KLA Turnover
Contribution Margin Adjustment.
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uu. "YEAR TWO TARGET REVENUE" means $15,444,000
determined as follows:
(A) 54 KLA Employees; multiplied by (B) the
Average Billable Days; multiplied by (C) the
CCAi Average Billable Rate.
2. Kelly's Earnout Consideration.
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a. Subject to the provisions and conditions of Section 2(b),
CCAi shall pay to Kelly the Kelly Earnout Consideration in three (3) equal
annual payments of $375,511 (collectively the "Kelly Earnout Payments" and
individually, the "Kelly Earnout Payment"). The Kelly Earnout Payments shall be
paid by CCAi to the Shareholders' Representative on behalf of Kelly on the
following dates (collectively the "Kelly Payment Dates" and individually the
"Kelly Payment Date"):
April 3, 1999 -$375,511
April 3, 2000 -$375,511
April 3, 2001 -$375,512
The Shareholders' Representative shall pay to Kelly the foregoing Kelly
Earnout Payments within thirty (30) days of each Kelly Payment Date.
b. The Kelly Earnout Consideration is contingent upon Kelly
complying with his Non-Compete Agreement. If Kelly breaches his Non-Compete
Agreement with CCAi, Kelly shall forfeit all future Kelly Earnout Payments to be
paid to Kelly after the date of such breach. Notwithstanding anything contained
in this Agreement, CCAi and Kelly acknowledge and agree that once a Kelly
Earnout Payment is "earned" by Kelly, it shall not be subject to forfeiture for
any future breaches by Kelly of his Non-Compete Agreement. For purposes of this
Agreement, an Earnout Payment shall be considered "earned" by Kelly on April 3
of each respective year and shall not be considered accrued for the year.
3. Shareholders' Earnout Consideration.
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a. Within ten (10) days following the end of the Year One
Earnout Period, CCAi shall pay to the Shareholders' Representative on behalf of
the Shareholders, the following amount as Year One Shareholders' Earnout
Consideration up to a maximum of $1,180,713:
an amount equal to $1,180,713 multiplied by the Year One
Earnout Ratio
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b. Within ten (10) days following the end of the Year Two
Earnout Period, CCAi shall pay to the Shareholders' Representative on behalf of
the Shareholders, the following amount as Year Two Shareholders' Earnout
Consideration up to a maximum of $2,192,753:
an amount equal to $2,192,753 multiplied by the Year Two
Earnout Ratio
c. Notwithstanding the foregoing, if the Year Two KLA
Contribution Margin (in dollars) exceeds the Year Two Target Contribution Margin
(in dollars) (the "Excess Amount"), then such Excess Amount shall be added to
the actual Year One KLA Contribution Margin, and the Year One Earnout formula
set forth in Section 3(a) shall be recalculated using as the Year One KLA
Contribution Margin (in dollars), the sum of the Excess Amount plus the actual
Year One KLA Contribution Margin (in dollars). CCAi shall pay to the
Shareholders' Representative on behalf of the Shareholders an amount equal to
the difference between the recalculated Year One Shareholders Earnout
Consideration less the actual Year One Shareholders Consideration paid but not
to exceed $1,180,713 actually paid to the Shareholders' as Year One
Shareholders' Earnout Consideration (including any recalculated amounts
hereunder).
4. TERMINATION EVENTS. If a Termination Event shall have occurred with
respect to any Shareholder (the "Terminated Shareholder"), then such Terminated
Shareholder shall not be entitled to any Earnout Payments earned on or after the
date of such Termination Event. The Shareholders acknowledge and agree that any
Earnout Payment forfeited by a Terminated Shareholder shall be distributed pro
rata to the remaining Shareholders in accordance with each of their respective
ownership interest in the Company immediately prior to the closing of the
transactions contemplated by the Purchase Agreement as among themselves.
5. AMENDMENT. This Agreement may not be amended or modified in any
manner other than by a written instrument duly executed by each party hereto.
6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of Ohio
or any other jurisdiction) that would cause the application of the law of any
other jurisdiction other than the State of Ohio.
7. DISPUTE RESOLUTION. Any dispute arising out of or relating to this
Agreement that has not been settled within thirty (30) days by good faith
negotiation between the parties to this Agreement shall be submitted to
Endispute for final and binding arbitration pursuant to Endispute's Arbitration
Rules. Any such arbitration shall be conducted in Cleveland, Ohio. Such
proceedings shall be guided by the following agreed upon procedures:
a. mandatory exchange of all relevant documents, to be
accomplished within forty-five (45) days of the initiation of the procedure;
b. no other discovery;
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c. hearings before the neutral advisor which shall consist of
a summary presentation by each side of not more than three hours; such hearings
to take place on one or two days at a maximum;
d. decision to be rendered not more than ten (10) days
following such hearings; and
e. punitive damages shall not be permitted under any
circumstances.
(REMAINDER OF PAGE INTENTIONALLY BLANK. SIGNATURE PAGE TO FOLLOW.)
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IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands as of the date and year first above written.
CONLEY, CANITANO & ASSOC., INC.
By: /s/ Nicholas A. Canitano
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KELLY-LEVEY & ASSOCIATES, INC.
By: /s/ Anthony F. Kelly
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Anthony F. Kelly, President
/s/ Anthony F. Kelly
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ANTHONY F. KELLY
/s/ Ronnie Crumpler
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RONNIE CRUMPLER
/s/ Gary Levey
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GARY LEVEY