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Transition Services Agreement

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Sectors: Services
Effective Date: August 30, 2002
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Exhibit 10.4


TRANSITION SERVICES AGREEMENT


This TRANSITION SERVICES AGREEMENT (this "Agreement") is made as of August 30, 2002 by and between PricewaterhouseCoopers LLP, a Delaware limited liability partnership, having an office at 1301 Avenue of the Americas, New York, New York ("Seller") and FTI Consulting, Inc., a Maryland corporation, having an office at 900 Bestgate Road, Annapolis, Maryland ("Buyer").


RECITALS


A. WHEREAS, pursuant to an Agreement for the Purchase and Sale of Assets, dated as of July 24, 2002, between Seller and Buyer (as it may be amended from time to time, the "Asset Purchase Agreement"), Seller transferred certain assets to Buyer and Buyer assumed certain liabilities as set forth therein (the "Transfer");


B. WHEREAS, prior to the Transfer, the Business had been receiving certain internal support services from Seller;


C. WHEREAS, in connection with the Transfer, each of Seller and Buyer desires that certain, but not all, of those services continue to be provided to Buyer after the Transfer upon the terms and conditions set forth in this Agreement.


NOW, THEREFORE, in consideration of the mutual agreements, covenants, representations and warranties contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and subject to the terms and conditions hereinafter set forth, and intending to be legally bound hereby, the parties hereto hereby agree as follows:


AGREEMENT


1. Definitions


1.1 Defined Terms


Unless otherwise defined herein, terms used herein shall take the meaning given them in the Asset Purchase Agreement. Otherwise, for the purposes of this Agreement, the following words and phrases shall have the following meanings whenever used in this Agreement (including the Schedules and Exhibits hereto):


"Actual Costs" has the meaning assigned in Section 3.8(a).


"Actual Cost Drivers" has the meaning assigned in Section 3.8(a).


"Additional Service" has the meaning assigned in Section 2.2 (a).


"Additional Service Change Request" has the meaning assigned in Section 2.2(b).


"Additional Service Investment Cost" has the meaning assigned in Section 2.2(b).


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"Additional Services Change Proposal" has the meaning assigned in Section 2.2(b).


"Additional Services Cost" has the meaning assigned in Section 2.2(b).


"Agreement" has the meaning assigned in the preamble.


"Asset Purchase Agreement" has the meaning assigned in recital A.


"Basic Services" means those services described on Schedule A.


"Buyer" has the meaning assigned in the preamble.


"Buyer Payment" has the meaning assigned in Section 3.8(d).


"Cost Drivers" has the meaning assigned in Section 2.1(a).


"Discontinued Service" has the meaning assigned in Section 7.1(b).


"Dispute Notice" has the meaning assigned in Section 3.8(b).


"End Date" has the meaning assigned in Section 2.1(c).


"Impositions" has the meaning assigned in Section 3.10.


"Initial Estimate" has the meaning assigned in Section 3.2(b).


"Initial Volume" has the meaning assigned in Section 2.1(a).


"Insurance Costs" has the meaning assigned in Section 3.5.


"Locations" has the meaning assigned in Section 2.1(a).


"Parties" means Seller and Buyer, collectively, and "Party" means each of them.


"Pass-Through Costs" has the meaning assigned in Section 3.6.


"Quality Standard" has the meaning assigned in Section 2.1(b).


"Real Estate Required Services" means those Services identified on Schedule J which Seller is required to provide and Buyer is required to accept for each Location until Buyer vacates such Location; provided, however, that if at any time, Seller ceases to provide a Real Estate Required Service for its own account such Service shall cease to be a Real Estate Required Service upon sixty (60) days advance notice to Buyer.


"Seller" has the meaning assigned in the preamble.


"Seller Payment" has the meaning assigned in Section 3.8(d).


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"Services" means the Basic Services and the Additional Services.


"Statement" has the meaning assigned in Section 3.8(a).


"Term" has the meaning assigned in Section 7.1(a).


"Total Payments" has the meaning assigned in Section 3.8(a).


"Transfer" has the meaning assigned in recital A.


"TSA Databases" has the meaning assigned in Section 2.11.


2. Agreement to Sell and Buy


2.1 Provision of Basic Services


(a) Seller agrees to provide or cause to be provided to Buyer, and Buyer agrees to accept, for use in the Business, the Services in the areas of Infrastructure and Information Technology described in Schedule A at such head count, usage, transaction, percentage occupancy and square footage (the "Cost Drivers") levels as used for purposes of determining the pricing set forth on Schedule D (the "Initial Volume"), plus up to a 10% increase based on the applicable Cost Drivers to accommodate normal growth of the current operations of the Business during the term hereof, at the locations set forth on Schedule F (the "Locations"), all in accordance with the terms of this Agreement.


(b) Seller shall not be required to provide to Buyer (i) increased volume with respect to any Basic Service more than 10% above the Initial Volume with respect to such Basic Service, (ii) any Basic Service at a level of quality that is higher than the level of quality, if any, at which such Basic Service is generally performed by Seller for itself at the time in question (the "Quality Standard"), or (iii) any Basic Service to a location other than the Locations, subject to Section 2.1(d).


(c) If during the Term Seller relocates from an office in which Buyer is sharing space with Seller, Seller shall be obligated to continue to provide to Buyer the Services then being provided to Buyer at such Location (but not at a new location to which Buyer may relocate its employees in the Business then at such existing Location) through the earlier of the end of the current term of the lease for the Location being vacated or the termination of this Agreement (such earlier date, the "End Date"); provided, however, that if Seller determines in Seller's sole discretion that it is not reasonably practicable to provide such Services to Buyer at such Location, Seller may request Buyer to move from a Location at which Buyer shares space with Seller prior to the End Date, and Buyer may, within its sole discretion, agree to relocate to a new location if so requested. In such case, Seller shall provide Buyer with space in the new location reasonably equivalent in terms of size, appearance, quality and functionality as the space being vacated by Buyer at the then existing level of the Business' business operations in the space being vacated by it; provided, however, that if Buyer, within its sole discretion, does not agree to relocate to the new location, then Seller's obligation to continue to provide Buyer the Services then being provided to Buyer shall terminate thirty (30) days following the date Seller initially requested Buyer to move to the new location . The terms of the foregoing sentence shall


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apply equally when prior to the End Date Seller vacates a Location in which Buyer is sharing space and Buyer as a result is required to relocate; but the terms of such sentence shall not apply in any case in which Seller is relocating and/or Buyer is required to relocate because the term of the applicable lease has ended.


(d) If for any reason Buyer relocates employees of the Business from a Location to Buyer's own space that is located within reasonable geographic proximity to the Location, Seller shall during the Term continue to provide Basic Services (other than Real Estate Required Services) remotely to such relocated employees of the Business. Such remotely-provided Basic Services shall be provided in the same manner, and at substantially the same level of functionality, as Seller provides for its employees who are working remotely, subject to any constraints Buyer's own space imposes on Seller's ability to provide such Basic Services remotely, but shall not include the services described on Schedule G.


2.2 Provision of Additional Services


(a) Subject to Sections 2.1(b) and 2.3, Seller may agree to furnish to Buyer (i) Basic Services at a volume greater than the Initial Volume, at a level of quality higher than the Quality Standard or at a location other than the Locations, or (ii) services other than Basic Services, as Buyer may reasonably request, including those set forth in Schedule B. Any such service so furnished or so requested by Buyer and provided by Seller shall constitute an "Additional Service" for the purposes of this Agreement. Any agreement by Seller to any requests for Additional Services which do not involve any Additional Service Investment Costs shall be made in Seller's reasonable discretion and subject to reaching agreement on the terms set forth in the penultimate sentence in Section 2.2(b); otherwise such agreement shall be in Seller's sole discretion.


(b) Upon receipt of any request for Additional Services (each, an "Additional Service Change Request"), Seller will evaluate (i) the costs Seller would incur in upgrading or expanding its infrastructure, facilities or systems, and the initial costs of any increased hiring, in order to be able to provide the requested Additional Services (the "Additional Service Investment Cost") and (ii) the ongoing costs of providing the Additional Services (the "Additional Services Costs"). As soon as reasonably practicable after receipt of an Additional Service Change Request, Seller shall either (x) inform Buyer in writing that it declines to provide the requested Additional Service or (y) submit in writing to Buyer the results of its evaluation and a proposal that sets forth the terms pursuant to which Seller would be willing to provide the requested Additional Services (the "Additional Services Change Proposal"). If Seller does not so decline, Seller and Buyer will then enter into negotiations to see if agreement can be reached upon the estimated Additional Service Investment Cost, the estimated Additional Services Costs and the parameters under which Seller will provide the requested Additional Services; failing reaching agreement on these terms, Seller shall have no obligation to provide such Additional Services. Each Additional Service Change Proposal must be approved in writing by Buyer or its authorized designee prior to Seller implementing an Additional Service Change Request.


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2.3 No Obligation to Upgrade


Nothing in this Agreement requires Seller to upgrade or expand its infrastructure, facilities or systems, or hire additional employees, to provide Additional Services. If Seller agrees to undertake such upgrade, expansion or increased hiring in connection with an Additional Service Change Request, Buyer will pay all Additional Service Investment Costs attributable to Buyer. If, at the time of such upgrade, expansion or hiring, an Additional Service is also being or will be provided to Seller or other third parties that constitute former business units of Seller, the portion of the Additional Service Investments Cost for such upgrades, expansions and increased hiring shall be prorated among all the parties benefiting from such upgrade, expansion or increased hiring. If Buyer is provided with an Additional Service for which the costs of any required upgrade, expansion or hiring have been previously paid or born by Seller or such other third parties, then at the time of the commencement of such services for Buyer, Buyer shall pay a pro rata share of such costs. Buyer shall not take any action that would result in an upgrade or other change to any Service without Seller's prior written consent which may be withheld in Seller's sole discretion. If Buyer has paid for the costs of any upgrades, expansion or hiring related to any Additional Service being provided to it and thereafter, at any time during the Term, Seller or any such other third party begins receiving such services, then Seller shall charge such other persons for their pro rata share of such costs and refund to Buyer an equitable portion thereof such that Buyer shall have only paid a pro rata portion of such costs.


2.4 Seller Rights and Responsibilities


(a) Unless otherwise agreed by the Parties, at any time during the Term and subject to Article 6, Seller shall use its reasonable efforts to provide the Basic Services to Buyer in a manner and at a quality level that is substantially the same as the manner and quality level in which such Basic Services are generally performed at such time by Seller for itself.


(b) Seller shall have the right to shut down temporarily for maintenance purposes the operation of any facilities providing any Service whenever in its judgment, reasonably exercised, such action is necessary. Seller shall give Buyer as much advance notice as is practicable of any such shutdown, which notice, where feasible, shall be given in writing. With respect to the Services dependent on the operation of such facilities, Seller shall be relieved of its obligations hereunder to provide such Services during the period that such facilities are so shut down but shall use reasonable efforts to minimize each period of shutdown for such purpose and to schedule such shutdown so as not to inconvenience or disrupt the conduct of the Business by Buyer.


(c) Seller may modify a Service to the extent such modification is applicable to Seller's provision of such service for itself; provided, however, that, if a modification by Seller pursuant to this Section is a material modification (as reasonably determined by Seller), Seller shall provide at least thirty (30) days' written notice to Buyer prior to the date on which Seller implements such modifications. Seller may modify a Service to the extent such modification is applicable to Seller's provision of such Service solely for Buyer's account; provided, however, that, if a modification by Seller pursuant to this sentence is a material modification (as reasonably determined by Seller), Seller shall obtain the prior written consent of Buyer, which consent shall not be unreasonably withheld, and Seller shall provide at least thirty


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(30) days' written notice to Buyer prior to the date on which Seller implements such modification. Buyer's responsibilities set forth in Schedule C hereto shall be amended as necessary to conform to any such modifications made pursuant to this Section 2.4(c), and Buyer shall comply with any amendments to such responsibilities arising from such modifications. Subject only to the foregoing and to Section 2.4(a) above, in providing its Services hereunder, Seller may use any information systems, hardware, software, processes and procedures it deems necessary or desirable in its reasonable discretion.


(d) Without the consent of Buyer, Seller may engage any third party (including any affiliate of Seller) to provide a Service hereunder or delegate performance of all or any part of its obligations hereunder to any such third party; provided, that such engagement or delegation does not result in the diminution of the quality of the provision of such Service; and, provided, further, that Seller is using such third party to provide such Service to itself. If Seller wishes to engage a third party to provide a Service, or delegate the performance of any of its obligations hereunder, solely to Buyer, then such engagement or delegation shall be subject to the reasonable consent of Buyer.


(e) If during the Term any third party agreement in effect as of the Closing Date pursuant to which a Service is being provided hereunder expires or is terminated and such Service (or a service substantially similar thereto) is not thereafter provided by Seller either by itself or pursuant to another third party agreement, Seller shall use reasonable efforts to provide such Service itself or through a third party designated by Seller in its sole discretion.


2.5 Priorities


In providing Services, Seller shall accord Buyer the same priority it accords its own operations.


2.6 Disclaimer of Warranty


EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THE GOODS AND SERVICES TO BE PROVIDED UNDER THIS AGREEMENT ARE FURNISHED AS IS, WHERE IS, WITH ALL FAULTS AND WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. SELLER DOES NOT MAKE ANY WARRANTY THAT ANY GOOD OR SERVICE COMPLIES WITH ANY LAW.


2.7 Buyer Responsibilities


The provision of the Services by Seller on a continuing basis is dependent on the timely compliance by Buyer with its responsibilities set forth in Schedule C, but the fees and charges of the Services shall only be adjusted if Buyer has not complied with such responsibilities in all material respects and such material non-compliance results in additional costs for Seller to provide such Services. Buyer and Seller agree that the level of quality for delivery of the Services shall be equitably adjusted to reflect the effects of such non-compliance, and Seller shall not be deemed to be in breach of its obligations hereunder by reason of any delays in its performance or diminution in quality of the Services to the extent resulting from any


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such non-compliance. Buyer shall use the Services for substantially the same purposes and in substantially the same manner as the Business had used the Services immediately prior to the Closing Date. Buyer shall make available to Seller on a timely basis all information and materials reasonably requested by Seller to enable Seller to provide the Services, including the information and materials described on Schedule C. Buyer shall give Seller reasonable access, during regular business hours and at such other times as are reasonably required, to Buyer's premises as necessary for the purpose of providing the Services.


2.8 Use of Services


Seller shall be required to provide the Services only to Buyer in connection with the conduct by Buyer of the Business. Buyer shall not resell any Services to any Person whatsoever or permit the use of the Services by any Person; provided, however, that Buyer may use the Services in providing services to third parties in the ordinary course of the Business.


2.9 Books and Records; Equipment


Seller shall keep books and records of the Services provided hereunder in the same detail and with the same accuracy that Seller keeps its books and records with respect to its own use of the Services and reasonable supporting documentation of all out-of-pocket costs incurred in connection with providing such Services. Seller shall make such books and records available to Buyer, upon reasonable notice describing in reasonable detail the books and records requested, during normal business hours; provided, that to the extent that such books and records can not be, or are not in the ordinary course, segregated from the books and records relating to any other aspects of Seller's operations in Seller's reasonable judgment Buyer shall have access to such unsegregated books and records; provided, however, that Buyer shall in no event have access to any such books and records relating to a business that both Buyer and Seller are engaged in; provided, further, that, if a competitor of Seller acquires a greater than 10% ownership interest in Buyer (excluding any Person with such ownership percentage who has been agreed by Seller), Buyer shall not have access to any such unsegregated books and records, but, if requested by Buyer, Seller shall prepare, at Buyer's expense, summaries of the information therein related to the Services provided to Buyer. Other than as expressly provided in Schedule A, Buyer shall not have any access to Seller's equipment.


2.10 Provision of Space at the Locations


The Transferred Employees may continue to work in the Locations during the Term subject to the terms and conditions hereof and subject to the terms and conditions contained in the form of Desk Sharing License attached hereto as Exhibit A; provided, however, that Buyer agrees that it is an immediate and high priority of Buyer to vacate the Location in New York City and shall therefore use its best commercial efforts to vacate the Location in New York City prior to the end of the Term. Buyer shall provide written notice to Seller at least sixty (60) days in advance of vacating the Location in New York City, and at such time that Buyer vacates the Location in New York City, the terms of this Agreement shall cease to apply to such Location and the Transferred Employees located therein.


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2.11 Temporary License for Certain Databases


Seller grants Buyer a non-exclusive, royalty-free temporary license for the Term to use, in connection with the Services, the databases listed on Schedule H (the "TSA Databases"). The license will terminate, and all rights granted to Buyer to use the TSA Databases shall revert to Seller, upon termination of this Agreement. Buyer covenants that within a reasonable time after the termination of this Agreement it will (i) delete from all personal computers and servers then in Buyer's possession any and all electronic copies of the TSA Databases or any portions thereof and (ii) destroy or return to Seller all printed copies of the TSA Databases or any portions thereof.


2.12 Employee Leasing Arrangement


Seller agrees to lease to Buyer certain employees pursuant to the terms set forth in Exhibit B hereto.


3. Cost of Services; Payment


3.1 Cost of Services


Buyer shall pay Seller for (i) the fully allocated costs of the Services from and after the Closing Date plus (ii) all personnel and setup costs necessary to enable Seller to segregate the services from those previously delivered to the Business and to enable Seller to deliver Services hereunder.


3.2 Payment of Estimated Basic Service Costs


(a) Buyer will make monthly payments to Seller based on estimates of the costs of the Basic Services during the Term, as set forth in this Section.


(b) The estimate of the annual costs to be incurred by Seller with respect to the Basic Services to be provided Buyer during the Term is set forth on Schedule D (the "Initial Estimate"). The Initial Estimate is based on (i) the methodologies, and on the headcount, percentage usage, percentage occupancy and square footage assumptions, set forth in Schedule D and (ii) the assumptions set forth on Schedule E.


(c) During the Term, Buyer shall make monthly payments to Seller equal to the Initial Estimate multiplied by a fraction the numerator of which is one (1) and the denominator of which is twelve (12), decreased each month by the costs, if any, of any Services terminated in any prior month in accordance with Section 7.1(b). Buyer will make such monthly payment with respect to each month on the first business day of the month for which services are provided. If the Term begins on a day other than the first day of a month, the first monthly payment shall be pro rated based on the number of days between the Closing Date and the end of the first month.


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3.3 Payment of Estimated Additional Service Costs


Upon approval by Buyer of an Additional Service Change Proposal, pursuant to Section 2.2(b) hereof, Buyer shall for the remainder of the Term increase each monthly payment due pursuant to Section 3.2 by an amount equal to the estimated Additional Services Costs for the remainder of such Term divided by the number of months or partial months remaining in such Term.


3.4 Payment of Additional Service Investment Costs


Seller shall separately invoice Buyer for Additional Service Investment Costs for any month in which such costs are incurred. Buyer shall pay such invoiced amounts within thirty (30) days after receipt of the invoice.


3.5 Payment of Insurance Costs


Buyer shall pay to Seller Buyer's pro rata portion of the costs (the "Insurance Costs") of any insurance maintained by Seller with respect to claims arising for damages insured by usual personal injury liability coverage, claims for damages by reason of injury to or destruction of tangible property and other damages relating to the shared space. Buyer shall be invoiced for such Insurance Costs on a monthly basis. Buyer shall pay such invoiced amounts within ten (10) days after receipt of the invoice.


3.6 Payment of Pass-Through Costs


Buyer shall pay to Seller third-party vendor costs incurred by Seller in providing the Services that Seller customarily charges its lines of service as accounts payable rather than includes in overhead allocations ("Pass-Through Costs"). Pass-Through Costs include, but are not necessarily limited to, certain costs related to leased computers (including software license and maintenance fees and computer rental fees), virtual private network (VPN) usage, licenses for intellectual property, Microsoft project licenses, express delivery and courier charges, parking and office supplies. A description of illustrative Pass-Through Costs is attached as Schedule I. Pass-Through Costs will be in addition to the monthly payments required by Section 3.2(c) and Additional Service Investment Costs and will be separately invoiced to Buyer based on the actual costs thereof. Payment will be due within thirty (30) days after receipt of the invoice.


3.7 Withholding Payment


Buyer shall not withhold any undisputed amounts due to Seller under this Agreement. Any disputed amounts under this Agreement that may be pending between the Parties (any required adjustment as a result of any such dispute to be made on subsequent invoices from Seller) may be withheld, so long as such dispute is subject to the dispute resolution procedures in accordance with Section 3.8(b). Any amounts not paid when due shall accrue interest until paid at an annual rate equal to the lesser of (i) the London Interbank Offered Rate plus two percentage points or (ii) the maximum rate allowed by applicable law.


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3.8 Reconciliation


(a) Within sixty (60) days after December 31, 2002 and the end of the Term, Seller shall (i) determine, at such level of accounting detail as is reasonable and practicable, (A) the actual levels of the Cost Drivers at which Services were provided to the Business during such term (the "Actual Cost Drivers") and (B) the total costs of the Services provided during such term using the Actual Cost Drivers (1) as can be determined using the same methodologies and assumptions as are set forth in Schedule D or (2) as were agreed in connection with any Additional Services added during such term, in each case, as applied to actual costs (the "Actual Costs") and (ii) deliver to Buyer a statement (the "Statement") setting forth the Actual Costs and the total of the monthly payments made with respect to such term pursuant to Sections 3.2 and 3.3 (the "Total Payments"). The calculation of Actual Costs shall not include Additional Service Investmen
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