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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
PRIVILEGED & CONFIDENTIAL
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
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14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (section) 240.14a-11(c) or
(section)240.14a-12
FTI CONSULTING, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement)
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[FTI CONSULTING, INC. LOGO]
2021 Research Drive
Annapolis, MD 21401
(410) 224-8770
April 26, 1999
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the
1999 Annual Meeting of FTI Consulting, Inc.'s stockholders on May 19, 1999, at
9:30 a.m. EDT at FTI Consulting's principal business office, located at 2021
Research Drive, Annapolis, Maryland.
Enclosed with this letter is a Notice of the Annual Meeting, a Proxy
Statement, a proxy card, and a return envelope. Both the Notice of Annual
Meeting and the Proxy Statement provide details of the business that we will
conduct at the Annual Meeting and other information about FTI Consulting. Also
enclosed with this letter is FTI Consulting, Inc.'s Annual Report to
Stockholders for the fiscal year ended December 31, 1998.
At the Annual Meeting, we will ask you to:
o Elect three (3) Class III directors;
o Approve the amendment to our 1997 Stock Option Plan, as amended;
o Ratify the selection of Ernst & Young, LLP as independent accountants
for the fiscal year ending December 31, 1999; and
o Transact any other business that is properly presented at the Annual
Meeting.
Whether or not you plan to attend the Annual Meeting, please sign, date and
promptly return the proxy card in the enclosed prepaid return envelope. Your
shares of common stock will be voted at the Annual Meeting in accordance with
your proxy instructions. Of course, if you attend the Annual Meeting you may
vote in person. If you plan to attend the meeting, please mark the appropriate
box on the enclosed proxy card.
Sincerely,
/s/ Jack B. Dunn, IV
----------------------------------------
Jack B. Dunn, IV
Chief Executive Officer and
Chairman of the Board of Directors
YOUR VOTE IS IMPORTANT
Please Sign, Date and Return Your Proxy Card Before the
Annual Meeting If you have any questions about voting your
shares, please contact Theodore I. Pincus, Executive Vice
President and Chief Financial Officer, FTI Consulting, Inc.,
2021 Research Drive, Annapolis, MD 21401, telephone no.
(410) 224-8770
FTI CONSULTING, INC.
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
-----------------------------------------
Date: May 19, 1999
Time: 9:30 a.m.
Place: 2021 Research Drive, Annapolis, MD
-----------------------------------------
Dear Stockholders:
At the 1999 Annual Meeting, we will ask you to:
o Elect three (3) Class III Directors;
o Approve the amendment to our 1997 Stock Option Plan, as amended;
o Ratify the selection of Ernst & Young LLP as independent accountants
for the fiscal year ending December 31, 1999; and
o Transact any other business that is properly presented at the Annual
Meeting.
You will be able to vote your shares of common stock at the Annual Meeting
if you were a stockholder of record at the close of business on April 22, 1999.
By order of the Board of Directors:
Nancy B. Currie
Assistant Secretary
April 26, 1999
YOUR VOTE AT THE ANNUAL MEETING IS IMPORTANT.
PLEASE INDICATE YOUR VOTE ON THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE MEETING.
IF YOU HAVE QUESTIONS ABOUT VOTING YOUR SHARES, PLEASE CONTACT THEODORE I.
PINCUS, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, FTI CONSULTING,
INC., 2021 RESEARCH DRIVE, ANNAPOLIS, MD 21401, TELEPHONE NO. (410) 224-8770
IF YOU ATTEND THE MEETING, YOU WILL BE ABLE TO REVOKE YOUR
PROXY AND VOTE IN PERSON.
[FTI CONSULTING, INC. LETTERHEAD]
2021 Research Drive
Annapolis, MD 21401
April 26, 1999
PROXY STATEMENT FOR ANNUAL MEETING
This Proxy Statement provides information that you should read before you
vote on the proposals that will be presented to you at the 1999 Annual Meeting
of FTI Consulting's stockholders. The 1999 Annual Meeting will be held on May
19, 1999 at 9:30 a.m. EDT at FTI Consulting's principal business office, located
at 2021 Research Drive, Annapolis, Maryland 21401.
This Proxy Statement provides detailed information about the Annual
Meeting, the proposals on which you will be asked to vote at the Annual Meeting,
and other relevant information.
On April 26, 1999, we began mailing information to people who, according to
our records, owned shares of common stock at the close of business on April 22,
1999. We have mailed with that information a copy of FTI Consulting, Inc.'s
Annual Report to Stockholders for the fiscal year ended December 31, 1998.
TABLE OF CONTENTS
PAGE NO.
--------
Information About the 1999 Annual Meeting and Voting .................. 1
Proposals to be Presented at the Annual Meeting ....................... 3
1. Election of Directors ............................................. 3
2. Approval of Amendment to the 1997 Stock Option Plan, as amended ... 3
3. Ratification of Ernst & Young, LLP as Independent Accountants ..... 7
Stock Ownership ....................................................... 8
The Board of Directors ................................................ 10
Executive Officers and Compensation ................................... 13
Certain Relationships and Related Transactions ........................ 18
Other Information ..................................................... 19
i
INFORMATION ABOUT THE 1999 ANNUAL MEETING AND VOTING
THE ANNUAL MEETING
The Annual Meeting will be held on May 19, 1999 at 9:30 a.m. EDT at FTI
Consulting's principal business office, located at 2021 Research Drive,
Annapolis, Maryland.
THIS PROXY SOLICITATION
We are sending you this Proxy Statement because FTI Consulting's Board of
Directors is seeking a proxy to vote your shares of common stock at the Annual
Meeting. This Proxy Statement is intended to assist you in deciding how to vote
your shares. On April 26, 1999, we began mailing this Proxy Statement to all
people who, according to our stockholder records, owned shares of common stock
at the close of business on April 22, 1999.
FTI Consulting is paying the cost of requesting these proxies. FTI
Consulting's directors, officers and employees may request proxies in person or
by telephone, mail, telecopy or letter. FTI Consulting also has retained
Corporate Investor Communications, Inc. to assist in seeking proxies. FTI
Consulting will pay Corporate Investor Communications a fee of approximately
$4,000 plus reasonable out-of-pocket expenses, for this assistance. FTI
Consulting will reimburse brokers and other nominees their reasonable
out-of-pocket expenses for forwarding proxy materials to beneficial owners of
our common stock.
VOTING YOUR SHARES
You have one vote for each share of FTI Consulting's common stock that you
owned of record at the close of business on April 22, 1999. The number of shares
you own (and may vote at the Annual Meeting) is listed on the enclosed proxy
card.
You may vote your shares of common stock at the Annual Meeting either in
person or by proxy. To vote in person, you must attend the Annual Meeting and
obtain and submit a ballot. Ballots for voting in person will be available at
the Annual Meeting. To vote by proxy, you must complete and return the enclosed
proxy card. By completing and returning the proxy card, you will be directing
the persons designated on the proxy card to vote your shares of common stock at
the Annual Meeting in accordance with the instructions you give on the proxy
card.
IF YOU DECIDE TO VOTE BY PROXY, YOUR PROXY CARD WILL BE VALID ONLY IF YOU
SIGN, DATE AND RETURN IT BEFORE THE ANNUAL MEETING.
If you complete the proxy card except for the voting instructions, then
your shares will be voted FOR the proposed election of the Class III Directors,
FOR approval of the amendment to the 1997 Stock Option Plan, as amended, and FOR
ratification of the selection of Ernst & Young, LLP as the independent
accountant's of FTI Consulting for the 1999 fiscal year.
REVOKING YOUR PROXY
If you decide to change your vote, you may revoke your proxy at any time
before it is voted. You may revoke your proxy in any one of three ways:
o You may notify the Assistant Secretary of FTI Consulting in writing
that you wish to revoke your proxy.
o You may submit a proxy dated later than your original proxy.
o You may attend the Annual Meeting and vote. Merely attending the
Annual Meeting will not by itself revoke a proxy; you must obtain a
ballot and vote your shares of common stock to revoke the proxy.
1
VOTE REQUIRED FOR APPROVAL
Proposal 1: Election of Three The three nominees for election as
Class III Directors Class III Directors who receive the
most votes will be elected. So, if
you do not vote for a particular
nominee, or you indicate "withhold
authority to vote" for a particular
nominee on your proxy card, your
vote will not count either "for" or
"against" the nominee.
Proposal 2: Approval of Amendment The affirmative vote of a majority
to the 1997 Stock Option Plan, as of the votes cast at the Annual
Amended Meeting is required to approve the
amendment to the 1997 Stock Option
Plan, as amended. If you "abstain"
from voting, your abstention will
not count as a vote cast for or
against the proposal.
Proposal 3: Ratification of Selection of The affirmative vote of a majority
Independent Accountants of the votes cast at the Annual
Meeting is required to ratify the
selection of independent
accountants. So, if you "abstain"
from voting, your abstention will
not count as a vote cast for or
against the proposal.
If you hold your shares with a broker and you do not tell your broker how
to vote, your broker has the authority to vote on Proposals 1 and 3, but does
not have authority to vote on Proposal 2. If you do not tell your broker how to
vote on Proposal 2, the effect will be that your vote will not count as a vote
cast for or against the proposal.
Quorum. On the record date for the Annual Meeting (April 22, 1999),
4,829,132 shares of common stock were issued and outstanding. A "quorum" must be
present at the Annual Meeting in order to transact business. A quorum will be
present if 2,414,567 shares of common stock are represented at the Annual
Meeting, either in person (by the stockholders) or by proxy. If a quorum is not
present, a vote cannot occur. In deciding whether a quorum is present,
abstentions will be counted as shares of common stock that are represented at
the Annual Meeting.
ADDITIONAL INFORMATION
FTI Consulting, Inc.'s Annual Report to Stockholders for the fiscal year
ended December 31, 1998, including consolidated financial statements, is being
mailed to all stockholders entitled to vote at the Annual Meeting together with
this Proxy Statement. The Annual Report does not constitute a part of the proxy
solicitation material. That report tells you how to get additional information
about FTI Consulting.
2
PROPOSALS TO BE PRESENTED AT THE ANNUAL MEETING
We will present the following three proposals at the Annual Meeting. We
have described in this proxy statement all the proposals that we expect will be
made at the Annual Meeting. If we or a stockholder properly presents any
proposal to the meeting, we will, to the extent permitted by applicable law, use
your proxy to vote your shares of common stock on the proposal in our best
judgment, if the proposal is submitted after March 19, 1999.
1. ELECTION OF DIRECTORS
FTI Consulting's Amended and Restated Articles of Incorporation, as
amended, provide that the Company's Board of Directors will consist of three
classes. The members of each class are elected for three-year terms. Pursuant to
the By-Laws, as amended, the size of the Board is seven directors, of which the
three directors denominated as Class III Directors are to be elected at the 1999
Annual Meeting. The terms of the Class I and Class II Directors will expire at
the Annual Meetings of Stockholders to be held in 2000 and 2001, respectively.
The nominees for election to the Board of Directors as Class III Directors
are:
Jack B. Dunn, IV
Stewart J. Kahn
Scott S. Binder
Each director will be elected to serve for a three-year term, or thereafter
until his replacement is chosen and qualifies. Of the nominees for Class III
directors, Mr. Dunn is presently a member of the Board of Directors and has
consented to serve as a director if elected. Messrs. Kahn and Binder are not
currently board members. Mr. Binder has been nominated for election to fill a
vacancy resulting from the 1998 resignation of Daniel Luczak as a Class III
Director. Joseph Reynolds has decided not to stand for reelection at the 1999
Meeting and Stewart J. Kahn has been nominated for that directorship. Messrs.
Kahn and Binder have also consented to serve as directors if elected. As part of
a $13,000,000 investment by Allied Capital Corporation and Allied Investment
Corporation in the Company, FTI Consulting agreed to use its best efforts to
cause Mr. Binder's election to the Board. More detailed information about each
of the nominees is available in the section of this booklet titled "The Board of
Directors," which begins on page 10.
If either of the nominees cannot serve for any reason (which is not
anticipated), the Board of Directors may designate a substitute nominee or
nominees. If that happens, we will vote all valid proxies for the election of
the substitute nominee or nominees. The Board of Directors may also decide to
leave the Board seat or seats open until a suitable candidate or candidates are
located, or it may decide to reduce the size of the Board.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
NOMINEES FOR ELECTION AS CLASS III DIRECTORS.
2. APPROVAL OF AMENDMENT TO THE 1997 STOCK OPTION PLAN, AS AMENDED
FTI Consulting is asking you to approve the amendment to the 1997 Stock
Option Plan, as amended (the "1997 Plan"), to increase the number of shares of
common stock that FTI Consulting can issue upon exercise of options granted
under the plan from 2,000,000 to 3,000,000. The amendment became effective as of
April 21, 1999 contingent upon stockholder approval.
What follows is a summary of the 1997 Plan as it will be if the
stockholders approve the amendment. We intend for this to be a fair and complete
summary of the Amended Plan, but we are also attaching the full text of the
amended 1997 Plan as Exhibit A, which governs.
SUMMARY OF THE PLAN
Purpose and Scope. FTI Consulting has used and intends to use the 1997 Plan
to recruit, reward, and retain employee and non-employee directors and certain
other service providers. Under the 1997 Plan the Board's Compensation Committee
(or, if it chooses, the Board) may grant options for up to 3,000,000
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shares. (As with the other numbers in this section of the proxy, the limit will
change to reflect any changes in the number of FTI Consulting's shares of common
stock if FTI Consulting issues stock dividends, splits its stock, or makes other
specified changes.)
Plan Administration. The 1997 Plan authorizes the Compensation Committee to
administer the plan, unless the Board chooses to do so. (The term
"Administrator" will cover whichever body is administering the plan.) The
Administrator's authority includes granting options, determining which options
are incentive stock options ("ISOs") and which are nonqualified stock options
("NQSOs"), determining the exercise price of the options granted, and exercising
broad discretion to set or amend other terms (other than for Formula Options, as
defined below). FTI Consulting may use funds received under the Plan for any
general corporate purpose.
Participants. The Administrator may grant options to all employees and
directors of (and certain other service providers to) FTI Consulting and its
subsidiaries, a total of approximately 430 persons as of April 15, 1999. (We
will refer to persons who receive options as "optionees.") The Administrator may
also grant options to replace options when FTI Consulting acquires another
company and, where appropriate, to mirror the terms of those replaced options.
Shares Available Under the 1997 Plan. The Administrator can currently grant
options for up to 2,000,000 shares of common stock, less the number currently
covered by options under this plan. The proposed amendment to the 1997 Plan
would increase the number of authorized shares to 3,000,000. The shares of
common stock will come from authorized but unissued shares or from shares of
common stock FTI Consulting owns, including shares of common stock purchased on
the market. If any option granted under the 1997 Plan expires or terminates
before the optionee has fully exercised it, the shares subject to that option
will be available for future grants under the 1997 Plan. Because the 1997 Plan
provides for discretionary grants of options, FTI Consulting cannot predict the
specific amounts particular persons will receive.
As of April 15, 1999, there were 4,829,132 shares of common stock
outstanding and 1,868,389 shares of common stock reserved for issuance upon
exercise of outstanding options (of which 809,379 shares were granted under FTI
Consulting's 1992 Stock Option Plan, which plan has been superseded by the 1997
Plan), for a total of 6,697,521 shares of common stock outstanding or reserved
for issuance. If the stockholders approve the amendment to the 1997 Plan and
options for all of the shares were granted under the 1997 Plan at this time, the
1,940,990 shares remaining under the 1997 Plan would constitute 22.47% of the
shares of common stock that would be issued or reserved for issuance.
Options. The Administrator can grant options (the right to purchase shares
at a fixed price for up to a fixed length of time). Those options can be either
NQSOs or ISOs. The primary difference between the two forms are that stricter
tax rules and limits apply to ISOs.
Individual Grant Limits. Under the 1997 Plan, the Administrator may not
grant options for more than 500,000 shares to any individual in any plan year.
Counting against this number would be any options granted in a year that expire
or that the Administrator replaces within the same year. This limit assists
compliance with the tax rule described below that may limit executive
compensation deductions.
ISO Limits. Three special limits apply to ISOs under the 1997 Plan. The
first is that ISO treatment is limited based on when the options first become
exercisable; only the first $100,000 of shares of common stock (valued as of the
date of grant) that becomes exercisable under an individual's ISOs in a given
year will receive ISO tax treatment. The second limitation is that the option
price must at least equal to 100% of the fair market value of the shares on the
date of grant of the option. The third limitation is that the option price for
stockholders holding 10% or more of the outstanding shares of the common shares
must at least equal 110% of the fair market value of FTI Consulting common
stock.
Option Price. The exercise price for all options (the price someone must
pay for a share of common stock) is based on the market price when granted. (As
of April 22, 1999, the fair market value as defined in the 1997 Plan and
reported by the American Stock Exchange was $4.0625 per share, based on that
day's closing price.) The Administrator must grant NQSOs with an exercise price
at least equal to 50% of the fair market value on the date of grant. FTI
Consulting does not receive separate consideration for the granting of awards,
other than the services the participants provide.
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Option Exercise and Transfer Restrictions. An optionee employee can
normally only exercise an option while employed by FTI Consulting, unless his or
her employment or option agreement provides otherwise. If an optionee becomes
disabled or dies, he or his estate will have up to 12 months to exercise the
options. An optionee cannot transfer his options other than to someone after
death.
Director Formula Options. The 1997 Plan provides for an automatic grant of
an NQSO for 16,000 shares when a non-employee director (an "Eligible Director")
first joins the Board. These initial formula options become exercisable
one-third a year after the date of grant, another third two years after the
grant, and the final third three years after the grant. The 1997 Plan also
provides for an automatic grant of an NQSO for 12,500 for any Eligible Director
who remains in service beyond an Annual Meeting. These later options become
exercisable one-half on the date six months after grant and the remaining one
half on the first anniversary of the date of grant. Options will also become
exercisable at the first to occur of the director's death, disability or
attainment of age 70. The exercise price for options granted to Eligible
Directors will be the fair market value of the common stock on the date the
option is granted. These options expire if not already exercisable when an
Eligible Director leaves the Board. Exercisable options remain in place for
their original term
Option Expiration. Options will terminate no later than 10 years after
their date of grant. However, options intended to be ISOs under the 1997 Plan
will expire no later than five years after the date of grant if the optionee
owns (or is treated as owning) more than 10% of the outstanding shares of common
stock. The Administrator may not grant options under the 1997 Plan after March
25, 2007.
Termination of Service. The Administrator has discretion to fix the period
in which options granted to employees may be exercised after termination of
employment. Exercisable options granted to Eligible Directors remain exercisable
for the remaining term of the option unless the Board specifies otherwise.
Substantial Corporate Changes. If FTI Consulting has a "substantial
corporate change" (examples of which include total liquidation, sale of all of
the shares of FTI Consulting, a merger in which it does not survive, or sale of
substantially all of its assets), all options will automatically vest, subject
to compliance with the "pooling of interest" accounting rules in applicable
situations. In some circumstances, either an acquirer must assume or replace the
options or the optionees will have some period of time before the transaction
occurs to exercise options or take other actions with the options after which
time the 1997 Plan will terminate
Term of Options. Each option granted under the 1997 Plan will terminate no
later than ten years after the date the option is granted. However, options
intended to be ISOs granted to employees under the 1997 Plan will expire no
later than five years after the date of the grant if the option is granted to an
employee who owns (or is deemed to own) more than 10% of the outstanding common
stock.
Stockholder Approval. In general, stockholder approval will only be
required after the initial approval for changes to the ISOs (or when the rules
of the stock exchanges require submission) and only to the extent necessary to
preserve their tax treatment. The Board may, as it is this time, submit the plan
on other occasions.
Amendments and Termination. The Board may at any time suspend, terminate,
modify or amend the plan. No suspension, termination, modification or amendment
of the plan may adversely affect any option previously granted, unless the
optionee consents.
TAX CONSEQUENCES
NONQUALIFIED SHARE OPTIONS An optionee will not be taxed when he receives
an NQSO. When he exercises an NQSO, he will generally owe taxes on ordinary
income on the difference between the value of the shares of common stock he
receives and the price he pays, with the "spread" treated like additional salary
for an employee. He may then owe taxes again if and when he sells the shares.
That tax would be on the difference between the price he received for the share
and his "basis," which is the sum of the price he originally paid plus the value
of the shares on which he originally paid income taxes. Depending
5
upon how long he held the shares before selling, he may be eligible for
favorable tax rates for certain kinds of capital gains. In addition, FTI
Consulting will receive an income tax deduction for any amounts of "ordinary
income" to him.
INCENTIVE STOCK OPTIONS. An optionee will not be taxed when he receives an
ISO and will not be taxed when he exercises the ISO, unless he is subject to the
alternative minimum tax ("AMT"). If he holds the shares of common stock
purchased upon exercise of the ISO (the "ISO Shares") for more than one year
after the date he exercised the option and for more than two years after the
option grant date, he generally will realize long-term capital gain or loss
(rather than ordinary income or loss) when he sells or otherwise disposes of the
ISO Shares. This gain or loss will equal the difference between the amount
realized upon such disposition and the amount paid for the ISO Shares.
If the optionee sells the ISO Shares in a "disqualifying disposition" (that
is, within one year from the date he exercises the ISO or within two years from
the date of the ISO grant), he generally will recognize ordinary compensation
income equal to the lesser of (i) the fair market value of the shares on the
date of exercise minus the price he paid or (ii) the amount he realized on the
sale. For a gift or another disqualifying disposition where a loss, if
sustained, would not usually be recognized, he will recognize ordinary income
equal to the fair market value of the shares on the date of exercise minus the
price he paid. Any amount realized on a disqualifying disposition that exceeds
the amount treated as ordinary compensation income (or any loss realized) will
be a long-term or a short-term capital gain (or loss), depending, under current
law, on whether he held the shares for at least 12 months. FTI Consulting can
generally take a tax deduction on a disqualifying disposition corresponding to
the ordinary compensation income he recognizes but cannot deduct the amount of
the capital gains.
Alternative Minimum Tax. The difference between the exercise price and the
fair market value of the ISO Shares on the date of exercise is an adjustment to
income for purposes of the AMT. The AMT (imposed to the extent it exceeds the
taxpayer's regular tax) is a certain percentage of an individual taxpayer's
alternative minimum taxable income that is lower than the regular tax rates but
covers more income. Taxpayers determine their alternative minimum taxable income
by adjusting regular taxable income for certain items, increasing that income by
certain tax preference items, and reducing this amount by the applicable
exemption amount. If a disqualifying disposition of the ISO Shares occurs in the
same calendar year as exercise of the ISO, there is no AMT adjustment with
respect to those ISO Shares. Also, upon a sale of ISO Shares that is not a
disqualifying disposition, alternative minimum taxable income is reduced when
the taxpayer sells by the excess of the fair market value of the ISO Shares at
exercise over the amount paid for the ISO Shares.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. Code Section 162(m) denies a
deduction to any publicly held corporation for compensation it pays to certain
employees in a taxable year to the extent that compensation exceeds $1,000,000
for a covered employee. It is possible that compensation attributable to awards
under the 1997 Plan, when combined with all other types of compensation a
covered employee receives for the year from FTI Consulting, may cause this
limitation to be exceeded in any particular year.
The tax rules disregard certain kinds of compensation, including qualified
"performance-based compensation," for purposes of the deduction limitation.
Compensation attributable to options will qualify as performance-based
compensation, provided that: (i) the plan contains a per-employee limitation on
the number of shares for which options may be granted during a specified period;
(ii) the stockholders approve that per-employee limitation; (iii) the option is
granted by a compensation committee with voting members comprised solely of
"outside directors"; and (iv) either the exercise price of the option is at
least equal to the fair market value of the shares on the date of grant, or the
option is granted (or exercisable) only upon the achievement (as certified by
the compensation committee) of an objective performance goal established by the
compensation committee while the outcome is substantially uncertain. FTI
Consulting expects the options to qualify as performance-based compensation.
The above TAX CONSEQUENCES section summarizes the general principles of
current federal income tax law applicable to the purchase of shares of common
stock under the 1997 Plan. While we believe that the description accurately
summarizes existing provisions of the Internal Revenue Code of 1986, as
6
amended, and its legislative history and regulations, and the applicable
administrative and judicial interpretations, these statements are only
summaries, and the rules in question are quite detailed and complicated.
Moreover, legislative, administrative, regulatory or judicial changes or
interpretations may occur that would modify such statements. Individual
financial situations may vary, and state and local tax consequences may be
significant. Therefore, no one should act based on this description without
consulting his own tax advisors concerning the tax consequences of purchasing
shares under the Plan and the disposing of those shares. In addition, different
rules may apply if the optionee is subject to foreign tax laws or pays the
exercise price using shares he already owns.
NEW PLAN BENEFITS
Other than the formula grants to Eligible Directors, the Administrator
makes grants under the 1997 Plan at its discretion. Consequently, we cannot
fully determine the amount or dollar value at this time, other than to note that
the Administrator has not granted options contingent on approval of the increase
in shares under the 1997 Plan. The following formula benefits will be awarded
under the 1997 Plan, as amended:
NUMBER
NAME AND POSITION OF SHARES
- ------------------------------------------------------------------- ----------
Jack B. Dunn, IV
Chief Executive Officer .......................................... *
Stewart J. Kahn
President ........................................................ *
Joseph R. Reynolds, Jr.
Vice Chairman of the Board and
Chairman of Applied
Sciences Consulting .............................................. *
Patrick A. Brady
Executive Vice President and
Chief Operating Officer .......................................... *
Theodore I. Pincus
Executive Vice President and
Chief Financial Officer .......................................... *
Executive Officer Group ........................................... *
Non-Executive Director Group ...................................... 66,000
Non-Executive Officer Employee Group .............................. *
- ----------
* The Administrator expects to grant options to executive officers,
non-executive officers and employees but those option grants have not been
determined at this time.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
3. RATIFICATION OF ERNST & YOUNG, LLP AS INDEPENDENT ACCOUNTANTS
The Audit Committee and the Board of Directors is seeking ratification of
the appointment of Ernst & Young, LLP as FTI Consulting's independent
accountants for the fiscal year ending December 31, 1999. Representatives from
Ernst & Young, LLP will be available at the Annual Meeting to answer your
questions and make a statement if they desire.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL.
7
STOCK OWNERSHIP
There were 4,829,132 shares of common stock of FTI Consulting, Inc. issued
and outstanding on April 22, 1999. The following table shows how many shares of
common stock (and securities that are currently, or will be within 60 days,
convertible or exercisable for shares of common stock) on a fully converted
basis were owned on April 15, 1999 by (1) each person who owned more than 5% of
the issued and outstanding shares of common stock, (2) the directors and
director nominees of FTI Consulting, (3) the Chief Executive Officer of FTI
Consulting, (4) the other persons named in the "Executive Officers and
Compensation--Summary Compensation Table" table on page 14, and (5) all
executive officers and directors of FTI Consulting as a group. The owners have
sole voting and investment power unless otherwise indicated. The address of the
directors and named officers is c/o FTI Consulting, Inc., 2021 Research Drive,
Annapolis, Maryland 21401.
NUMBER PERCENT
OF OF
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES SHARES
- ----------------------------------------------------- ------------ --------
Grotech III Pennsylvania Fund, LP (1)(2) ............ 27,840 0.6%
9690 Deereco Road, Timonium, MD 21093
Grotech III Companion Fund, LP (2) (3) .............. 46,439 1.0%
9690 Deereco Road, Timonium, MD 21093
Grotech Partners III, LP (2) (4) .................... 389,721 8.1%
9690 Deereco Road, Timonium, MD 21093
Grotech Capital Group (4) ........................... 35,600 0.7%
9690 Deereco Road, Timonium, MD 21093
Joseph R. Reynolds, Jr. ............................. 441,416 9.1%
Jack B. Dunn, IV (5) ................................ 280,823 5.6%
Dennis J. Shaughnessy (4)(6) ........................ 60,600 1.2%
State of Wisconsin Investment Board (7) ............. 313,000 6.5%
P.O. Box 7842, Madison, WI 53707
Investment Counselors of Maryland, Inc. (8) ......... 381,000 7.9%
803 Cathedral Street, Baltimore, MD 21201
Stewart J. Kahn (9) ................................. 378,000 7.3%
George P. Stamas (10) ............................... 41,438 0.9%
Patrick A. Brady (11) ............................... 134,102 2.7%
Peter F. O'Malley (12) .............................. 59,063 1.2%
James A. Flick Jr. (13) ............................. 49,331 1.0%
Theodore I. Pincus .................................. 1,000 *
All directors and executive officers as a group
(9 persons) ........................................ 1,445,773 25.4%
- ----------
* Less than 1%.
(1) Includes 27,240 shares of common stock and a warrant currently exercisable
for 600 shares of common stock.
(2) Includes 45,438 shares of common stock and a warrant currently exercisable
for 1,001 shares of common stock.
(3) Includes 381,322 shares of common stock and a warrant currently exercisable
for 8,399 shares of common stock.
(4) Grotech Capital Group, Inc. is the general partner of Grotech III
Pennsylvania Fund, LP, Grotech III Companion Fund, LP and Grotech Partners
III, LP. Dennis J. Shaughnessy, a director of FTI Consulting, is a Managing
Director of Grotech Capital Group, Inc. Grotech Capital Group, Inc. has the
right to exercise sole voting and dispositive power over the shares of
common stock held by each Fund. Mr. Shaughnessy disclaims beneficial
ownership of the shares of common stock and warrant shares held by Grotech
III Pennsylvania Fund, LP, Grotech III Companion Fund, LP and Grotech
Partners III, LP.
(5) Includes 218,093 shares of common stock issuable upon the exercise of
options, which are currently exercisable or will become exercisable within
60 days, granted under the 1992 Stock Option Plan and 1997 Plan. Includes
12,730 shares of common stock over which Mr. Dunn and his wife, Elizabeth
Dunn, share voting and investment power.
(6) Includes 26,000 shares of common stock and 35,600 shares of common stock
issuable upon the exercise of options granted to Mr. Shaughnessy as a
non-employee director of FTI Consulting, which are currently exercisable or
will be exercisable within 60 days, under the 1992 Stock Option Plan and
the 1997 Plan. Pursuant to an arrangement between Mr. Shaughnessy and
Grotech Capital Group, Inc., Grotech Capital Group, Inc. has the sole right
to exercise the options and exercise voting and investment power over the
shares of common stock issuable on exercise of the options. Mr. Shaughnessy
disclaims beneficial ownership of the options and such shares.
8
(7) Based on Schedule 13G filed with the Securities and Exchange Commission on
February 4, 1999.
(8) Based on Schedule 13 G filed with the Securities and Exchange Commission on
February 19, 1999.
(9) Includes 300,000 shares of common stock issuable on conversion of a
currently convertible note, 60,000 shares of common stock issuable on
exercise of a currently exercisable warrant and 18,000 shares of common
stock.
(10) Includes 35,600 shares of common stock issuable upon the exercise of
options, which are currently exercisable or will become exercisable within
60 days, granted under the 1992 Stock Option Plan and 1997 Plan. Includes
5,838 shares of common stock over which Mr. Stamas and his wife, Georgia
Stamas, share voting and investment power.
(11) Includes 2,500 shares of common stock and 131,602 shares of common stock
issuable upon the exercise of stock options, which are currently
exercisable or will become exercisable within 60 days, granted under the
1992 Stock Option Plan and 1997 Plan.
(12) Includes 23,463 shares of common stock and 35,600 shares of common stock
issuable upon the exercise of stock options, which are currently
exercisable or will become exercisable within 60 days, granted under the
1992 Stock Option Plan and 1997 Plan.
(13) Includes 13,731 shares of common stock and 35,600 shares of common stock
issuable upon the exercise of stock options, which are currently
exercisable or will become exercisable within 60 days, granted under the
1992 Stock Option Plan and 1997 Plan.
9
THE BOARD OF DIRECTORS
MEMBERSHIP
We have set forth below certain information regarding the members of FTI
Consulting's Board of Directors. At the Annual Meeting, Jack B. Dunn, IV has
been nominated for re-election as a Class III Director. Scott S. Binder has been
nominated for election to fill the vacancy resulting from the 1998 resignation
of Daniel Luczak as a Class III Director. Joseph Reynolds has decided not to
stand for reelection at the 1999 Annual Meeting and Stewart J. Kahn has been
nominated for that directorship.
CLASS III DIRECTOR NOMINEE
DIRECTOR PRINCIPAL OCCUPATION AND OTHER
NOMINEE AGE SINCE BUSINESS EXPERIENCE DIRECTORSHIPS
- -------------------------- ----- ---------- ------------------------------------------- --------------
Jack B. Dunn, IV ......... 48 1992 Mr. Dunn became Chairman of the Board of None
Directors on December 29, 1998. Since
October 1995, Mr. Dunn has served as Chief
Executive Officer of FTI Consulting. From
October 1995 to December 1998, he served as
President of FTI Consulting. From May 1994
to October 1995, he served as Chief
Operating Officer of FTI Consulting. From
October 1992 through September 1995, he
served as FTI Consulting's Chief Financial
Officer. Mr. Dunn is a limited partner of
the Baltimore Orioles. Prior to joining FTI
Consulting, he was a Managing Director of
Legg Mason Wood Walker, Incorporated; and
directed its Baltimore corporate finance
and investment banking activities.
Stewart J. Kahn .......... 55 Mr. Kahn has served as President of FTI None
Consulting since December 29, 1998. Mr.
Kahn is also the Chief Executive Officer
and a director of Kahn Consulting, Inc., an
accounting and financial services
consulting firm, and KCI Management, Inc.,
a servicing firm to Kahn Consulting, Inc.,
which became wholly owned subsidiaries of
FTI Consulting in September 1998. Prior to
September 1998, Mr. Kahn was a director and
President of Kahn Consulting and KCI
Management, Inc. since 1989.
Scott S. Binder .......... 44 Since 1997, Mr. Binder has been a Principal None
with Allied Capital Corporation, a
Washington D.C. based firm which invests in
small to medium size business entities.
From 1985 until June 1997, Mr. Binder was
President of Overland Capital Corporation,
an owner operator of cable television
systems and radio stations. From April 1991
until September 1998, Mr. Binder was a
director of CIH, Ltd. a Washington, D.C.
public affairs consulting firm. Mr. Binder
is a certified public accountant.
10
DIRECTOR PRINCIPAL OCCUPATION AND OTHER
CLASS I DIRECTORS AGE SINCE BUSINESS EXPERIENCE DIRECTORSHIPS
- --------------------------- ----- --------- ------------------------------------------ ----------------------------------
James A. Flick ............ 64 1992 Mr. Flick is the President, Chief Mr. Flick is a director of the
Executive Officer and a director of the Ryland Group, Inc., Capital One
Dome Corporation, a real estate Financial Corporation, Bethlehem
development and management services Steel Credit Affiliates and Youth
company. He is also the President of Services International, Inc.
Winnow, Inc. From 1991 through 1994, Mr.
Flick was an Executive Vice President of
Legg Mason Wood Walker, Incorporated.
Peter F. O'Malley ......... 60 1992 Mr. O'Malley currently serves as the Mr. O'Malley is a director of
President of Aberdeen Creek Corporation, Potomac Electric Power Company,
a privately-held company engaged in Giant Foods, Inc. and Legg Mason,
investment, business consulting and Inc.
development activities. Mr. O'Malley is
the founder, and since 1989 has been Of
Counsel to, the law firm of O'Malley,
Miles, Nylen & Gilmore.
DIRECTOR PRINCIPAL OCCUPATION AND OTHER
CLASS II DIRECTORS AGE SINCE BUSINESS EXPERIENCE DIRECTORSHIPS
- --------------------------- ----- --------- ------------------------------------------ ----------------------------------
Dennis J. Shaughnessy ..... 51 1992 Mr. Shaughnessy is a Managing Director of Mr. Shaughnessy is a director of
Grotech Capital Group, Inc., a venture TESSCO Technologies, Inc., U.S.
capital firm headquartered in Timonium, Vision, Inc. and Polk Audio, Inc.
Maryland. Prior to becoming a Managing
Director of Grotech Capital Group in
1989, Mr. Shaughnessy was the Chief
Executive Officer of CRI International,
Inc.
George P. Stamas .......... 48 1992 Since April 1996, Mr. Stamas has been a None
Partner with the law firm of Wilmer,
Cutler & Pickering. Prior to joining
Wilmer, Cutler & Pickering in April 1996,
Mr. Stamas was a partner in the law firm
of Piper & Marbury. Mr. Stamas is counsel
to, and a limited partner of, the
Baltimore Orioles. Wilmer, Cutler &
Pickering is one of several law firms
that provide services to FTI Consulting,
Inc.
BOARD ORGANIZATION AND MEETINGS
Pursuant to the By-Laws, as amended, currently the size of the Board is
seven members. During a portion of 1998 there was one vacancy on the Board of
Directors resulting from the resignation of a Class III Director. During the
fiscal year ended December 31, 1998, FTI Consulting's Board of Directors met
seven times, held no telephone meetings and took action by unanimous written
consent one time. Except as noted, each of the current nominees who was a
director and every other director attended at least 75% of the total Board
meetings and meetings of committees of the Board of Directors that the member
was eligible to attend.
The Board of Directors has the following committees:
Audit Committee. The Audit Committee makes recommendations to the Board of
Directors concerning the engagement of independent accountants; reviews with the
independent accountants the plans and results of the audit engagement; approves
professional services provided by the independent accounts; reviews the
independence of the accountants; considers the range of audit and non-audit fees
11
and reviews the adequacy of internal accounting controls. The Audit Committee
met three times, held no telephone meetings and did not act by unanimous written
consent in 1998. The members of the Audit Committee are: James A. Flick, Jr.,
Peter F. O'Malley and Dennis J. Shaughnessy.
Compensation Committee. The Compensation Committee makes recommendations to
the Board of Directors with respect to the compensation of executive officers of
FTI Consulting and administers its stock option plans, incentive plans and
employee benefit plans. The Compensation Committee met one time, held one
telephone meeting and acted seven times by unanimous written consent in 1998.
The members of the Compensation Committee are: James A. Flick, Jr., Peter F.
O'Malley and Dennis J. Shaughnessy.
COMPENSATION OF DIRECTORS
FTI Consulting reimburses its directors for their out-of-pocket expenses
incurred in the performance of their duties as directors of FTI Consulting. FTI
Consulting does not pay fees to its directors for attendance at meetings.
Non-employee directors are eligible to receive grants of options to acquire
shares of common stock under the 1997 Plan. Under the 1997 Plan, each Eligible
Director elected after May 1998 will receive options for 16,000 shares of common
stock at the fair market value on the date of grant. The initial option grants
will become exercisable one third after six months, two-thirds after one year
and in full after two years from the date of grant and will have a term of ten
years. Each Eligible Director director who is elected or continues as a
non-employee director after an Annual Meeting will automatically be granted an
option to purchase 12,500 shares of common stock at the fair market value on the
date of grant. These options will become exercisable one half after six months
and in full after one year from the date of grant and will have a term of ten
years. Mr. Binder, who is standing for election, would be an Eligible Director
of FTI Consulting and, if elected, will receive options for 16,000 shares of
common stock. The other Eligible Directors are Messrs. O'Malley, Flick, Stamas
and Shaughnessy. At April 15, 1999, 427,200 non-qualified stock options have
been granted to non-employee directors, of which 402,200 options are currently
exercisable and 25,000 options will become exercisable within 60 days.
12
EXECUTIVE OFFICERS AND COMPENSATION
The following table and biographical descriptions set forth the name, age
and principal occupations during the past five years for each executive officer
who is not also a director of FTI Consulting. The information is as of April 15,
1999, unless otherwise indicated.
OFFICER PRINCIPAL BUSINESS
NOMINEE AGE SINCE EXPERIENCE FOR PAST FIVE YEARS
- --------------------------------- ----- --------- -----------------------------------------------------------------------
Patrick A. Brady ................ 45 1984 Mr. Brady has been the Executive Vice President and Chief Operating
Officer of FTI Consulting since 1996. From 1994 to 1996, Mr. Brady was
Executive Vice President and General Manager of Visual Communications
and Trial Consulting Services for FTI Consulting. Prior to that time,
Mr. Brady spent ten years with FTI Consulting specializing in project
management and the development of project management methodologies for
dealing with major failure investigations and complex litigation
matters.
Theodore I. Pincus .............. 56 1999 Mr. Pincus has been the Executive Vice President and Chief Financial
Officer of FTI Consulting since April 1999. Prior to joining FTI
Consulting, Mr. Pincus was Executive Vice President and Chief Financial
Officer of Nitinol Medical Technologies in Boston from May 1995 to
March 1999 and was President of the Pincus Group, a financial
consulting firm, from December 1989 to May 1995. Earlier in his career,
he rose to Partner at Ernst & Young and was Partner-in-Charge of
Management Consulting in the New York Region of KMG Main Hurdman, both
public accounting firms. He is a certified public accountant.
Joseph R. Reynolds, Jr. ......... 57 1982 Mr. Reynolds has served as Vice Chairman of the Board of FTI Consulting
since January 1996 and will continue to serve in that position until
the Annual Meeting. In gratitude and recognition of his years of
service, the Board has decided to make Mr. Reynolds its honorary
(non-voting) Chairman-Emeritus effective following the Annual Meeting.
Mr. Reynolds has been Chairman, Applied Sciences Consulting for FTI
Consulting since January 1996. Mr. Reynolds co-founded FTI Consulting
in 1982 and served as FTI Consulting's President from September 1988
until January 1996. Mr. Reynolds has twenty-five years of forensic
engineering experience. Mr. Reynolds was the founding Chairman of The
Johns Hopkins University Society of Engineering Alumni and is a member
of the National Advisory Council for the School of Engineering and the
Executive Committee for the Johns Hopkins University Alumni
Association.
The executive officers are elected by the Board of Directors and hold
office until their successors are elected and qualify.
13
SUMMARY COMPENSATION TABLE
We have set forth below, for the periods indicated, certain information
concerning the cash and non-cash compensation earned by FTI Consulting's (i)
Chief Executive Officer, and (ii) four most highly compensated persons who were
serving as executive officers of FTI Consulting on December 31, 1998.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------------------ ---------------------
SECURITIES
OTHER ANNUAL UNDERLYING OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY(1) BONUS COMPENSATION(2) SARS(#) COMPENSATION(3)
- --------------------------------- ------------- ----------- ---------- ----------------- --------------------- ----------------
Jack B. Dunn (4) ................ 1998 $312,000 $ 60,000 $ 7,300 40,000 $3,800
Chairman and Chief 1997 $242,700 $110,600 $ 3,880 80,000 $3,800
Executive Officer 1996 $215,000 None $ 2,800 94,000 $3,000
Stewart J. Kahn (5) ............. 1998 $142,900 None $ 850 100,000 None
President
Joseph R. Reynolds, Jr. ......... 1998 $213,362 $ 7,350 $15,900 None $2,900
Vice Chairman of the Board 1997 $184,400 $ 20,000 $13,900 None $3,000
and Chairman, Applied 1996 $197,000 $ 20,000 $10,700 None $3,200
Sciences Consulting
Patrick A. Brady ................ 1998 $241,500 $ 10,000 $ 1,100 None $3,500
Executive Vice President 1997 $205,200 $ 92,900 $ 600 150,000 $3,600
and Chief Operating Officer 1996 $181,000 None $ 700 33,600 $3,000
Gary Sindler .................... 1998 $192,100 None $ 2,400 None $3,300
Executive Vice President, 1997 $162,100 $ 75,200 $ 1,300 100,000 $3,500
Chief Financial Officer and 1996 $ 73,000 None $ 2,700 30,000 $ 600
Secretary (6)
- ----------
(1) Includes amounts earned but deferred at the election of the executive
officer, such as salary deferrals under FTI Consulting's 401(k) Plan
established under Section 401(k) of the Code.
(2) These amounts represent FTI Consulting's payment of matching and
discretionary contributions to FTI Consulting's 401(k) Plan, life insurance
and long-term disability coverage. FTI Consulting's 401(k) contributions
for 1998 for Messrs. Dunn, Kahn, Reynolds, Brady and Sindler were $4,500,
$850, $10,000, $ 0 and $1,000, respectively. The additional life insurance
premiums paid by FTI Consulting for 1998 for Messrs. Dunn, Kahn, Reynolds,
Brady and Sindler were $2,500, $500, $5,700, $900 and $1,100, respectively.
(3) These amounts represent FTI Consulting's payments for automobile expenses
provided to the named officers.
(4) Mr. Dunn ceased to serve as President on December 29, 1998.
(5) Mr. Kahn assumed the position of President of FTI Consulting on December
29, 1998. Mr. Kahn did not earn any compensation in that position during
1998. Mr. Kahn is also employed under a written employment agreement as
Chief Executive Officer of Kahn Consulting, Inc. and KCI Management, Inc.,
wholly owned subsidiaries of FTI Consulting. The amounts reported in this
Table were earned by Mr. Kahn for serving in those positions.
(6) Mr. Sindler resigned all of his offices with FTI Consulting effective
February 15, 1999. Mr. Sindler will remain an employee of FTI Consulting
until December 31, 1999 or such earlier date as he and FTI Consulting shall
agree. Mr. Sindler will retain the rights to his options until such time as
he is no longer an employee.
14
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth the options granted to FTI Consulting's
named officers during the fiscal year ended December 31, 1998:
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------- AT ASSUMED ANNUAL RATES
PERCENT OF OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION FOR OPTION
SECURITIES GRANTED TO TERM
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME OPTIONS GRANTED FISCAL YEAR PRICE(1) DATE 5%(2) 10% (2)
- ------------------------------ ----------------- -------------- ---------- ----------- ----------- ------------
Jack B. Dunn (3) (4) ......... 10,000 1.8% $ 16.08 2-08 $104,520 $274,968
10,000 1.8 19.59 4-08 127,335 334,989
10,000 1.8 9.90 7-08 64,350 169,290
10,000 1.8 4.50 10-08 29,250 76,950
Stewart J. Kahn (3) .......... 100,000 17.9 5.50 9-08 357,500 940,500
Joseph R. Reynolds ........... -- -- -- -- -- --
Patrick A. Brady ............. -- -- -- -- -- --
Gary Sindler (5) ............. -- -- -- -- -- --
- ----------
(1) All options were granted at or above the fair market value of FTI
Consulting's common stock on the date of grant as reported on the Nasdaq
National Market.
(2) The dollar amounts under these columns are the results of calculations at
assumed compounded rates of stock appreciation of five percent (5%) and ten
percent (10%) from the date of the grant to the expiration date of the
options. The potential realizable value is reported net of the option
price, but before income taxes associated with exercise These assumed rates
of growth were selected by the SEC for illustration purposes only. They are
not intended to forecast possible future appreciation, if any, of FTI
Consulting's stock price. No gain to the optionees is possible without an
increase in stock prices, which will benefit all stockholders. A zero
percent (0%) gain in stock price will result in a zero percent (0%) benefit
to optionees.
(3) Options become exercisable one-third on the first anniversary of the date
of grant, two-thirds on the second anniversary of the date of grant and in
full on the third anniversary of the date of grant.
(4) Mr. Dunn receives an option grant for 10,000 shares of common stock on the
day following the announcement of each quarterly earnings release. Such
options are granted with an exercise price 10% higher than the fair market
value of FIT Consulting's common stock on the date of grant and become
fully exercisable upon an increase of 25% in the market value of the common
stock but not earlier than one year after the first anniversary of the date
of grant.
(5) Mr. Sindler resigned all of his offices with FTI Consulting effective
February 15, 1999. Mr. Sindler will remain an employee of FTI Consulting
until December 31, 1999 or such earlier date as he and FTI Consulting shall
agree. Mr. Sindler will retain the rights to his options until such time as
he is no longer an employee.
AGGREGATED OPTION EXERCISES IN FISCAL 1998 AND VALUE OF OPTIONS AT DECEMBER 31,
1998
The following table sets forth the options exercised by the named officers
during the fiscal year ended December 31, 1998:
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(2)(#) AT FISCAL YEAR-END($)(3)
SHARES ACQUIRED VALUE ----------------------------- ----------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------------- --------------- ------------- --------------- ------------- --------------
Jack B. Dunn ............... 40,000 $454,800 218,093 76,666 $45,059 --
Stewart J. Kahn ............ -- -- -- 100,000 -- --
Joseph R. Reynolds ......... -- -- -- -- -- --
Patrick A. Brady ........... 2,000 23,625 131,602 49,998 -- --
Gary Sindler(4) ............ -- -- 86,667 43,333 -- --
- ----------
(1) Based on the Fair Market Value of FTI Consulting's shares of common stock
on the date of exercise (the closing price) minus the exercise price and
multiplied by the number of shares acquired.
15
(2) Includes both "in-the-money" and "out-of-the-money" options. "In-the-money"
options are options with exercise prices below the market price of FTI
Consulting's common stock on December 31, 1998.
(3) Based on the closing price of FTI Consulting's common stock on December 31,
1998 ($3.38) minus the exercise price.
(4) Mr. Sindler resigned all of his offices with FTI Consulting effective
February 15, 1999. Mr. Sindler will remain an employee of FTI Consulting
until December 31, 1999 or such earlier date as he and FTI Consulting shall
agree. Mr. Sindler will retain the rights to his options until such time as
he is no longer an employee.
EMPLOYMENT ARRANGEMENTS
FTI Consulting entered into employment agreements with Messrs. Dunn and
Reynolds, effective January 1, 1996, that contained automatic provisions for
extension of the employment term. As of April 22, 1999, each contract is
scheduled to expire at the close of business on December 31, 2001, but the
contract will be extended for an additional year on December 31 of each year
unless by that date either party gives notice of his intention not to further
extend the term. Without further action, the contracts will expire in any event
at the close of business on December 31, 2005.
Each of Messrs. Dunn' and Reynolds' employment agreements terminate upon
the death or disability of the executive; termination of the executive's
employment for or without cause; or resignation of the executive voluntarily or
for good reason. The agreements provide for annual review. In addition, Mr.
Reynolds is eligible to receive an annual bonus calculated as 1.8% of the
earnings of the Applied Sciences Consulting group 90 days after the end of each
fiscal year.
If FTI Consulting were to terminate Mr. Dunn's or Mr. Reynolds' employment
without cause or the executive resigned for certain specified good reasons, he
would be entitled to severance benefits equal to the amount of his annual salary
for the remainder of the contract term ("Severance Period"), plus a bonus based
upon the average annual percentage of salary he received as a discretionary
bonus over the three years immediately preceding termination. The agreements
provide that during the Severance Period Messrs. Dunn and Reynolds would
continue to be treated as executives for purposes of all of the benefit programs
of FTI Consulting described in the agreements, except that medical, life
insurance, and related benefits would cease if comparable benefits were provided
by successor employers. In addition, Messrs. Dunn and Reynolds would be entitled
to elect to be paid a lump sum or other agreed severance allowance in lieu of
the severance benefits described above in an amount of cash agreed upon by the
executives and FTI Consulting that would equal the then present fair market
value of the amount of the severance benefits otherwise payable.
Kahn Consulting, Inc. entered into a revised employment agreement with Mr.
Kahn effective September 17, 1998, when FTI Consulting acquired Kahn Consulting.
Under this agreement, Mr. Kahn serves as chief executive officer of Kahn
Consulting, Inc. and KCI Management, Inc. Since December 29, 1998, he has also
served as President of FTI Consulting. FTI Consulting is a third-party
beneficiary of the agreement and therefore may take action on its own to enforce
the agreement even though it is not specifically a party to it. The expiration
date under the contract is September 17, 2002, but the contract may be
terminated earlier or extended later than that date.
The Kahn employment agreement terminates upon Mr. Kahn's death or (at the
election of Kahn Consulting, Inc. or FTI Consulting) disability; termination of
Mr. Kahn's employment for or without cause; or resignation by Mr. Kahn
voluntarily or for good reason. The agreement provides for annual review of Mr.
Kahn's salary by the Chief Executive Officer of FTI Consulting. Mr. Kahn is
eligible for an annual bonus equal to 12.5% of the excess over $3,000,000 of
earnings of Kahn Consulting, Inc. (before interest, income taxes, goodwill
amortization, and certain overhead costs) if this earnings amount exceeds 25% of
the total revenues of Kahn Consulting, Inc. and other operations under its
supervision. FTI Consulting or Kahn Consulting, Inc. will pay any bonus within
75 days after the end of the applicable fiscal year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Compensation Philosophy. Our goal is to design and administer an executive
compensation program to (i) attract and retain qualified executive officers,
(ii) reward executive officers for performance in achieving FTI Consulting's
business objectives and enhancing stockholder value, (iii) align the executive
16
officers' interests with those of the stockholders, and (iv) provide incentives
for the creation of long-term stockholder value. The key elements of executive
compensation are base salary, annual incentive and performance bonuses, and
equity options. We review and approve FTI Consulting's policies and practices
regarding executive compensation, including (a) base salary levels, (b)
incentive compensation plans and related performance awards, and (c) long-term
incentives, principally equity option awards.
We believe that compensation must be competitive, as well as directly and
materially linked to FTI Consulting's performance. In administering compensation
program, our objectives include the following: attracting and retaining
executive talent, motivating executives to maximize operating performance,
measuring performance on both an individual and a company-wide basis, reflecting
FTI Consulting's progress in meeting growth and profitability targets, and
linking executive and stockholder interests through the grant of stock options
and other equity-based compensation.
The key components of FTI Consulting's executive compensation program have
historically consisted of salary, annual incentive bonuses and stock options.
The long-term compensation of FTI Consulting's executive officers has consisted
primarily of stock options. The short-term compensation has consisted
principally of base salary and a cash bonus. Our policy with respect to each of
these elements is discussed below.
Base Salary Levels. We believe that base salary levels at FTI Consulting
are reasonably related to the salary levels of executive officers of comparable
companies at similar stages of development. The Board and we set base salaries
and determined other compensation for 1998 based on those factors. Some of the
senior executives have employment agreements that set floors on base salary and
other elements of compensation for their contract terms, but we can increase the
base salary at any point. We expect that any such increases will take into
account such factors as individual past performance, changes in
responsibilities, changes in pay levels of companies we consider comparable, and
inflation.
Bonus Awards. FTI Consulting uses performance bonuses to reflect the level
of involvement and success of its executive officers in advancing corporate
goals. The awards earned depend on the extent to which FTI Consulting and
individual performance objectives are achieved. FTI Consulting's objectives
consist of operating, strategic and financial goals that are considered to be
critical to the our fundamental long-term goal of building stockholder value.
For fiscal year 1998, these objectives were: (i) evaluating, negotiating, and
reaching agreement as to expansion of the business and its prospects, (ii)
implementation of the planned growth of FTI Consulting, (iii) continued advances
toward project goals in consolidation and management, and (iv) progress in
certain financial and administrative activities. The Compensation Committee
awarded $70,000 in bonuses to named officers for fiscal year 1998 in the early
part of the year. We take into account the targets and recommendations made by
the Chief Executive Officer in this process. In reaction to certain difficulties
FTI Consulting faced before year's end, we did not follow past practices and did
not award further bonuses for the year.
Long-Term Incentive Compensation. The Board and stockholders approved the
1997 Plan as the principal means of providing long-term incentives. We believe
that the use of equity incentives better aligns the interest of executive
officers with those of stockholders and promotes long-term stockholder value
than does cash alone. We administer the 1997 Plan, determine the terms of the
options and the number of shares of common stock subject to option grants, and
set significant terms. In setting the grants, we relied on our own experience
and that of our financial and other advisers.
Compensation of the Chief Executive Officer. We use the same procedures
described above in setting the annual salary, bonus, and long-term incentive
compensation of the Chief Executive Officer (the "CEO"). The Board had
established the CEO's salary for this report's period by contract, and we had
granted him incentive stock options and nonqualified stock options. He continued
to receive formula grants of options under a program we had previously
established. In considering the CEO's compensation, we considered FTI
Consulting's achievements of some of its performance goals and further
considered key subjective factors such as the CEO's work in negotiating and
supervising acquisitions, rebuilding a management team, recruiting and retaining
highly qualified individuals. In awarding any future long-term incentive
compensation, we will consider the CEO's performance, overall contribution to
the Company, retention of employees, the number of options not yet exercisable
and the total number of options to be granted.
17
Compensation Deduction Limit. The Securities and Exchange Commission (the
"SEC") requires that this report comment on FTI Consulting's policy with respect
to a special rule under the tax laws, Section 162(m) of the Internal Revenue
Code. That section can limit the deductibility on a Subchapter C corporation's
federal income tax return of compensation of $1.0 million to any of the named
officers.
A company can deduct compensation (including from exercising options)
outside that limit if it pays the compensation under a plan that its
stockholders approve and that is performance-related and non-discretionary.
Option exercises are typically deductible under such a plan if granted with
exercise prices at or above the market price when granted. Our policy with
respect to this section is to make every reasonable effort to ensure that
compensation complies with Section 162(m), while simultaneously providing FTI
Consulting's executives with the proper incentives to remain with and increase
the prospects of FTI Consulting. FTI Consulting did not pay any compensation
with respect to 1998 that would be outside the limits of Section 162(m).
Compensation Committee
James A. Flick, Jr.
Peter F. O'Malley
Dennis J. Shaughnessy
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended December 31, 1998, FTI Consulting, Inc. or its
subsidiaries entered into the following transactions involving an executive
officer, director, nominee for election as a director, or 5% or greater
stockholder.
OFFICERS
Stewart J. Kahn is the President of FTI Consulting and the Chief Executive
Officer of Kahn Consulting, Inc. ("KCI") and KCI Management, Inc. ("KCIM"),
subsidiaries of FTI Consulting. FTI Consulting acquired KCI and KCIM on
September 17, 1998. Mr. Kahn was a stockholder of KCI and KCIM. FTI Consulting
acquired KCI and KCIM pursuant to a stock purchase agreement for aggregated
consideration of $20,000,000, of which $10,000,000 was paid in cash and
$10,000,000 was in the form of promissory notes. Of that amount, Mr. Kahn
received $5,000,000 in cash and $5,000,000 in promissory notes payable as
follows: (1) $2,500,000 on September 15, 1999 and (2) $2,500,000 on June 30,
2000. The notes provide for simple interest to accrue at the rate of 7.5% per
annum.
As of March 31, 1999, FTI Consulting and the holders of promissory notes
issued in connection with the acquisitions of Kahn and KCIM, including Mr. Kahn,
agreed to restructure the notes. Mr. Kahn's note was restructured to provide for
payment in the following manner: (1) $500,000 was paid as of March 31, 1999 and
(2) $4,500,000 will mature on June 30, 2002 at which time the principal balance
and all accrued interest will be payable in full. Of the $4,500,000, $1,500,000
accrues interest at the rate of 6% and $3,000,000 accrues interest at the rate
of 9.25%. The note for $1,500,000 is convertible at the option of the holder at
any time for 300,000 shares of common stock based on a conversion price of $5.00
per share. In connection with the restructuring of the notes, FTI Consulting
issued to Mr. Kahn a warrant exercisable for 60,000 shares of common stock at an
exercise price of $3.21 per share. The warrant expires March 31, 2004, five
years from the date of issuance.
DIRECTORS
During 1998, Wilmer, Cutler & Pickering, of which George P. Stamas, a
director of FTI Consulting, is a Partner, provided legal services to FTI
Consulting. During 1998, FTI Consulting incurred legal fees in the aggregate
amount of $336,771 for legal services from Wilmer, Cutler & Pickering.
DIRECTOR NOMINEES
Scott S. Binder is a Principal of Allied Capital Corporation. In March
1999, FTI Consulting issued $13,000,000 of subordinated debentures bearing
interest at 9.25% per annum through June 2000, and 12% per annum thereafter,
until maturity in March 2004, of which $5,700,000 were purchased by Allied
Capital
18
Corporation and $7,300,000 were purchased by Allied Investment Corporation. The
subordinated debentures are secured by a second priority interest in all of the
assets of FTI Consulting, and prohibits the payment of dividends without the
consent of the lender. In connection with the issuance of the subordinated
debentures, the lender was issued warrants to purchase an aggregate of
392,505,73 shares of common stock at an exercise price of $3.205 per share, of
which a warrant exercisable for 172,098.67 shares of common stock was issued to
Allied Capital Corporation and a warrant exercisable for 220,407.06 shares of
common stock was issued to Allied Investment Corporation. If the debentures are
paid in full before the close of business on June 30, 2000, the number of shares
of common stock that are issuable on exercise of the warrant issued to Allied
Capital Corporation will be reduced to 111,713.17 and the number of shares of
common stock that are issuable on exercise of the warrant issued to Allied
Investment Corporation will be reduced to 143,071.25. The right to exercise the
warrants will expire six years after the date the debentures are paid in full.
OTHER INFORMATION
COMPANY PERFORMANCE
The following graph compares the cumulative total stockholder return on the
common stock of the FTI Consulting from May 8, 1996 (the date the shares of
common stock were first offered and sold to the public at the initial public
offering price of $8.50 per share) through December 31, 1998 with the cumulative
total return of forty percent (40%) and the cumulative total return of The
Nasdaq Stock Market ("Nasdaq") (U.S.) Index and a peer group index comprised of
Charles River Associates, Inc., Engineering Animation Inc., Esquire
Communications Ltd., Exponent Inc., FYI Inc., Hagler Bailly Inc., Kroll O Gara
Co., Lai Worldwide Inc., Metzler Group Inc. and Profit Recovery Group
International Inc. (collectively, the "Peer Group") Index. FTI Consulting's
common stock price and the price of the Nasdaq (U.S.) Index are published daily.
The Peer Group Index was compiled by FTI Consulting as of March 31, 1999.
The graph assumes an investment of $100 in each of FTI Consulting, the
Nasdaq (U.S.) Index and the Peer Group on May 8, 1996. The comparison assumes
that all dividends, if any, are reinvested into additional shares of common
stock during the holding period.
Research Data Group Total Return Worksheet
Begin: 5/8/96
FYE: 12/31/97
FTI Consulting, Inc. (FCN) End: 12/31/98
Beginning
Transaction Closing No. of Dividend Dividend Shares Ending Cum. Tot.
Date* Type Price** Shares*** per Share Paid Reinvested Shares Return
5/8/96 Begin 8.500 11.76 11.765 100.00
12/31/96 Year End 9.750 11.76 11.765 114.71
12/31/97 Year End 12.500 11.76 11.765 147.06
12/31/98 End 3.375 11.76 11.765 39.71
* Specified ending dates or ex-dividend dates.
** All Closing Prices and Dividends are adjusted for stock splits and stock
dividends.
***'Begin Shares' based on $100 investment.
Fcn
4/22/99
19
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based on our records and other information, we believe that our directors
and officers who are required to file reports under Section 16 reported all
transactions in FTI Consulting's shares of common stock and derivative
securities, including options for shares and warrants for shares, on a timely
basis during the fiscal year ended December 31, 1998, except that (1) Patrick A.
Brady filed the Form 4 to report the April 28, 1998 acquisition of 2,000 shares
of common stock on exercise of stock options on May 12, 1998 rather than May 11,
1998, and (2) Dennis J. Shaughnessy and George P. Stamas filed the Forms 5 for
the fiscal year ended December 31, 1998 on February 17, 1998 instead of February
16, 1998.
PROPOSALS FOR THE 1999 ANNUAL MEETING
If you want to include a proposal in the proxy statement for FTI
Consulting's 2000 Annual Meeting, send the proposal to FTI Consulting, Inc.,
Attn: Theodore I. Pincus, Executive Vice President and Chief Financial Officer,
at 2021 Research Drive, Annapolis, Maryland 21401. Proposals must be received on
or before January 28, 2000 to be included in next year's proxy statement. Please
note that proposals must comply with all of the requirements of Rule 14a-8 under
the Securities Exchange Act of 1934, as well as the requirements of FTI
Consulting's Amended and Restated Articles of Incorporation, as amended, and
By-Laws, as amended. FTI Consulting will be able to use proxies given to it for
next year's meeting to vote for or against any such proposal at FTI Consulting's
discretion unless the proposal is submitted to FTI Consulting on or before March
13, 2000.
20
EXHIBIT A
FTI CONSULTING, INC.
1997 STOCK OPTION PLAN, AS AMENDED
PURPOSE................... FTI Consulting, Inc., a Maryland corporation ("FTI"
or the "Company"), wishes to recruit, reward, and
retain employees and outside directors. To further
these objectives, the Company hereby sets forth the
FTI Consulting, Inc. 1997 Stock Option Plan (the
"Plan"), effective, as of March 25, 1997 (the
"Effective Date"), to provide options ("Options") to
employees and outside directors to purchase shares
of the Company's common stock (the "Common Stock").
OPTIONEES................. All Employees of FTI and the Eligible Subsidiaries
are eligible for option grants under this Plan, as
are the directors of FTI and the Eligible
Subsidiaries who are not employees ("Eligible
Directors"). Eligible employees and directors become
optionees when the Administrator grants them an
option under this Plan. The Administrator may also
grant options to certain other service providers.
The term optionee also includes, where appropriate,
a person authorized to exercise an Option in place
of the original recipient.
Employee means any person employed as a common law
employee of the Company or an Eligible Subsidiary.
ADMINISTRATOR............. The Administrator will be the Compensation Committee
of the Board of Directors of FTI (the "Compensation
Committee"). The Board may also act under the Plan
as though it were the Compensation Committee.
The Administrator is responsible for the general
operation and administration of the Plan and for
carrying out its provisions and has full discretion
in interpreting and administering the provisions of
the Plan. Subject to the express provisions of the
Plan, the Administrator may exercise such powers and
authority of the FTI Board as the Administrator may
find necessary or appropriate to carry out its
functions. The Administrator may delegate its
functions (other than those described in the
GRANTING OF OPTIONS section) to officers or
employees of FTI.
The Administrator's powers will include, but not be
limited to, the power to amend, waive or extend any
provision or limitation of any Option other than a
Formula Option. The Administrator may act through
meetings of a majority of its members or by
unanimous consent.
GRANTING OF OPTIONS... Subject to the terms of the Plan, the Administrator
will, in its sole discretion, determine the
recipients of option grants, the terms of such
grants, the schedule for exercisability (including
any requirements that the optionee or the Company
satisfy performance criteria), the time and
conditions for expiration of the Option, and the
form of payment due upon exercise.
The Administrator's determinations under the Plan
need not be uniform and need not consider whether
possible optionees are similarly situated.
A-1
Options granted to employees may be nonqualified
stock options ("NQSOs") or incentive stock options
("ISOs") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended from time
to time (the "Code"), or the corresponding provision
of any subsequently enacted tax statute. Options
granted to Eligible Directors must be NQSOs.
The Administrator may also grant Options in
substitution for options held by individuals who
become employees of the Company or of an Eligible
Subsidiary as a result of the Company's acquiring
the individual's employer. If necessary to conform
the Options to the options for which they are
substitutes, the Administrator may grant substitute
Options under terms and conditions that vary from
those the Plan otherwise requires.
DATE OF GRANT........... The Date of Grant will be the date as of which the
Administrator awards an Option to an optionee, as
specified in the Administrator's minutes, or as
specified in this Plan.
EXERCISE PRICE.......... The Exercise Price is the value of the consideration
that an optionee must provide under an Option
Agreement in exchange for one share of Common Stock.
The Administrator will determine the Exercise Price
under each Option. The Administrator may set the
Exercise Price of an Option without regard to the
Exercise Price of any other Options granted at the
same or any other time.
The Exercise Price per share for NQSOs may not be
less than 50% of the Fair Market Value of a share on
the Date of Grant. If an Option is intended to be an
ISO, the Exercise Price per share may not be less
than 100% of the Fair Market Value (on the Date of
Grant) of a share of Stock covered by the Option;
provided, however, that if the employee would
otherwise be barred from receiving an ISO by reason
of the provisions of Code Sections 422(b)(6) and
424(d) (relating to more than 10% stockholders), the
Exercise Price of an Option that is intended to be
an ISO may not be less than 110% of the Fair Market
Value (on the Date of Grant) of a share of Stock
covered by the Option.
Fair Market Value... Fair Market Value of a share of Common Stock for
purposes of the the Plan will be determined as
follows:
if the Common Stock is traded on a national
securities exchange, the closing sale price on
that date;
if the Common Stock is not traded on any such
exchange, the closing sale price as reported by
the National Association of Securities Dealers,
Inc. Automated Quotation System ("Nasdaq") for
such date;
if no such closing sale price information is
available, the average of the closing bid and
asked prices as reported by Nasdaq for such
date; or
if there are no such closing bid and asked
prices, the average of the closing bid and
asked prices as reported by any other
commercial service for such date.
A-2
For any date that is not a trading day, the Fair
Market Value of a share of Common Stock for such
date shall be determined by using the closing sale
price or the average of the closing bid and asked
prices, as appropriate, for the immediately
preceding trading day.
The Company may use the consideration it receives
from the optionee for general corporate purposes.
EXERCISABILITY............ The Administrator will determine the times and
conditions for exercise of each Option but may not
extend the period for exercise beyond the tenth
anniversary of its Date of Grant.
Options will become exercisable at such times and in
such manner as the Administrator determines and the
Option Agreement indicates; provided, however, that
the Administrator may, on such terms and conditions
as it determines appropriate, accelerate the time at
which the optionee may exercise any portion of an
Option.
No portion of an Option that is unexercisable at an
optionee's termination of employment will thereafter
become exercisable, unless the Option Agreement
provides otherwise, either initially or by
amendment.
LIMITATION ON ISOS...... An Option granted to an employee will be an ISO only
to the extent that the aggregate Fair Market Value
(determined at the Date of Grant) of the stock with
respect to which ISOs are exercisable for the first
time by the optionee during any calendar year (under
the Plan and all other plans of the Company and its
subsidiary corporations, within the meaning of Code
Section 422(d)), does not exceed $100,000. This
limitation will be applied by taking Options into
account in the order in which such Options were
granted.
DIRECTOR FORMULA GRANTS. Each Eligible Director who is first elected or
appointed to the Board the first Annual Meeting of
the Stockholders following the Effective Date (i.e.,
after the 1998 Meeting) will receive a Formula
Option as of his election or appointment to purchase
16,000 shares of Common Stock. Each Eligible
Director serving on the Board of Directors at an
Annual Meeting whose term will continue beyond that
Meeting will receive a Formula Option as of that
Meeting to purchase 12,500 shares of Common Stock.
Exercise Price....... The Exercise Price of each Option granted to an
Eligible Director will be the Fair Market Value on
the Date of Grant.
Exercise Schedule.... A Formula Option granted upon each Eligible
Director's first election or appointment to the
Board will become exercisable for one-third of the
shares it covers on the first anniversary of the
Date of Grant, two-thirds of the shares it covers on
the second anniversary of the Date of Grant and for
the remaining one-third of the shares it covers on
the third anniversary of the Date of Grant. A
Formula Option granted each Eligible Director for
succeeding Annual Meetings will become exercisable
for one-half of the shares it covers six months
after the Date of Grant, and for the remaining
one-half of the shares it covers on the first
anniversary of the Date of Grant. A Formula Option
will become exercisable in its entirety upon the
director's death, disability or attainment of age
70. Options will be forfeited to the extent they are
not then exercisable if a director resigns or fails
to be reelected as a director.
A-3
METHOD OF EXERCISE....... To exercise any exercisable portion of an Option,
the optionee must:
Deliver a written notice of exercise to the
Secretary of the Company (or to whomever the
Administrator designates) in a form complying
with any rules the Administrator may issue,
signed by the optionee and specifying the
number of shares of Common Stock underlying
the portion of the Option the optionee is
exercising;
Pay the full Exercise Price by cashier's or
certified check for the shares of Common Stock
with respect to which the Option is being
exercised, unless the Administrator consents
to another form of payment (which could
include the use of Common Stock); and
Deliver to the Administrator such
representations and documents as the
Administrator, in its sole discretion, may
consider necessary or advisable.
Payment in full of the Exercise Price need not
accompany the written notice of exercise
provided the notice directs that the stock
certificates for the shares issued upon the
exercise be delivered to a licensed broker
acceptable to the Company as the agent for the
individual exercising the option and at the
time the stock certificates are delivered to
the broker, the broker will tender to the
Company cash or cash equivalents acceptable to
the Company and equal to the Exercise Price.
If the Administrator agrees to payment through
the tender to the Company of shares of Common
Stock, the individual must have held the stock
being tendered for at least six months at the
time of surrender. Shares of stock offered as
payment will be valued, for purposes of
determining the extent to which the optionee
has paid the Exercise Price, at their Fair
Market Value on the date of exercise. The
Administrator may also, in its discretion,
accept attestation of ownership of Common
Stock and issue a net number of shares upon
Option exercise.
OPTION EXPIRATION........ No one may exercise an Option more than ten years
after its Date of Grant (or five years, for an ISO
granted to a more-than-10% stockholder). Unless the
Option Agreement provides otherwise, either
initially or by amendment, no one may exercise an
Option after the first to occur of:
Employment Termination. The date of termination of employment (other than
for death or Disability), where termination of
employment means the time when the employer-employee
or other service-providing relationship between the
employee and the Company ends for any reason,
including retirement. Unless the Option Agreement
provides otherwise, termination of employment does
not include instances in which the Company
immediately rehires a common law employee as an
independent contractor. The Administrator, in its
sole discretion, will determine all questions of
whether particular terminations or leaves of absence
are terminations of employment;
A-4
Disability............ For disability, the earlier of (i) the first
anniversary of the optionee's termination of
employment for disability and (ii) thirty (30) days
after the optionee no longer has a disability, where
disability means the inability to engage in any
substantial gainful activity by reason of any
medically determinable physical or mental impairment
that can be expected to result in death or that has
lasted or can be expected to last for a continuous
period of not less than twelve months; or
Death................. The date twelve months after the optionee's death.
If exercise is permitted after termination of
employment, the Option will nevertheless expire as
of the date that the former employee violates any
covenant not to compete in effect between the
Company and the former employee.
Nothing in this Plan extends the term of an Option
beyond the tenth anniversary of its Date of Grant,
nor does anything in this OPTION EXPIRATION section
make an Option exercisable that has not otherwise
become exercisable.
OPTION AGREEMENT......... Option Agreements will set forth the terms of each
Option and will include such terms and conditions,
consistent with the Plan, as the Administrator may
determine are necessary or advisable. To the extent
the agreement is inconsistent with the Plan, the
Plan will govern. The Option Agreements may contain
special rules.
STOCK SUBJECT TO PLAN.. Except as adjusted below under SUBSTANTIAL CORPORATE
CHANGES, the aggregate number of shares of Common
Stock that may be issued under the Options (whether
ISOs or NQSOs) may not exceed 3,000,000 shares and
no individual may receive Options under the Plan for
more than 500,000 shares in a calendar year. The
Common Stock will come from either authorized but
unissued shares or from previously issued shares
that the Company reacquires, including shares it
purchases on the open market. If any Option expires,
is canceled or terminates for any other reason, the
shares of Common Stock available under that Option
will again be available for the granting of new
Options (but will be counted against that calendar
year's limit for a given individual).
No adjustment will be made for a dividend or other
right for which the record date precedes the date of
exercise.
The optionee will have no rights of a stockholder
with respect to the shares of stock subject to an
Option except to the extent that the Company has
issued certificates for such shares upon the
exercise of the Option.
The Company will not issue fractional shares
pursuant to the exercise of an Option, but the
Administrator may, in its discretion, direct the
Company to make a cash payment in lieu of fractional
shares.
PERSON WHO MAY EXERCISE.. During the optionee's lifetime, only the optionee or
his duly appointed guardian or personal
representative may exercise the Options. After his
death, his personal representative or any other
person authorized under a will or under the laws of
descent and distribution may exercise any then
exercisable portion of an Option. If someone other
than the original recipient seeks to exercise any
portion of an Option, the Administrator may request
such proof as it may consider necessary or
appropriate of the person's right to exercise the
Option.
A-5
ADJUSTMENTS UPON CHANGES IN
CAPITAL STOCK........... Subject to any required action by the Company (which
it shall promptly take) or its stockholders, and
subject to the provisions of applicable corporate
law, if, after the Date of Grant of an Option,
the outstanding shares of Common Stock
increase or decrease or change into or are
exchanged for a different number or kind of
security by reason of any recapitalization,
reclassification, stock split, reverse stock
split, combination of shares, exchange of
shares, stock dividend, or other distribution
payable in capital stock, or
some other increase or decrease in such Common
Stock occurs without the Company's receiving
consideration,
the Administrator will make a proportionate and
appropriate adjustment in the number of shares of
Common Stock underlying each Option, so that the
proportionate interest of the optionee immediately
following such event will, to the extent
practicable, be the same as immediately before such
event. Any such adjustment to an Option will not
change the total price with respect to shares of
Common Stock underlying the unexercised portion of
the Option but will include a corresponding
proportionate adjustment in the Option's Exercise
Price.
The Administrator will make a commensurate change to
the maximum number and kind of shares provided in
the STOCK SUBJECT TO PLAN section.
Any issue by the Company of any class of preferred
stock, or securities convertible into shares of
common or preferred stock of any class, will not
affect, and no adjustment by reason thereof will be
made with respect to, the number of shares of Common
Stock subject to any Option or the Exercise Price
except as this Adjustments section specifically
provides. The grant of an Option under the Plan will
not affect in any way the right or power of the
Company to make adjustments, reclassifications,
reorganizations or changes of its capital or
business structure, or to merge or to consolidate or
to dissolve, liquidate, sell, or transfer all or any
part of its business or assets.
Substantial
Corporate Change.. Upon a Substantial Corporate Change, the Plan and
the Options will terminate unless provision is made
in writing in connection with such transaction for
the assumption or continuation of outstanding
Options, or
the substitution for such options or grants of
any options or grants covering the stock or
securities of a successor employer
corporation, or a parent or subsidiary of such
successor, with appropriate adjustments as to
the number and kind of shares of stock and
prices, in which event the Options will
continue in the manner and under the terms so
provided.
A-6
Unless the Board determines otherwise, if an Option
would otherwise terminate pursuant to the preceding
sentence, the optionee will have the right, at such
time before the consummation of the transaction
causing such termination as the Board reasonably
designates, to exercise any unexercised portions of
the Option, whether or not they had previously
become exercisable. However, the acceleration will
not occur if it would render unavailable "pooling of
interest" accounting for any reorganization, merger,
or consolidation of the Company.
A Substantial Corporate Change means the
dissolution or liquidation of the Company,
merger, consolidation, or reorganization of
the Company with one or more corporations in
which the Company is not the surviving
corporation,
the sale of substantially all of the assets of
the Company to another corporation, or
any transaction (including a merger or
reorganization in which the Company survives)
approved by the Board that results in any
person or entity (other than any affiliate of
the Company as defined in Rule 144(a)(1) under
the Securities Act) owning 100% of the
combined voting power of all classes of stock
of the Company.
SUBSIDIARY EMPLOYEES.... Employees of Company Subsidiaries will be entitled
to participate in the Plan, except as otherwise
designated by the Board of Directors or the
Committee.
Eligible Subsidiary means each of the Company's
Subsidiaries, except as the Board otherwise
specifies. For ISO grants, Subsidiary means any
corporation (other than the Company) in an unbroken
chain of corporations beginning with the Company if,
at the time an ISO is granted to a Participant under
the Plan, each of the corporations (other than the
last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting
power of all classes of stock in one of the other
corporations in such chain. For NQSOs, the Board or
the Committee can use a different definition of
Subsidiary in its discretion.
LEGAL COMPLIANCE......... The Company will not issue any shares of Common
Stock under an Option until all applicable
requirements imposed by Federal and state securities
and other laws, rules and regulations, and by any
applicable regulatory agencies or stock exchanges,
have been fully met. To that end, the Company may
require the optionee to take any reasonable action
to comply with such requirements before issuing such
shares. No provision in the Plan or action taken
under it authorizes any action that is otherwise
prohibited by Federal or state laws.
A-7
The Plan is intended to conform to the extent
necessary with all provisions of the Securities Act
of 1933 ("Securities Act") and the Securities
Exchange Act of 1934 and all regulations and rules
the Securities and Exchange Commission issues under
those laws. Notwithstanding anything in the Plan to
the contrary, the Administrator must administer the
Plan and Options may be granted and exercised only
in a way that conforms to such laws, rules, and
regulations. To the extent permitted by applicable
law, the Plan and any Options will be deemed amended
to the extent necessary to conform to such laws,
rules and regulations.
PURCHASE FOR INVESTMENT AND
OTHER RESTRICTIONS..... Unless a registration statement under the Securities
Act covers the shares of Common Stock an optionee
receives upon exercise of his Option, the
Administrator may require, at the time of such
exercise, that the optionee agree in writing to
acquire such shares for investment and not for
public resale or distribution, unless and until the
shares subject to the Option are registered under
the Securities Act. Unless the shares are registered
under the Securities Act, the optionee must
acknowledge:
that the shares purchased on exercise of the
Option are not so registered,
that the optionee may not sell or otherwise
transfer the shares unless
the shares have been registered under the
Securities Act in connection with the
sale or transfer thereof, or counsel
satisfactory to the Company has issued an
opinion satisfactory to the Company that
the sale or other transfer of such shares
is exempt from registration under the
Securities Act, and
such sale or transfer complies with all
other applicable laws, rules and
regulations, including all applicable
Federal and state securities laws, rules
and regulations.
Additionally, the Common Stock, when issued upon the
exercise of an Option, will be subject to any other
transfer restrictions, rights of first refusal and
rights of repurchase set forth in or incorporated by
reference into other applicable documents, including
the Company's articles or certificate of
incorporation, by-laws or generally applicable
stockholders' agreements.
The Administrator may, in its sole discretion, take
whatever additional actions it deems appropriate to
comply with such restrictions and applicable laws,
including placing legends on certificates and
issuing stop-transfer orders to transfer agents and
registrars.
A-8
TAX WITHHOLDING.......... The optionee must satisfy all applicable Federal,
state and local income and employment tax
withholding requirements before the Company will
deliver stock certificates upon the exercise of an
Option. The Company may decide to satisfy the
withholding obligations through additional
withholding on salary or wages. If the Company does
not or cannot withhold from other compensation, the
optionee must pay the Company, with a cashier's
check or certified check, the full amounts required
by withholding. Payment of withholding obligations
is due at the same time as is payment of the
Exercise Price. If the Committee so determines, the
optionee may instead satisfy the withholding
obligations by directing the Company to retain
shares from the Option exercise, by tendering
previously owned shares or by attesting to his
ownership of shares (with the distribution of net
shares).
TRANSFERS, ASSIGNMENTS, AND
PLEDGES.................. Unless the Administrator otherwise approves in
advance in writing, an Option may not be assigned,
pledged or otherwise transferred in any way, whether
by operation of law or otherwise, or through any
legal or equitable proceedings (including
bankruptcy), by the optionee to any person, except
by will or by operation of applicable laws of
descent and distribution. If Rule 16b-3 then applies
to an Option, the optionee may not transfer or
pledge shares of Common Stock acquired upon exercise
of an Option until at least six (6) months have
elapsed from (but excluding) the Date of Grant,
unless the Administrator approves otherwise in
advance in writing.
AMENDMENT OR TERMINATION OF
PLAN AND OPTIONS....... The Board may amend, suspend or terminate the Plan
at any time, without the consent of the optionees or
their beneficiaries; provided, however, that no
amendment will deprive any optionee or beneficiary
of any previously declared Option. Except as
required by law or by the CORPORATE CHANGES section,
the Administrator may not, without the optionee's or
beneficiary's consent, modify the terms and
conditions of an Option so as to adversely affect
the optionee. No amendment, suspension or
termination of the Plan will, without the optionee's
or beneficiary's consent, terminate or adversely
affect any right or obligations under any
outstanding Options.
PRIVILEGES OF
STOCK OWNERSHIP......... No optionee and no beneficiary or other person
claiming under or through such optionee will have
any right, title or interest in or to any shares of
Common Stock allocated or reserved under the Plan or
subject to any Option except as to such shares of
Common Stock, if any, that have been issued to such
optionee.
EFFECT ON 1992
OPTION PLAN.............. No additional options will be granted under the
Forensic Technologies International Corporation 1992
Stock Option Plan.
EFFECT ON OTHER PLANS... Whether exercising an Option causes the optionee to
accrue or receive additional benefits under any
pension or other plan is governed solely by the
terms of such other plan.
A-9
LIMITATIONS ON LIABILITY.. Notwithstanding any other provisions of the Plan, no
individual acting as a director, employee or agent
of the Company shall be liable to any optionee,
former optionee, spouse, beneficiary or any other
person for any claim, loss, liability or expense
incurred in connection with the Plan, nor shall such
individual be personally liable because of any
contract or other instrument he executes in such
other capacity. The Company will indemnify and hold
harmless each director, employee or agent of the
Company to whom any duty or power relating to the
administration or interpretation of the Plan has
been or will be delegated, against any cost or
expense (including attorneys' fees) or liability
(including any sum paid in settlement of a claim
with the FTI Board's approval) arising out of any
act or omission to act concerning this Plan unless
arising out of such person's own fraud or bad faith.
NO EMPLOYMENT CONTRACT.. Nothing contained in this Plan constitutes an
employment contract between the Company and the
optionee. The Plan does not give the optionee any
right to be retained in the Company's employ nor
does it enlarge or diminish the Company's right to
terminate the optionee's employment.
APPLICABLE LAW........... The laws of the State of Maryland (other than its
choice of law provisions) govern this Plan and its
interpretation.
DURATION OF PLAN......... Unless the FTI Board extends the Plan's term, the
Administrator may not grant Options after March 25,
2007. The Plan will then terminate but will continue
to govern unexercised and unexpired Options.
APPROVAL OF STOCKHOLDERS.. The Plan must be submitted to the stockholders of
the Company for their approval within 12 months
after the Board of Directors of the Company adopts
the Plan. The adoption of the Plan is conditioned
upon the approval of the stockholders of the Company
and failure to receive their approval will render
the Plan and any outstanding options thereunder void
and of no effect.
A-10
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
FTI CONSULTING, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS AND MAY BE REVOKED PRIOR TO ITS EXERCISE
The undersigned stockholder(s) of FTI Consulting, Inc. (the "Company")
hereby appoints Messrs. James A. Flick, Jr. and Theodore I. Pincus, and each of
them singly, as proxies, each with full power of substitution, for and in the
name of the undersigned at the Annual Meeting of Stockholders of FTI Consulting,
Inc. to be held on May 19, 1999, and at any and all adjournments, thereof, to
vote all shares of common stock of said Company held of record by the
undersigned on April 22, 1999, as if the undersigned were present and voting the
shares.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
(TO BE SIGNED ON REVERSE SIDE)
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
FTI CONSULTING, INC.
May 19, 1999
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
A /X/ Please mark your votes as in this example.
1. ELECTION OF CLASS III DIRECTORS.
FCR all nominees (except as marked to the contrary) / /
WITHHOLD AUTHORITY to vote for the nominees listed at right / / Nominees:
Jack B. Dunn IV
Stewart J. Kahn
Scott S. Binder
(INSTRUCTIONS: To withhold authority to vote for any nominee, write the
nominee's name on the space provided below.)
- --------------------------------
2. Approval of the amendment to the 1987 Stock Option Plan, as amended.
FOR / / AGAINST / / ABSTAIN / /
3. Ratification of the appointment of the accounting firm of Ernst & Young,
LLP to serve as independent accountants for FTI Consulting, Inc. for the
fiscal year ending December 31, 1999.
FOR / / AGAINST / / ABSTAIN / /
4. The proxies are authorized to vote in their discretion upon such other
business as may properly come before the meeting to the extent permitted by
law.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED. IN
THE ABSENCE OF ANY DIRECTION, THE SHARES WILL BE VOTED FOR EACH NOMINEE NAMED IN
PROPOSAL 1, FOR PROPOSAL 2 AND FOR PROPOSAL 3, AND IN ACCORDANCE WITH THE
PROXIES' DISCRETION ON SUCH OTHER BUSINESS THAT MAY PROPERLY COME BEFORE THE
MEETING TO THE EXTENT PERMITTED BY LAW.
I PLAN TO ATTEND THE MEETING / /
SIGNATURE: SIGNATURE IF HELD JOINTLY:
--------------------- ---------------------
DATE: , 1999
------------
Note: Please date this Proxy and sign exactly as your name(s) appears herein.
When signing as attorney, administrator, trustee or guardian, please give
your full name as such.
If there is more than one trustee, all should sign. All joint owners
should sign.