<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 24, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DATA PROCESSING RESOURCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 7379 95-3931443
(STTE OR OTHER JURISDICTION OFA (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INORPORATION OR ORGANIZATION)C CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
4400 MACARTHUR BOULEVARD, SUITE 600
NEWPORT BEACH, CALIFORNIA 92660
(714) 553-1102
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL A. PIRAINO
CHIEF FINANCIAL OFFICER
DATA PROCESSING RESOURCES CORPORATION
4400 MACARTHUR BOULEVARD, SUITE 600
NEWPORT BEACH, CALIFORNIA 92660
(714) 553-1102
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
JAMES W. LOSS, ESQ. MARY ELLEN KANOFF, ESQ.
RIORDAN & MCKINZIE LATHAM & WATKINS
695 TOWN CENTER DRIVE, SUITE 1500 633 W. FIFTH STREET, SUITE 4000
COSTA MESA, CALIFORNIA 92626 LOS ANGELES, CALIFORNIA 90071
(714) 433-2626 (213) 485-1234
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OF
TO BE REGISTERED REGISTERED (1) PER SHARE (2) OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock.................... 2,530,000 shares $18.25 $46,172,500 $13,992
- ---------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 330,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 24, 1996
2,200,000 SHARES
[LOGO OF DPRC]
DATA PROCESSING RESOURCES CORPORATION
COMMON STOCK
Of the 2,200,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by the Company and 200,000 shares are being sold by the Selling
Shareholder. The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholder. See "Principal and Selling Shareholders."
The Common Stock is traded on the Nasdaq National Market under the symbol
"DPRC." The last sale price of the Common Stock on December 20, 1996, as
reported on the Nasdaq National Market, was $18.25 per share. See "Price Range
of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Proceeds to
Price Underwriting Proceeds to Selling
to Public Discount (1) Company (2) Shareholder
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total (3)...................... $ $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company, estimated at
$450,000.
(3) The Company and the Selling Shareholder have granted to the Underwriters a
30-day option to purchase up to 280,000 and 50,000 additional shares of
Common Stock, respectively, solely to cover over-allotments, if any. If the
Underwriters exercise this option in full, the Price to Public will total
$ , the Underwriting Discount will total $ , the Proceeds to
Company will total $ and the Proceeds to Selling Shareholder will
total $ . See "Principal and Selling Shareholders" and
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, when, as and if delivered to and accepted by the Underwriters and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about ,
1997.
Montgomery Securities
Robert W. Baird & Co.
Incorporated
Lehman Brothers
, 1997
<PAGE>
[Graphics]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS AND CERTAIN SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE
WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus, including "Risk Factors" and the
Financial Statements and Notes thereto. Except as otherwise noted, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option.
THE COMPANY
Data Processing Resources Corporation ("DPRC" or the "Company") provides
information technology ("IT") staffing services to a diverse group of corporate
clients. By drawing from its carefully screened database of more than 28,000
highly qualified technical consultants, the Company offers staffing solutions
to meet its clients' enterprise-wide systems applications development needs.
The Company's technical consultants have expertise on multiple hardware
platforms utilizing a wide variety of software applications and provide
services covering all aspects of the systems applications development
lifecycle, including planning, design, building and programming,
implementation, maintenance and ongoing management. The Company also provides
other value-added services in rapidly growing areas such as client/server
architecture, wide area and local area networks ("WANs" and "LANs"), help desk
support, intranet and internetworking. For the 11 months ended November 30,
1996, the Company placed approximately 1,300 technical consultants on projects
for approximately 230 clients, including Mitsubishi Motor Sales of America,
Nissan Motor Corporation USA, The Walt Disney Company and U.S. West. Since
December 1995, the Company has expanded beyond its three California offices and
currently has nine offices in seven states. Of the six new offices, three were
internally developed and three were acquired by the Company in two recent
acquisitions. On December 17, 1996, the Company entered into a definitive
agreement to acquire a Dallas- based IT staffing company. This acquisition is
anticipated to be completed in January 1997.
IT staffing services is one of the fastest growing segments of the
supplemental staffing industry. According to the July 30, 1996 Staffing
Industry Report, revenues from technical/computer temporary staffing are
estimated to have grown from $5.7 billion in 1993 to an estimated $9.2 billion
in 1995. An important factor in this growth has been a fundamental shift by
businesses from closed, proprietary systems to open systems incorporating a
range of different IT systems. This trend has accelerated the pace of
technological change in information systems and increased the need for
specialized IT professionals to assist in the integration of a variety of
hardware platforms and software applications. Another factor contributing to
the growth has been the increasing demand to integrate data, voice and video in
new information systems. In addition, the trend by businesses to reduce
corporate workforces through outsourcing has increased the demand for outside
IT services. The IT staffing services industry is highly fragmented and
competitive with a large number of small businesses, many of which operate in a
single geographic market. This fragmentation, combined with changing client
demands and increased competitive pressures, has resulted in a trend towards
industry consolidation.
The Company serves as an extension of its clients' IT operations by providing
technical consultants to meet their IT staffing needs. The Company's business
strategy encompasses a number of key elements which management believes are
necessary to ensure high quality standards and to achieve consistently strong
financial performance. The primary element of this strategy is to recruit and
retain qualified technical consultants with a wide range of skills. Second, the
Company emphasizes and maintains a relationship-oriented consultative approach
designed to create long-term partnerships with its clients. Third, the Company
focuses on enhancing margins by improving operating efficiencies and offering a
product mix which emphasizes higher value-added services. Finally, the Company
seeks to meet its clients' supplemental IT staffing needs by offering
responsive, timely and comprehensive technical staffing solutions for all
aspects of the systems applications development lifecycle.
3
<PAGE>
The Company's goal is to emerge as a leading staffing company providing
comprehensive IT solutions. To achieve this goal, the Company has adopted a
growth strategy to broaden the geographic scope of its operations, recruit and
retain qualified technical consultants, diversify its client base, expand the
services it offers and strengthen its strategic relationships with other
professional service organizations. The Company is expanding its geographic
scope through both internal development and acquisitions and is developing a
network of branch offices clustered around regional hub offices. The Company
has selected Newport Beach, Dallas, Denver and Seattle to serve as its regional
hubs for the California, Texas, Rocky Mountain and Pacific Northwest regions,
respectively. A future office in Chicago or Minneapolis is planned to serve as
a regional hub for the North Central region. Although the Company's growth
strategy has previously focused on the Western United States, the Company is
beginning to consider acquisition opportunities nationwide.
The Company also recognizes the need to recruit and retain new qualified
technical consultants. As a result, the Company has recently improved the
benefits it offers to its technical consultants and has begun to utilize
salaried technical consultants, who remain on the Company's payroll even when
not on assignment. In addition, the Company intends to continue to add new
clients through expanded marketing programs, including a greater focus on
middle market companies, and has begun to offer a number of new value-added
services, including Year 2000 and internetworking services. Finally, the
Company is developing strategic relationships with a number of professional
service providers such as national accounting firms, consulting firms,
facilities management companies and other outsourcing providers.
The Company was incorporated in 1984 as a California corporation, and its
principal executive offices are located at 4400 MacArthur Boulevard, Suite 600,
Newport Beach, California 92660. The Company's telephone number is (714) 553-
1102.
PENDING AND RECENT ACQUISITIONS
Since the completion of the Company's initial public offering in March 1996
(the "IPO"), the Company has acquired, or agreed to acquire, the following
three IT staffing services businesses (collectively, the "Acquisitions"):
. In December 1996, the Company entered into a definitive purchase
agreement to acquire LEARDATA Info-Services, Inc., a Dallas-based IT
staffing company ("Leardata") with approximately 130 technical
consultants, for a purchase price of $19.8 million, consisting of $14.9
million in cash and approximately 266,000 shares of Common Stock, plus an
amount equal to the cash on-hand at the closing date to be paid 75% in
cash and 25% in Common Stock (the "Pending Leardata Acquisition"). The
Company anticipates that this acquisition will be completed in January
1997, although no assurances can be given in this regard. Leardata
generated revenues in approximately 30 states during the nine months
ended September 30, 1996. Leardata had revenues of approximately
$4.3 million for the three months ended September 30, 1996.
. In November 1996, the Company acquired Professional Software Consultants,
Inc. ("PSCI"), a Phoenix-based IT staffing company with approximately 130
technical consultants, for $4.9 million in cash and an earnout payment to
be made based on PSCI's financial performance for the two months ending
December 31, 1996 (the "PSCI Acquisition"). PSCI had revenues of
approximately $2.7 million for the three months ended September 30, 1996.
. In July 1996, the Company acquired the Applications, Design and
Development division ("AD&D") of ADD Consulting, Inc. for $11.7 million
in cash and stock (the "AD&D Acquisition"), adding branches in Omaha and
Kansas City, as well as approximately 170 technical consultants. AD&D had
revenues of approximately $13.9 million for the 12 months ended July 31,
1996.
Through the Acquisitions, the Company has significantly expanded its
geographic scope and positioned itself as a leading provider of IT staffing
services. The Acquisitions also have diversified and broadened the Company's
customer base. The Company continually reviews potential acquisitions and is
currently in various stages of investigating and negotiating with several
acquisition candidates, but has not entered into a definitive purchase
agreement with any acquisition candidate other than Leardata.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 2,000,000 shares
Common Stock offered by the Selling Shareholder... 200,000 shares
Common Stock to be outstanding after the Offering. 9,792,321 shares (1)
Use of proceeds................................... To repay outstanding indebtedness, for
future acquisitions, the opening of
new offices, working capital and other
general corporate purposes. See "Use
of Proceeds."
Nasdaq National Market symbol..................... DPRC
</TABLE>
- --------
(1) Includes an estimated 266,000 shares of Common Stock to be issued in
connection with the consummation of the Pending Leardata Acquisition, plus
an estimated 34,000 shares to be issued at such closing as an adjustment
for cash on hand. Excludes 1,227,800 shares of Common Stock reserved for
issuance under the Company's 1994 Stock Option Plan, of which options to
purchase 811,720 shares were outstanding as of November 30, 1996, and
250,000 shares of Common Stock reserved for issuance under the Company's
Employee Stock Purchase Plan. See "Management -- 1994 Stock Option Plan"
and " -- Employee Stock Purchase Plan."
5
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months
Ended October
Fiscal Year Ended July 31, 31,
------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 (1) 1996
------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $20,621 $23,163 $34,165 $49,558 $58,145 $13,954 $20,134
Cost of professional
services................ 17,927 19,397 28,047 40,082 45,918 11,035 15,434
------- ------- ------- ------- ------- ------- -------
Gross margin............ 2,694 3,766 6,118 9,476 12,227 2,919 4,700
Selling, general and
administrative expenses
(2).................... 2,530 3,648 5,581 5,769 6,719 1,491 2,853
------- ------- ------- ------- ------- ------- -------
Operating income........ 164 118 537 3,707 5,508 1,428 1,847
Interest (expense)
income, net............. (128) (113) (401) (764) (162) (159) 202
------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 36 5 136 2,943 5,346 1,269 2,049
Provision for income
taxes................... 11 4 56 1,205 2,096 516 801
------- ------- ------- ------- ------- ------- -------
Net income.............. $ 25 $ 1 $ 80 $ 1,738 $ 3,250 $ 753 $ 1,248
======= ======= ======= ======= ======= ======= =======
Net income per share.... $ 0.54 $ 0.15 $ 0.16
======= ======= =======
Weighted average common
and common equivalent
shares (3)............. 6,039 4,926 7,864
</TABLE>
<TABLE>
<S> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA (4):
Revenues................................................ $93,467 $27,125
Gross margin............................................ 22,352 6,656
Operating income........................................ 8,299 2,505
Net income (5).......................................... 3,822 1,422
Net income per share (5)................................ $ 0.59 $ 0.17
======= =======
Weighted average common and common equivalent shares (3)
(5).................................................... 6,478 8,164
</TABLE>
<TABLE>
<CAPTION>
October 31, 1996
----------------------------------
Pro Forma As
Actual Pro Forma (6) Adjusted (7)
------- ------------- ------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $22,945 $10,373 $38,098
Working capital.............................. 28,105 18,560 46,285
Total assets................................. 44,895 57,050 84,775
Total debt (8)............................... -- 6,500 --
Shareholders' equity......................... 40,155 44,020 78,245
</TABLE>
6
<PAGE>
- --------
(1) The AD&D Acquisition was completed on July 1, 1996. Consequently, the
Statement of Income Data for the three months ended October 31, 1996 (which
includes the acquired operations for the entire period) are not directly
comparable to the Statement of Income Data for the three months ended
October 31, 1995. See "Pro Forma Combined Condensed Financial Information."
(2) Selling, general and administrative expenses for fiscal 1992, 1993 and 1994
include management fees of $765,000, $820,000 and $586,000, respectively,
which were paid to a management company controlled by one of the founders
of the Company. This management fee was terminated in February 1994 upon
the redemption of such founder's ownership interest in the Company.
Selling, general and administrative expenses for fiscal 1992, 1993, 1994
and 1995 also include compensation paid to Ms. Weaver of $815,000,
$975,000, $1.7 million and $921,000, respectively. Effective March 1995,
Ms. Weaver's annual compensation was significantly reduced. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management -- Compensation."
(3) Weighted average common and common equivalent shares gives effect to the
assumed exercise of all outstanding stock options using the treasury
method. See Note 2 of Notes to Financial Statements of the Company included
elsewhere in this Prospectus.
(4) The Pro Forma Statement of Income Data for fiscal 1996 gives effect to the
AD&D Acquisition, the PSCI Acquisition and the Pending Leardata Acquisition
as if such transactions had occurred on August 1, 1995. The Pro Forma
Statement of Income Data for the three months ended October 31, 1996 gives
pro forma effect to the PSCI Acquisition and the Pending Leardata
Acquisition as if such transactions had occurred on August 1, 1996. See
"Pro Forma Combined Condensed Financial Information."
(5) Assuming the issuance of 356,000 shares of Common Stock by the Company
which would be necessary to generate gross proceeds sufficient to repay the
pro forma outstanding debt of $6.5 million and the elimination of all
interest expense, net of tax, associated therewith, supplemental net income
and supplemental net income per share for the fiscal year ended July 31,
1996 and the three months ended October 31, 1996 would be $4.1 million and
$0.60 and $1.5 million and $0.17, respectively.
(6) The Pro Forma Balance Sheet Data as of October 31, 1996 gives effect to the
PSCI Acquisition and the Pending Leardata Acquisition as if such
transactions had occurred on October 31, 1996. See "Pro Forma Combined
Condensed Financial Information."
(7) The Pro Forma As Adjusted Balance Sheet Data as of October 31, 1996 further
adjusts the Pro Forma Balance Sheet Data to give effect to the sale by the
Company of 2,000,000 shares of Common Stock offered hereby at an estimated
offering price of $18.25 per share of Common Stock and the application of
the estimated net proceeds therefrom. See "Use of Proceeds,"
"Capitalization" and "Pro Forma Combined Condensed Financial Information."
(8) Pro Forma Balance Sheet Data as of October 31, 1996 reflects $6.5 million
of borrowings under the Company's existing credit facility to be drawn in
connection with the Pending Leardata Acquisition. Although the Company has
sufficient cash and cash equivalents to pay the entire cash portion of the
purchase price for the Pending Leardata Acquisition, the Company intends to
draw $6.5 million under such facility to pay a portion of the cash purchase
price of such acquisition. The $6.5 million in borrowings will be repaid
with the proceeds of the Offering.
7
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
the other information set forth in this Prospectus.
This Prospectus, including the information set forth below, contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended, and are intended to be covered by the safe harbors created
thereby. Forward-looking statements include statements regarding the Company's
growth strategy and its ability to implement this strategy, the trends in the
markets served by the Company, the Company's ability to meet its liquidity
requirements. Prospective purchasers are cautioned that all forward-looking
statements are subject to risks and uncertainties, including, without
limitation, the risks outlined in this section.
DEPENDENCE ON AVAILABILITY, RECRUITMENT AND MANAGEMENT OF TECHNICAL
CONSULTANTS
The Company is dependent upon its ability to attract and manage technical
consultants who possess the skills and experience necessary to meet the IT
staffing requirements of the Company's clients. To keep pace with rapidly
evolving information technologies and changing client needs, the Company must
continually evaluate and upgrade its database of available qualified technical
consultants. Competition for individuals with proven technical skills is
intense. The Company competes for such individuals with other providers of IT
staffing services, providers of outsourcing services, temporary personnel
agencies, systems integrators, computer systems consultants and clients and
potential clients. Factors influencing such competition include compensation,
benefits, growth opportunities and pre-existing relationships with other
employers, particularly IT staffing companies. As the Company expands into new
geographical areas, it may experience difficulty attracting qualified
technical consultants who have a prior relationship or familiarity with more
established IT staffing companies in such areas. As a result, there can be no
assurance that the Company will be able to recruit the technical consultants
necessary to execute its growth strategy and a failure to do so could have a
material adverse effect on the Company's results of operations and financial
condition. Furthermore, although the Company has historically paid its
technical consultants only when they are on assignment, AD&D, PSCI and
Leardata have a substantial number of salaried technical consultants who are
paid whether or not they are on assignment. Such technical consultants must be
carefully monitored and managed to minimize the time they are not on
assignment. A failure to manage non-chargeable time of salaried technical
consultants could have a material adverse effect on the Company's results of
operations and financial condition.
ACQUISITION RISKS
A primary component of DPRC's growth strategy is the acquisition of IT
staffing companies to complement and expand the Company's existing business,
principally in new geographic markets. The successful implementation of this
strategy is dependent on the Company's ability to identify suitable
acquisition candidates, acquire such companies on suitable terms and integrate
their operations with those of the Company. Although the Company has completed
two acquisitions and has signed a definitive purchase agreement for a third,
there can be no assurance that the Company will be able to acquire other
companies on suitable terms. Moreover, other staffing companies are actively
competing for acquisition candidates, which has resulted in an increase in the
price of acquisition candidates. Acquisitions may also involve a number of
special risks, including: (i) adverse effects on the Company's reported
operating results, including increased goodwill amortization related to
acquired companies and interest expense related to debt incurred to affect
acquisitions; (ii) diversion of management attention; (iii) risks associated
with unanticipated problems, liabilities or contingencies resulting from
acquisitions and entries into new geographic markets; (iv) difficulties
related to the integration of acquired businesses, some of which may have
different cultures, operating strategies, margins or business risks; and (v)
increased general and administrative expenses incidental to the Company's
expansion into new geographic markets. For example, the Company is evaluating
an acquisition candidate that actively recruits technical consultants from
outside the United States. The acquisition of such a company could entail
additional risks,
8
<PAGE>
including risks related to regulatory compliance, possible changes in
immigration law and the maintenance of new recruiting relationships or
affiliations. The occurrence of some or all of the events described in these
risks could have a material adverse effect on the Company's operations and
financial performance.
The Company intends, when possible, to use its Common Stock to pay all or a
portion of the purchase price for future acquisitions. In the event that the
Company's Common Stock does not maintain sufficient value or potential
acquisition candidates are unwilling to accept the Company's Common Stock as
consideration for the sale of their businesses, the Company may be required to
utilize more of its cash resources, if available, in order to continue its
acquisition program. If the Company does not have sufficient cash resources,
its growth could be limited unless it is able to obtain additional capital
through debt or equity financings. There can be no assurance that such capital
will be available on acceptable terms. If the Company is unable to obtain
sufficient financing, it may be unable to implement its growth strategy fully.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources," "Business -- Growth
Strategy" and "-- Competition."
DEVELOPMENT OF NEW BRANCHES
The Company's growth strategy involves the internal development of new
branches as well as the acquisition of existing businesses. The successful
development of new branches is dependent on a number of factors, many of which
are beyond the Company's control, including the Company's ability to: (i)
hire, integrate and retain qualified managers in existing markets as well as
markets in which the Company has no prior operating experience; (ii) apply its
management practices to a significantly larger and geographically dispersed
organization; (iii) initiate and develop new client relationships; (iv) hire,
integrate and retain qualified technical consultants; and (v) identify
suitable locations for new branches. There can be no assurance that the
Company will be able to implement successfully any of the above components of
its strategy. See "Business -- Growth Strategy" and "Management."
RISKS ASSOCIATED WITH YEAR 2000 CONVERSION EFFORTS
According to industry sources, as the year 2000 approaches, 60% to 90% of
all date sensitive computer applications will fail because they are unable to
process dates properly beyond December 31, 1999. This will require businesses
to devote substantial resources to converting their information systems over
the next three years. This conversion process is time and labor intensive and
will, in many cases, be outsourced to specialists. The Company anticipates
that the competition for technical consultants will increase substantially as
companies begin to hire technical consultants to perform services to implement
Year 2000 conversions. Such increased competition could materially and
adversely affect the Company's ability to attract and retain qualified
technical consultants in the future. The Company also anticipates that many of
its clients and prospective clients will devote substantial resources to Year
2000 conversion efforts. Although the Company has recently begun to offer Year
2000 services to assist clients in their conversion efforts, clients may
postpone other information systems projects pending completion of their Year
2000 conversions. This could adversely affect the demand for more traditional
services. In addition, competitors offering Year 2000 services may be able to
obtain other assignments from clients previously served exclusively by the
Company or may provide solutions which give them an advantage in competing for
new clients.
DEPENDENCE ON CERTAIN CLIENTS; INDUSTRY AND GEOGRAPHIC CONCENTRATION
The Company's ten largest clients accounted for 60.3% of its revenues in
fiscal 1996, with Nissan Motor Corporation USA accounting for 10.2% of its
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." A significant decrease in demand by, or the loss of, a
large client could have a substantial adverse effect on the Company's revenues
and results of operations. Furthermore, revenues from any one client often
vary materially from period to period. Although the Company strives to build
long-term relationships with its clients, it does not generally have long-term
contractual arrangements with them, and services are usually provided on an
assignment-by-assignment basis. In addition, the Company's contracts are
normally cancelable by the client at any time without penalty.
9
<PAGE>
The Company's business is dependent in part on the economic strength of its
clients. While the Company serves a large number of clients in a range of
industry groups, approximately 41.5% of the Company's revenues in fiscal 1996
were derived from six foreign automobile and motorcycle manufacturers with
operations in Southern California. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Regulatory changes which
adversely affect this industry group could have an adverse effect on the
Company's revenues and profitability. Similarly, a substantial deterioration
in general economic conditions in Southern California could adversely affect
the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a large extent upon the efforts and
abilities of Mary Ellen Weaver, Chairman of the Board and Chief Executive
Officer, and David M. Connell, President and Chief Operating Officer. The loss
of either of these individuals could have an adverse effect on the Company's
operations, including the Company's ability to establish and maintain client
relationships. See "Management."
COMPETITION
The IT staffing industry is highly competitive. The Company competes for
both clients and qualified technical consultants with a variety of companies,
including other IT staffing companies, national and regional accounting and
management consulting firms and independent contractors. Several traditional
staffing companies, which have historically emphasized the placement of
clerical and other less highly skilled personnel on short-term assignments,
have begun to provide services competitive with those provided by the Company.
The Company also competes for technical consultants with the IT staffs of its
clients and potential clients. In addition, the Company competes with other
staffing companies for acquisition candidates.
Several of the Company's competitors are substantially larger than the
Company and have greater financial and other resources. Several of such
competitors have also been in business much longer than the Company and have
significantly greater name recognition throughout the United States, including
the geographic areas in which the Company operates and into which it intends
to expand. Accordingly, such companies are often able to meet a broader range
of a client's temporary personnel needs, serve a broader geographic range than
the Company, and compete more effectively for national accounts. There can be
no assurance that the Company will be able to compete successfully with its
existing and future competitors. See "Business -- Competition."
EMPLOYMENT LIABILITY RISKS
Providers of staffing services employ and place people in the workplaces of
other businesses. Risks inherent in such activity include possible claims of
errors and omissions, misuse of client proprietary information,
misappropriation of funds, discrimination and harassment, theft of client
property, other criminal activity or torts and other claims. While the Company
has not historically experienced any material claims of these types, there can
be no assurance that the Company will not experience such claims in the
future.
CONTROL OF THE COMPANY
After the Offering and the completion of the Pending Leardata Acquisition,
Ms. Weaver will control the vote of approximately 24.9% of the outstanding
shares of Common Stock (23.7% if the over-allotment option is exercised in
full) and Riordan, Lewis & Haden ("RLH"), a private investment firm which made
an investment in the Company prior to the IPO, will control the vote of 16.9%
of the outstanding shares of Common Stock (16.5% if the over-allotment option
is exercised in full). While not controlling a majority of the outstanding
shares, Ms. Weaver and RLH will be the two largest shareholders of the Company
and will have significant influence with respect to the election of directors
and other issues submitted to the Company's shareholders. Such concentration
of ownership could also have the effect of making it more difficult for a
third party to acquire control of the Company and may discourage third parties
from attempting to do so. See "Principal and Selling Shareholders" and
"Description of Capital Stock."
10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price for the Common Stock and the ability of the Company to raise
equity capital. The Company can make no prediction as to the effect, if any,
that sales of shares of its Common Stock, or the availability of shares for
future sale, will have on the market price of the Common Stock prevailing from
time to time or on the Company's ability to sell equity securities or equity-
related securities at times and prices that it deems appropriate. See "Shares
Eligible for Future Sale."
ABILITY TO ISSUE PREFERRED STOCK WITHOUT FURTHER SHAREHOLDER APPROVAL
The Company's Articles of Incorporation permit the Board of Directors to
establish the rights, preferences, privileges and restrictions of, and to
issue shares of Preferred Stock without any further vote or action by the
Company's shareholders. The issuance of Preferred Stock could adversely affect
the holders of Common Stock and could have the effect of delaying, deferring
or preventing a change in control of the Company. The Company has no present
plans to issue any shares of Preferred Stock. See "Description of Capital
Stock."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Common Stock has fluctuated over a broad range since
the completion of the IPO in March 1996. Numerous factors, including
announcements of fluctuations in the Company's or its competitors' operating
results and market conditions for IT staffing or computer services industry
stocks in general, could have a significant impact on the future price of the
Common Stock. In addition, the stock market in recent years has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies. These broad
fluctuations may adversely affect the market price of the Common Stock. See
"Price Range of Common Stock."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby (assuming an offering price of
$18.25 per share), after deducting the underwriting discount and estimated
offering expenses, are estimated to be $34.2 million ($39.1 million if the
Underwriters' over-allotment option is exercised in full). Approximately $6.5
million of the net proceeds will be used to repay in full the outstanding
balance under the Company's existing credit facility, which amount the Company
expects to borrow under such facility in order to pay a portion of the cash
purchase price of the Pending Leardata Acquisition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources." The Company intends to use the remaining net
proceeds (approximately $27.7 million) for future acquisitions, the opening of
new offices, working capital and other general corporate purposes. See
"Business -- Growth Strategy." Pending such uses, the net proceeds will be
invested in short-term, investment grade, interest-bearing securities.
The Company continually reviews and evaluates acquisition candidates to
complement and expand its existing business, and is at various stages of
evaluation and discussion with a number of such candidates. The Company has
not entered into a definitive purchase agreement with respect to any
acquisition candidate other than Leardata, and no portion of the net proceeds
has been allocated to specific acquisitions; however, it is possible that a
substantial portion of the net proceeds will be used for one or more of such
acquisitions.
The net proceeds to be received by the Selling Shareholder from the sale of
the 200,000 shares of Common Stock offered hereby, after deducting the
underwriting discount, will be $3.5 million ($4.3 million if the Underwriters'
over-allotment option is exercised in full). The Company will not receive any
proceeds from the sale of shares of Common Stock by the Selling Shareholder.
PRICE RANGE OF COMMON STOCK
The Company completed the IPO in March 1996 at a price per share of $14.00.
The Common Stock is traded on the Nasdaq National Market under the symbol
"DPRC." The following table sets forth the reported high and low sales prices
of the Common Stock for the quarters indicated as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
High Low
---- -------
<S> <C> <C>
FISCAL YEAR 1996
Third Quarter (from March 6, 1996)........................ $28 1/4 $18 3/8
Fourth Quarter............................................ 29 1/2 16
FISCAL YEAR 1997
First Quarter............................................. $24 7/8 $16
Second Quarter (through December 20, 1996)................ 22 15 1/2
</TABLE>
The closing price of the Common Stock on December 20, 1996 was $18.25 per
share. As of December 16, 1996, there were approximately 36 holders of record
of the Company's Common Stock.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future. The Company currently intends to retain future earnings to
finance its operations and fund the growth of its business. Any payment of
future dividends will be at the discretion of the Board of Directors of the
Company and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions in respect to the payment of dividends and other factors that the
Company's Board of Directors deems relevant.
12
<PAGE>
CAPITALIZATION
The following table sets forth: (i) the historical capitalization of the
Company as of October 31, 1996; (ii) the pro forma capitalization of the
Company as of October 31, 1996 giving effect to the PSCI Acquisition and the
Pending Leardata Acquisition as if such transactions had occurred on October
31, 1996; and (iii) the pro forma combined capitalization of the Company as
further adjusted to reflect the sale by the Company of 2,000,000 shares of
Common Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Pro Forma Combined Condensed Financial
Information."
<TABLE>
<CAPTION>
October 31, 1996
--------------------------------
Pro Forma
As
Actual Pro Forma Adjusted
------- -------------- ---------
(In thousands)
<S> <C> <C> <C>
Total debt (1)................................ $ -- $ 6,500 $ --
Shareholders' equity:
Preferred stock: 2,000,000 shares autho-
rized; no shares issued and outstanding as
of October 31, 1996, actual, pro forma and
pro forma as adjusted...................... -- -- --
Common stock: 20,000,000 shares authorized;
7,492,321 shares issued and outstanding as
of October 31, 1996; 7,792,321 shares
issued and outstanding, pro forma; and
9,792,321 shares issued and outstanding,
pro forma as adjusted (2).................. 36,996 40,861 75,086
Additional paid-in capital.................. 1,636 1,636 1,636
Retained earnings........................... 1,523 1,523 1,523
------- ------- -------
Total shareholders' equity.................. 40,155 44,020 78,245
------- ------- -------
Total capitalization...................... $40,155 $50,520 $78,245
======= ======= =======
</TABLE>
- --------
(1) Pro forma total debt as of October 31, 1996 reflects $6.5 million of
borrowings under the Company's existing credit facility to be drawn in
connection with the Pending Leardata Acquisition. Although the Company has
sufficient cash and cash equivalents to pay the entire cash portion of the
purchase price for the Pending Leardata Acquisition, the Company intends
to draw $6.5 million under such facility to pay a portion of the cash
purchase price of such acquisition. The $6.5 million in borrowings will be
repaid with the proceeds of the Offering.
(2) Actual, pro forma and pro forma as adjusted shares outstanding as of
October 31, 1996 exclude shares of Common Stock issuable upon exercise of
options outstanding under the Company's 1994 Stock Option Plan. As of
November 30, 1996, there were 811,720 shares of Common Stock issuable upon
exercise of outstanding options under the Company's 1994 Stock Option Plan
with a weighted average exercise price of $10.30 per share. Also, includes
an estimated 266,000 shares of Common Stock to be issued in connection
with the consummation of the Pending Leardata Acquisition, plus an
estimated 34,000 shares to be issued at such closing as an adjustment for
cash on hand.
13
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected historical financial data set forth below as of and for the
fiscal years ended July 31, 1992, 1993, 1994, 1995 and 1996 have been derived
from the audited financial statements of the Company. The selected historical
financial data as of October 31, 1996 and for the three months ended October
31, 1995 and 1996 have been derived from the unaudited financial statements of
the Company, which include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
presentation of the results of operations for the periods presented. The
results of operations for the three months ended October 31, 1996 are not
necessarily indicative of results that may be expected for the Company's
fiscal year ending July 31, 1997. The pro forma balance sheet data as of
October 31, 1996 gives effect to the PSCI Acquisition and the Pending Leardata
Acquisition as if such transactions had occurred on October 31, 1996. The pro
forma as adjusted balance sheet further adjusts the pro forma balance sheet to
give effect to the sale by the Company of 2,000,000 shares of Common Stock
offered hereby and the application of the estimated net proceeds therefrom.
The following information should be read in conjunction with the Financial
Statements and Notes thereto, "Use of Proceeds" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months
Fiscal Year Ended July 31, Ended October 31,
------------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 (1) 1996
------- ------- ------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $20,621 $23,163 $34,165 $49,558 $58,145 $13,954 $20,134
Cost of professional
services................ 17,927 19,397 28,047 40,082 45,918 11,035 15,434
------- ------- ------- ------- ------- ------- -------
Gross margin............ 2,694 3,766 6,118 9,476 12,227 2,919 4,700
Selling, general and
administrative expenses
(2).................... 2,530 3,648 5,581 5,769 6,719 1,491 2,853
------- ------- ------- ------- ------- ------- -------
Operating income........ 164 118 537 3,707 5,508 1,428 1,847
Interest (expense)
income, net............. (128) (113) (401) (764) (162) (159) 202
------- ------- ------- ------- ------- ------- -------
Income before provision
for income taxes....... 36 5 136 2,943 5,346 1,269 2,049
Provision for income
taxes................... 11 4 56 1,205 2,096 516 801
------- ------- ------- ------- ------- ------- -------
Net income(3)........... $ 25 $ 1 $ 80 $ 1,738 $ 3,250 $ 753 $ 1,248
======= ======= ======= ======= ======= ======= =======
Net income per share(3). $ 0.54 $ 0.15 $ 0.16
======= ======= =======
Weighted average common
and common equivalent
shares (4)............. 6,039 4,926 7,864
</TABLE>
<TABLE>
<CAPTION>
July 31, October 31, 1996
------------------------------------- ---------------------------------
Pro Forma
As
1992 1993 1994 1995 1996 Actual Pro Forma (5) Adjusted (6)
------ ------ ------ ------ ------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............. $ 1 $ 27 $ 25 $ 248 $21,855 $22,945 $10,373 $38,098
Working capital......... 664 817 267 1,833 26,901 28,105 18,560 46,285
Total assets............ 2,851 3,487 5,638 7,623 44,029 44,895 57,050 84,775
Total debt (7) ......... 600 750 6,185 4,305 -- -- 6,500 --
Series A Convertible
Preferred Stock (8).... -- -- -- 1,485 -- -- -- --
Shareholders' equity
(deficit) (8)(9)....... 216 217 (4,524) (2,878) 40,036 40,155 44,020 78,245
</TABLE>
14
<PAGE>
- --------
(1) The AD&D Acquisition was completed on July 1, 1996. Consequently, the
Statement of Income Data for the three months ended October 31, 1996
(which includes the acquired operations for the entire period) are not
directly comparable to the Statement of Income Data for the three months
ended October 31, 1995. See "Pro Forma Combined Condensed Financial
Information."
(2) Selling, general and administrative expenses for fiscal 1992, 1993 and
1994 include management fees of $765,000, $820,000 and $586,000,
respectively, which were paid to a management company controlled by one of
the founders of the Company. This management fee was terminated in
February 1994 upon the redemption of such founder's ownership interest in
the Company. Selling, general and administrative expenses for fiscal 1992,
1993, 1994 and 1995 also include compensation paid to Ms. Weaver of
$815,000, $975,000, $1.7 million and $921,000, respectively. Effective
March 1995, Ms. Weaver's annual compensation was significantly reduced.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Management -- Compensation."
(3) Assuming the issuance of 356,000 shares of Common Stock by the Company
which would be necessary to generate gross proceeds sufficient to repay
the pro forma outstanding debt of $6.5 million and the elimination of all
interest expense, net of tax, associated therewith, supplemental net
income and supplemental net income per share for the fiscal year ended
July 31, 1996 and the three months ended October 31, 1996 would be $4.1
million and $0.60 and $1.5 million and $0.17, respectively.
(4) Weighted average common and common equivalent shares gives effect to the
assumed exercise of all outstanding stock options using the treasury
method. See Note 2 of Notes to Financial Statements of the Company
included elsewhere in this Prospectus.
(5) The Pro Forma Balance Sheet Data as of October 31, 1996 gives effect to
the PSCI Acquisition and the Pending Leardata Acquisition as if such
transactions had occurred on October 31, 1996. See "Pro Forma Combined
Condensed Financial Information."
(6) The Pro Forma As Adjusted Balance Sheet Data as of October 31, 1996
further adjusts the Pro Forma Balance Sheet Data to give effect to the
sale by the Company of 2,000,000 shares of Common Stock offered hereby at
an estimated offering price of $18.25 per share of Common Stock and the
application of the estimated net proceeds therefrom. See " Use of
Proceeds," "Capitalization" and "Pro Forma Combined Condensed Financial
Information."
(7) Does not include working capital borrowings under the Company's prior
revolving credit facility, which were $1.4 million, $1.7 million, $2.4
million and $836,000 at July 31, 1992, 1993, 1994 and 1995, respectively.
Pro Forma Balance Sheet Data as of October 31, 1996 reflects $6.5 million
of borrowings under the Company's existing credit facility to be drawn in
connection with the Pending Leardata Acquisition. Although the Company has
sufficient cash and cash equivalents to pay the entire cash portion of the
purchase price for the Pending Leardata Acquisition, the Company intends
to draw $6.5 million under such facility to pay a portion of the cash
purchase price of such acquisition. The $6.5 million in borrowings will be
repaid with the proceeds of the Offering.
(8) The outstanding shares of Series A Convertible Preferred Stock were
subject to mandatory redemption by the Company at any time after March
2005 upon the request of the holders of a majority of such shares then
outstanding. Consequently, such shares were not included in actual
shareholders' equity (deficit) at July 31, 1995. Such shares automatically
converted into 592,000 shares of Common Stock immediately prior to the
consummation of the IPO.
(9) The Company recorded a charge to retained earnings of $4.8 million in
February 1994 in connection with the redemption of all shares of Common
Stock not owned by Ms. Weaver.
15
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
(UNAUDITED)
The unaudited pro forma combined condensed statement of income for the
fiscal year ended July 31, 1996 gives effect on a purchase accounting basis to
the Acquisitions as if they had occurred on August 1, 1995 and has been
prepared by combining the statement of income of DPRC for the fiscal year
ended July 31, 1996 with the statement of income of ADD Consulting, Inc. for
the 11 months ended June 30, 1996 (the day prior to the consummation of the
AD&D Acquisition), the statements of income of PSCI and Leardata for the 12
months ended June 30, 1996.
The unaudited pro forma combined condensed statement of income for the three
months ended October 31, 1996 gives effect on a purchase accounting basis to
the PSCI Acquisition and the Pending Leardata Acquisition as if such
transactions had occurred on August 1, 1995 and has been prepared by combining
the Company's statement of income for the three months ended October 31, 1996
with the statements of income for PSCI and Leardata for the three months ended
September 30, 1996.
The unaudited pro forma combined condensed balance sheet as of October 31,
1996 has been prepared to give pro forma effect to the PSCI Acquisition and
the Pending Leardata Acquisition as if such transactions had occurred on
October 31, 1996 and has been prepared by combining the Company's balance
sheet as of October 31, 1996 with the balance sheets of PSCI and Leardata as
of September 30, 1996 and giving effect to the preliminary purchase price
allocation.
The pro forma combined condensed adjustments are based on management's
preliminary assumptions regarding purchase accounting adjustments. The actual
allocation of the purchase price will be adjusted to the extent that actual
amounts differ from management's estimates in accordance with Statement of
Financial Accounting Standards (SFAS) No. 38, Accounting for Preacquisition
Contingencies of Purchased Enterprises.
Certain data and notes normally included in financial statements in
accordance with generally accepted accounting principles have been condensed
or omitted. The unaudited pro forma statements of income are not necessarily
indicative of the results which would have occurred if the Acquisitions had
been consummated as of such dates, nor do they purport to represent the
results of operations of the Company for any future period. The pro forma
combined condensed financial information should be read in conjunction with
the Notes thereto and with the Financial Statements and Notes thereto for the
Company, ADD Consulting, Inc. (including its predecessor, AD&D Acquisition,
Inc.) and Leardata included elsewhere in this Prospectus and the information
set forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
16
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Fiscal Year Ended July 31, 1996
----------------------------------------------------------
Pro Forma Pro Forma
DPRC AD&D PSCI Leardata Adjustments Combined
------- ------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $58,145 $12,515 $8,012 $15,164 $ (369)(a) $93,467
Cost of professional
services............... 45,918 8,950 6,220 10,327 (300)(a) 71,115
------- ------- ------ ------- ------- -------
Gross margin............ 12,227 3,565 1,792 4,837 (69) 22,352
Selling, general and
administrative
expenses............... 6,719 3,103 1,407 2,843 (19)(b) 14,053
------- ------- ------ ------- ------- -------
Operating income........ 5,508 462 385 1,994 (50) 8,299
Interest (expense)
income, net............ (162) (37) (73) 70 (1,279)(c) (1,481)
------- ------- ------ ------- ------- -------
Income before provision
for income taxes....... 5,346 425 312 2,064 (1,329) 6,818
Provision for income
taxes.................. 2,096 -- -- 711 189 (d) 2,996
------- ------- ------ ------- ------- -------
Net income.............. $ 3,250 $ 425 $ 312 $ 1,353 $(1,518) $ 3,822
======= ======= ====== ======= ======= =======
Net income per share.... $ 0.54 $ 0.59
======= =======
Weighted average common
and common equivalent
shares ................ 6,039 6,478(e)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended October 31, 1996
-----------------------------------------------
Pro Forma Pro Forma
DPRC PSCI Leardata Adjustments Combined
------- ------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues..................... $20,134 $2,735 $4,256 $ -- $27,125
Cost of professional
services.................... 15,434 2,117 2,918 -- 20,469
------- ------ ------ ----- -------
Gross margin................. 4,700 618 1,338 -- 6,656
Selling, general and
administrative expenses..... 2,853 402 796 100 (b) 4,151
------- ------ ------ ----- -------
Operating income............. 1,847 216 542 (100) 2,505
Interest (expense) income,
net......................... 202 (16) 20 (247)(c) 41
------- ------ ------ ----- -------
Income before provision for
income taxes................ 2,049 200 562 (347) 2,464
Provision for income taxes... 801 -- 191 50 (d) 1,042
------- ------ ------ ----- -------
Net income................... $ 1,248 $ 200 $ 371 $(397) $ 1,422
======= ====== ====== ===== =======
Net income per share......... $ 0.16 $ 0.17
======= =======
Weighted average common and
common equivalent shares.... 7,864 8,164(e)
</TABLE>
See Accompanying Notes to Pro Forma Combined Condensed Statements of Income.
17
<PAGE>
PRO FORMA COMBINED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
October 31, 1996
-----------------------------------------------
Pro
Pro Forma Forma
DPRC PSCI Leardata Adjustments Combined
------- ------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.... $22,945 $ -- $2,286 $(14,858)(f) $10,373
Accounts receivable, net..... 9,232 1,910 2,773 (70)(g) 13,845
Other current assets......... 668 23 161 -- 852
------- ------ ------ -------- -------
Total current assets.......... 32,845 1,933 5,220 (14,928) 25,070
Property, net................. 765 29 221 -- 1,015
Other assets.................. 196 7 -- -- 203
Intangible assets............. 11,089 -- -- 19,673 (h) 30,762
------- ------ ------ -------- -------
$44,895 $1,969 $5,441 $ 4,745 $57,050
======= ====== ====== ======== =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Total current liabilities..... $ 4,740 $ 509 $ 314 $ 947 (i) $ 6,510
Deferred Taxes................ -- -- 20 -- 20
Long-term debt................ -- 639 -- (639)(j) 6,500
6,500 (f)
Shareholders' equity:
Preferred stock.............. -- -- 387 (387)(k) --
Common stock................. 36,996 16 3 3,846 (k) 40,861
Additional paid-in capital... 1,636 -- 173 (173)(k) 1,636
Due from shareholders........ -- -- (107) 107 (f) --
Retained earnings............ 1,523 805 4,651 (5,456)(k) 1,523
------- ------ ------ -------- -------
Total shareholders' equity.. 40,155 821 5,107 (2,063) 44,020
------- ------ ------ -------- -------
$44,895 $1,969 $5,441 $ 4,745 $57,050
======= ====== ====== ======== =======
</TABLE>
See accompanying Notes to Pro Forma Combined Condensed Financial Statements.
18
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JULY 31, 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1996
(UNAUDITED)
(a) The pro forma adjustment represents the elimination of certain revenues
and expenses of the Denver branch office of PSCI which was closed prior to
the acquisition date.
(b) The pro forma adjustment is comprised of various adjustments to selling,
general and administrative expenses follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE MONTHS
JULY 31, 1996 ENDED OCTOBER 31, 1996
----------------- ----------------------
<S> <C> <C>
AD&D:
Expenses associated with
development stage business not
acquired........................... $(696,000) $ --
Compensation in excess of
employment agreements ............. (138,000) --
Amortization expense of acquired
goodwill........................... 495,000 --
PSCI:
Elimination of certain expenses of
the Denver
branch office of PSCI which was
closed prior to acquisition....... (135,000) --
Amortization expense of acquired
goodwill........................... 148,000 37,000
Leardata:
Compensation in excess of
employment agreements............. (333,000) (97,000)
Amortization expense of acquired
goodwill.......................... 640,000 160,000
--------- --------
$ (19,000) $100,000
========= ========
</TABLE>
(c) The pro forma adjustment relates to reduced interest income or additional
interest expense associated with the use of cash or additional borrowings
for the purchase of each of the Acquisitions.
(d) The pro forma adjustment represents the additional income tax expense
associated with the Acquisitions and the corresponding pro forma
adjustments.
(e) The pro forma adjustment for the fiscal year ended July 31, 1996
represents the estimated issuance of 300,000 shares of Common Stock in the
Pending Leardata Acquisition and 139,444 of the 152,121 shares of Common
Stock issued in the AD&D Acquisition. The pro forma adjustment for the
three months ended October 31, 1996 represents the estimated issuance of
300,000 shares of Common Stock in the Pending Leardata Acquisition.
(f) The pro forma adjustment is comprised of various adjustments to cash and
cash equivalents as follows:
<TABLE>
<S> <C>
Cash paid for the PSCI Acquisition............................ $ (4,900,000)
Cash to be paid for the Pending Leardata Acquisition.......... (16,565,000)
Cash proceeds to be borrowed under the Credit Agreement in
conjunction with the consummation of the Pending Leardata
Acquisition.................................................. 6,500,000
Repayment of Leardata stockholder notes....................... 107,000
------------
$(14,858,000)
============
</TABLE>
(g) The pro forma adjustment is to conform accounting policies for the
allowance for doubtful accounts.
(h) The pro forma adjustment represents the allocation of the excess of the
purchase price over net assets acquired of $3.7 million for the PSCI
Acquisition and $16.0 million for the Pending Leardata Acquisition to
goodwill.
(i) The pro forma adjustment consists of the following adjustments to current
liabilities:
<TABLE>
<S> <C>
Accruals for estimated acquisition costs associated with the PSCI
Acquisition and the Pending Leardata Acquisition.................. $800,000
Adjustments to conform accounting policies......................... 147,000
--------
$947,000
========
</TABLE>
(j) The pro forma adjustment is comprised of $639,000 of debt not assumed in
the PSCI Acquisition.
(k) The pro forma adjustment includes the estimated value of the stock to be
issued in the Pending Leardata Acquisition of $3.9 million and the
elimination of the equity accounts of PSCI and Leardata.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Early in fiscal 1994, the Company began to implement a growth strategy which
has had a significant impact on the Company's financial condition and results
of operations. As part of this strategy, the Company hired a new President and
Chief Operating Officer and added other personnel to strengthen the Company's
financial, marketing and operating infrastructure. In addition, the Company
opened new branch offices in Denver and Seattle. These strategic initiatives
contributed to an increase in the Company's revenues from $23.2 million in
fiscal 1993 to $58.1 million in fiscal 1996.
In July 1996, the Company completed its first acquisition by acquiring AD&D,
with branches in Omaha and Kansas City. In September 1996, the Company opened
an office in Des Moines completing a planned expansion by AD&D. Additionally,
in November 1996, the Company acquired an office in Phoenix through its
acquisition of PSCI. Upon the completion of the Pending Leardata Acquisition,
which is scheduled for January 1997, the Company will acquire an office in
Dallas and will have ten offices in eight states. Completion of the Pending
Leardata Acquisition will enhance the Company's geographical presence by
adding 130 technical consultants in approximately 30 states. Although Leardata
is headquartered in Dallas, approximately 71% of its revenue is generated from
services performed in states other than Texas.
Since the Company began to implement its growth strategy, it has also taken
a number of steps to increase revenue growth, improve margins and enhance
overall financial performance. The Company has expanded its service offerings
to include networking and communications, help desk support, intranet and
internetworking and similar services which, while generally requiring lesser
skilled technical consultants, often provide higher gross margins. The
Company's strategy of geographic expansion is designed to improve operating
results by increasing revenues without a proportional increase in general and
administrative expenses and by permitting the Company to enter markets which
may be less competitive than the markets currently served by the Company.
Substantially all of the Company's revenues are based on the hourly billings
of its technical consultants and are recognized as services are provided. The
average billing rate as of October 31, 1996 was approximately $54 per hour.
Billing rates vary from market to market and are determined according to the
skill level of the technical consultant assigned to the client. Although the
Company has historically paid its technical consultants only when they were
actually on assignment with a client, a significant number of the consultants
added, or to be added, through the Acquisitions are salaried employees who are
paid whether or not they are on assignment. Typically, the gross margins
associated with such salaried consultants are higher than for consultants who
are paid only when they are on assignment.
Although the Company serves a large number of clients in a broad range of
industry groups, approximately 41.5% of the Company's revenues in fiscal 1996
were derived from six foreign automobile and motorcycle manufacturers with
operations in Southern California, with one such client representing 10.2% of
revenues and another representing 8.8% of revenues. On an unaudited pro forma
basis, giving effect to the Acquisitions as if they had occurred on August 1,
1995, approximately 25.2% of the Company's pro forma revenues in fiscal 1996
would have been derived from these six manufacturers, the largest of which
would have represented 6.2% of revenues. Approximately 60.3% of the Company's
fiscal 1996 revenues were derived from its ten largest clients (37.9% giving
pro forma effect to the Acquisitions). A significant increase or decrease in
demand by a large client could have a substantial effect on the Company's
revenues, and revenues from any one client can vary materially from period to
period.
20
<PAGE>
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table presents certain unaudited quarterly financial
information for each of the Company's last nine fiscal quarters. In the
opinion of the Company's management, this quarterly information has been
prepared on the same basis as the audited financial statements appearing
elsewhere in this Prospectus and
includes all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the unaudited quarterly results set forth herein.
The Company's quarterly results have in the past been subject to fluctuations,
and thus, the operating results for any quarter are not necessarily indicative
of results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------------------------------------
Fiscal 1995 Fiscal 1996
-------------------------------- -------------------------------- Fiscal 1997
10/31/94 1/31/95 4/30/95 7/31/95 10/31/95 1/31/96 4/30/96 7/31/96 10/31/96
-------- ------- ------- ------- -------- ------- ------- ------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME
DATA:
Revenues.................... $11,113 $11,360 $12,780 $14,305 $13,954 $13,246 $14,815 $16,130 $20,134
Cost of professional
services................... 9,081 9,025 10,338 11,638 11,035 10,433 11,780 12,670 15,434
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross margin................ 2,032 2,335 2,442 2,667 2,919 2,813 3,035 3,460 4,700
Selling, general and
administrative
expenses (1)............... 1,291 1,403 1,434 1,641 1,491 1,744 1,606 1,878 2,853
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income............ 741 932 1,008 1,026 1,428 1,069 1,429 1,582 1,847
Net income ................. $ 317 $ 429 $ 478 $ 514 $ 753 $ 542 $ 823 $ 1,132 $ 1,248
</TABLE>
- --------
(1) Selling, general and administrative expenses for the fiscal quarters ended
October 31, 1994, January 31, 1995, April 30, 1995 and July 31, 1995
include compensation for Ms. Weaver of $314,000, $213,000, $248,000 and
$146,000, respectively. Effective March 1995, Ms. Weaver's compensation
was significantly reduced. See "Management -- Compensation."
Demand for the Company's services is generally lower in the quarter ending
January 31 due to reduced activity during the holiday season and a lower
number of working days for those clients that curtail operations between
Christmas and New Years Day. The Company anticipates that its business will
continue to be subject to such seasonal variations.
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's statement of income for the indicated periods:
<TABLE>
<CAPTION>
Three
Months
Fiscal Year Ended Ended
July 31, October 31,
------------------- ------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
SELECTED STATEMENT OF INCOME DATA:
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of professional services............... 82.1 80.9 79.0 79.1 76.7
----- ----- ----- ----- -----
Gross margin................................ 17.9 19.1 21.0 20.9 23.3
Selling, general and administrative expenses
(1)........................................ 16.3 11.6 11.5 10.7 14.2
----- ----- ----- ----- -----
Operating income ........................... 1.6 7.5 9.5 10.2 9.2
Net income ................................. 0.2 3.5 5.6 5.4 6.2
</TABLE>
- --------
(1) Selling, general and administrative expenses for fiscal 1994 and part of
fiscal 1995 include compensation for Ms. Weaver of $1.7 million (5.0% of
revenues) and $921,000 (1.9% of revenues), respectively. Effective March
31, 1995, Ms. Weaver's compensation was significantly reduced. See
"Management -- Compensation."
21
<PAGE>
THREE MONTHS ENDED OCTOBER 31, 1996 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
1995
Revenues. Revenues increased $6.2 million, or 44.3%, to $20.1 million for
the three months ended October 31, 1996 as compared to $14.0 million for the
three months ended October 31, 1995. This increase resulted primarily from the
contribution of revenues from AD&D (acquired in July 1996), the Denver branch
(opened in November 1995) and the Seattle branch (opened in June 1996), and
from the Company's existing clients due to: (i) new IT projects; (ii)
increased demand in the networking and communications market; and (iii) a
broadening of the services being provided. These increases were partially
offset by the performance of the San Francisco branch which contributed
$518,000 to revenues for the three months ended October 31, 1996, down from
$697,000 in the comparable period in the prior year.
Gross Margin. Gross margin increased $1.8 million, to $4.7 million, for the
three months ended October 31, 1996, as compared to $2.9 million for the three
months ended October 31, 1995. As a percentage of revenues, gross margin
increased to 23.3%, as compared to 20.9% for the same period in the prior
year. This gross margin percentage improvement reflects higher gross margins
from AD&D due to its higher mix of salaried consultants, the opening of the
branch offices in Denver, Seattle and Des Moines which are generating higher
gross margins than those in the core market, the gross margin improvement
program in existing markets and a change in service mix, with an increased
component of higher gross margin client/server and networking and
communications services in the three months ended October 31, 1996 than in the
prior year period.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $1.4 million, to $2.9 million,
for the three months ended October 31, 1996, as compared to $1.5 million for
the three months ended October 31, 1995. Selling, general and administrative
expenses also increased as a percentage of revenues to 14.2% for the three
months ended October 31, 1996, as compared to 10.7% for the prior year period.
This increase primarily resulted from investment in additional management
personnel and corporate infrastructure required to support planned Company
growth and, to a lesser extent, resulted from occupancy costs and higher
recruiting and sales personnel expenses related to three branch openings and
amortization of intangible assets related to the AD&D Acquisition.
Operating Income. Operating income increased $419,000, or 29.3%, to $1.8
million for the three months ended October 31, 1996 from $1.4 million for the
same period in fiscal 1996. As a percentage of revenues, however, operating
income decreased to 9.2% for the three months ended October 31, 1996 as
compared to 10.2% for the three months ended October 31, 1995 reflecting the
increase in selling, general and administrative expenses as a percentage of
revenues, offset, in part, by the gross margin improvement.
Interest (Expense) Income, Net. The Company had interest income of $202,000
for the three months ended October 31, 1996 as compared to interest expense of
$159,000 for the three months ended October 31, 1995 as a result of the
repayment of the Company's interest bearing debt in March 1996 with a portion
of the proceeds of the IPO and the investment of the remaining proceeds in
interest bearing securities.
FISCAL YEAR ENDED JULY 31, 1996 COMPARED TO FISCAL YEAR ENDED JULY 31, 1995
Revenues. Revenues increased $8.6 million, or 17.3%, to $58.1 million for
fiscal 1996 as compared to $49.6 million for fiscal 1995. This increase
resulted primarily from billings to new clients both in existing locations as
well as the new locations in Denver and Seattle, and from increased billings
to the Company's existing clients due to: (i) new IT projects; (ii) increased
demand in the networking and communications market; (iii) a broadening of the
services being provided; and (iv) increased demand for the most highly skilled
consultants who are billed at higher hourly rates. To a lesser extent, the
increase also resulted from one month of revenue from AD&D. These increases
were offset, in part, by the performance of the San Francisco branch which
contributed $2.2 million to revenues in fiscal 1996, down from $3.6 million in
fiscal 1995.
22
<PAGE>
Gross Margin. Gross margin increased $2.8 million, to $12.2 million, for
fiscal 1996 as compared to $9.5 million for fiscal 1995. As a percentage of
revenues, gross margin increased for fiscal 1996 to 21.0% as compared to 19.1%
for the prior year. This improvement reflects the modest price increases which
the Company has been able to implement and a change in business mix, with an
increased component of higher margin client/server and networking and
communications services in fiscal 1996.
Selling General and Administrative Expenses. Selling, general and
administrative expenses increased approximately $1.0 million, or 16.5%, to
$6.7 million for fiscal 1996, as compared to $5.8 million for fiscal 1995. As
a percentage of revenues, selling, general and administrative expenses
decreased to 11.5% for fiscal 1996 as compared to 11.6% for fiscal 1995. This
decrease as a percentage of revenues primarily resulted from lower founder's
and executive incentive compensation offset by several factors, including: (i)
higher commissions as a percentage of revenues reflecting the higher
commission rates paid for higher margin billings; (ii) investment in
additional management personnel and corporate infrastructure required to
support planned Company growth; and (iii) costs associated with the opening of
new branch locations in Seattle and Denver.
Operating Income. Operating income increased $1.8 million, or 48.6%, to $5.5
million for fiscal 1996 from $3.7 million for fiscal 1995. As a percentage of
revenues, operating income increased to 9.5% for fiscal 1996 as compared to
7.5% for fiscal 1995. This increase as a percentage of revenues reflects the
improvement in gross margin as a percentage of revenues, lower compensation to
Ms. Weaver as a result of the change in her compensation arrangements
effective in March 1995 and lower executive incentive compensation.
Interest (Expense) Income, Net. Net interest expense decreased to $162,000
for fiscal 1996 from $764,000 for fiscal 1995 due to: (i) lower borrowing
costs following the refinancing transactions in March 1995; (ii) the repayment
of all interest bearing debt with a portion of the proceeds of the IPO in
March 1996; and (iii) interest income in fiscal 1996 from the investment of
the remaining proceeds of the IPO in interest bearing securities. These
decreases in interest expense and the inclusion of interest income were
offset, in part, by a write-off of $140,000 of deferred financing fees related
to the repayment of the Company's bank debt in connection with the IPO.
FISCAL YEAR ENDED JULY 31, 1995 COMPARED TO FISCAL YEAR ENDED JULY 31, 1994
Revenues. Revenues increased $15.4 million, or 45.1%, to $49.6 million for
fiscal 1995 as compared to $34.2 million for fiscal 1994. Approximately half
of such increase was attributable to higher billings to the Company's ten
largest customers, with $3.7 million, or 23.9%, of such increase coming from
increased billings to a single client. Higher demand was also experienced from
several smaller clients. In addition, the San Francisco branch, in its second
full year of operations, contributed approximately $3.6 million to revenues in
fiscal 1995 as compared to approximately $1.1 million in fiscal 1994. Other
factors which contributed to the increase in revenues were price increases and
increased demand for the most highly skilled consultants who are billed at
higher hourly rates.
Gross Margin. Gross margin increased $3.4 million, to $9.5 million, for
fiscal 1995 as compared to $6.1 million for fiscal 1994. As a percentage of
revenues, gross margin increased for fiscal 1995 to 19.1% as compared to 17.9%
for fiscal 1994. This improvement reflects price increases and improved
contract administration as well as an improved business mix in fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $200,000, or 3.4%, to $5.8 million for
fiscal 1995 as compared to $5.6 million for fiscal 1994. As a percentage of
revenues, selling, general and administrative expenses decreased to 11.6% for
fiscal 1995 as compared to 16.3% for fiscal 1994. This decrease resulted from
lower compensation paid to Ms. Weaver in fiscal 1995, the elimination of the
management fee paid to a shareholder whose interest was repurchased in
February 1994, and a reduction in expense for outside professional services
due in part to the hiring of a full-time President in September 1994. In
addition, legal and accounting expenses were unusually high in fiscal 1994 due
to the costs incurred in the February 1994 stock repurchase. These increases
were partially offset by higher staff bonuses in fiscal 1995 and an increase
in administrative and temporary personnel needed in fiscal 1995 to support the
growth in revenues.
23
<PAGE>
Operating Income. Operating income increased approximately $3.2 million to
$3.7 million for fiscal 1995 as compared to $537,000 for fiscal 1994. As a
percentage of revenues, operating income increased to 7.5% for fiscal 1995 as
compared to 1.6% for fiscal 1994. This increase primarily reflects the
improvement in selling, general and administrative expenses as a percentage of
revenues and, to a lesser extent, the improvement in gross margin as a
percentage of revenues.
Interest (Expense) Income, Net. Interest expense increased to $764,000 for
fiscal 1995 as compared to $401,000 for fiscal 1994 due to increased
borrowings incurred in connection with the February 1994 repurchase of certain
shares of Common Stock.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of, which becomes effective for fiscal years beginning after December
14, 1995. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company will adopt this statement in
fiscal 1997 as required, and its adoption is not expected to have a
significant effect on reported earnings, financial condition or cash flows.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, Accounting for Stock-Based Compensation, which requires adoption of the
disclosure provisions no later than years beginning after December 15, 1995
and adoption of the recognition and measurement provisions for nonemployee
transactions no later than after December 15, 1995. The new standard defines a
fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period which is usually the vesting period. Pursuant to the new
accounting standard, companies are encouraged, but are not required, to adopt
the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as if
the company had applied the new method of accounting. The Company has
determined that it will not change to the fair value method and will continue
to use Accounting Principle Board Opinion No. 25 for measurement and
recognition of employee stock-based transactions.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and net working capital totaled $22.9 million and
$28.1 million, respectively, as of October 31, 1996. The primary sources of
cash generated from operations in the three months ended October 31, 1996 were
net income and an increase in income taxes payable, offset by an increase in
accounts receivable, prepaid expenses and other assets.
In October 1996, the Company obtained the Credit Agreement with Wells Fargo
Bank. The Credit Agreement provides a revolving line of credit in the
principal amount of $10.0 million, which bears interest at LIBOR plus 1.0% or
prime, at the Company's option, and a facility in the principal amount of
$10.0 million for acquisitions, which bears interest at LIBOR plus 1.25% or
prime, at the Company's option. Both facilities are secured by accounts
receivable and equipment. Additional pricing options and alternatives are
available depending on certain financial conditions. The Credit Agreement
contains various covenants, including the maintenance of defined financial
ratios such as liquidity and tangible net worth. As of November 30, 1996, the
Company had no outstanding borrowings under the Credit Agreement and was in
compliance with such covenants.
24
<PAGE>
In November 1996, the Company acquired all of the outstanding common stock
of PSCI. Under the terms of the agreement, the purchase price was
approximately $4.9 million in an all cash transaction plus an earn-out based
on PSCI's performance for the two months ending December 31, 1996. In January
1997, upon the completion of the Company's acquisition of Leardata, the
Company will be required to pay approximately $16.6 million of the purchase
price in cash. Although the Company has sufficient cash and cash equivalents
to make this payment, the Company intends to borrow $6.5 million under the
Credit Agreement to pay a portion of the cash purchase price of such
acquisition. The $6.5 million will be repaid with the proceeds of the
Offering.
The Company anticipates that its primary uses of working capital in future
periods will be for acquisitions, the internal development of new branches and
the funding of increases in accounts receivable. Although the Company seeks to
use its Common Stock to make acquisitions to the extent possible, a
substantial portion of the purchase price for AD&D and all of the purchase
price for PSCI was paid in cash, and a substantial portion of the purchase
price for Leardata will be paid in cash. Future acquisition candidates may
also require that all or a significant portion of the purchase price be paid
in cash. The Company's ability to grow through acquisitions is dependent on
the availability of suitable acquisition candidates and the terms on which
such candidates may be acquired, which may be adversely affected by
competition for such acquisitions. The Company cannot predict to what extent
new branches will be added through acquisitions as compared to internal
development.
The Company anticipates that the opening of new branches will require an
investment of approximately $150,000 to $200,000 per branch to acquire
equipment and supplies and to fund operating losses for the initial nine- to
12-month period of operations which management believes will generally be
required for a new branch to achieve profitability. The Company expenses the
costs of opening a new branch as incurred, except for the cost of equipment
and other capital assets, which are capitalized. Generally, expenditures for
such capital assets for a new branch will be less than $50,000. There can be
no assurance that future branches will achieve profitability within a nine- to
12-month period after opening. The Company anticipates making additional
capital expenditures in connection with the development of new branch
facilities in future periods and the improvement of its network and operating
system infrastructure and management reporting system.
The Company believes that the proceeds from the Offering, together with the
existing cash and cash equivalents, cash flow from operations and available
borrowings under the Credit Agreement, will be sufficient to meet the
Company's presently anticipated working capital needs for at least the next 12
months, although the Company is evaluating various potential acquisitions
which could require all or a substantial portion of the net proceeds from the
Offering and could be completed within the next 12 months. To the extent the
Company uses all of its cash resources for acquisitions, the Company may be
required to obtain additional funds, if available, through additional
borrowings or equity financings. There can be no assurance that such capital
will be available on acceptable terms. If the Company is unable to obtain
sufficient financing, it may be unable to implement its growth strategy fully.
25
<PAGE>
BUSINESS
GENERAL
DPRC is a provider of IT staffing services to a diverse group of corporate
clients. By drawing from its carefully screened database of more than 28,000
highly qualified technical consultants, the Company offers staffing solutions
to meet its clients' enterprise-wide systems applications development needs.
The Company's technical consultants have expertise on multiple hardware
platforms utilizing a wide variety of software applications and can provide
services covering all aspects of the systems applications development
lifecycle, including planning, design, building and programming,
implementation, maintenance and ongoing management. The Company also provides
other value-added services in rapidly growing areas such as client/server
architecture, WANs and LANs, help desk support, intranet and internetworking.
For the 11 months ended November 30, 1996, the Company placed approximately
1,300 technical consultants on projects for approximately 230 clients. The
Company currently serves its clients through the following nine offices in
seven states: Newport Beach, Woodland Hills and San Francisco, California;
Denver, Colorado; Seattle, Washington; Omaha, Nebraska; Kansas City, Kansas;
Des Moines, Iowa; and Phoenix, Arizona. Upon the completion of the Pending
Leardata Acquisition, which is scheduled to close in January 1997, the Company
will also have an office in Dallas, Texas.
INDUSTRY OVERVIEW
Over the years, businesses have become increasingly dependent on the use of
IT to manage operations more efficiently and remain competitive. Important
internal functions, ranging from financial reporting to production and
inventory management, have become automated through the use of applications
software. In addition, as information systems have become less expensive, more
powerful and easier to use, the number and level of employees who use and
depend upon these systems have significantly increased.
Due to the rapid development of technology and the shift from closed,
proprietary systems to open systems, many companies' computer systems
incorporate a variety of hardware and software components which may span a
number of technology generations. For example, a company may operate
concurrently on mainframe, midrange and client/server hardware platforms
running a variety of operating systems and relational databases. Systems
applications development has become much more important in this environment as
IT departments strive to integrate a company's information processing
capabilities into a single system while providing for ever-changing
functionality. In addition, in order to facilitate internal and external
communications, there is a greater need for IT personnel with specific
expertise in the rapidly evolving local and wide area networking and
communications technologies. The rapid increase in the integration of data,
voice and video has further accelerated the need for new information solutions
which require specialized technical skills.
The substantial increase in the use of sophisticated information
technologies has occurred at the same time that economic factors have led to
reductions in corporate workforces and a return by businesses to a focus on
their core competencies. Faced with the challenge of implementing and
operating more complex information systems without enlarging their corporate
staffs, businesses are increasingly using IT staffing companies to supplement
their IT operations. Utilizing outside IT technical consultants: (i) allows a
company's management to focus on core business operations; (ii) affords
greater staffing flexibility in IT departments; (iii) increases a company's
ability to adapt to and keep pace with rapidly changing and increasingly
complex technologies; (iv) provides access to specialized technical skills on
a project-by-project basis; (v) better matches staffing levels to current
needs; (vi) converts fixed labor costs into variable costs; and (vii) reduces
the cost of recruiting, training and terminating employees as evolving
technologies require new programming skill sets. These factors have caused IT
services to be one of the fastest growing segments of the supplemental
staffing industry. According to July 30, 1996 Staffing Industry Report,
revenues from technical/computer temporary staffing are estimated to have
grown from $5.7 billion in 1993 to an estimated $9.2 billion in 1995.
26
<PAGE>
While large, the IT staffing services industry is also highly fragmented
with a large number of small businesses, many of which operate in a single
geographic market. This fragmentation, combined with changing client demands
and competitive pressures, has resulted in a recent trend towards industry
consolidation. Faced with a desire to minimize the number of vendors, clients
have begun to demand the services of large IT staffing companies capable of
covering a broad geographic area and offering a full range of IT services.
This has been particularly important in fulfilling the needs of large regional
and national accounts. Within this more competitive environment, smaller
companies may have difficulties competing due to limited service offerings,
geographic concentration and a lack of sufficient working capital and
management resources. As a result, many smaller companies have been acquired
in recent years, and the Company believes that smaller staffing companies are
becoming increasingly receptive to acquisition proposals by larger firms.
BUSINESS STRATEGY
DPRC is dedicated to providing staffing solutions to meet its clients'
systems applications development and other specialized technical needs. The
Company's business strategy encompasses the following key elements, which
management believes are necessary to ensure high quality standards and to
achieve consistently strong financial performance:
Recruit and Retain Qualified Technical Consultants. A key element of the
Company's success is its ability to recruit and retain qualified technical
consultants. Management believes that it has been successful in doing so by:
(i) offering its technical consultants competitive wages and ensuring that
they are paid accurately and on time; (ii) offering its technical consultants
an opportunity to purchase a comprehensive employee benefits package; and
(iii) effectively and consistently communicating with its technical
consultants. The Company attracts new consultants in its established markets
primarily through referrals from other technical consultants. Management
believes that this reflects a high level of satisfaction of its technical
consultants and results in a turnover rate for technical consultants that is
lower than that of its competition, thus permitting the Company to have lower
recruiting and related administrative costs than its competitors.
Emphasize a Relationship-Oriented Approach. The Company serves as an
extension of its clients' internal information systems operations and as a
long-term partner to fulfill their IT staffing requirements. As a result, the
Company emphasizes a relationship-oriented approach to business, rather than
the transaction- or assignment-oriented approach used by many of its
competitors. This emphasis begins with the Company's Chief Executive Officer
and Senior Vice President, Sales and Marketing, who spend the majority of
their time meeting with key clients, working with the Company's account
managers and communicating with the Company's technical consultants. To
develop close client relationships, the Company's regional managers and
account managers regularly meet with both existing and prospective clients to
help design solutions for and identify the resources needed to execute their
IT strategies. The Company's account managers also maintain close
communications with their clients during each project and on an ongoing basis
after its completion. The Company believes that this relationship-oriented
approach results in greater client satisfaction and reduced business
development expense.
Focus on Improving Margins. The Company constantly seeks opportunities to
enhance its profit margins by offering services for which higher margins can
be obtained and by reducing costs. For example, in recent years the Company
has begun to provide value-added technology practices, such as client/server
architecture, WANs and LANs, help desk support, intranet and internetworking.
In addition, the Company has identified, targeted and expanded to geographic
markets which provide relatively greater profitability than the highly
competitive California market. The Company also actively seeks acquisition
candidates with gross margins that are at least comparable to the Company's
margins. Finally, the Company focuses on enhancing operating efficiencies and
has made a substantial investment in upgrading its automated support systems
in order to improve the efficiency of its accounting, recruiting and marketing
operations.
Provide Comprehensive Solutions. The Company offers responsive, timely and
comprehensive IT staffing solutions for all aspects of the systems
applications development lifecycle and for other specialized technical
27
<PAGE>
needs. The Company believes that this ability to provide staffing for the full
range of such services provides an important competitive advantage. By drawing
on its database of more than 28,000 highly qualified technical consultants,
the Company provides a wide range of services, including planning, design,
building and programming, implementation, maintenance and ongoing management.
The Company also works to ensure that its technical consultants have the
expertise and skills needed to keep pace with rapidly evolving information
technologies. As an example of this effort, the Company has co-sponsored a
training program with one of its clients to train both the client's employees
and the Company's technical consultants in the implementation of and support
for a sophisticated new software application program.
Maintain Service-Oriented Corporate Culture. The Company believes that its
service-oriented corporate culture has played an integral part in its success.
Consequently, maintaining this culture is of the highest priority to
management. Central to the Company's philosophy is the recognition that its
success is dependent on providing the highest level of service to both its
clients and its technical consultants. This approach begins with the selective
recruitment of corporate level personnel who exhibit a high degree of
integrity and enthusiasm and who embrace the Company's commitment to service.
This deeply ingrained culture filters down to the Company's technical
consultants through a rigorous screening and recruiting process. The Company's
controlled expansion program is designed to enable it to replicate this
culture and preserve the quality of its service in its new markets.
GROWTH STRATEGY
DPRC's growth strategy is to expand the geographic scope of the Company's
business through internal development and acquisitions and to continue to
develop its existing markets by: (i) adding new clients in the geographic
markets it currently serves; (ii) increasing the range of services it provides
to its existing clients; (iii) attracting and retaining qualified technical
consultants; and (iv) pursuing strategic relationships with non-competing
professional service organizations. Through this growth strategy, the Company
seeks to emerge as a leading IT staffing company.
Geographic Expansion. In 1993, the Company began a geographic expansion
program in California by opening offices in San Francisco and Woodland Hills.
In late 1995, the Company opened its Denver office to serve the Rocky Mountain
region, and in June 1996, the Company opened its Pacific Northwest hub office
in Seattle. In July 1996, the Company acquired AD&D's branch offices in Omaha
and Kansas City which, together with the recently opened office in Des Moines,
constitute the Company's first offices in the North Central region. In
November 1996, the Company acquired Phoenix-based PSCI, and upon the
completion of the Pending Leardata Acquisition, the Company will add an office
in Dallas and will acquire a network of technical consultants which generated
revenues in approximately 30 states during the nine months ended September 30,
1996. The Company believes that its geographic expansion will enhance its
ability to market its services to regional and national clients, many of which
are seeking to work with a limited number of vendors capable of servicing
multiple locations. New geographic markets also may be less competitive and
may present greater opportunities for higher margins than the Company's core
markets in California. In addition, the Company believes that, through
geographic expansion, it will be better able to establish valuable strategic
partnerships with national accounting and consulting firms and large facility
management and data center outsourcing companies.
The Company believes that it can best expand the geographic scope of its
business through a series of branch offices clustered in networks around
regional hub offices. Strong hub offices will enable the Company to control
its growth, oversee regional operations without significant additional
overhead in each office, centralize administrative functions and ensure that
each office preserves the Company's service-oriented culture. The Newport
Beach office, which also serves as the Company's corporate headquarters, is
the hub for the Company's branches in Woodland Hills and San Francisco; the
Denver hub office serves the Rocky Mountain region; and the Seattle hub office
serves the Pacific Northwest region. Upon the Company's acquisition of
Leardata, its Dallas office will serve as the hub office for the Texas region.
A future office in Chicago or Minneapolis is planned to serve as the regional
hub for the North Central region. The Company believes that these
strategically located cities will enable it to expand its presence quickly and
efficiently.
28
<PAGE>
In order to maintain quality control and ensure that the Company's
relationship-oriented approach to client service is adopted by all new
offices, the Company has developed and intends to continue to develop most of
its new hub offices internally, rather than by acquisition. In selecting
locations for its hub offices, the Company seeks cities with strong and
growing economies, large populations of skilled technical professionals and
heavy concentrations of corporations with sophisticated IT needs. Once the hub
office has demonstrated its ability to meet the Company's quality standards,
branch offices will be added around the hub through acquisitions or by
internal development. Branches typically will be in smaller cities with
significant numbers of middle market companies, healthy economies and
potentially less competitive environments. Although the Company is still in
the preliminary stages of analyzing potential branch office locations, the
Company believes that cities such as Sacramento, San Jose and San Diego will
be suitable candidates for additional branch locations in California; Colorado
Springs and Salt Lake City would be candidates in the Rocky Mountain region;
Boise, Portland and Spokane in the Pacific Northwest region; Chicago, St.
Louis and Minneapolis in the North Central region; and San Antonio, Houston
and Austin in the Texas region.
As part of its growth strategy, the Company continually reviews and
evaluates potential acquisition candidates and believes that there are
significant acquisition opportunities throughout the United States. In
evaluating potential acquisition candidates, the Company seeks profitable IT
staffing companies with a proven management team, a core group of highly
qualified technical consultants, a reputation for quality and an established
client base. The Company also evaluates the cultural fit of an acquisition
candidate as well as the candidate's historical growth rates and financial
results. The Company believes that it is attractive as an acquiror of IT
staffing companies due to: (i) its ability to provide an acquired company with
expanded services and a broader geographic base; (ii) the potential for
certain economies of scale and operating efficiencies; (iii) its financial
strength and visibility as a public company; and (iv) its decentralized
management strategy.
Growth in Existing Markets. In addition to expanding the geographic scope of
its business, the Company is constantly seeking to add new clients in the
geographic markets it currently serves and to increase the range of services
it provides to its existing clients. The addition of new clients in existing
markets enables the Company to utilize more profitably its administrative and
corporate infrastructure. New clients, particularly in new industries, also
permit the Company to diversify its client base and thus reduce its exposure
to fluctuations in industry business cycles. For example, the Company's client
base, which includes clients in both existing and new locations, increased
from approximately 60 clients in fiscal 1992 to approximately 80 clients in
fiscal 1993, approximately 110 clients in fiscal 1994, approximately 150
clients in fiscal 1995 and approximately 210 clients in fiscal 1996. In
addition, the Company continues to add new value-added services as it has done
with client/server architecture, WANs and LANs, help desk support, intranet
and internetworking.
In addition to expanding the geographic scope of its business and adding new
clients and services, the Company's growth strategy is dependent upon the
Company's ability to attract and retain qualified technical consultants in
those markets in which the Company has an established presence as well as less
established markets. Competition for qualified technical consultants has been
and is expected to continue to be intense. The Company's resource managers are
responsible for recruiting and establishing long-term relationships with the
Company's technical consultants. In recognition of the important role which
the resource manager plays in attracting qualified consultants, the Company
has increased the number of its resource managers from eight on January 31,
1996 to 29 on November 30, 1996 through acquisitions, new hirings and
promotions. The Company has also developed an integrated information system
which provides all of its offices with on-line access to information on
existing and prospective technical consultants.
Finally, the Company also believes that there are significant growth
opportunities in pursuing strategic relationships with non-competing
professional services organizations, particularly national accounting firms,
consulting firms, facility management companies and data center outsourcing
companies. Although it has not historically had such strategic relationships,
the Company is currently serving as a partner through subcontractor
relationships with several such companies and is exploring several other such
opportunities.
29
<PAGE>
CLIENTS
The Company focuses its sales, service and support efforts primarily on
Fortune 500 and other large and mid-sized companies in various industries with
sophisticated IT needs. Although the Company does not have exclusive
arrangements with any clients, it enjoys service arrangements with a number of
companies which qualify DPRC as one of a limited number of approved service
providers.
During fiscal 1996, the Company served approximately 210 clients. The
Company's ten largest clients in fiscal 1996 accounted for 60.3% of the
Company's revenues, with Nissan Motor Corporation accounting for 10.2% of
total revenues. On a pro forma basis, giving effect to the Acquisitions as if
they had occurred at the beginning of fiscal 1996, the Company's ten largest
customers would have represented 37.9% of pro forma revenues in fiscal 1996.
Although the Company's largest clients represent a significant percentage of
its revenues, several of these larger clients have several independent
assignments ongoing at any one time which are administered by separate
subsidiaries or divisions. Technical services are provided to all clients
under contractual arrangements of varying lengths, which are subject to
extension, negotiation or cancellation at any time. Such contracts may include
a confidentiality agreement. In addition, all technical hourly and salaried
consultants are required to sign confidentiality agreements with the Company.
The Company's technical consultants provide services ranging from specific,
minor tasks of short duration to large, complex and integrated assignments
which require a number of technical consultants to be on assignment for
several years. Client systems applications development projects tend to be
long-term in nature, typically lasting nine to 12 months. The Company's other
value-added services are typically of shorter duration, generally lasting
three to six months.
The following table sets forth a list of selected clients during calendar
1996:
<TABLE>
<CAPTION>
AUTOMOBILE MANUFACTURERS ENTERTAINMENT & LEISURE
<S> <C>
American Honda Motor Company Capitol Records
Mazda Motor of America MCA, Inc.
Mitsubishi Motor Sales of
America Princess Cruise Lines
Nissan Motor Corporation USA The Walt Disney Company
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL SERVICES HEALTHCARE OTHER
<S> <C> <C>
The Capital
Group Apria Healthcare Group Electronic Data Systems Corp.
Coldwell Banker FHP International/Pacificare U.S. West
Wells Fargo
Bank Health Net Yamaha Motor Corporation
</TABLE>
The Company believes the primary competitive factors in attracting and
retaining clients are the ability to provide comprehensive staffing solutions
for all aspects of a client's IT needs, develop a strategic partnering
relationship, understand the specific requirements of a given project and
provide carefully screened technical consultants with the appropriate skills
in a timely manner and at competitive prices. The Company constantly monitors
the quality of the services provided by its technical consultants and obtains
feedback from its clients as to their satisfaction with the services provided.
While each client engagement differs, the following examples illustrate the
types of business needs the Company has addressed:
. Regional Healthcare Organization. This HMO's acquisition of two new
dental plans required the integration of their information systems into
the parent company's core management information system. The Company was
requested to provide technical consultants to undertake a business
requirements analysis and conduct joint applications development sessions
which included interviewing end-users throughout ten operational areas,
evaluating findings and making recommendations to this client. The
30
<PAGE>
project manager provided by the Company developed the system design, which
integrated this client's membership, claims and billing functions.
Utilizing the HMO's internal resources, the project manager also
coordinated the programming, testing and implementation of the new system.
This year-long project provided a system that allowed real-time access to
mission critical information through this client's headquarters and
multiple field locations. Due to the success of this project, the Company
has received several additional assignments from this client.
. Nationwide Restaurant Group. This client required additional support and
maintenance for key elements of its existing legacy systems. The Company
was engaged to provide technical consultants on a fixed-price contract to
provide 24-hour, on-call support for its sales, marketing, finance,
payroll/human resources and point of sale legacy systems. By enhancing
this client's existing mainframe software applications, the team of eight
senior programmer analysts provided by the Company was successful in
reducing the response time and the number of emergency on-call requests.
Although this was initially a one-year project, the Company continued to
provide technical consultants to provide ongoing support services to this
client on a time and materials basis following the completion of the
project.
. International Motorcycle Manufacturer. A new, complex distribution and
warehouse management system was needed to enable this client to provide
timely delivery of parts and supplies to its dealers, improve control
over inventory management practices and better communicate with its
dealer network. The Company was asked to provide technical consultants to
assist in assessing the systems which support certain elements of this
client's operations, including order processing, inventory management,
logistics, facilities utilization and forecasting. The Company provided a
ten-person team to assist in all phases of system definition, design and
implementation. Over the course of this more than three-year engagement,
the team participated in the evaluation, recommendation and subsequent
development of a new client/server based system solution. In addition,
the Company helped to coordinate joint training for both this client's
employees and its own technical consultants in an emerging enterprise-
wide software application package.
THE DPRC OPERATING AND SALES APPROACH
The Company's overall operating approach is designed to ensure the highest
level of client, employee and technical consultant satisfaction. From its
corporate headquarters in Newport Beach, California, the Company provides its
branch offices with centralized administrative, marketing, finance, training
and legal support. Management recognizes, however, that in order to motivate
its employees, to ensure that clients receive quick, responsive service and to
adapt to local market conditions, the Company has developed a decentralized,
entrepreneurial structure with strong regional management and branch managers
who operate each branch office as an autonomous profit center. Consequently,
the Company's regional managers are given significant autonomy to make most
day-to-day operating decisions over their respective hub or regions and are
responsible for: overall guidance and supervision of the region; budgeting and
forecasting for the region; strategy with regard to market and account
penetration; the hiring and training of branch managers; targeting acquisition
candidates; and promoting the DPRC culture within the region.
Under the Company's decentralized management structure, the Company's branch
managers are also given significant autonomy to make most day-to-day operating
decisions and are responsible for: overall guidance and supervision of the
office; budgeting and forecasting for the office; strategy with regard to
market and account penetration; the hiring and training of office staff; and
promoting the DPRC culture within the branch office. While a branch manager is
responsible for most of the administrative functions of running an office, the
majority of a branch manager's time is typically spent on sales and marketing.
In each branch, the Company emphasizes a team-oriented approach in order to
provide high quality customized solutions to meet its clients' information
services needs. The central role in this team-oriented approach is played by
the Company's account managers and resource managers, who work together to
ensure a successful relationship between the client and DPRC's technical
consultants.
31
<PAGE>
The account manager has ultimate responsibility for staffing an assignment
on a timely basis. Upon receiving an assignment, the account manager writes up
a proposal with assignment specifications and distributes the proposal to a
resource manager who is responsible for and has relationships with the
technical consultants who have the expertise required for the assignment. The
account manager reviews the recommended candidates, submits the resumes of
qualified technical consultants to the client and schedules client interviews
of the candidates. Typically, an assignment is staffed within five working
days. Throughout the life of a project, the account manager monitors the
Company's relationship with the client and the technical consultants to ensure
that both constituencies are satisfied with the success of the assignment. In
addition to servicing existing clients, account managers spend a significant
amount of time developing new client relationships.
Resource managers work with the account manager to staff assignments
appropriately and are responsible for recruiting, assessing and establishing
long-term relationships with the Company's technical consultants. Resource
managers utilize a variety of methods to recruit technical consultants. In
markets where the Company has an established presence, the resource manager
typically obtains a majority of qualified candidates through referrals from
clients and other technical consultants. In less established markets, the
majority of new candidates are persons who have responded to advertisements in
local newspapers or furnished the Company a resume via the internet. Resource
managers also recruit technical consultants by attending meetings of local
technology-specific user groups and trade shows, making cold calls and
advertising in the yellow pages.
Resource managers prescreen all candidates through telephonic interviews and
conduct follow-up interviews to assess each candidate's technical and
interpersonal skills, work ethic and overall character. A minimum of three
references are obtained for each candidate and additional background checks
may be conducted. In some cases, the candidate is also given a technical exam
by one of several specialists retained by the Company to assess more
accurately the candidate's technical qualifications. If the candidate meets
the Company's standards, the candidate's profile is finalized and entered into
the Company's database as an available technical consultant. All offices have
on-line access to information contained in this database. Unlike some of its
competitors who recommend a large number of candidates, some of whom may be
inappropriate, the Company generally recommends only two or three carefully
selected candidates for each available position. Management believes that its
clients value the selective screening role played by the Company.
Management believes that one of the primary factors in the Company's success
has been its ability to attract and manage qualified technical consultants who
are compensated on either an hourly or salaried basis. The Company recently
began hiring more full-time salaried consultants in certain branches where the
local market conditions favor the hiring of full-time consultants over hourly
consultants. Full-time salaried technical consultants receive a broader range
of company-paid benefits than hourly consultants. Given the sophisticated
nature of most client assignments, the Company's policy is to utilize
technical consultants with substantial employment experience rather than
entry-level or college graduate-level consultants. For the 11 months ended
November 30, 1996, the Company placed approximately 1,300 technical
consultants with approximately 230 different clients and as of November 30,
1996, approximately 950 technical consultants were on assignment.
COMPETITION
The IT staffing industry is highly competitive. The Company competes for
both clients and qualified technical consultants with a variety of companies,
including other IT staffing companies, national and regional accounting and
management consulting firms and independent contractors. Several traditional
staffing companies, which have historically emphasized the placement of
clerical and other less highly skilled personnel on short-term assignments,
have begun to provide IT services competitive with those provided by the
Company. The Company also competes for technical consultants with the IT
staffs of its clients and potential clients. In addition, as part of the
Company's growth strategy, the Company competes with other staffing companies
for suitable acquisition candidates.
32
<PAGE>
Several of the Company's competitors are substantially larger than the
Company and have greater financial and other resources. Several of such
competitors have also been in business much longer than the Company and have
significantly greater name recognition throughout the United States, including
the geographic areas in which the Company operates and into which it intends
to expand. Because companies are often able to meet a broader range of a
client's temporary personnel needs and serve a broader geographic range than
the Company, they are better able to compete for national accounts.
The Company believes that the primary competitive factors in obtaining and
retaining clients are the ability to provide comprehensive staffing solutions
for all aspects of a client's IT needs, develop a strategic partnering
relationship, understand the specific requirements of a given project and
provide carefully screened technical consultants with the appropriate skills
in a timely manner and at competitive prices. The primary competitive factors
in attracting and retaining qualified candidates for technical consultant
positions are the ability to offer competitive wages, pay such wages in a
consistent and timely manner and provide a consistent flow of high quality and
varied assignments. While the Company believes that it can compete favorably
with its existing and future competitors, there can be no assurance that the
Company will be successful in doing so.
EMPLOYEES
As of November 30, 1996, approximately 950 technical consultants
(approximately 660 hourly and 290 salaried) were working on full-time
assignments for the Company's clients of which approximately 70 were
independent contractors. The Company's corporate and branch staffs consist of
67 full-time employees and 5 part-time employees. The Company is not a party
to any collective bargaining agreements and considers its relationships with
its employees to be good.
Approximately 90.9% of the technical consultants placed by the Company
during fiscal 1996 were treated as employees of the Company for federal and
state tax purposes. For such employees, the Company pays Social Security Taxes
(FICA), federal and state unemployment taxes, workers' compensation insurance
premiums, certain employees benefits and other employee costs. The remainder
of the technical consultants were treated as independent contractors for
federal and state tax purposes.
FACILITIES
The Company's principal executive offices are currently located in Newport
Beach, California and occupy approximately 11,900 square feet of office space
pursuant to a lease that expire in January 2000. Giving effect to to the
Pending Leardata Acquisition, the Company's branch offices range in size from
1,400 square feet to 9,200 square feet and are subject to leases which expire
at various times from January 1997 through September 2001.
LEGAL PROCEEDINGS
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. As of the date of this Prospectus, there are
no material legal proceedings pending against the Company.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- -----------------------------------------------------------
<S> <C> <C>
Mary Ellen Weaver....... 45 Chairman of the Board, Chief Executive Officer and Director
David M. Connell........ 52 President, Chief Operating Officer and Director
Michael A. Piraino...... 43 Senior Vice President and Chief Financial Officer
Richard E. Earley....... 51 Senior Vice President, Sales and Marketing
Phoebe Stenton.......... 54 Vice President, Corporate Services
J. Christopher Lewis
(1)(2).................. 40 Director
Li-San Hwang (1)........ 61 Director
JoAnn W. Wagner (2)..... 57 Director
</TABLE>
- --------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Mary Ellen Weaver has served as Chairman of the Board and Chief Executive
Officer of the Company since February 1994 and served as President of the
Company from May 1989 to September 1994. Ms. Weaver also served as Chief
Financial Officer of the Company from December 1989 to February 1994 and as
Vice President from 1985 to May 1989. Ms. Weaver has been a director of the
Company since September 1985. Prior to joining the Company, Ms. Weaver was
employed by XXCAL, Inc., EG&G, Inc. and Thomas Temporaries.
David M. Connell has served as President and Chief Operating Officer of the
Company since September 1994 and as director since March 1995. From October
1993 to September 1994, Mr. Connell provided consulting services to the
Company. Prior to his service with the Company, Mr. Connell was engaged by
Welsh, Carson, Anderson & Stowe, an investment fund which specializes in
acquiring information services companies and healthcare companies, to manage
the following portfolio companies: from June 1990 to July 1993, Mr. Connell
served as Chairman and Chief Executive Officer of Specialized Mortgage
Services, Inc., an information services company; from 1988 to 1990, he served
as Chairman and Chief Executive Officer of Wold Communications, Inc., which
became Keystone Communication, Inc. as a result of a merger with Bonneville
Satellite Communications, Inc.; and from 1985 to 1988, Mr. Connell served as
Chairman and Chief Executive Officer of a systems integration subsidiary of
Decision Data Computer Corporation. In each of these three prior positions,
Mr. Connell formulated and implemented merger and acquisition growth
strategies for the companies in addition to being responsible for overall
operations.
Michael A. Piraino joined the Company as Senior Vice President and Chief
Financial Officer in January 1996. Prior to joining the Company, Mr. Piraino
had served as Executive Vice President, Director and Chief Development Officer
of Urohealth Systems, Inc. from October 1994. From July 1993 to October 1994,
Mr. Piraino served as Senior Vice President and Chief Financial Officer of
Syncor International Corporation. Mr. Piraino served as Senior Vice President
and Chief Financial Officer of Total Pharmaceutical Care, Inc. from May 1989
to June 1993. Mr. Piraino began his career with a national accounting firm. He
is a certified public accountant.
Richard E. Earley joined the Company as Senior Vice President, Sales and
Marketing in March 1996. Prior to joining the Company, since February 1992,
Mr. Earley served as the General Manager of the National Business Unit of DRT
Systems International, a subsidiary of Deloitte & Touche LLP which provides
data processing consulting services. From September 1988 to January 1992, Mr.
Earley served as Chief Operating Officer for Unitech Systems, a utility
software firm.
34
<PAGE>
Phoebe Stenton joined the Company in May 1995 as Corporate Services Manager
and was promoted to Vice President, Corporate Services in December 1995. Prior
to joining DPRC, Ms. Stenton was employed as Controller of Nationwide
Construction Co. from February 1995 to May 1995. Prior to such employment,
Ms. Stenton was employed for 14 years by Mission Equity, a privately held
company engaged in property management, construction management and real
estate development. Ms. Stenton is a member of the Board of Directors of
Saddleback College Foundation.
J. Christopher Lewis was elected a director of the Company in March 1995.
Since 1982, Mr. Lewis has been a general partner of Riordan, Lewis & Haden, a
Los Angeles based partnership which invests in management buy-out and venture
capital transactions. Mr. Lewis also serves as a director of California Beach
Restaurants, Inc., Tetra Tech, Inc. and several private companies.
Li-San Hwang was elected a director of the Company in May 1995. Dr. Hwang is
currently the President, Chief Executive Officer and a director of Tetra Tech,
Inc., a publicly-traded environmental engineering consulting firm which he
joined in 1967.
JoAnn W. Wagner was elected a director of the Company in September 1995.
Since January 1994, she has been self-employed as the owner and manager of
Wagner Land and Cattle, a livestock ranching business, and as an independent
consultant. From January 1991 to December 1993, Ms. Wagner served as Vice
President of Market Development for Interim Services, Inc., a staffing
company. From April 1987 to January 1991, Ms. Wagner served as the President
of ISC Subsidiary Corporation, a staffing company, and as a director of its
parent company, Interim Systems Corporation, a publicly-traded corporation
engaged in the temporary staffing business, which was acquired by H&R Block,
Inc. in 1991. Ms. Wagner is currently a director of SOS Staffing Services,
Inc., a publicly-traded temporary staffing company.
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. The current directors
were elected at the December 17, 1996 annual meeting of the shareholders of
the Company. Officers are appointed by the Board of Directors and serve at the
discretion of the Board.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Board of Directors established the Audit Committee in
1995 to: make recommendations concerning the engagement of independent public
accountants; review with the independent public accountants the plans for and
scope of the audit, the audit procedures to be utilized and results of the
audit; approve the professional services provided by the independent public
accountants; review the independence of the independent public accountants;
and review the adequacy and effectiveness of the Company's internal accounting
controls. Mr. Lewis and Dr. Hwang are the members of the Audit Committee.
Compensation Committee. The Board of Directors established the Compensation
Committee in 1995 to determine compensation for the Company's executive
officers and to administer the Company's 1994 Stock Option Plan. Mr. Lewis and
Ms. Wagner are the members of the Compensation Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board, prior to the formation of the Compensation Committee in
late 1995, established levels of compensation for the Company's executive
officers. Ms. Weaver and Mr. Connell participated in deliberations of the
Board regarding executive compensation prior to the establishment of the
Compensation Committee. The Company's Compensation Committee, which was
established during fiscal 1996, consists of Mr. Lewis and Ms. Wagner. Neither
Mr. Lewis nor Ms. Wagner was at any time during fiscal 1995 or fiscal 1996 or
at any other time an officer or employee of the Company. There are no
compensation committee interlocks between the Company and other entities
involving the Company's executive officers and Board members who serve as
executive officers or Board members of such other entities.
35
<PAGE>
DIRECTOR COMPENSATION
Each director of the Company who is not an officer or employee of the
Company is entitled to receive $1,200 for each meeting of the Board of
Directors attended by such director. In addition, directors of the Company are
reimbursed for their reasonable out-of-pocket expenses in connection with
their travel to and attendance at the meetings of the Board of Directors. Mr.
Lewis has waived his right to receive such compensation. In lieu of receiving
such compensation, Dr. Hwang and Ms. Wagner were each granted options to
purchase 3,600 shares of Common Stock. Dr. Hwang's options were granted on
June 1, 1995 with an exercise price of $2.25 per share. Ms. Wagner's options
were granted on January 15, 1996 with an exercise price of $9.00 per share.
The options have a two-year vesting schedule, with 1,200 shares vested on the
date of grant, and 1,200 shares vesting on each successive annual anniversary
date of such grants. All such options will become immediately vested upon a
sale of substantially all of the Company's assets or the dissolution of the
Company. Such options are exercisable until May 31, 2005 for Dr. Hwang's
options and until January 14, 2006 for Ms. Wagner's options.
COMPENSATION
The following table sets forth all compensation for services rendered to the
Company in all capacities for each of the fiscal years in the two-year period
ended July 31, 1996 by the Chief Executive Officer and each person serving as
an executive officer of the Company at July 31, 1996 whose salary and bonus
exceeded $100,000 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation Awards
----------------- ---------------------
Name and Principal Salary Securities Underlying All Other
Position Year (1) Bonus Options Compensation (2)
- ------------------------ ---- -------- -------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Mary Ellen Weaver....... 1996 $225,000 $ 27,000 -- --
Chairman of the Board 1995 743,047 189,649(3) -- --
and Chief Executive
Officer
David M. Connell........ 1996 174,000 38,920 25,000 --
President and Chief
Operating Officer 1995 147,900 228,382(3) 255,200 --
Michael A. Piraino...... 1996 80,774 12,000 80,000 --
Senior Vice President 1995 N/A N/A N/A N/A
and Chief Financial
Officer and Secretary
Richard E. Earley....... 1996 58,850 -- 80,000 --
Senior Vice President,
Sales and Marketing 1995 N/A N/A N/A N/A
</TABLE>
- --------
(1) Amounts shown include compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers.
(2) The aggregate amount of all other compensation does not exceed the lesser
of either $50,000 or 10% of the total annual salary and bonus for each
such officer.
(3) A substantial portion of these bonuses were paid in fiscal 1996.
EMPLOYMENT AGREEMENTS
Ms. Weaver has a four-year employment agreement which terminates on July 31,
1999. Under her employment agreement as in effect for fiscal 1996, Ms. Weaver
received a base salary of $225,000 and an annual incentive bonus of up to
$225,000. Effective August 1, 1996, Ms. Weaver's employment agreement was
amended to reduce her base salary to $125,000 per year. No change was made in
the provisions governing her incentive bonus. The incentive bonus is based
primarily on the achievement of certain financial objectives and,
36
<PAGE>
to a lesser extent is subject to the discretion of the Board. The Company may
terminate Ms. Weaver's employment with or without cause. In the event her
employment is terminated without cause, Ms. Weaver is entitled to receive her
base salary and certain benefits for up to 24 months and is entitled to
receive a prorated incentive bonus through the date of termination. Ms.
Weaver's employment agreement also includes certain non-competition
agreements, confidentiality agreements and indemnification agreements.
Effective November 26, 1996, Ms. Weaver was granted an option to purchase
54,000 shares of Common Stock under the Company's 1994 Stock Option Plan. The
option has an exercise price of $16.88 per share and vests over two years in
eight equal quarterly installments.
Mr. Connell also has a four-year employment agreement. His base salary is
$174,000, and he is also able to earn an incentive bonus of up to 100% of his
base salary under an incentive plan based primarily on the achievement of
specified financial objectives. In the event Mr. Connell's employment is
terminated without cause, he is entitled to receive his base salary and
certain benefits for up to 18 months and a prorated incentive bonus through
the date of termination. Effective November 26, 1996, Mr. Connell was granted
an option to purchase 28,000 shares of Common Stock under the Company's 1994
Stock Option Plan. This option has an exercise price of $16.88 per share and
vests over two years in eight equal quarterly installments.
Messrs. Piraino and Earley each have employment agreements which terminate
on December 31, 1997 and provide for a base salary of $150,000 and an
incentive plan identical to Mr. Connell's under which they are able to earn up
to 100% of their base salary. In addition, Mr. Earley will be entitled to
receive a commission based on his achievement of certain goals. In the event
of termination without cause, Messrs. Piraino and Earley are entitled to
receive their base salary and certain benefits for up to six months and a
prorated incentive bonus through the date of termination. Effective November
26, 1996, Mr. Piraino was granted an option to purchase 24,000 shares of
Common Stock under the Company's 1994 Stock Option Plan. This option has an
exercise price of $16.88 per share and vests over two years in eight equal
quarterly installments. Effective November 26, 1996, Mr. Earley was granted an
option to purchase 23,000 shares of Common Stock under the Company's 1994
Stock Option Plan at an exercise price of $16.88 per share. This option vests
over two years in eight equal quarterly installments.
STOCK OPTIONS
The following table sets forth information concerning each grant of stock
options made during fiscal 1996 to each of the Named Executive Officer.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Price Appreciation
Individual Grants for Option Term (1)
--------------------------------------------- -------------------
Number of Percent of
Shares Total Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted Period Per Share Date 5% 10%
----------------------- ---------- ------------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mary Ellen Weaver....... -- -- -- -- -- --
David M. Connell (2).... 25,000 6.3% $ 9.00 1/14/06 $141,501 $ 358,592
Michael A. Piraino (3).. 80,000 20.2 9.00 1/14/06 452,804 1,147,495
Richard E. Earley (3)... 80,000 20.2 14.00 3/04/06 704,362 1,784,992
</TABLE>
- --------
(1) The potential realizable value is calculated based on the term of the
option at its time of grant (10 years). It is calculated by assuming that
the stock price on the date of grant appreciates at the indicated annual
rate, compounded annually for the entire term of the option.
37
<PAGE>
(2) The options granted to Mr. Connell are subject to vesting over a four-year
period. Of his options, 25% will become exercisable on January 15, 1997
and the remaining 75% vest in equal quarterly installments thereafter over
the three years ending January 15, 2000. Mr. Connell's options become
immediately exercisable upon the sale of substantially all of the
Company's assets, a merger or consolidation in which the Company is not
the consolidated or surviving corporation or any acquisition of 35% or
more of the outstanding shares of Common Stock by any person.
(3) Messrs. Piraino's and Earley's options become immediately exercisable upon
the sale of substantially all of the Company's assets, a merger or
consolidation in which the Company is not the consolidated or surviving
corporation or any acquisition of 35% or more of the outstanding shares of
Common Stock by any person.
The following table sets forth the number and value as of July 31, 1996 of
shares underlying unexercised options held by each of the Named Executive
Officers.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options as of July 31, In-the-Money Options as
1996 of July 31, 1996 (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mary Ellen Weaver........ -- -- -- --
David M. Connell (2)..... 132,550 136,650 $2,212,260 $2,088,439
Michael A. Piraino....... -- 80,000 -- 720,000
Richard E. Earley........ -- 80,000 -- 320,000
</TABLE>
- --------
(1) Based on the fair market value (the closing price for the Company's Common
Stock as reported on the Nasdaq National Market as of July 31, 1996 ($18
per share)), less the exercise price payable upon exercise of such
options.
(2) 244,200 of the 269,200 options granted to Mr. Connell are subject to
vesting over a three and one-half year period. Of such options, 25% became
exercisable on March 1, 1995 and the remaining 75% vest in equal quarterly
installments thereafter over the three years ending March 1, 1998. The
remaining 25,000 options granted to Mr. Connell vest and became
exercisable as set forth in the Fiscal Year-End Option Values Table. All
Mr. Connell's options become immediately exercisable upon sale of
substantially all of the Company's assets, a merger or consolidation in
which the Company is not the consolidated or surviving corporation or any
acquisition of 35% or more of the outstanding shares of Common Stock by
any person.
1994 STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") permits option grants
to employees, directors, officers and consultants of the Company in order to
further the growth, development and financial success of the Company. The 1994
Plan provides for the grant of incentive stock options and non-statutory stock
options. The Company has reserved 1,227,800 shares of Common Stock for
issuance upon the exercise of options granted under the 1994 Plan. The 1994
Plan is administered by the Compensation Committee of the Board of the
Company. The Compensation Committee has discretion to determine which eligible
individuals are to receive option grants, the number of shares subject to each
such grant, the status of any granted option as either an incentive stock
option or a non-statutory option, and the vesting schedule to be in effect for
the option grant. The maximum term of options granted under the 1994 Plan is
ten years, subject to earlier termination following an optionee's cessation of
service with the Company. Options granted under the 1994 Plan are non-
transferable and generally expire 30 days after the termination of an
optionee's service to the Company. If a holder of an option is permanently
disabled or dies during his or her service to the Company, such option
generally may be exercised up to one year (90 days for death) following such
disability or death. Subject to certain restrictions, the Board may amend or
modify the 1994 Plan at any time. The 1994 Plan will terminate on December 31,
2004, unless sooner terminated by the Board.
38
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
On October 1, 1996, the Company adopted an Employee Stock Purchase Plan
("ESP Plan"). The ESP Plan allows employees of the Company to purchase Common
Stock, without having to pay any commissions on the purchases. The maximum
amount that any employee can contribute to the ESP Plan per quarter is $6,250,
and the total number of shares which are reserved by the Company for purchase
under the ESP Plan is 250,000.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Bylaws require the Company to indemnify its directors and
officers to the fullest extent permitted by California law against expenses,
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with any proceeding arising by reason of the fact that
any such person is or was a director or officer of the Company. The Company is
also required to advance to such director or officer expenses incurred in
defending any such proceeding, to the maximum extent permitted by such law.
The Company's Bylaws also provide that the Board, in its discretion, may
provide for indemnification or advance of expenses to other agents of the
Company. The Company is also authorized under its Articles of Incorporation
and Bylaws to enter into indemnification contracts with its directors,
officers, employees and agents, and indemnification agreements were entered
into with all of the Company's officers and directors prior to the completion
of the IPO, which closed on March 11, 1996. The Company has purchased
liability insurance covering its directors and officers.
In addition, the Company's Articles of Incorporation provide that the
liability of the Company's directors for monetary damages will be eliminated
to the fullest extent permissible under California law. This provision in the
Articles of Incorporation does not eliminate a director's duty of care to the
Company, and in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief would remain available under
California law. This provision also does not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
To the extent the Board or the shareholders of the Company may in the future
wish to limit or repeal the ability of the Company to provide indemnification
as set forth in the Company's Articles of Incorporation or Bylaws, such repeal
or limitation may not be effective as to directors and officers who are
parties to the indemnification agreements, because their rights to full
protection would be contractually assured by the indemnification agreements.
It is anticipated that similar contracts may be entered into, from time to
time, with future directors of the Company.
There is no pending litigation or proceeding involving a director, officer,
employee or other agent of the Company as to which indemnification is being
sought, nor is the Company aware of any pending or threatened litigation that
may result in claims for indemnification by any director, officer, employee or
other agent.
CERTAIN TRANSACTIONS
In March 1995, RLH, through a partnership of which it is the general
partner, purchased 1,480 shares of the Company's Series A Convertible
Preferred Stock for aggregate consideration of $1.6 million. This partnership
concurrently purchased 1,066,000 shares of Common Stock from Ms. Weaver for
aggregate consideration of $2.4 million. The shares of Series A Convertible
Preferred Stock held by RLH were automatically converted into 592,000 shares
of Common Stock immediately prior to the consummation of the IPO. Following
the consummation of these transactions, Mr. Lewis became a director of the
Company. Mr. Lewis is a general partner of RLH. The partnership managed by RLH
can require the Company to register the shares of Common Stock purchased from
Ms. Weaver and the shares of Common Stock issuable upon conversion of the
shares of Series A Convertible Preferred Stock for resale at any time after
March 11, 1997. Dr. Hwang, also a director, is a limited partner of the
investment partnership managed by RLH which owns shares of Common Stock.
39
<PAGE>
In connection with the March 1995 financing transactions, Ms. Weaver and the
partnership managed by RLH entered into certain agreements with respect to the
election of directors, future sales of capital stock by the Company and sales
of stock by Ms. Weaver and such partnership. All such agreements were
terminated upon the completion of the IPO.
The Company used the proceeds from the sale of the Series A Convertible
Preferred Stock and from borrowings under a five-year credit agreement (the
"Former Credit Agreement") to: (i) repay $2.3 million outstanding under the
Company's then existing credit facility, which represented all of the
Company's obligations thereunder; (ii) pay all unpaid principal and interest
in the amount of $4.4 million under a promissory note which was personally
guaranteed by Ms. Weaver; and (iii) repay outstanding indebtedness owed to
Ms. Weaver in the amount of $1.4 million.
In February 1994, the Company repurchased all of the shares of outstanding
Common Stock not owned by Ms. Weaver. The purchase price of approximately $4.8
million was paid by means of a promissory note which was personally guaranteed
by Ms. Weaver. The Company also repaid the remaining balance of $275,000 of a
promissory note held by such other shareholder. In connection with this
transaction, such other shareholder, his wife and an affiliated company
entered into a five-year non-competition agreement with DPRC.
In fiscal 1994, one of the Company's larger clients desired to outsource its
entire information systems department through an employee leasing arrangement
which would not adversely affect the employment package for the personnel
staffing such department. Because DPRC does not provide such employee leasing
services and was unable to provide a comparable employment package to
consultants working for this company, a separate company, Information
Technology Resources, Inc. ("ITR"), was formed by Ms. Weaver and certain other
persons, including certain former employees of the client, with Ms. Weaver
owning 75.6% of the outstanding capital stock. As a result of this
arrangement, the Company provides certain management services to ITR to
support its operations, for which the Company receives a management fee.
Management fees received by DPRC were $482,000, $934,000, $1.1 million,
$263,000 and $300,000 for fiscal 1994, 1995 and 1996 and the three months
ended October 31, 1995 and 1996, respectively. The management fees paid to
DPRC have historically represented in excess of 90% of ITR's profit before
such management fees. As part of the services provided to ITR, the Company
from time to time makes advances to ITR to assist it with its working capital
needs. These advances, which historically have ranged in amounts outstanding
at any time up to $520,000, are provided on a short-term, unsecured basis, do
not bear interest and had a balance of $0, $240,000, $0, $0 and $0 as of July
31, 1994, 1995 and 1996 and October 31, 1995 and 1996, respectively. ITR also
contracts with DPRC for technical consultants to meet its staffing needs.
Revenues from the billings of technical consultants to ITR were $1.0 million,
$3.7 million, $5.0 million, $1.4 million and $1.0 million for fiscal 1994,
1995 and 1996 and the three months ended October 31, 1995 and 1996,
respectively. The Company also had trade accounts receivable for technical
consultants due from ITR of $162,000, $397,000, $133,000, $735,000 and
$458,000 as of July 31, 1994, 1995 and 1996 and October 31, 1995 and 1996,
respectively. Management believes that the terms of DPRC's relationship with
ITR, taken as a whole, are no less favorable to DPRC than could be obtained in
a transaction with an unrelated third party and that the management services
arrangement with ITR is at least as profitable to the Company as if the
Company were to provide services to ITR's client directly. Receivables from
affiliates includes a receivable from ITR related to these management
services, which amounted to $79,000, $104,000, $52,000 and $89,000 as of July
31, 1995 and 1996 and October 31, 1995 and 1996, respectively.
In March 1995, Ms. Weaver and RLH pledged all of the outstanding shares of
capital stock of the Company to the senior lender as security for the
Company's obligations under its senior credit facility. Such pledge was
terminated on August 30, 1996 when the Former Credit Agreement was terminated.
40
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 1, 1996 and as adjusted
to reflect the sale by the Company and the Selling Shareholder of the shares
of Common Stock being offered hereby by: (i) each person (or group or
affiliated persons) who is known by the Company to own beneficially more than
5% of the Company's Common Stock; (ii) each of the Company's directors; (iii)
the Company's Chief Executive Officer and each of the other Named Executive
Officers; and (iv) the Company's directors and executive officers as a group.
Except as indicated in the footnotes to this table, the persons named in the
table, based on information provided by such persons, have sole voting and
sole investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
Beneficial
Beneficial Ownership Number Ownership
Prior to the of Shares After the
Offering (1) to be Sold Offering (1)(2)
-------------------- in the --------------------
Shares Percentage Offering Shares Percentage
--------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Mary Ellen Weaver (3)..... 2,635,000 33.8% 200,000 2,435,000 24.9%
David M. Connell (3)(4)... 170,700 2.1 -- 170,700 1.7
Michael A. Piraino (3)(5). 21,000 * -- 21,000 *
Richard E. Earley (3)..... -- * -- -- *
Riordan, Lewis & Haden (6)
300 South Grand Avenue,
29th Floor
Los Angeles, CA 90071.... 1,658,000 21.3 -- 1,658,000 16.9
J. Christopher Lewis (6)
c/o Riordan, Lewis &
Haden
300 South Grand Avenue,
29th Floor
Los Angeles, CA 90071.... 1,658,000 21.3 -- 1,658,000 16.9
Li-San Hwang (4)(7)
c/o Tetra Tech, Inc.
630 N. Rosemead Blvd.
Pasadena, CA 91107....... 2,400 * -- 2,400 *
JoAnn W. Wagner (8)
2529 Weld County Road,
No. 21
Lupton, CO 80621......... 4,900 * -- 4,900 *
All directors and
executive officers as a
group
(7 persons).............. 4,492,000 56.2% 200,000 4,292,000 43.0%
</TABLE>
- --------
*Less than 1%.
(1) Includes the estimated 300,000 shares of Common Stock to be issued in
connection with the consummation of the Pending Leardata Acquisition.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) The address of such persons is c/o Data Processing Resources Corporation,
4400 MacArthur Blvd., Suite 600, Newport Beach, CA 92660.
(4) Represents shares issuable upon exercise of options which are exercisable
as of, or will become exercisable within 60 days of December 1, 1996.
(5) Includes 20,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of December
1, 1996.
(6) Shares are owned by RLH DPRC Partners, L.P., a partnership managed by RLH.
Mr. Lewis, a director of the Company, and Patrick C. Haden may be deemed
to share voting and investment power with respect to all such shares as
the sole general partners of RLH. No other person has voting power or
investment power with respect to such shares. Messrs. Lewis and Haden do
not own any shares directly.
(7) Dr. Hwang is a limited partner of the partnership managed by RLH which
owns shares of the Company but Dr. Hwang has no voting or investment power
with respect to the shares of the Company owned by such partnership.
(8) Includes 2,400 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of December
1, 1996.
41
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Common Stock and the
Preferred Stock of the Company does not purport to be complete and is subject
to, and qualified in its entirety by, the Articles of Incorporation and Bylaws
of the Company that are included as exhibits to the Registration Statement of
which this Prospectus forms a part and the provisions of applicable law.
COMMON STOCK
The Company has 20,000,000 authorized shares of Common Stock, of which
7,492,321 shares were outstanding as of October 31, 1996. The holders of
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of the shareholders. Subject to preferences that
may be applicable to any then outstanding Preferred Stock, holders of Common
Stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. See "Dividend Policy." In the event of a liquidation,
dissolution or winding up of the Company, holders of the Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities
and preferences applicable to the holders of any then outstanding Preferred
Stock. Holders of Common Stock have no preemptive rights and no right to
convert their Common Stock into any other securities. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of the Offering will be, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to
the terms of any series of Preferred Stock which the Company may issue in the
future.
PREFERRED STOCK
The Company has 2,000,000 authorized shares of Preferred Stock. No shares of
Preferred Stock are outstanding. The Board has the authority without any
further action by the Company's shareholders to issue any or all of the
authorized shares of Preferred Stock in one or more series and to establish
the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series. The issuance of
Preferred Stock could adversely affect the holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of
the Company. The Company has no present plans to issue any shares of Preferred
Stock. See "Risk Factors -- Ability to Issue Preferred Stock Without Further
Shareholder Approval."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock of the Company is U.S.
Stock Transfer Corporation.
42
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the Pending Leardata Acquisition, the
Company will have an aggregate of 9,792,321 shares of Common Stock outstanding
(assuming no exercise of the Underwriters' over-allotment option, or of
options outstanding under the Company's stock option plan or of warrants). Of
these shares, the 2,200,000 shares sold in the Offering will be freely
tradeable without restriction under the Securities Act, unless purchased by
"affiliates" of the Company, as that term is defined in Rule 144 of the
Securities Act.
The holders of 4,296,500 shares, including all executive officers and
directors, the Selling Shareholder and RLH, have agreed not to offer, sell or
otherwise dispose of any of their shares of Common Stock for a period of 90
days from the date of this Prospectus without the prior written consent of
Montgomery Securities. See "Underwriting."
Following the expiration of the 90-day period, the 2,435,000 shares held by
Ms. Weaver and the 1,658,000 shares held by RLH may be sold pursuant to Rule
144. In addition, subject to the 90-day lock-up agreement described above, RLH
has certain "demand" registration rights, pursuant to which RLH can require
the Company, at any time after March 11, 1997, but not on more than two
occasions, to use its best efforts to register at least a majority of RLH's
then outstanding registrable securities under the Securities Act of 1933. RLH
also has certain "piggy-back" registration rights to include the shares owned
by it in certain other registered offerings of securities by the Company or
other shareholders of the Company. Beginning July 1997, ADD Consulting, Inc.
has similar demand and "piggy-back" registration rights with respect to the
152,121 shares of Common Stock issued to it in the AD&D Acquisition, and such
shares will become eligible for resale under Rule 144 on July 1, 1998.
The Company has agreed to issue approximately 300,000 shares of Common Stock
to the stockholders of Leardata in connection with the Pending Leardata
Acquisition and has agreed to grant certain demand and "piggy-back"
registration rights in connection therewith. To the extent the Company issues
additional shares of Common Stock in other acquisitions, such shares will
become eligible for future sale at various times, either under Rule 144 or in
registered sales pursuant to the exercise of registration rights.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least two years, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of: (i) 1% of the then outstanding shares of the Company's
Common Stock (approximately 97,923 shares immediately after the Offering and
the consummation of the Pending Leardata Acquisition); or (ii) the average
weekly trading volume in the over-the-counter market during the four calendar
weeks immediately preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission. Sales pursuant to Rule 144 are subject
to certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned restricted securities for at least three years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above. The Securities and Exchange Commission has
published a notice of rulemaking that, if adopted, as proposed, would shorten
the two-year holding periods under Rule 144 to one year and would shorten the
three-year holding period under Rule 144(k) to two years. The Company cannot
predict whether such amendments will be adopted.
The Company has registered under the Securities Act of 1933 1,227,800 shares
of Common Stock reserved for issuance under the 1994 Plan and an additional
250,000 shares of Common Stock reserved for issuance under the ESP Plan. As of
November 30, 1996, options covering an aggregate of 811,720 shares of Common
Stock had been granted under the 1994 Plan.
43
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions in the underwriting agreement (the
"Underwriting Agreement"), by and among the Company, the Selling Shareholder
and the Underwriters, to purchase from the Company and the Selling Shareholder
the number of shares of Common Stock indicated below opposite their respective
names, at the public offering price less the underwriting discount set forth
on the cover page of this Prospectus. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of the
shares of Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Montgomery Securities..............................................
Robert W. Baird & Co. Incorporated.................................
Lehman Brothers Inc................................................
---------
Total............................................................ 2,200,000
=========
</TABLE>
The Underwriters have advised the Company and the Selling Shareholder that
they propose initially to offer the Common Stock to the public on the terms
set forth on the cover page of this Prospectus. The Underwriters may allow
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the Offering, the public
offering price and other selling terms may be changed by the Underwriters. The
Common Stock is offered subject to receipt and acceptance by the Underwriters,
and to certain other conditions, including the right to reject orders in whole
or in part.
The Company and the Selling Shareholder have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 280,000 and 50,000 additional
shares of Common Stock, respectively, to cover over-allotments, if any, at the
same price per share as the initial shares to be purchased by the
Underwriters. To the extent that the Underwriters exercise such over-allotment
option, the Underwriters will be committed, subject to certain conditions, to
purchase such additional shares in approximately the same proportion as set
forth in the above table. The Underwriters may purchase such shares only to
cover over-allotments made in connection with the Offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholder will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The Company, the Selling Shareholder and the Company's officers and
directors who are also shareholders of the Company and who, immediately
following the Offering (assuming no exercise of the Underwriters' over-
allotment option) collectively will beneficially own an aggregate of 4,096,500
shares of Common Stock, have agreed that for a period of 90 days after the
effective date of the Offering they will not, without the prior written
consent of Montgomery Securities, directly or indirectly offer for sale, sell,
solicit an offer to sell, contract or grant an option to sell, pledge,
transfer, establish an open put equivalent position or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock. The Company has also agreed not to issue, offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity securities or any
other securities convertible into or exchangeable with its Common Stock for a
period of 90 days after the effective date of the Offering without the prior
written consent of Montgomery Securities, subject to limited exceptions
including any shares of Common Stock issued to selling parties in connection
with acquisitions and grants and exercises of stock options. In evaluating any
request for a waiver of the 90 day lock-up period, the Underwriters would
consider, in accordance with their customary practice, all relevant facts and
circumstances at the time of the request, including, without limitation, the
recent trading market for the Common Stock, the size of the request and, with
respect to a request by the Company to issue additional equity securities, the
purpose of such an issuance. See "Shares Eligible for Future Sale."
44
<PAGE>
In connection with the Offering, certain Underwriters and selling group
members may engage in passive market making transactions in the Common Stock
immediately prior to the commencement of sales in the Offering, in accordance
with Rule 10b-6A under the Securities Exchange Act of 1934 (the "Exchange
Act"). Passive market making consists of, among other things, displaying bids
on the Nasdaq National Market limited by the bid prices of independent market
makers and purchases limited by such prices and effected in response to order
flow. Net purchases by a passive market maker on each day are limited to a
specified percentage of the passive market maker's average daily trading
volume in the Common Stock during a specified prior period and all possible
market-making activity must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced may be
discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
Common Stock offered hereby will be passed upon for the Company by Riordan &
McKinzie, a Professional Law Corporation, Orange County, California. Certain
attorneys of Riordan & McKinzie, a Professional Law Corporation, are limited
partners in a partnership managed by RLH, which holds 1,658,000 shares of
Common Stock. Such attorneys, in the aggregate, hold approximately 11.9% of
the limited partnership interests in such partnership. In addition, certain
attorneys of Riordan & McKinzie, a Professional Law Corporation, in the
aggregate, held, as of December 18, 1996, 2,000 shares of Common Stock
purchased in the public market. Certain legal matters in connection with the
issuance of the Common Stock will be passed upon for the Underwriters by
Latham & Watkins, Los Angeles, California.
EXPERTS
The financial statements of the Company as of July 31, 1995 and 1996 and for
each of the three years in the period ended July 31, 1996 included in this
Prospectus and the financial statement schedule included elsewhere in the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and elsewhere in the
Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in auditing and accounting.
The financial statements of ADD Consulting, Inc. as of and for the years
ended December 31, 1994 and 1995, included herein have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said report.
The financial statements of AD&D Acquisition, Inc. as of and for the ten
months ended December 31, 1993, included herein have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said report.
The financial statements of Leardata Info-Services, Inc. as of December 31,
1994 and 1995 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in auditing and accounting.
45
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied at the public
reference facilities of the Commission located at Room 1024, 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following regional offices: 13th Floor, Seven World Trade Center, New York,
New York 10048; and at Suite 1400, Northwest Atrium Center, 500 West Madison
Street, Chicago, Illinois 60661. Such reports and other information concerning
the Company are also available for inspection at the offices of the Nasdaq
National Market, 1735 K Street, N.W., Washington, D.C. 20006. In addition, the
Commission maintains an Internet site at http://www.sec.gov that contains
reports, proxy and information regarding registrants, including the Company,
that file electronically with the Commission.
Additional information regarding the Company and the shares offered hereby
is contained in the Registration Statement on Form S-1 and the exhibits
thereto filed with the Commission under the Securities Act. For further
information pertaining to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits thereto,
which may be inspected without charge at, and copies thereof may be obtained
at prescribed rates from, the office of the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DATA PROCESSING RESOURCES CORPORATION
Independent Auditors' Report............................................. F-2
Balance Sheets as of July 31, 1995 and 1996 and as of October 31, 1996
(unaudited)............................................................. F-3
Statements of Income for the Fiscal Years Ended July 31, 1994, 1995 and
1996
and for the Three Months Ended October 31, 1995 and 1996 (unaudited).... F-4
Statements of Shareholders' Equity for the Fiscal Years Ended July 31,
1994,
1995 and 1996 and for the Three Months Ended October 31, 1996
(unaudited)............................................................. F-5
Statements of Cash Flows for the Fiscal Years Ended July 31, 1994, 1995
and 1996
and for the Three Months Ended October 31, 1995 and 1996 (unaudited).... F-6
Notes to Financial Statements............................................ F-7
ADD CONSULTING, INC.
Report of Independent Public Accountants................................. F-14
Balance Sheets as of December 31, 1994 and 1995.......................... F-15
Statements of Income for the Years Ended December 31, 1994 and 1995...... F-16
Statements of Shareholders' Equity for the Years Ended December 31, 1994
and 1995................................................................ F-17
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995.. F-18
Notes to Financial Statements............................................ F-19
AD&D ACQUISITION, INC.
Report of Independent Public Accountants................................. F-22
Balance Sheet as of December 31, 1993.................................... F-23
Statement of Operations for the Ten Months Ended December 31, 1993....... F-24
Statement of Cash Flows for the Ten Months Ended December 31, 1993....... F-25
Notes to Financial Statements............................................ F-26
LEARDATA INFO-SERVICES, INC.
Independent Auditors' Report............................................. F-28
Balance Sheets as of December 31, 1994 and 1995 ......................... F-29
Statements of Income for the Years Ended December 31, 1993, 1994 and 1995
........................................................................ F-30
Statements of Stockholders' Equity for the Years Ended December 31, 1993,
1994 and 1995........................................................... F-31
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 ................................................................... F-32
Notes to Financial Statements............................................ F-33
Condensed Balance Sheet as of September 30, 1996 (unaudited)............. F-37
Condensed Statements of Income for the Nine Months Ended September 30,
1995 and 1996 (unaudited)............................................... F-38
Condensed Statements of Cash Flows for the Nine Months Ended September
30, 1995 and 1996 (unaudited)........................................... F-39
Condensed Notes to Financial Statements (unaudited)...................... F-40
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of Data Processing Resources
Corporation:
We have audited the accompanying balance sheets of Data Processing Resources
Corporation as of July 31, 1995 and 1996, and the related statements of
income, shareholders' equity and cash flows for each of the three years ended
in the period July 31, 1996. Our audits also included the financial statement
schedule listed in the accompanying index at Item 16. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Data Processing Resources Corporation at
July 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended July 31, 1996, in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
September 19, 1996
(October 25, 1996 as to Note 12)
F-2
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31,
------------------------ OCTOBER 31,
1995 1996 1996
----------- ----------- -----------
ASSETS
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 248,000 $21,855,000 $22,945,000
Accounts receivable (net of allowance
for doubtful accounts of $63,000 as
of July 31, 1995; $129,000 as of July
31, 1996; and $168,000 as of October
31, 1996)............................ 6,256,000 8,436,000 9,232,000
Receivables from affiliates........... 343,000 128,000 113,000
Prepaid expenses and other current
assets............................... 86,000 259,000 339,000
Deferred tax asset.................... 263,000 216,000 216,000
----------- ----------- -----------
Total current assets................ 7,196,000 30,894,000 32,845,000
Property:
Furniture and fixtures................ 120,000 209,000 221,000
Equipment............................. 333,000 896,000 966,000
Leasehold improvements................ -- 26,000 31,000
----------- ----------- -----------
453,000 1,131,000 1,218,000
Less accumulated depreciation......... (225,000) (392,000) (453,000)
----------- ----------- -----------
Property, net....................... 228,000 739,000 765,000
Other assets............................ 199,000 69,000 196,000
Intangible assets, net.................. -- 12,327,000 11,089,000
----------- ----------- -----------
$ 7,623,000 $44,029,000 $44,895,000
=========== =========== ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C> <C>
Current liabilities:
Accounts payable and accrued
liabilities.......................... $ 2,464,000 $ 3,690,000 $ 3,861,000
Income taxes payable.................. 1,411,000 303,000 879,000
Line of credit........................ 836,000 -- --
Current portion of long-term debt..... 652,000 -- --
----------- ----------- -----------
Total current liabilities........... 5,363,000 3,993,000 4,740,000
Long-term debt.......................... 3,653,000 -- --
Mandatorily redeemable stock:
Series A Preferred Stock--no par
value; 1,480 shares authorized; 1,480
shares issued and outstanding as of
July 31, 1995 (liquidation
preferences of $1,676,000 as of July
31, 1995)............................ 1,485,000 -- --
Shareholders' equity (deficit):
Preferred stock; 2,000,000 shares
authorized; no shares issued and
outstanding.......................... -- -- --
Common stock; 20,000,000 shares
authorized; 4,000,000, 7,492,321 and
7,492,321 shares issued and
outstanding as of July 31, 1995, July
31, 1996, and October 31, 1996,
respectively......................... 2,000 38,125,000 36,996,000
Additional paid-in capital............ -- 1,636,000 1,636,000
Retained earnings (deficit)........... (2,880,000) 275,000 1,523,000
----------- ----------- -----------
Total shareholders' equity
(deficit).......................... (2,878,000) 40,036,000 40,155,000
----------- ----------- -----------
$ 7,623,000 $44,029,000 $44,895,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JULY 31, OCTOBER 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $34,165,000 $49,558,000 $58,145,000 $13,954,000 $20,134,000
Cost of professional
services............... 28,047,000 40,082,000 45,918,000 11,035,000 15,434,000
----------- ----------- ----------- ----------- -----------
Gross margin........... 6,118,000 9,476,000 12,227,000 2,919,000 4,700,000
Selling, general and
administrative
expenses............... 5,581,000 5,769,000 6,719,000 1,491,000 2,853,000
----------- ----------- ----------- ----------- -----------
Operating income........ 537,000 3,707,000 5,508,000 1,428,000 1,847,000
Interest (expense)
income, net............ (401,000) (764,000) (162,000) (159,000) 202,000
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes....... 136,000 2,943,000 5,346,000 1,269,000 2,049,000
Provision for income
taxes.................. 56,000 1,205,000 2,096,000 516,000 801,000
----------- ----------- ----------- ----------- -----------
Net income.............. $ 80,000 $ 1,738,000 $ 3,250,000 $ 753,000 $ 1,248,000
=========== =========== =========== =========== ===========
Net income per share.... $ 0.54 $ 0.15 $ 0.16
=========== =========== ===========
Weighted average common
and common equivalent
shares outstanding..... 6,039,000 4,926,000 7,864,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
----------------------- PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, August 1, 1993. 8,000,000 $ 3,000 $ -- $ 214,000 $ 217,000
Net income............. -- -- -- 80,000 80,000
Repurchase of common
shares................ (4,000,000) (1,000) -- (4,820,000) (4,821,000)
---------- ----------- ---------- ----------- -----------
Balance, July 31, 1994.. 4,000,000 2,000 -- (4,526,000) (4,524,000)
Net income............. -- -- -- 1,738,000 1,738,000
Accretion to redemption
value on
preferred shares...... -- -- -- (92,000) (92,000)
---------- ----------- ---------- ----------- -----------
Balance, July 31, 1995.. 4,000,000 2,000 -- (2,880,000) (2,878,000)
Net income............. 3,250,000 3,250,000
Exercise of stock
options............... 22,200 29,000 -- -- 29,000
Accretion to redemption
value on
preferred shares...... -- -- -- (95,000) (95,000)
Conversion of preferred
shares into
common shares
concurrent with
initial public
offering.............. 592,000 -- 1,580,000 -- 1,580,000
Issuance of common
shares in initial
public offering, net.. 2,726,000 34,329,000 -- -- 34,329,000
Issuance of common
shares in acquisition. 152,121 3,765,000 -- -- 3,765,000
Tax benefit related to
exercise of stock
options............... -- -- 56,000 -- 56,000
---------- ----------- ---------- ----------- -----------
Balance, July 31, 1996.. 7,492,321 38,125,000 1,636,000 275,000 40,036,000
Net income ............ -- -- -- 1,248,000 1,248,000
Adjustment to value of
common shares issued
in ADD Acquisition -- (1,129,000) -- -- (1,129,000)
---------- ----------- ---------- ----------- -----------
Balance, October 31,
1996 (unaudited)....... 7,492,321 $36,996,000 $1,636,000 $ 1,523,000 $40,155,000
========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JULY 31, OCTOBER 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 80,000 $ 1,738,000 $ 3,250,000 $ 753,000 $ 1,248,000
Adjustments to
reconcile net income
to net cash provided
by (used in)
operating activities:
Depreciation and
amortization......... 72,000 83,000 208,000 23,000 170,000
Deferred income
taxes................ -- (263,000) 47,000 20,000 --
Changes in operating
assets and
liabilities, net of
the effect of
acquisition:
Accounts receivable.. (1,773,000) (1,264,000) (759,000) (50,000) (796,000)
Receivables from
affiliates.......... 1,000 (294,000) 215,000 157,000 15,000
Prepaid expenses and
other assets........ (6,000) (132,000) (138,000) 15,000 (207,000)
Accounts payable and
accrued liabilities. 770,000 903,000 16,000 856,000 171,000
Income taxes payable. 52,000 1,359,000 (1,052,000) (779,000) 576,000
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) operating
activities......... (804,000) 2,130,000 1,787,000 995,000 1,177,000
Cash flows from
investing activities:
Cash paid for
acquisition........... -- -- (8,785,000) -- --
Purchase of property... (191,000) (142,000) (612,000) (92,000) (87,000)
Decrease (increase) in
restricted investment. (250,000) 250,000 -- -- --
----------- ----------- ----------- ---------- -----------
Net cash (used in)
provided by
investing
activities......... (441,000) 108,000 (9,397,000) (92,000) (87,000)
Cash flows from
financing activities:
Proceeds from initial
public offering of
common stock, net..... -- -- 34,329,000 -- --
Proceeds from the
exercise of stock
options............... -- -- 29,000 --
Proceeds from line of
credit................ 635,000 836,000 -- --
Repayment of line of
credit................ -- (2,370,000) (836,000) (837,000) --
(Repayment of) proceeds
from notes payable to
shareholder........... 975,000 (1,350,000) -- -- --
Proceeds from notes
payable--other........ 83,000 4,250,000 -- -- --
Proceeds from issuance
of preferred stock,
net................... -- 1,393,000 -- -- --
Repayment of notes
payable to former
shareholders.......... (443,000) (4,753,000) -- -- --
Repayment of notes
payable--other........ (7,000) (21,000) (4,305,000) (66,000) --
----------- ----------- ----------- ---------- -----------
Net cash provided by
(used in) financing
activities......... 1,243,000 (2,015,000) 29,217,000 (903,000) --
----------- ----------- ----------- ---------- -----------
Net increase (decrease)
in cash and cash
equivalents............ (2,000) 223,000 21,607,000 -- 1,090,000
Cash and cash
equivalents, beginning
of period.............. 27,000 25,000 248,000 248,000 21,855,000
----------- ----------- ----------- ---------- -----------
Cash and cash
equivalents, end of
period................. $ 25,000 $ 248,000 $21,855,000 $ 248,000 $22,945,000
=========== =========== =========== ========== ===========
Supplemental
information--Cash paid
for:
Interest............... $ 402,000 $ 725,000 $ 424,000 $ 140,000 $ 4,000
=========== =========== =========== ========== ===========
Income taxes........... $ 4,000 $ 108,000 $ 3,102,000 $1,275,000 $ 225,000
=========== =========== =========== ========== ===========
Supplemental schedule of
noncash financing and
investing activities:
Repurchase of common
stock................. $ 4,822,000 -- --
Issuance of notes
payable to former
shareholders.......... $ 4,822,000 -- --
Conversion of preferred
stock to common stock. -- $ 1,580,000 --
Tax benefit of stock
options exercised..... -- $ 56,000 --
Detail of business
acquired in purchase
transactions:
Fair value of assets
acquired.............. -- $ 1,512,000 --
Common stock issued in
acquisition........... -- $ 3,765,000 --
Adjustment to the
value of common stock
issued in
acquisition........... -- -- $ 1,129,000
Liabilities assumed ... -- $ 1,210,000 --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
1. GENERAL
Business--Data Processing Resources Corporation (the "Company"), which was
incorporated in California on August 15, 1984, is a leading specialty staffing
company providing information technology services to a diverse group of
corporate clients.
Interim Financial Data--The interim financial data as of October 31, 1996
and for the three months ended October 31, 1995 and 1996 is unaudited. The
information reflects all adjustments, consisting only of normal recurring
entries, that, in the opinion of management, are necessary to present fairly
the financial position and results of operations of the Company for the
periods indicated. Results of operations for the interim periods are not
necessarily indicative of the results of operations for the full fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents.
Property--The cost of furniture, fixtures and equipment is depreciated using
accelerated methods based on the estimated useful lives of the related assets,
generally five to seven years. Leasehold improvements are amortized over the
lesser of five years or the life of the lease.
Intangible Assets--Intangible assets include goodwill, which represents the
excess of cost over fair value of net assets acquired and is amortized using
the straight-line method over 25 years.
Revenue Recognition--The Company recognizes revenue as services are
performed.
Fair Value of Financial Instruments--Management believes the carrying
amounts of cash and cash equivalents, accounts receivable and accounts payable
approximate fair value due to the short maturity of these financial
instruments.
Income Taxes--The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109. SFAS No. 109 is an
asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, the Company generally considers all
expected future events other than enactments of changes in the tax law or
rates.
Net Income Per Share--Historical net income per share for the years ended
July 31, 1994 and 1995 are not presented because they are not indicative of
the ongoing entity.
Net income per share has been computed by dividing net income by the
weighted average number of shares of common and common equivalent shares
outstanding during the period. Weighted average common and common equivalent
shares included common shares, stock options using the treasury stock method
and the assumed conversion of all outstanding shares of preferred stock into
shares of common stock. Redeemable preferred stock (Note 6) has been treated
as common share equivalents in calculating net income per share.
Reclassifications--Certain items in the prior period financial statements
may have been reclassified to conform to the current period presentation.
F-7
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and related disclosures at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from these estimates.
Recent Accounting Pronouncements--In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, which becomes
effective for fiscal years beginning after December 14, 1995. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt this statement in fiscal 1997 as required,
and its adoption is not expected to have a significant effect on earnings,
financial condition or cash flows.
In October 1995, FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires adoption of the disclosure provisions no later
than years beginning after December 15, 1995 and adoption of the recognition
and measurement provisions for nonemployee transactions no later than after
December 15, 1995. The new standard defines a fair value method of accounting
for stock options and other equity instruments. Under the fair value method,
compensation cost is measured at the grant date based on the fair value of the
award and is recognized over the service period which is usually the vesting
period. Pursuant to the new accounting standard, companies are encouraged, but
are not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, but would be required to disclose in
a note to the financial statements pro forma net income and, if presented,
earnings per share as if the company had applied the new method of accounting.
The Company has determined that it will not change to the fair value method
and will continue to use Accounting Principles Board Opinion No. 25 for
measurement and recognition of employee stock-based transactions.
3. ACQUISITIONS
On July 1, 1996, the Company acquired the information technology staffing
business, including two branch facilities and substantially all of the related
assets, of the Applications Design and Development, division of ADD
Consulting, Inc. ("ADD"), an Omaha-based company. The aggregate purchase price
of the acquisition was $12,850,000, consisting of $8,785,000 in cash, 152,121
shares of restricted Company common stock initially valued at $3,765,000 and a
deferred payment of $300,000. During the three months ended October 31, 1996,
the Company recorded an adjustment to the value of common stock issued in the
transaction of $1,129,000 to reflect securities law restrictions on disposal
of the stock. This acquisition was accounted for as a purchase. The excess of
cost over fair value of net assets acquired was allocated to goodwill, which
is amortized using the straight-line method over 25 years. The allocation of
the purchase price and other purchase accounting adjustments are as follows:
<TABLE>
<S> <C>
Total purchase price, net of discount........................... $11,721,000
Net assets acquired............................................. (801,000)
Adjustments to conform accounting policies...................... 199,000
Acquisition costs related to ADD................................ 120,000
-----------
Excess of purchase price over net assets acquired............... $11,239,000
===========
</TABLE>
F-8
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
Unaudited pro forma combined results of operations for the periods indicated
are as follows had the acquisition occurred as of the beginning of the
respective periods:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
JULY 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues............................................ $59,975,000 $70,660,000
Pro forma net income................................ $ 2,065,000 $ 3,534,000
Pro forma net income per share...................... $ 0.41 $ 0.57
Weighted average shares outstanding................. 5,078,000 6,171,000
</TABLE>
Pro forma adjustments have been applied to reflect the purchase, which
includes the elimination of expenses that are not expected to have a
continuing impact on the Company, such as certain redundant personnel costs,
owner's compensation in excess of employment agreement and cost of line of
business not acquired, and the addition of amortization related to the
intangible assets acquired.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------- OCTOBER 31,
1995 1996 1996
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accounts payable.......................... $ 255,000 $ 949,000 $ 741,000
Accrued salaries, bonuses and related
benefits................................. 1,917,000 2,379,000 2,752,000
Commissions payable....................... 292,000 362,000 368,000
---------- ---------- ----------
$2,464,000 $3,690,000 $3,861,000
========== ========== ==========
</TABLE>
5. DEBT
Effective March 1995, the Company obtained a revolving line of credit and
term loan with a financial institution (the Credit Agreement). The revolving
line of credit, which permitted borrowing up to the lesser of $5,000,000 or
8.5% of eligible accounts receivable, and the term loan, which permitted
indebtedness up to $4,250,000, were collateralized by substantially all of the
assets of the Company. The outstanding principal balances of the revolving
line of credit and term loan bore interest at the prime rate plus 1.0% and
2.5%, respectively, and was scheduled to expire on March 1, 2000. The Company
has obtained a new revolving line of credit and acquisition facility (the New
Credit Agreement) effective October 25, 1996 (Note 12). All outstanding
borrowings under the Credit Agreement were repaid with the proceeds from the
initial public offering (Note 6).
F-9
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
Long-term debt consisted of the following at July 31, 1995:
<TABLE>
<S> <C>
Term loan due to financial institution, bearing interest at
bank's prime rate plus 2.5%, principal and interest payable
in monthly installments approximating $101,000, based on a
set amortization schedule beginning October 1, 1995 through
March 1, 2000. Such loan was paid with proceeds from the
initial public offering...................................... $4,250,000
Equipment term loan with bank, interest payable monthly at
bank's prime rate plus 2%, principal payable in monthly
installments of $1,729 through March 15, 1998. Such loan was
repaid in December 1995...................................... 55,000
----------
4,305,000
Less current portion.......................................... (652,000)
----------
Total long-term debt........................................ $3,653,000
==========
</TABLE>
6. SHAREHOLDERS' EQUITY
Initial Public Offering--In March 1996, the Company completed an initial
public offering (the "Offering") of 2,726,000 shares of its common stock at an
offering price of $14.00 per share for net proceeds of $34.3 million.
Stock Split--On January 8, 1996, the Company amended its Articles of
Incorporation to increase the number of authorized shares of common stock from
8,000,000 to 20,000,000, authorize 2,001,480 shares of preferred stock (of
which 1,480 were designated Series A Convertible Preferred Stock) and effect a
400-for-one stock split of its common stock. All shares and per share amounts
included in the accompanying financial statements and footnotes have been
restated to reflect the stock split.
Preferred Stock--In March 1995, the Company issued 1,480 shares of Series A
Preferred Stock for $1,601,000, less costs of $208,000 associated with the
issuance. The Series A Preferred Stock had a liquidation preference of $1,082
per share, plus 8.0% interest per annum, compounded annually applied to such
an amount from the date of original issuance, less any dividends previously
paid. The stock was redeemable at an amount equal to the sum of $2,850 per
share, plus any declared and unpaid dividends, and was payable in twelve equal
quarterly installments. Holders of Series A Preferred Stock were entitled to
receive noncumulative cash dividends at an annual rate of $87 per share,
payable in preference and priority to any dividend on common stock when and as
declared by the Board of Directors. For the year ended July 31, 1996, no
dividends were declared.
The Company had 2,001,480 authorized shares of preferred stock, of which
1,480 shares had been designated Series A Convertible Preferred Stock as of
July 31, 1995. Immediately prior to the consummation of the Offering, the
outstanding shares of Series A Convertible Preferred Stock automatically
converted into an aggregate of 592,000 shares of common stock. The shares of
Series A Convertible Preferred Stock were canceled upon said conversion and
ceased to be authorized.
Dividends--The Company's Credit Agreement prohibited the payment of
dividends without the prior written consent of the lender.
7. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Option Plan--In 1994, the Company adopted the 1994 Stock Plan (the
Stock Plan) under which incentive and non-statutory stock options to acquire
shares of the Company's common stock may be granted to officers, employees and
consultants of the Company. The Stock Plan is administered by the Board of
Directors
F-10
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
and permits the issuance of options for up to 1,250,000 shares of the
Company's common stock. Incentive stock options must be issued at an exercise
price not less than the fair market value of the underlying shares on the date
of grant. Options granted under the Stock Plan are exercisable over a period
of time, not to exceed ten years, and are subject to other terms and
conditions specified in the individual employee option agreement. Of these
options 136,000 were exercisable as of July 31, 1996. A summary of employee
stock options is as follows:
<TABLE>
<CAPTION>
NUMBER
OF OPTION PRICE
SHARES PER SHARE
------- -------------
<S> <C> <C>
Outstanding at August 1, 1994......................... -- --
Granted............................................. 284,400 $1.31-$2.25
-------
Outstanding at July 31, 1995.......................... 284,400 $1.31-$2.25
Granted............................................. 395,220 $2.25-$27.25
Exercised........................................... (22,200) $1.31
Canceled............................................ (40,200) $2.25-$27.25
-------
Outstanding at July 31, 1996.......................... 617,220 $1.31-$27.25
Granted............................................. 169,500 $17.75-$22.00
-------
Outstanding at October 31, 1996 (unaudited)........... 786,720 $1.31-$27.25
=======
</TABLE>
Retirement Savings Plan--The Company has a retirement savings plan (the
Plan) which qualifies under Section 401(k) of the Internal Revenue Code.
Eligible employees may contribute up to 20% of their annual compensation, as
defined by the Plan. Company contributions are fully discretionary, and no
Company contributions have been made to the Plan during the year.
8. INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED JULY 31, OCTOBER 31,
------------------------------ -----------------------
1994 1995 1996 1995 1996
------- ---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal............... $40,000 $1,153,000 $1,563,000 $366,000 $697,000
State................. 16,000 315,000 475,000 130,000 104,000
------- ---------- ---------- -------- --------
56,000 1,468,000 2,038,000 496,000 801,000
Deferred:
Federal............... -- (227,000) 32,000 31,000 --
State................. -- (36,000) 26,000 (11,000) --
------- ---------- ---------- -------- --------
-- (263,000) 58,000 20,000 --
------- ---------- ---------- -------- --------
Provision for income
taxes.................. $56,000 $1,205,000 $2,096,000 $516,000 $801,000
======= ========== ========== ======== ========
</TABLE>
F-11
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
A reconciliation of the Company's effective tax rate compared to the
statutory federal tax rate is as follows at July 31 and October 31:
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTHS ENDED
ENDED JULY 31, OCTOBER 31,
---------------- ------------------
1994 1995 1996 1995 1996
---- ---- ---- --------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income taxes at statutory federal
rate.............................. 34.0% 34.0% 34.0% 34.0% 34.0%
State taxes, net of federal
benefit........................... 7.7 6.3 6.2 6.2 5.1
Meals and entertainment............ 3.5 0.7 0.2 0.2 --
Tax exempt interest................ -- -- (2.3) -- --
Other.............................. 3.0 -- 1.1 0.3 --
Benefit of graduated rates......... (6.9) -- -- -- --
---- ---- ---- --------- ---------
Total............................ 41.3% 41.0% 39.2% 40.7% 39.1%
==== ==== ==== ========= =========
</TABLE>
The Company provides deferred income taxes for temporary differences between
assets and liabilities recognized for financial reporting and income tax
purposes. The income effects of these temporary differences representing
significant portions of deferred tax assets and deferred tax liabilities are
as follows:
<TABLE>
<CAPTION>
JULY 31,
----------------- OCTOBER 31,
1995 1996 1996
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
State income taxes............................. $ 95,000 $158,000 $158,000
Bonus accrual.................................. 129,000 -- --
Bad debt reserve............................... 27,000 42,000 42,000
Vacation accrual............................... 12,000 16,000 16,000
-------- -------- --------
Total deferred tax asset....................... $263,000 $216,000 $216,000
======== ======== ========
</TABLE>
During fiscal 1994, there were no significant temporary differences.
During fiscal 1996, the Company was under examination by the Internal
Revenue Service for the years ended July 31, 1992, 1993 and 1994. In October
1996, the Internal Revenue Service proposed an assessment of $770,000, plus
interest, based on a disallowance of the deduction of management fees paid to
a prior owner in such years. In the opinion of management, settlements or
adjustments that may result from this proposed assessment will not have a
material adverse effect on the Company's financial condition or results of
operations.
9. COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities, certain equipment and vehicles
under lease agreements classified as operating leases. Future minimum lease
payments under such noncancelable operating leases are summarized as follows
at July 31, 1996:
<TABLE>
<S> <C>
Year ending July 31:
1997............................................................. $343,000
1998............................................................. 269,000
1999............................................................. 252,000
2000............................................................. 107,000
2001............................................................. 22,000
Thereafter....................................................... --
--------
Total future minimum lease payments............................... $993,000
========
</TABLE>
F-12
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996 AND
FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1996 (UNAUDITED)
Rent expense amounted to $149,000, $170,000, $227,000 and $51,000 and
$90,000 for the years ended July 31, 1994, 1995, 1996 and the three months
ended October 31, 1995 and 1996, respectively, and has been included in
selling, general and administrative expenses in the accompanying statements of
income.
10. RELATED PARTY TRANSACTIONS
In fiscal 1994, one of the Company's larger clients desired to outsource its
entire information systems department through an employee leasing arrangement.
Because the Company does not provide such employee leasing services and was
unable to provide a comparable employment benefit package to consultants
working for this company, Information Technology Resources, Inc. ("ITR") was
formed by the founder of the Company and certain other persons, including
certain former employee's of ITR's client, with the founder owning
approximately 75.6% of the outstanding capital stock. As a result of this
arrangement, the Company provides certain management services to ITR to
support its operations, for which the Company receives a management fee
pursuant to a management services agreement. Management fees earned by the
Company were $482,000, $934,000, $1,084,000, $263,000 and $300,000 for the
years ended July 31, 1994, 1995 and 1996 and the three months ended October
31, 1995 and 1996, respectively. ITR also contracts with the Company for
technical consultants to meet its staffing needs. The Company recorded
revenues of $1,028,000, $3,678,000, $4,974,000, $1,393,000 and $1,023,000 for
the years ended July 31, 1994, 1995, 1996 and the three months ended October
31, 1995 and 1996, respectively from billing of ITR technical consultants.
Receivables from affiliates includes a receivable from ITR related to these
management services and amounted to $79,000 and $104,000 as of July 31, 1995
and 1996, respectively, and $89,000 as of October 31, 1996. The Company has
trade accounts receivable for technical consultants due from ITR of $397,000
and $133,000 as of July 31, 1995 and 1996, respectively, and $458,000 as of
October 31, 1996. The Company from time to time has made advances to ITR to
assist it with its working capital needs. These advances are provided on a
short-term, unsecured basis, do not bear interest and had a balance
outstanding as of July 31, 1995 of $240,000.
11. CONCENTRATIONS OF CREDIT RISK
The Company's revenues are generated from credit sales to customers
primarily located in Southern California. The Company performs ongoing credit
evaluations of its customers and maintains reserves for potential credit lines
and generally does not require collateral. The Company maintains reserves for
potential credit losses, and such losses have been within management's
expectations. The Company's ten largest customers represented 60.3% of total
revenues in fiscal 1996, and as a result, the Company has a large proportion
of its receivables outstanding with these customers. Accounts receivable to
the Company's ten largest customers was $3,205,000 as of July 31, 1996.
In each of fiscal 1994, 1995, 1996 and the three months ended October 31,
1995, the Company had sales to a major customer, not necessarily the same
customer in each period, of approximately $3,529,000, $6,072,000, $5,794,000
and $1,667,000, respectively. There was no major customer for the three months
ended October 31, 1996. Given the significant amount of revenues derived from
these customers, the loss of any such customer or the uncollectability of
related receivables could have a material adverse effect on the Company's
financial condition and results of operations.
12. SUBSEQUENT EVENT
On October 25, 1996, the Company obtained a two-year, $20,000,000 credit
agreement with a bank. The credit consists of a revolving line of credit in
the principal amount of $10,000,000, which bears interest at the prime rate or
LIBOR plus 1.0%, and a revolving loan in the principal amount of $10,000,000,
which bears interest at the prime rate or LIBOR plus 1.25%. Both facilities
are secured by accounts receivable and equipment. Additional pricing options
and alternatives are available depending on certain financial conditions. The
credit agreement contains various covenants, including the maintenance of
defined financial ratios such as liquidity and tangible net worth. There are
currently no borrowings outstanding.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To ADD Consulting, Inc.:
We have audited the accompanying balance sheets of ADD Consulting, Inc. (a
Nebraska corporation) as of December 31, 1994 and 1995, and the related
statements of income, shareholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ADD Consulting, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
February 1, 1996
F-14
<PAGE>
ADD CONSULTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
ASSETS ---------- ----------
Current Assets
<S> <C> <C>
Cash....................................................... $ 1,796 $ 102,293
Trade receivables--
Billed, net of allowance for doubtful accounts of $12,000
in 1994 and $18,000 in 1995.............................. 736,957 984,535
Unbilled.................................................. 122,801 278,519
Shareholder/employee receivable (Note 7)................... 18,550 101,875
Other current assets....................................... 13,272 28,283
---------- ----------
Total current assets.................................... 893,376 1,495,505
---------- ----------
Property and Equipment (Note 2)
Computer equipment and software............................ 71,726 124,231
Office furniture and equipment............................. 29,191 87,646
---------- ----------
100,917 211,877
Less--Accumulated depreciation............................. (12,262) (29,680)
---------- ----------
Net property and equipment.............................. 88,655 182,197
---------- ----------
Goodwill, net of accumulated amortization of $64,495 in 1994
and $129,295 in 1995 (Note 5).............................. 902,929 838,129
---------- ----------
Total assets.......................................... $1,884,960 $2,515,831
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Line of credit (Note 4).................................... $ 155,000 $ 310,000
Current maturities of note payable (Note 6)................ 423,168 153,407
Accounts payable........................................... 206,864 183,322
Dividend distributions payable (Note 2).................... 187,000 337,290
Compensation expense....................................... 143,124 212,541
Accrued vacation........................................... 56,592 86,657
Accrued payroll taxes...................................... 42,071 116,170
Other accrued expenses..................................... 16,373 27,005
---------- ----------
Total current liabilities............................... 1,230,192 1,426,392
---------- ----------
Note Payable, net of current maturities (Note 6)............ 79,891 --
---------- ----------
Total liabilities....................................... 1,310,083 1,426,392
---------- ----------
Commitments (Note 8)
Shareholders' Equity (Notes 3, 5, 9 and 10):
Class A Common Stock, voting, $.10 par value, 50,000 shares
authorized, 1,000 shares issued and outstanding........... 100 100
Class B Common Stock, nonvoting, $.10 par value, 50,000
shares authorized, 1,200 shares issued and 1,195 shares
outstanding............................................... 120 120
Additional paid-in capital................................. 219,880 219,880
Retained earnings.......................................... 354,777 870,646
Less--Treasury stock, 5 shares in 1995, at cost............ -- (1,307)
---------- ----------
Total shareholders' equity.............................. 574,877 1,089,439
---------- ----------
Total liabilities and shareholders' equity.............. $1,884,960 $2,515,831
========== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-15
<PAGE>
ADD CONSULTING, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995
---------- -----------
<S> <C> <C>
Revenues................................................ $7,938,005 $11,899,096
Professional salaries and related personnel costs....... 5,476,272 8,338,533
---------- -----------
Gross margin........................................... 2,461,733 3,560,563
Selling, general and administrative expenses............ 1,654,700 2,441,730
Research and development (Note 2)....................... -- 66,739
Amortization of goodwill................................ 64,495 64,800
---------- -----------
Income from operations................................. 742,538 987,294
Interest expense........................................ 60,661 50,769
Interest income......................................... -- 1,280
---------- -----------
Net income.............................................. $ 681,877 $ 937,805
========== ===========
</TABLE>
The accompanying notes are an integral part of theses statements.
F-16
<PAGE>
ADD CONSULTING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED TREASURY
STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
------- ------- ---------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1994................... $ -- $ -- $ -- $ -- $ -- $ --
Issuance of 1,000
shares of Class A
Common Stock for
contribution of trade
receivables ($200 per
share)................ 100 -- 199,900 -- -- 200,000
Stock dividend of 1,000
shares of Class B
Common Stock.......... -- 100 -- (100) -- --
Sale of 200 shares of
Class B Common Stock
for cash ($100 per
share)................ -- 20 19,980 -- -- 20,000
Dividends paid and
accrued............... -- -- -- (327,000) -- (327,000)
Net income............. -- -- -- 681,877 -- 681,877
------ ----- -------- --------- ------- ----------
Balance, December 31,
1994................... 100 120 219,880 354,777 -- 574,877
Purchase of 5 shares of
Class B Common Stock.. -- -- -- -- (1,307) (1,307)
Dividends paid and
accrued............... -- -- -- (421,936) -- (421,936)
Net income............. -- -- -- 937,805 -- 937,805
------ ----- -------- --------- ------- ----------
Balance, December 31,
1995................... $ 100 $ 120 $219,880 $ 870,646 $(1,307) $1,089,439
====== ===== ======== ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
ADD CONSULTING , INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 681,877 $ 937,805
Adjustments to reconcile net income to net cash
provided by operating
activities--
Depreciation and amortization........................ 76,757 82,218
Changes in assets and liabilities--
Trade receivables, net.............................. (170,673) (403,296)
Other current assets................................ 6,240 (98,336)
Accounts payable and accrued expenses............... (162,922) 160,671
--------- ---------
Net cash provided by operating activities.......... 431,279 679,062
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment..................... (35,917) (110,960)
Acquisition of business, net of cash acquired (Note 5). 68,375 --
--------- ---------
Net cash provided by (used in) investing
activities........................................ 32,458 (110,960)
--------- ---------
Cash flows from financing activities:
Payments on note payable............................... (396,941) (649,652)
Issuance of note payable............................... -- 300,000
Net borrowings under the line of credit................ 55,000 155,000
Sale of common stock................................... 20,000 --
Distributions to shareholders.......................... (140,000) (271,646)
Purchase of Class B Common Stock....................... -- (1,307)
--------- ---------
Net cash used in financing activities.............. (461,941) (467,605)
--------- ---------
Net increase in cash............................... 1,796 100,497
Cash, beginning of period............................... -- 1,796
--------- ---------
Cash, end of period..................................... $ 1,796 $ 102,293
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............... $ 60,661 $ 49,380
</TABLE>
Supplemental disclosure of noncash investing and financing activities:
In connection with the acquisition described in Note 5, the majority
shareholder contributed $200,000 of trade receivables as consideration
for 1,000 shares of Class A Common Stock.
In connection with the acquisition described in Note 5, the Company issued a
note payable for $900,000 for substantially all of the assets of the
Company.
As of December 31, 1994 and 1995, the Company had accrued dividend
distributions payable of $187,000 and $337,290, respectively.
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
ADD CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
1. GENERAL
ADD Consulting, Inc. (the Company) was formed on October 22, 1993, for the
purpose of acquiring substantially all of the assets, liabilities and
operations of AD&D Acquisition, Inc. The Company did not have substantive
operations prior to the acquisition of AD&D Acquisition, Inc. on January 1,
1994 (Note 5). The Company does business as Applications Design and
Development.
The Company provides experienced and skilled professionals on a contract
basis to serve the needs of the information and data processing community. As
the Company serves a wide range of customers in various industries, there is
no concentration of credit risk within a particular industry. Two major
customers of the Company accounted for approximately 29 percent and 28 percent
of revenues for the years ended December 31, 1994 and 1995, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Revenue is recognized as services are performed based on units of time
incurred on behalf of clients.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repair and
maintenance are charged to expense as incurred. Depreciation and amortization
are computed using the straight-line method for financial statement purposes.
Accelerated methods are used for income tax purposes. The estimated useful
lives used in computing depreciation and amortization for financial statement
purposes are as follows:
<TABLE>
<S> <C>
Computer equipment and software................................... 7 years
Office furniture and equipment.................................... 7 years
</TABLE>
Income Taxes
The Company has elected for federal income tax reporting to include its
taxable income or loss with that of its shareholders (an S corporation
election). The Company files its tax returns on a cash-basis, whereas the
accompanying financial statements are presented on an accrual basis in
accordance with generally accepted accounting principles. The Company intends
to pay dividends to shareholders in lieu of tax payments.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of internal software development costs incurred prior to the
achievement of technological feasibility. The Company capitalizes internal
software development costs after the software products in development reach
technological feasibility. There were no software development costs
capitalized during 1994 and 1995.
Use of Estimates in Preparation of Financial Statements
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-19
<PAGE>
ADD CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
3. AUTHORIZED SHARES
During 1994, the Company amended its certificate of incorporation and
authorized 50,000 shares of $.10 par Class A Common Stock (voting) and 50,000
shares of $.10 par Class B Common Stock (nonvoting). Previous to the
amendment, the Company had one class of $1 par common stock authorized. As of
the amendment date, the previously outstanding 100 shares of common stock were
replaced with 1,000 shares of $.10 par Class A Common Stock. All shares and
per share amounts have been retroactively adjusted to reflect this amendment,
as applicable.
4. LINE OF CREDIT
The Company has a line-of-credit agreement with a bank that allows for
borrowings, up to $1,000,000 at 1 1/2 percent above the prime rate (10 percent
at December 31, 1995). The weighted average interest rates for this line-of-
credit during 1994 and 1995 were 9.1 percent and 10.2 percent, respectively.
There was $155,000 and $310,000 outstanding against this line at December 31,
1994 and 1995, respectively. The line of credit expires on June 19, 1996, and
is renewable on an annual basis. The line of credit is secured by the
Company's business assets and an assignment of a life insurance policy on the
Company's majority shareholder and is guaranteed by the majority shareholder
of the Company. Interest expense on the line of credit for the years ended
December 31, 1994 and 1995, was $9,003 and $25,033, respectively.
The available amounts on the line of credit are reduced by the amount of
note payable (see Note 6) and a letter of credit in the amount of $25,000. The
Company must comply with certain covenants including maintenance of a certain
debt to pre-tax earnings ratio. The Company was in compliance with these
covenants at December 31, 1995.
5. ACQUISITIONS
On January 1, 1994, the Company acquired substantially all of the assets and
operations of AD&D Acquisition, Inc. for a $900,000 note payable to the former
owner (Note 6) and assumption of liabilities of approximately $728,000.
The acquisition was recorded using the purchase method of accounting and,
accordingly, the cost in excess of the fair value of the net tangible assets
acquired of approximately $967,400 was allocated primarily to goodwill.
Goodwill is being amortized over a period of 15 years. During the years ended
December 31, 1994 and 1995, amortization expense of $64,495 and $64,800,
respectively, was recorded and is included in the accompanying statements of
income.
The Company's majority shareholder previously held a minority interest in
AD&D Acquisition, Inc. AD&D Acquisition, Inc. distributed accounts receivable
with a fair value of $200,000 to the Company's majority shareholder to redeem
the minority interest prior to the Company's acquisition of AD&D Acquisition,
Inc. ADD Consulting, Inc.'s majority shareholder contributed the $200,000 of
trade receivables to the Company for 1,000 shares (Note 3) of Class A Common
Stock ($200 per share).
6. NOTE PAYABLE
In connection with the acquisition as described in Note 5, the Company
issued a promissory note to the former owner. The principal balance on this
note was paid in full as of December 31, 1995.
During 1995, the Company issued a note payable to the bank which bears
interest at 1 1/2 percent above the prime rate (10 percent at December 31,
1995). The note is due in monthly installments of $26,470 through June 1996.
The note is secured by the Company's business assets and a life insurance
policy on the Company's majority shareholder.
F-20
<PAGE>
ADD CONSULTING, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995
7. RELATED-PARTY TRANSACTIONS
During the years ended December 31, 1994 and 1995, the Company provided
consulting services to a company affiliated with the Company's majority
shareholder. These services were billed at cost and approximated $14,000 and
$15,000 during 1994 and 1995, respectively. In addition, during 1995, the
Company purchased travel services of approximately $57,000 from a travel
agency owned by an officer of the Company.
As of December 31, 1994 and 1995, the Company had shareholder/employee
receivables as follows:
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
Note receivable from majority shareholder, 8 percent
interest, due March 31, 1996.......................... $ -- $ 65,997
Shareholder/employee advances.......................... 18,550 35,878
------- --------
$18,550 $101,875
======= ========
</TABLE>
8. LEASE AGREEMENTS
The Company leases office facilities and office furniture and equipment
under operating leases. Total rent expense under operating leases was $60,715
and $90,772 during the years ended December 31, 1994 and 1995, respectively.
Future minimum lease payments under these agreements for the years ending
December 31 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- --------
<S> <C>
1996............................................................. $144,403
1997............................................................. 76,149
1998............................................................. 45,202
--------
$265,754
========
</TABLE>
9. STOCK RESTRICTION AGREEMENT
The Company's shareholders have a stock repurchase agreement which restricts
the transfer of the Company's stock upon the sale by or death of the minority
shareholders. Under the agreement, the Company and majority shareholder have
the right to acquire shares of the Company's stock in the event of a pending
sale by the minority shareholders to any persons other than authorized
transferees, as defined.
10. STOCK OPTION PLAN
During 1994, the Company issued options to purchase 200 shares of the
Company's Class B Common Stock for $100 per share. All options were exercised
in 1994 for total proceeds of $20,000. All option shares were granted at an
exercise price equal to the estimated fair market value of the shares at the
date of the grant.
11. 401(K) RETIREMENT PLAN
The Company sponsors a 401(k) retirement plan for all eligible employees.
Participants may contribute up to 20 percent of their eligible wages. The
Company matches the contributions at their discretion. During the years ended
December 31, 1994 and 1995, the Company did not make any matching
contributions.
12. EVENT (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
The Company sold substantially all of its business operations and related
assets to Data Processing Resources Corporation on July 1, 1996. The
accompanying financial statements do not reflect any adjustments with respect
to this transaction.
F-21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AD&D Acquisition, Inc.:
We have audited the accompanying balance sheet of AD&D Acquisition, Inc. (an
Illinois corporation) as of December 31, 1993, and the related statements of
operations and cash flows for the ten months then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AD&D Acquisition, Inc. as
of December 31, 1993, and the results of its operations and its cash flows for
the ten months then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
May 16, 1994
F-22
<PAGE>
AD&D ACQUISITION, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------
ASSETS
<S> <C>
Current assets:
Cash............................................................ $ 68,376
Receivables--client, including $100,964 billed subsequent to
December 31, 1993, less allowance of $16,076 for doubtful
accounts (Note 1).............................................. 682,153
Due from shareholder............................................ 23,096
Prepaid expenses and deposits................................... 11,262
---------
Total current assets.......................................... 784,887
---------
Property and equipment (Note 1):
Computer equipment and software................................. 48,507
Office furniture and equipment.................................. 15,973
---------
64,480
Less-Accumulated depreciation and amortization.................. 27,572
---------
Net property and equipment.................................... 36,908
---------
Noncompete agreement and other assets, net (Note 3)............... 6,693
---------
$ 828,488
=========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
Current liabilities:
Line of credit (Note 2)......................................... $ 100,000
Accounts payable................................................ 32,343
Due to affiliates (Note 4)...................................... 3,574
Compensation expense............................................ 175,797
Accrued vacation................................................ 43,675
Accrued payroll taxes........................................... 50,478
Other accrued expenses.......................................... 49,829
---------
Total current liabilities..................................... 455,696
---------
Shareholders' equity (Note 6):
Common stock, no par value, 1,000,000 shares authorized, 1,000
shares outstanding............................................. 1,000
---------
Accumulated earnings--
Balance, beginning of period.................................. 149,052
Net income for the period..................................... 341,730
Shareholders' distributions................................... (118,990)
---------
Balance, end of period.......................................... 371,792
---------
Total shareholders' equity.................................. 372,792
---------
$ 828,488
=========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-23
<PAGE>
AD&D ACQUISITION, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
TEN MONTHS ENDED
DECEMBER 31, 1993
-----------------
<S> <C>
Revenues..................................................... $4,482,462
Professional salaries and related personnel costs............ 3,099,064
----------
Gross margin................................................ 1,383,398
Selling, general and administrative expenses................. 906,825
Amortization of noncompete agreement......................... 120,880
Interest expense............................................. 13,963
----------
Net income for the period.................................... $ 341,730
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE>
AD&D ACQUISITION, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TEN MONTHS ENDED
DECEMBER 31,
1993
----------------
<S> <C>
Cash flows from operating activities:
Net income for the period.................................... $ 341,730
Adjustments to reconcile net income to net cash provided by
operating activities--
Depreciation and amortization............................... 126,167
Changes in assets and liabilities--
Increase in client receivables............................. (246,579)
Increase in prepaid expenses and deposits.................. (2,274)
Increase in due from shareholder........................... (12,681)
Increase in accounts payable and accrued expenses.......... 109,048
Decrease in due to affiliate............................... (3,528)
---------
Net cash provided by operating activities................. 311,883
---------
Cash flows from investing activities--purchase of property and
equipment.................................................... (9,177)
---------
Cash flows from financing activities:
Payments on notes payable to affiliates...................... (221,000)
Net borrowings under the line of credit...................... (100,000)
Distributions paid to shareholders........................... (118,990)
---------
Net cash used in financing activities..................... (439,990)
---------
Net decrease in cash...................................... (137,284)
Cash, beginning of period..................................... 205,660
---------
Cash, end of period........................................... $ 68,376
=========
Supplemental disclosure of cash payments made for:
Interest.................................................... $ 13,517
=========
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
AD&D ACQUISITION, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE TEN MONTHS ENDED DECEMBER 31, 1993
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
AD&D Acquisition, Inc. (the Company) provides experienced and skilled
professionals on a contract basis to serve the needs of the information and
data processing community. As the Company serves a wide range of customers in
various industries, there is no concentration of credit risk within a
particular industry or with any particular customer.
The following is a summary of significant accounting policies:
Revenue Recognition
Revenue is recognized currently as services are performed based on units of
time incurred on behalf of clients.
Property and Equipment
Property and equipment are stated at cost. Expenditures for repair and
maintenance are charged to expense as incurred. Depreciation and amortization
are computed using the straight-line method for financial statement purposes.
Accelerated methods are used for income tax purposes. The estimated useful
lives used in computing depreciation and amortization for financial statements
purposes are as follows:
<TABLE>
<CAPTION>
ASSET
ASSET DESCRIPTION LIFE
----------------- ---------
<S> <C>
Computer equipment and software................................. 7 years
Office furniture and equipment.................................. 7 years
</TABLE>
Income Taxes
The Company has elected for federal income tax reporting to include its
taxable income or loss with that of its shareholders (an S Corporation
election). There are no significant differences between book and tax reporting
for income and expense items. The Company pays dividends to shareholders each
year in amounts adequate to satisfy the tax liability for their shares of the
Company's taxable income.
2. LINE OF CREDIT
The Company has a line-of-credit agreement with a bank that allows for
borrowings, up to $200,000, at the bank's base regional lending rate, 7.0
percent at December 31, 1993. The weighted average interest rate for this line
of credit during 1993 was approximately 7 percent. There was $100,000
outstanding against this line at December 31, 1993. The line of credit is
secured by substantially all assets of the Company and is guaranteed by the
majority shareholder of the Company.
3. NONCOMPETE AGREEMENT AND OTHER ASSETS
The Company has a noncompete agreement with the minority shareholder of the
Company and employment agreements with specific employees. The noncompete
agreement had a term of one year following the termination of employment of
the minority shareholder. Effective January 1, 1994, the assets of the Company
were sold (see Note 8) and the noncompete agreement cancelled. As a result,
$111,000 of additional amortization expense was recorded in the accompanying
financial statements to reduce the asset related to the noncompete agreement
to zero.
F-26
<PAGE>
AD&D ACQUISITION, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE TEN MONTHS ENDED DECEMBER 31, 1993
The remaining other asset balance includes employment agreements entered
into with the former employees of Applications Design and Development, a
business acquired during March, 1990. The asset is being amortized on a pro
rata basis as each of the original employees terminates employment with the
Company.
4. RELATED-PARTY TRANSACTIONS
The amount included in the balance sheet caption "due to affiliates"
represents payables and accrued interest to an affiliated company and majority
shareholder. The affiliated company provided accounting services support to
the Company in the ten months ended December 31, 1993, for which it charged
fees of $30,000.
As of the beginning of the period, notes payable consisted of $221,000 of
due-on-demand promissory notes to an affiliated entity. The notes carried
interest rates from 10% to 11%, and the interest was payable annually. The
notes were paid in full during the period ended December 31, 1993.
5. LEASE AGREEMENTS
The Company leases the office facilities for its corporate headquarters
under an operating lease agreement on a month-to-month basis. The Company also
leases office furniture and equipment under noncancelable operating leases.
Total rent expense under operating leases was approximately $31,000 in the
period ended December 31, 1993.
6. STOCK RESTRICTION AGREEMENT
The Company's shareholders have a stock repurchase agreement which provides
for the transfer of the Company's stock upon the sale by or death of the
minority shareholder. Under the agreement, the Company and majority
shareholder have the right of first refusal to acquire shares of the Company's
stock in the event of a pending sale by the minority shareholder to any
persons other than authorized transferees, as defined. If the Company and
majority shareholder do not exercise their option to purchase these shares,
then the shares may be sold to a third party at a price not more favorable
than that at which the shares were first offered to the Company and the
majority shareholder. In addition, upon the death of the minority shareholder,
the Company and majority shareholder are required to purchase all the shares
of the deceased shareholder.
7. SUBSEQUENT EVENT
Effective January 1, 1994, the net assets of the Company were sold for
$900,000 to a company owned by the minority shareholder. The assets sold
excluded $200,000 of accounts receivable used to redeem the minority
shareholder's interest in the Company. The Company received consideration in
the form of a note receivable for $900,000 payable in 24 monthly installments
of $40,295, including interest at 7.0%. The payments began on March 1, 1994,
and continue through February 1, 1996.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
Leardata Info-Services, Inc.
Dallas, Texas
We have audited the accompanying balance sheets of Leardata Info-Services,
Inc. (the Company) as of December 31, 1994 and 1995, and the related
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Leardata Info-Services, Inc. at December
31, 1994 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Dallas, Texas
March 11, 1996
F-28
<PAGE>
LEARDATA INFO-SERVICES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $1,193,582 $1,855,221
Accounts receivable ......................... 1,825,330 2,203,230
Prepaid expenses and other current assets.... 41,925 24,504
Income tax receivable........................ -- 90,815
---------- ----------
Total current assets....................... 3,060,837 4,173,770
Property:
Furniture and fixtures....................... 248,816 249,392
Equipment.................................... 364,886 274,509
---------- ----------
613,702 523,901
Less accumulated depreciation................ (404,970) (436,889)
---------- ----------
Property, net.............................. 208,732 87,012
---------- ----------
$3,269,569 $4,260,782
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..... $ 194,465 $ 145,987
Income taxes payable......................... -- 29,600
---------- ----------
Total current liabilities.................. 194,465 175,587
Deferred income taxes (Note 2)................. 36,000 20,000
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; 5,000,000
shares authorized, 3,864,480 shares issued
and outstanding (liquidation value is equal
to par value, plus accumulated undistributed
dividends, none of which have been
declared)................................... 386,448 386,448
Common stock, $.01 par value; 1,000,000
shares authorized, 300,574 shares issued and
outstanding in 1995 (none in 1994).......... -- 3,006
Additional paid-in capital................... 146,392 173,444
Due from stockholders (Note 6)............... -- (115,058)
Retained earnings............................ 2,506,264 3,617,355
---------- ----------
Total stockholders' equity................. 3,039,104 4,065,195
---------- ----------
$3,269,569 $4,260,782
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
LEARDATA INFO-SERVICES, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
---------- ----------- -----------
<S> <C> <C> <C>
Revenues.................................... $7,778,566 $11,198,789 $13,953,621
Cost of professional services............... 5,100,973 7,352,010 9,354,747
---------- ----------- -----------
Gross margin............................... 2,677,593 3,846,779 4,598,874
Selling, general and administrative
expenses................................... 1,990,842 2,440,049 2,879,801
---------- ----------- -----------
Operating income............................ 686,751 1,406,730 1,719,073
Interest and other income................... 55,400 23,815 62,018
---------- ----------- -----------
Income before provision for income taxes.... 742,151 1,430,545 1,781,091
Provision for income taxes (Note 2)......... 278,000 520,000 670,000
---------- ----------- -----------
Net income.................................. $ 464,151 $ 910,545 $ 1,111,091
========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-30
<PAGE>
LEARDATA INFO-SERVICES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------ -------------- PAID-IN RETAINED DUE FROM
SHARE AMOUNT SHARE AMOUNT CAPITAL EARNINGS STOCKHOLDER TOTAL
--------- -------- ------- ------ -------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1993................... 3,864,480 $386,448 -- $ -- $146,392 $1,131,568 $ -- $1,664,408
Net income............. 464,151 464,151
--------- -------- ------- ------ -------- ---------- --------- ----------
Balance, December 31,
1993................... 3,864,480 386,448 -- -- 146,392 1,595,719 -- 2,128,559
Net income............. 910,545 910,545
--------- -------- ------- ------ -------- ---------- --------- ----------
Balance, December 31,
1994................... 3,864,480 386,448 -- -- 146,392 2,506,264 -- 3,039,104
Loan to stockholder.... -- -- -- -- -- -- (85,000) (85,000)
Net income............. -- -- -- -- -- 1,111,091 -- 1,111,091
Exercise of stock
options............... -- -- 300,574 3,006 27,052 -- (30,058) --
--------- -------- ------- ------ -------- ---------- --------- ----------
Balance, December 31,
1995................... 3,864,480 $386,448 300,574 $3,006 $173,444 $3,617,355 $(115,058) $4,065,195
========= ======== ======= ====== ======== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements
F-31
<PAGE>
LEARDATA INFO-SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 464,151 $ 910,545 $1,111,091
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities--
Depreciation expense...................... 51,841 82,015 210,263
Deferred income taxes..................... -- 36,000 (16,000)
Changes in operating assets and
liabilities--
Accounts receivable...................... (807,841) (438,190) (377,900)
Prepaid expenses and other current
assets.................................. (7,210) (8,703) (73,394)
Accounts payable and accrued
liabilities............................. (53,169) (51,488) (48,477)
Income taxes payable..................... -- -- 29,600
--------- ---------- ----------
Net cash provided by (used in) operating
activities............................. (352,228) 530,179 835,183
Cash flows from investing activities:
Purchase of furniture, fixtures and
equipment.................................. (49,758) (122,418) (88,544)
--------- ---------- ----------
Cash flows from financing activities:
Due from stockholder........................ -- -- (85,000)
--------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents................................. (401,986) 407,761 661,639
Cash and cash equivalents, beginning of
year........................................ 1,187,807 785,821 1,193,582
--------- ---------- ----------
Cash and cash equivalents, end of year....... $ 785,821 $1,193,582 $1,855,221
========= ========== ==========
Supplemental information--cash paid for
income taxes................................ $ 278,000 $ 435,500 $ 691,000
========= ========== ==========
</TABLE>
SUPPLEMENTAL NONCASH FINANCING ACTIVITY:
During the year ended December 31, 1995, stockholders of the Company
exercised stock options and collectively received 300,574 shares of common
stock in exchange for notes from such stockholders.
See accompanying notes to financial statements.
F-32
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Organization--Leardata Info-Services, Inc. provides contract
programming and data processing consulting services to a diverse group of
business enterprises.
Cash and Cash Equivalents--The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents.
Depreciation--Depreciation of furniture, fixtures and equipment is computed
using the straight-line method over an estimated useful life of five years.
Revenue Recognition--The Company provides programming and consulting
services based upon contracts of variable duration which are cancelable based
on 15-day written notice. Revenues are recognized as billable time is incurred
and are billed within the same period. Contract labor costs are also
recognized as time is incurred and are accrued within the same period.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions regarding the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements--In March 1995, the Financial Accounting
Standards Board (FASB) issued SFAS No. 121, Accounting for Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of, which becomes
effective for fiscal years beginning after December 14, 1995. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt this statement in fiscal 1997 as required,
and its adoption is not expected to have a significant effect on earnings,
financial condition or cash flows.
In October 1995, Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which requires adoption of the
disclosure provisions no later than years beginning after December 15, 1995
and adoption of the recognition and measurement provisions for nonemployee
transactions no later than after December 15, 1995. The new standard defines a
fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
service period which is usually the vesting period. Pursuant to the new
accounting standard, companies are encouraged, but are not required, to adopt
the fair value method of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions
under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, but would be required to disclose in a note to the financial
statements pro forma net income and, if presented, earnings per share as if
the company had applied the new method of accounting. The Company has
determined that it will not change to the fair value method and will continue
to use Accounting Principle Board Opinion No. 25 for measurement and
recognition for employee stock-based transactions.
Reclassifications--Certain items in a prior period financial statements may
have been reclassified to conform to the current period presentation.
F-33
<PAGE>
2. INCOME TAXES
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal........................................ $250,000 $427,000 $605,000
State.......................................... 28,000 52,600 81,000
-------- -------- --------
278,000 479,600 686,000
Deferred:
Federal........................................ -- 36,000 (14,100)
State.......................................... -- 4,400 (1,900)
-------- -------- --------
-- 40,400 (16,000)
-------- -------- --------
Provision for income taxes....................... $278,000 $520,000 $670,000
======== ======== ========
</TABLE>
A reconciliation of the Company's effective tax rate compared to the
statutory federal tax rate is as follows at December 31:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory federal rate..................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit........................ 3.8% 4.0 4.4%
Meals and entertainment.................................... 0.4 0.7 0.4
Other--Non Taxable Dividends............................... (1.4) (1.0) (2.5)
Other...................................................... .7 (1.3) 1.3
---- ---- ----
37.5% 36.4% 37.6%
==== ==== ====
</TABLE>
Deferred income taxes are provided for temporary differences between
financial statement carrying amounts and the taxable basis of assets and
liabilities using tax rates currently in effect. Deferred income taxes relate
primarily to temporary differences between the financial statement carrying
amount and the taxable basis of furniture, fixtures and equipment. The income
effects of these temporary differences representing portions of deferred tax
assets and deferred tax liabilities are as follows at December 31:
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Total deferred tax asset--employee benefits............. $ 14,000 $ 11,000
Total deferred tax liability--furniture, fixtures and
equipment.............................................. (50,000) (31,000)
-------- --------
Net..................................................... $(36,000) $(20,000)
======== ========
</TABLE>
3. STOCKHOLDERS' EQUITY
The preferred stock ranks senior to the common stock with respect to the
payment of dividends, voting rights and distributions in liquidation. The
preferred stock's liquidation value is equal to par value plus any
undistributed dividends, none of which have been declared at December 31,
1995. Additionally, preferred stock is convertible to common stock on a one-
to-one basis. Preferred stock dividends are payable when declared by the Board
of Directors.
F-34
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
The Company has adopted an incentive stock option plan, pursuant to which
500,000 shares of common stock have been reserved for issuance upon the
exercise of the options. Options totaling 343,513 shares have been granted to
key employees of the Company. The outstanding common stock options are
exercisable through January 2, 1996, at an exercise price of $0.38 per common
share.
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at January 1, 1993......................... 343,513 $0.10-$0.38
-------
Outstanding at December 31, 1993....................... 343,513 $0.10-$0.38
-------
Outstanding at December 31, 1994....................... 343,513 $0.10-$0.38
Exercised.............................................. 300,574 $0.10
-------
Outstanding at December 31, 1995....................... 42,939 $0.38
=======
</TABLE>
4. EMPLOYEE BENEFIT PLANS
The Company established a 401(k) Savings Plan and Trust which is a defined
contribution plan covering eligible employees upon hiring. Participants may
make tax-deferred 401(k) contributions. The Company may make a discretionary
matching contribution of up to 25% of the participants' deferred contribution,
but in no case may the Company's contribution exceed 6% of the participants'
compensation. All participants' deferred contributions are 100% vested. All
other contributions vest according to years of employment. The vesting
percentages are as follows:
<TABLE>
<S> <C>
Less than 2 years.................................................... 0%
2 years but less than 3 years........................................ 20%
3 years but less than 4 years........................................ 40%
4 years but less than 5 years........................................ 60%
5 years but less than 6 years........................................ 80%
6 years or more...................................................... 100%
</TABLE>
Participants' deferred contributions are limited to 15% of the participants'
compensation, not to exceed federal limits of $9,240 in 1995. The Company's
matching contribution was $18,661, $30,788 and $23,550 representing 25% of the
participants' deferred contribution for the years ended December 31, 1993,
1994 and 1995, respectively.
5. COMMITMENTS AND CONTINGENCIES
The Company leases office space under an operating lease ending October 31,
1999. The total minimum future rental payments under the lease are as follows:
<TABLE>
<S> <C>
1996............................................................. $122,046
1997............................................................. 122,046
1998............................................................. 122,046
1999............................................................. 101,705
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
$145,672, $138,560 and $122,898, respectively.
F-35
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
6. RELATED PARTY TRANSACTION
In May 1995, the Company entered into a loan agreement with the Chief
Executive Officer of the Company for $85,000. The loan bears interest at the
prime rate (8.5% at December 31, 1995) and is payable upon any of the
following events: (i) sale of the Company, (ii) initial public offering, (iii)
recapitalization, or (iv) repurchase of shares.
In the event that none of the above occurs within a three-year period, the
loan and accrued interest (compounded annually) will be due and payable on May
10, 1998. Interest income on the loan for the year ended December 31, 1995 was
$4,672.
The remaining $30,058 included in due from stockholders relates to two
salary advances used for exercising the incentive stock options described in
Note 3. These advances bear no interest and are repayable monthly by salary
reductions beginning in January 1996 and terminating on November 15, 1997.
7. CONCENTRATIONS OF CREDIT RISK
The Company's revenues are generated from credit sales to customers in
approximately 30 states. The Company performs ongoing credit evaluations of
its customers and maintains reserves for potential credit lines and generally
does not require collateral. The Company's ten largest customers represented
53% of total revenues in fiscal 1995, and as a result, the Company has a large
proportion of its receivables outstanding with these customers. Accounts
receivable to the Company's ten largest customers was $1,390,443 as of
December 31, 1995.
F-36
<PAGE>
LEARDATA INFO-SERVICES, INC.
CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
<CAPTION>
SEPTEMBER 30,
1996
-------------
<S> <C>
Current assets:
Cash and cash equivalents....................................... $2,285,918
Accounts receivable ............................................ 2,772,701
Prepaid expenses and other current assets....................... 70,754
Income tax receivable........................................... 90,815
----------
Total current assets........................................... 5,220,188
Property:
Furniture and fixtures.......................................... 251,048
Equipment....................................................... 440,737
----------
691,785
Less accumulated depreciation .................................. (471,089)
----------
Property, net.................................................. 220,696
----------
$5,440,884
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........................ $ 282,454
Income taxes payable............................................ 31,346
----------
Total current liabilities...................................... 313,800
Deferred income taxes ........................................... 20,470
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.10 par value; 5,000,000 shares authorized;
3,864,480 shares issued and outstanding (liquidation value is
equal to par value, plus accumulated undistributed dividends,
some of which have been declared).............................. 386,448
Common stock, $.01 par value; 1,000,0000 shares authorized;
300,574 shares issued and outstanding.......................... 3,006
Additional paid-in capital...................................... 173,444
Retained earnings............................................... 4,650,772
Due from stockholders .......................................... (107,056)
----------
Total stockholders' equity..................................... 5,106,614
----------
$5,440,884
==========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-37
<PAGE>
LEARDATA INFO-SERVICES, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues............................................... $10,205,676 $12,019,414
Cost of professional services.......................... 6,828,384 8,267,216
----------- -----------
Gross margin........................................... 3,377,292 3,752,198
Selling, general and administrative expenses........... 2,019,289 2,245,806
----------- -----------
Operating income....................................... 1,358,003 1,506,392
Interest and other income.............................. 43,093 57,771
----------- -----------
Income before provision for income taxes............... 1,401,096 1,564,163
Provision for income taxes ............................ 476,372 530,746
----------- -----------
Net income............................................. $ 924,724 $ 1,033,417
=========== ===========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-38
<PAGE>
LEARDATA INFO-SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1995 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 924,724 $1,033,417
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation expense............................... 43,200 34,200
Deferred income taxes.............................. (36,000) 470
Changes in operating assets and liabilities:
Accounts receivable................................ (499,780) (569,471)
Prepaid expenses and other current assets.......... 8,449 (46,250)
Accounts payable and accrued liabilities........... 66,133 161,685
Income taxes payable............................... (99,017) (23,472)
Unearned income.................................... 8,600 --
---------- ----------
Net cash provided by operating activities........ 416,309 590,579
Cash flows from investing activities:
Purchase of furniture, fixtures and equipment......... (78,287) (167,884)
---------- ----------
Cash flows from financing activities:
Due from stockholders................................. (85,000) 8,002
---------- ----------
Net increase (decrease) in cash........................ 253,022 430,697
Cash and cash equivalents, beginning of period......... 1,193,582 1,855,221
---------- ----------
Cash and cash equivalents, end of period............... $1,446,604 $2,285,918
========== ==========
Supplemental information--
Cash paid for income taxes............................ $ 511,000 $ 503,110
========== ==========
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-39
<PAGE>
LEARDATA INFO-SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Leardata Info-
Services, Inc. (the "Company") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and footnotes required by generally
accepted accounting principles for a complete set of financial statements. In
the opinion of management, all adjustments considered necessary, consisting
only of normal recurring adjustments are included for fair presentation.
Operating results for the nine months ended September 30, 1995 and 1996, are
not necessarily indicative of results that may be expected for the full year.
The unaudited condensed financial statements for the nine months ended
September 30, 1995 and 1996 should be read in conjunction with the audited
financial statements of the Company for the years ended December 31, 1994 and
1995.
NOTE 2. SUBSEQUENT EVENT
The Company has signed a Stock Purchase Agreement to sell the Company. There
can be no assurance that the sale will be consummated.
F-40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the
Offering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such offer or
solicitation would be unlawful. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create an implication that
there has been no change in the affairs of the Company, or that information
contained herein is correct as of any time, subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
--------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 3
Risk Factors............................................................... 8
Use of Proceeds............................................................ 12
Price Range of Common Stock................................................ 12
Dividend Policy............................................................ 12
Capitalization............................................................. 13
Selected Financial Data.................................................... 14
Pro Forma Combined Condensed Financial Information......................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 20
Business................................................................... 26
Management................................................................. 34
Certain Transactions....................................................... 39
Principal and Selling Shareholders......................................... 41
Description of Capital Stock............................................... 42
Shares Eligible for Future Sale............................................ 43
Underwriting............................................................... 44
Legal Matters.............................................................. 45
Experts.................................................................... 45
Available Information...................................................... 46
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,200,000 SHARES
[LOGO OF DPRC]
DATA PROCESSING
RESOURCES CORPORATION
COMMON STOCK
-----------------
PROSPECTUS
-----------------
Montgomery Securities
Robert W. Baird & Co.
Incorporated
Lehman Brothers
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the sale and distribution of the securities being registered. All of the
amounts shown are estimated except the registration fee of the Securities and
Exchange Commission and the filing fee for the National Association of
Securities Dealers, Inc.
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
SEC registration fee............................................... $ 13,992
NASD filing fee.................................................... 5,117
Nasdaq National Market listing fee................................. 17,500
Blue Sky fees and expenses......................................... *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Transfer agent and registrar fees.................................. *
Miscellaneous...................................................... *
--------
Total.......................................................... $*
========
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California Corporations Code provides for the indemnification of
directors, officers, employees and agents of the Corporation under certain
circumstances set forth in Section 317 thereof. Section 317 permits a
corporation to indemnify its agents, typically directors and officers, for
expenses incurred or settlements or judgments paid in connection with certain
legal proceedings. Only those legal proceedings arising out of such persons'
actions as agents of the corporation may be grounds for indemnification.
Whether or not indemnification may be paid in a particular case depends upon
whether the agent wins, loses or settles the suit and upon whether a third
party or the corporation itself is the plaintiff. The section provides for
mandatory indemnification, no matter who the plaintiff is, when an agent is
successful on the merits of a suit. In all other cases, indemnification is
permissive.
If the agent loses or settles a suit brought by a third party, he or she may
be indemnified for expenses incurred and settlements or judgments paid. Such
indemnification may be authorized upon finding that the agent acted in good
faith and in a manner he or she reasonably believed to be in the best
interests of the corporation.
If the agent loses or settles a suit brought by or on behalf of the
corporation, his or her rights to indemnification are more limited. If he or
she is adjudged to be liable to the corporation, the court in which such
proceeding was held must determine whether it would be fair and reasonable to
indemnify him or her for expenses which such court shall determine. If the
agent settles such a suit with court approval, he or she may be indemnified
for expenses incurred upon a finding that the agent acted in good faith and in
a manner he or she reasonably believed to be in the best interests of the
corporation and, in addition, that he or she acted with the care, including
reasonable inquiry, of an ordinarily prudent person.
The indemnification discussed above may be authorized by a majority vote of
the disinterested directors or shareholders (the person to be indemnified is
excluded from voting his or her shares) or the court in which the proceeding
was brought. The Company's Board of Directors makes all decisions regarding
the indemnification of its officers and directors on a case-by-case basis.
II-1
<PAGE>
Any provision in the Company's Articles of Incorporation or Bylaws or
contained in a shareholder or director resolution that indemnifies its
officers or directors must be consistent with Section 317. Moreover, such a
provision may prohibit permissive, but not mandatory, indemnification as
described above. Last, a corporation has the power to purchase indemnity
insurance for its agents even if it would not have the power to indemnify
them.
The Company's Articles of Incorporation authorize the Board of Directors to
provide indemnification of its agents through bylaw provisions or
indemnification agreements, or both, in excess of the indemnification
otherwise permitted by Section 317, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporations Code.
The Company's Bylaws require the Company to indemnify each of its directors
and officers, to the maximum extent permitted by the California Corporations
Code, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding arising by
reason of the fact that any such person is or was a director or officer of the
Company. The Company is also required to advance to such director or officer
expenses incurred in defending any such proceeding, to the maximum extent
permitted by such law. The Company's Bylaws also provide that the Board of
Directors, in its discretion, may provide for indemnification of or advance of
expenses to other agents of the Company.
The Company has entered into agreements with each of its directors and
officers pursuant to which the Company has agreed to indemnify such director
or officer from claims, liabilities, damages, expenses, losses, costs,
penalties or amounts paid in settlement incurred by such director or officer
in or arising out of his or her capacity as a director, officer, employee
and/or agent of the Company or any other corporation of which he or she is a
director or officer at the request of the Company to the maximum extent
permitted by applicable law. In addition, such director or officer is entitled
to an advance of expenses to the maximum extent authorized or permitted by
law.
Reference is made to the Form of Underwriting Agreement (to be attached as
Exhibit 1.1 to this Registration Statement) which provides for indemnification
by the Underwriters of the directors and officers of the Company signing the
Registration Statement and certain controlling persons of the Company against
certain liabilities, including those arising under the Securities Act of 1933.
The Company carries directors' and officers' liability insurance covering
its directors and officers.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers or persons controlling the Registrant
pursuant to the foregoing provisions, the Registrant has been informed that,
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On March 2, 1995, Registrant sold an aggregate of 1,480 shares of Series A
Convertible Preferred Stock in a private placement to a single investment
partnership. The purchase price of $1,601,360 was paid in cash. Such sale was
exempt from the registration requirements of the Securities Act of 1933 by
virtue of Section 4(2) thereof.
During the period from September 1, 1994 through November 30, 1996, the
Company granted stock options to employees and directors covering an aggregate
of 833,920 shares of Common Stock. No consideration was paid for such options.
Such grants were exempt from the registration requirement of the Securities
Act of 1933 as not involving the sale of a security. In connection with the
IPO, Mr. Connell exercised his options covering 11,000 shares of Common Stock.
The issuance of such shares was exempt from the registration requirements of
the Securities Act of 1933 by virtue of Rule 701 promulgated thereunder.
II-2
<PAGE>
In connection with the Company's acquisition of AD&D, the Company issued
152,121 shares of Common Stock to ADD Consulting, Inc. The issuance of such
shares was exempt from the registration requirements of the Securities Act of
1993 by virtue of Section 4(2) thereunder.
In connection with the Company's acquisition of Leardata, the Company will
issue approximately 300,000 shares of Common Stock to Leardata. The issuance
of such shares was exempt from the registration requirements of the Securities
Act of 1993 by virtue of Section 4(2) thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
2.1 Agreement of Purchase and Sale of Assets dated July 1, 1996, by and
among Data Processing Resources Corporation, ADD Consulting, Inc. and
Gerald R. Ladd (1)
2.2 Registration Rights Agreement dated July 1, 1996, by and between Data
Processing Resources Corporation and ADD Consulting, Inc. (1)
2.3 Stock Purchase Agreement dated December 16, 1996, by and among Data
Processing Resources Corporation, Leardata Info-Services, Inc.,
General Atlantic Leardata Partners, L.P., Bruce M. Smith, Chris P.
Smith, Steve P. Donaldson, Robert M. Howe and Barbara A. Kuhler
2.4 Form of Registration Rights Agreement to be entered into among Data
Processing Resources Corporation, Leardata Info-Services, Inc.,
General Atlantic Leardata Partners, L.P., Bruce M. Smith, Chris P.
Smith, Steve P. Donaldson, Robert M. Howe and Barbara A. Kuhler
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Restated Bylaws of the Company (2)
4.1 Investors' Rights Agreement dated as of March 2, 1995, by and among
the Company and the Holders who are signatories thereto, as amended by
Amendment No. 1 (2)
4.2 Specimen Common Stock certificate (2)
5.1 Opinion of Riordan & McKinzie, a Professional Law Corporation*
10.1 Employment Agreement dated as of August 1, 1995 between the Company
and David M. Connell (2)
10.2 Employment Agreement dated as of August 1, 1995 between the Company
and Mary Ellen Weaver (2)
10.3 Employment Agreement dated as of January 5, 1996 between the Company
and Michael A. Piraino (2)
10.4 1994 Stock Option Plan, as amended (3)
10.5 Form of Stock Option Agreement (2)
10.6 Management Services Agreement dated as of December, 1993 between the
Company and IT Resources, Inc. (2)
10.7 Covenant Not to Compete dated as of February 28, 1994 by and among the
Company and Thomas A. Ballantyne, III, Candice M. Ballantyne, and
Ballantyne Computer Service, Inc. (2)
10.8 Form of Indemnification Agreement between the Company and each of its
directors and certain officers (2)
10.9 Employment Agreement dated as of March 1, 1996 between the Company and
Richard E. Earley (2)
10.10 Employee Stock Purchase Plan (3)
10.11 Credit Agreement dated as of October 25, 1996 between Data Processing
Resources Corporation and Wells Fargo Bank, National Association (4)
21.1 List of All Subsidiaries of the Company
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
23.1 Consent of Riordan & McKinzie (contained in Exhibit 5.1)*
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (contained on page II-5)
27.1 Financial Data Schedule for Leardata Info-Services, Inc. for the Year
Ended December 31, 1995
27.2 Financial Data Schedule for Leardata Info-Services, Inc. for the Nine
Months Ended September 30, 1996
</TABLE>
- --------
* To be filed by amendment
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated July 1, 1996, as filed with the Securities and Exchange Commission
on July 16, 1996 and, as amended, on August 27, 1996.
(2) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (No. 333-00098) as filed with the Securities and
Exchange Commission on March 5, 1996.
(3) Incorporated by reference to the Company's defintive proxy statement with
form of proxy attached as filed with the Securities and Exchange
Commission on November 20, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1996 as filed with the Securities and
Exchange Commission on October 29, 1996.
(b) Financial Statement Schedules
Schedule VIII -- Valuation and Qualifying Accounts for the Years Ended July
31, 1994, 1995 and 1996.
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in the
form of prospectus filed by Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on the 23rd day of December 1996.
DATA PROCESSING RESOURCES CORPORATION
By: /s/ Mary Ellen Weaver
------------------------------------
Mary Ellen Weaver
Chairman of the Board
and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mary Ellen Weaver, David M. Connell and Michael
A. Piraino, and each of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any
and all amendments to this Registration Statement, including any post-
effective amendments as well as any related registration statement (or
amendment thereto) filed in reliance upon Rule 462(b) under the Securities Act
of 1933, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his or her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Mary Ellen Weaver Chairman of the Board, Chief December 23, 1996
____________________________________ Executive Officer and
Mary Ellen Weaver Director (Principal
Executive Officer)
/s/ David M. Connell President, Chief Operating December 23, 1996
____________________________________ Officer and Director
David M. Connell
/s/ Michael A. Piraino Senior Vice President and December 23, 1996
____________________________________ Chief Financial Officer
Michael A. Piraino (Principal Financial Officer
and Principal Accounting
Officer)
/s/ J. Christopher Lewis Director December 23, 1996
____________________________________
J. Christopher Lewis
/s/ Li-San Hwang Director December 23, 1996
____________________________________
Li-San Hwang
/s/ JoAnn W. Wagner Director December 23, 1996
____________________________________
JoAnn W. Wagner
</TABLE>
II-5
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JULY 31, 1994, 1995 AND 1996
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<TABLE>
<CAPTION>
ADDITIONS
BALANCE ---------------------------- BALANCE
AT BEGINNING CHARGES TO AT END OF
OF PERIOD BAD DEBT EXPENSE RECOVERIES ALLOWANCE PERIOD
------------ ----------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JULY 31:
1994 (1).............. $ -- $ -- $ -- $ -- $ --
1995.................. $ -- $ 97,500 $ -- $34,489 $ 63,011
1996.................. $63,011 $105,000 $ -- $39,477 $128,534
</TABLE>
- --------
(1)No allowance for the period indicated.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
2.1 Agreement of Purchase and Sale of Assets dated July 1,
1996, by and among Data Processing Resources
Corporation, ADD Consulting, Inc. and Gerald R. Ladd
(1)
2.2 Registration Rights Agreement dated July 1, 1996, by
and between Data Processing Resources Corporation and
ADD Consulting, Inc. (1)
2.3 Stock Purchase Agreement dated December 16, 1996, by
and among Data Processing Resources Corporation,
Leardata Info-Services, Inc., General Atlantic Leardata
Partners, L.P., Bruce M. Smith, Chris P. Smith, Steve
P. Donaldson, Robert M. Howe and Barbara A. Kuhler
2.4 Form of Registration Rights Agreement to be entered
into among Data Processing Resources Corporation,
Leardata Info-Services, Inc., General Atlantic Leardata
Partners, L.P., Bruce M. Smith, Chris P. Smith, Steve
P. Donaldson, Robert M. Howe and Barbara A. Kuhler
3.1 Restated Articles of Incorporation of the Company (2)
3.2 Restated Bylaws of the Company (2)
4.1 Investors' Rights Agreement dated as of March 2, 1995,
by and among the Company and the Holders who are
signatories thereto, as amended by Amendment No. 1 (2)
4.2 Specimen Common Stock certificate (2)
5.1 Opinion of Riordan & McKinzie, a Professional Law
Corporation*
10.1 Employment Agreement dated as of August 1, 1995 between
the Company and David M. Connell (2)
10.2 Employment Agreement dated as of August 1, 1995 between
the Company and Mary Ellen Weaver (2)
10.3 Employment Agreement dated as of January 5, 1996
between the Company and Michael A. Piraino (2)
10.4 1994 Stock Option Plan, as amended (3)
10.5 Form of Stock Option Agreement (2)
10.6 Management Services Agreement dated as of December,
1993 between the Company and IT Resources, Inc. (2)
10.7 Covenant Not to Compete dated as of February 28, 1994
by and among the Company and Thomas A. Ballantyne, III,
Candice M. Ballantyne, and Ballantyne Computer Service,
Inc. (2)
10.8 Form of Indemnification Agreement between the Company
and each of its directors and certain officers (2)
10.9 Employment Agreement dated as of March 1, 1996 between
the Company and Richard E. Earley (2)
10.10 Employee Stock Purchase Plan (3)
10.11 Credit Agreement dated as of October 25, 1996 between
Data Processing Resources Corporation and Wells Fargo
Bank, National Association (4)
21.1 List of All Subsidiaries of the Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
23.1 Consent of Riordan & McKinzie (contained in Exhibit
5.1)*
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (contained on page II-5)
27.1 Financial Data Schedule for Leardata Info-Services,
Inc. for the Year Ended December 31, 1995
27.2 Financial Data Schedule for Leardata Info-Services,
Inc. for the Nine Months Ended September 30, 1996
</TABLE>
- --------
* To be filed by amendment
(1) Incorporated by reference to the Company's Current Report on Form 8-K dated
July 1, 1996, as filed with the Securities and Exchange Commission on July
16, 1996 and, as amended, on August 27, 1996.
(2) Incorporated by reference to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (No. 333-00098) as filed with the Securities and
Exchange Commission on March 5, 1996.
(3) Incorporated by reference to the Company's defintive proxy statement with
form of proxy attached as filed with the Securities and Exchange Commission
on November 20, 1996.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended July 31, 1996 as filed with the Securities and
Exchange Commission on October 29, 1996.
<PAGE>
Exhibit 1.1
2,200,000 Shares
---------
DATA PROCESSING RESOURCES CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
January ___, 1997
MONTGOMERY SECURITIES
ROBERT W. BAIRD & CO. INCORPORATED
LEHMAN BROTHERS
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Data Processing Resources Corporation, a
------------
California corporation (the "Company"), proposes to issue and sell 2,000,000
shares of its authorized but unissued Common Stock (the "Common Stock") and
a shareholder of the Company named in Schedule B annexed hereto (the
"Selling Shareholder"), propose to sell an aggregate of 200,000 shares of the
Company's issued and outstanding Common Stock to you, as underwriters (sometimes
referred to as the "Underwriters"). Said aggregate of 2,200,000 shares are
herein called the "Firm Common Shares." In addition, the Company proposes to
grant to you an option to purchase up to 280,000 additional shares of Common
Stock and the Selling Shareholder proposes to grant to you an option to
purchase up to 50,000 additional shares of Common Stock (said aggregate of
330,000 shares are herein called the "Optional Common Shares"), as provided
in Section 5 hereof. The Firm Common Shares and, to the extent such option is
exercised, the Optional Common Shares are hereinafter collectively referred to
as the "Common Shares."
You have advised the Company and the Selling Shareholder that you propose
to make a public offering of your respective portions of the Common Shares on
the effective date of the registration statement hereinafter referred to, or as
soon thereafter as in your judgment is advisable.
The Company and the Selling Shareholder hereby confirm their respective
agreements with respect to the purchase of the Common Shares by you as follows:
<PAGE>
SECTION 2. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to you that:
(a) A registration statement on Form S-1 (File No. 333-__________)
with respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder, and
has been filed with the Commission. The Company has prepared and has filed
or proposes to file prior to the effective date of such registration
statement an amendment or amendments to such registration statement, which
amendment or amendments have been or will be similarly prepared. There
have been delivered to you two signed copies of such registration statement
and amendments, together with two copies of each exhibit filed therewith.
Conformed copies of such registration statement and amendments (but without
exhibits) and of the related preliminary prospectus have been delivered to
you in such reasonable quantities as you have requested for each of you.
The Company will next file with the Commission one of the following: (i)
prior to effectiveness of such registration statement, a further amendment
thereto, including the form of final prospectus, (ii) a final prospectus in
accordance with Rules 430A and 424(b) of the Rules and Regulations or (iii)
a term sheet (the "Term Sheet") as described in and in accordance with
Rules 434 and 424(b) of the Rules and Regulations. As filed, the final
prospectus, if one is used, or the Term Sheet and Preliminary Prospectus,
if a final prospectus is not used, shall include all Rule 430A Information
and, except to the extent that you shall agree in writing to a
modification, shall be in all substantive respects in the form furnished to
you prior to the date and time that this Agreement was executed and
delivered by the parties hereto, or, to the extent not completed at such
date and time, shall contain only such specific additional information and
other changes (beyond that contained in the latest Preliminary Prospectus)
as the Company shall have previously advised you in writing would be
included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall
also mean such registration statement as so amended; provided, however,
that such term shall also include (i) all Rule 430A Information deemed to
be included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations and (ii) any registration statement filed pursuant to Rule
462(b) of the Rules and Regulations relating to the Common Shares. The
term "Preliminary Prospectus" shall mean any preliminary prospectus
referred to in the preceding paragraph and any preliminary prospectus
included in the Registration Statement at the time it becomes effective
that omits Rule 430A Information. The term "Prospectus" as used in this
Agreement shall mean either (i) the prospectus relating to the Common
Shares in the form in which it is first filed with the Commission pursuant
to Rule 424(b) of the Rules and Regulations or, (ii) if no filing pursuant
to Rule 424(b) of the Rules and Regulations is required, shall mean the
form of final prospectus included in the Registration Statement at the time
such registration statement becomes effective or (iii) if a Term Sheet is
used, the Term Sheet in the form in which it is first filed with the
Commission pursuant to Rule 424(b) of the Rules and Regulations, together
with the Preliminary Prospectus included in the Registration Statement at
the time it becomes effective. The term "Rule 430A Information" means
information with respect to the Common Shares and the
2
<PAGE>
offering thereof permitted to be omitted from the Registration Statement
when it becomes effective pursuant to Rule 430A of the Rules and
Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the
Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to and
including each Closing Date hereinafter mentioned, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
will contain all material statements and information required to be
included therein by the Act and the Rules and Regulations and will in all
material respects conform to the requirements of the Act and the Rules and
Regulations, and neither the Registration Statement nor the Prospectus nor
any amendment or supplement thereto, as of its respective date, did or will
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or warranty
contained in this subsection 2(b) shall be applicable to information
contained in or omitted from any Preliminary Prospectus, the Registration
Statement, the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
or on behalf of any Underwriter specifically for use in the preparation
thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed
in Exhibit 21 to the Registration Statement. The Company and each of its
subsidiaries have been duly incorporated and are validly existing as
corporations in good standing under the laws of their respective
jurisdictions of incorporation with full power and authority (corporate and
other) to own and lease their respective properties and conduct their
respective businesses as described in the Prospectus; the Company and each
of its subsidiaries are in possession of and operating in compliance with
all authorizations, licenses, permits, consents, certificates and orders
material to the conduct of their respective businesses, all of which are
valid and in full force and effect. The Company and each of its
subsidiaries are duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the ownership or leasing
of properties or the conduct of their respective businesses requires such
qualification, except for jurisdictions in which the failure to so qualify
would not have a material adverse effect upon the Company and its
subsidiaries, considered as one entity; and no proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing, or
seeking to revoke, limit or curtail, such power and authority or
qualification. All of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance or claim.
(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus; the issued and
outstanding shares of Common Stock have been duly authorized and validly
issued, are fully paid and nonassessable, have been issued in compliance
with all federal and state securities laws, were not issued in violation of
or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and conform to the description thereof contained in
the Prospectus.
3
<PAGE>
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, neither the Company nor any of its subsidiaries has outstanding
any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's stock option, stock bonus
and other stock plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth in the Prospectus accurately
and fairly presents the information required to be shown with respect to
such plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set forth
in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or
purchase exist with respect to the issuance and sale of the Common Shares
by the Company pursuant to this Agreement. No shareholder of the Company
has any right which has not been waived to require the Company to register
the sale of any shares owned by such shareholder under the Act in the
public offering contemplated by this Agreement. No further approval or
authority of the shareholders or the Board of Directors of the Company will
be required for the transfer and sale of the Common Shares to be sold by
the Selling Shareholders or the issuance and sale of the Common Shares to
be sold by the Company as contemplated herein.
(f) The Company has full legal right, and corporate power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding obligation of
the Company in accordance with its terms, except as enforceability may be
limited by general principles of equity, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors' rights and
except for provisions relating to indemnity or contribution for liabilities
arising under the Act. The execution and performance of this Agreement by
the Company and the consummation of the transactions herein contemplated
(i) will not violate any provisions of the articles of incorporation or
bylaws of the Company or any of its subsidiaries and (ii) will not conflict
with, result in the breach or violation of, or constitute, either by itself
or upon notice or the passage of time or both, a default under any material
agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit or other instrument to which the Company or any of its subsidiaries
is a party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or
other governmental body applicable to the Company, any of its subsidiaries
or any of the property or assets of the Company or any of its subsidiaries.
No consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement, except for compliance with the
Act, the Blue Sky laws applicable to the public offering of the Common
Shares by you and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
4
<PAGE>
(g) Deloitte & Touche LLP and Arthur Anderson LLP, who have expressed
their opinion with respect to certain financial statements and schedules
filed with the Commission as a part of the Registration Statement and
included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and
Regulations.
(h) The historical and pro forma financial statements and schedules of
the Company and the related notes thereto filed as a part of the
Registration Statement or included in the Prospectus comply as to form in
all material respects with the requirements of the Securities Act and
present fairly the financial position of the Company and its subsidiaries
as of the respective dates of such financial statements and schedules, and
the results of operations and changes in financial position of the Company
and its subsidiaries for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
as certified by Deloitte & Touche LLP. The pro forma financial statements
have been prepared on a basis consistent with the historical statements,
except for the pro forma adjustments specified therein, and give effect to
assumptions made on a reasonable basis and present fairly the historical
and proposed transactions contemplated by the Prospectus and this
Agreement. The other financial statements and schedules and the related
notes thereto filed as a part of the Registration Statement or included in
the Prospectus comply as to form in all material respects with the
requirements of the Securities Act and present fairly the financial
position of the entities purported to be shown thereby as of the respective
dates of such financial statements and schedules, and the results of
operations and changes in financial position of the entities purported to
be shown thereby for the respective periods covered thereby. No additional
financial statements or schedules are required to be included in the
Registration Statement. The historical selected financial data and pro
forma financial data set forth in the Prospectus under the captions
"Capitalization" and "Selected Financial Data," fairly present the
information set forth therein on the basis stated in the Registration
Statement.
(i) Neither the Company nor any of its subsidiaries is in violation or
default of any provision of its articles of incorporation or bylaws or in
breach of or default with respect to any provision of any agreement,
judgment, decree, order, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument to which it is a party or by
which it or any of its properties may be bound or affected, nor any
provision of any judgment, decree or order against the Company or any of
its subsidiaries, except where such breach or default would not materially
adversely affect the Company and its subsidiaries, considered as one
entity.
(j) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Act or by the Rules and Regulations which
have not been described or filed as required. The descriptions of the
contracts described in the Prospectus are accurate and complete; all such
contracts are in full force and effect on the date hereof, and none of the
Company, its subsidiaries or, to the best of the Company's knowledge, any
other party is in breach of or default under any of such contracts.
(k) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which
property owned or leased by the Company or any of its subsidiaries is or
may be the subject, or related to environmental or discrimination
5
<PAGE>
matters, which actions, suits or proceedings might, individually or in the
aggregate, prevent or adversely affect the transactions contemplated by
this Agreement or result in a material adverse change in the condition
(financial or otherwise), properties, business, results of operations or
prospects of the Company and its subsidiaries, considered as one entity,
and no labor disturbance by the employees of the Company or any of its
subsidiaries exists or, to the best of the Company's knowledge, is imminent
which might be expected to affect adversely such condition, properties,
business, results of operations or prospects. Neither the Company nor any
of its subsidiaries is a party or subject to the provisions of any
injunction, judgment, decree or order of any court regulatory body,
administrative agency or other governmental body.
(l) The Company and each of its subsidiaries have good and marketable
title to all the properties and assets reflected as owned in the financial
statements hereinabove described (or elsewhere in the Prospectus), subject
to no lien, mortgage, pledge, charge or encumbrance of any kind except (i)
those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are in the aggregate not material in
amount to the Company and its subsidiaries, considered as one entity, and
do not adversely affect the use made and proposed to be made of such
property by the Company or such subsidiary. The Company and each of its
subsidiaries hold their respective leased properties under valid and
binding leases, with such exceptions as are not materially significant in
relation to the business of the Company and its subsidiaries, considered as
one entity. Except as disclosed in the Prospectus, the Company and each of
its subsidiaries own or lease all such properties as are necessary to the
operations of the Company and its subsidiaries as now conducted or as
proposed to be conducted.
(m) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) neither the Company nor
any of its subsidiaries has incurred any material liabilities or
obligations, indirect, direct or contingent, or entered into any material
verbal or written agreement or other transaction which is not in the
ordinary course of business or which could result in a material reduction
in the future earnings of the Company and its subsidiaries, considered as
one entity; (ii) neither the Company nor any of its subsidiaries has
sustained any material loss or interference with its business or properties
from fire, flood, windstorm, accident or other calamity, whether or not
covered by insurance; (iii) neither the Company nor any of its subsidiaries
has paid or declared any dividends or other distributions with respect to
its capital stock and neither the Company nor any of its subsidiaries is in
default in the payment of principal or interest on any outstanding debt
obligations; (iv) there has not been any change in the capital stock (other
than upon the sale of the Common Shares hereunder and upon the exercise of
options described in the Registration Statement) or indebtedness material
to the Company and its subsidiaries (other than in the ordinary course of
business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of
operations or prospects of the Company and its subsidiaries, considered as
one entity.
(n) Except as disclosed in or specifically contemplated by the
Prospectus, (i) the Company and each of its subsidiaries have sufficient
trademarks, trade names, patent rights, mask works, copyrights, licenses,
approvals and governmental authorizations to conduct their respective
businesses as now conducted; (ii) the expiration of any trademarks, trade
names, patent rights, mask works, copyrights, licenses, approvals or
governmental authorizations
6
<PAGE>
would not have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company and
its subsidiaries, considered as one entity; and (iii) the Company has no
knowledge of any material infringement by it or any of its subsidiaries of
trademark, trade name rights, patent rights, mask works, copyrights,
licenses, trade secret or other similar rights of others, and there is no
claim being made against the Company or any of its subsidiaries regarding
trademark, trade name, patent, mask work, copyright, license, trade secret
or other infringement which could have a material adverse effect on the
condition (financial or otherwise), business, results of operations or
prospects of the Company or any of its subsidiaries.
(o) Neither the Company nor any of its subsidiaries has been advised,
or has any reason to believe, that it is not conducting business in
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business (whether U.S. or foreign),
including, without limitation, all applicable local, state, federal and
foreign environmental laws and regulations; except where failure to be so
in compliance would not materially adversely affect the condition
(financial or otherwise), business, results of operations or prospects of
the Company and its subsidiaries, considered as one entity.
(p) The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns and have paid all taxes
shown as due thereon, and, except as disclosed in a disclosure schedule
provided by the Company to you, the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company or any of its subsidiaries which could materially and adversely
affect the business, operations or properties of the Company and its
subsidiaries, considered as one entity.
(q) The Company is not, and upon receipt and pending application of
the net proceeds from the sale of the Common Stock in the manner described
in the Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to
the First Closing Date any offering material in connection with the
offering and sale of the Common Shares other than the Prospectus, the
Registration Statement and the other materials permitted by the Act.
(s) The Company and each of its subsidiaries maintain insurance of the
types and in the amounts generally deemed adequate for their respective
businesses, including, but not limited to, insurance covering real and
personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and
effect.
(t) To the best of the Company's knowledge after due inquiry, neither
the Company nor any of its subsidiaries has at any time during the last
five years (i) made any unlawful contribution to any candidate for foreign
office, or failed to disclose fully any contribution in violation of law,
or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
7
<PAGE>
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Common Shares.
(v) The Common Shares have been approved for listing on the Nasdaq
National Market, subject to notice of issuance.
(w) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba in
violation of Section 517.075 of the Florida Statutes.
SECTION 3. Representations, Warranties and Covenants of the Selling
--------------------------------------------------------
Shareholder.
- -----------
(a) The Selling Shareholder represents and warrants to, and agrees
with, you that:
(i) Such Selling Shareholder has, and on the First Closing Date
hereinafter mentioned will have, good and marketable title to the
Common Shares proposed to be sold by such Selling Shareholder
hereunder on such Closing Date and full right, power and authority to
enter into this Agreement and to sell, assign, transfer and deliver
such Common Shares hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, equities, security interests,
restrictions and claims whatsoever; and upon delivery of and payment
for such Common Shares hereunder, the Underwriters will acquire good
and marketable title thereto, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests,
voting trusts or other defects of title whatsoever.
(ii) Such Selling Shareholder has executed and delivered a Power
of Attorney and caused to be executed and delivered on its behalf a
Custody Agreement (hereinafter collectively referred to as the
"Shareholders Agreement"), and in connection herewith such Selling
Shareholder further represents, warrants and agrees that such Selling
Shareholder has deposited in custody, under the Shareholders
Agreement, with the agent named therein (the "Agent") as custodian,
certificates in negotiable form for the Common Shares to be sold
hereunder by such Selling Shareholder, for the purpose of further
delivery pursuant to this Agreement. Such Selling Shareholder agrees
that the Common Shares to be sold by such Selling Shareholder on
deposit with the Agent are subject to the interests of the Company and
the Underwriters, that the arrangements made for such custody are to
that extent irrevocable, and that the obligations of such Selling
Shareholder hereunder shall not be terminated, except as provided in
this Agreement or in the Shareholders Agreement, by any act of such
Selling Shareholder, by operation of law, by the death or incapacity
of such Selling Shareholder or by the occurrence of any other event.
If the Selling Shareholder should die or become incapacitated, or if
any other event should occur, before the delivery of the Common Shares
hereunder, the documents evidencing Common Shares then on deposit with
the Agent shall be delivered by the Agent in accordance with the terms
and conditions of this Agreement as if such death, incapacity or other
event had not occurred, regardless of whether or not the Agent shall
have received notice thereof. This Agreement and the Shareholders
Agreement
8
<PAGE>
have been duly executed and delivered by or on behalf of such Selling
Shareholder and the form of such Shareholders Agreement has been
delivered to you.
(iii) The performance of this Agreement and the Shareholders
Agreement and the consummation of the transactions contemplated hereby
and by the Shareholders Agreement will not result in a breach or
violation by such Selling Shareholder of any of the terms or
provisions of, or constitute a default by such Selling Shareholder
under, any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument to which such Selling Shareholder is a party or by which
such Selling Shareholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any
court or governmental agency or body applicable to such Selling
Shareholder or any of its properties.
(iv) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result
in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
(v) Each Preliminary Prospectus and the Prospectus, insofar as it
has related to such Selling Shareholder, has conformed in all material
respects to the requirements of the Act and the Rules and Regulations
and has not included any untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein not misleading in light of the circumstances under which they
were made; and neither the Registration Statement nor the Prospectus,
nor any amendment or supplement thereto, in each case as it relates to
such Selling Shareholder, will include any untrue statement of a
material fact or to omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading. Should such Selling Shareholder become aware that either
the Registration Statement or the Prospectus or any amendment or
supplement thereto, as it relates to the Selling Shareholder, contains
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, the Selling Shareholder will promptly advise
you thereof.
(vi) Such Selling Shareholder is not aware that any of the
representations or warranties made by the Company and set forth in
Section 2 above is untrue or inaccurate.
(b) The Selling Shareholder agrees with the Company and the
Underwriters not to offer to directly or indirectly sell, sell, contract to
sell, pledge, grant any rights with respect to or otherwise dispose of any
shares of Common Stock or securities convertible into or exchangeable for
any shares of Common Stock, for a period of 90 days after the first date
that any of the Common Shares are released by you for sale to the public,
without the prior written consent of Montgomery Securities, which consent
may be withheld at the sole discretion of Montgomery Securities.
SECTION 4. Representations and Warranties of the Underwriters. The
--------------------------------------------------
Underwriters represent and warrant to the Company that the information set forth
(i) on the cover page of the
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Prospectus with respect to price, underwriting discounts and commissions and
terms of offering, (ii) with respect to stabilization and overallotment set
forth on the inside cover page of the Prospectus and (iii) under "Underwriting"
in the Prospectus was furnished to the Company by and on behalf of the
Underwriters for use in connection with the preparation of the Registration
Statement and the Prospectus and is correct in all material respects.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the basis of
--------------------------------------------
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, (i) the Company agrees to issue and
sell to the Underwriters 2,000,000 of the Firm Common Shares and (ii) the
Selling Shareholder agrees to sell to the Underwriters an aggregate of 200,000
of the Firm Common Shares. The Underwriters agree, severally and not jointly, to
purchase from the Company and the Selling Shareholder, respectively, the number
of Firm Common Shares described below. The purchase price per share to be paid
by the Underwriters to the Company and to the Selling Shareholder,
respectively, shall be $_________ per share.
The obligation of each Underwriter to the Company shall be to purchase from
the Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 2,000,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Shareholder shall be to purchase from the Selling
Shareholder that number of full shares which (as nearly as practicable, as
determined by you) bears to 200,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by the
Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Underwriters) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, after
4:30 p.m. Washington D.C. time, the fourth) full business day following the
first date that any of the Common Shares are released by you for sale to the
public, as you shall designate by at least 48 hours prior notice to the Company
(the "First Closing Date"); provided, however, that if the Prospectus is at any
time prior to the First Closing Date recirculated to the public, the First
Closing Date shall occur upon the later of the third or fourth, as the case may
be, full business day following the first date that any of the Common Shares are
released by you for sale to the public or the date that is 48 hours after the
date that the Prospectus has been so recirculated.
Delivery of certificates for the Firm Common Shares shall be made by or on
behalf of the Company and the Selling Shareholder to you, for your respective
accounts with respect to the Firm Common Shares to be sold by the Company and by
the Selling Shareholder against payment by you, for your respective accounts of
the purchase price therefor by certified or official bank checks payable in
immediately available funds to the order of the Company and of the Agent in
proportion to the number of Firm Common Shares to be sold by the Company and the
Selling Shareholder, respectively. The certificates for the Firm Common Shares
shall be registered in such names and denominations as you shall have requested
at least two full business days prior to the First Closing Date, and shall be
made available for checking and packaging on the business day preceding the
First Closing Date at such location in New York, New York as may be designated
by you. Time shall be
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of the essence, and delivery at the time and place specified in this Agreement
is a further condition to the obligations of the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and the Selling Shareholder hereby grant an option to the Underwriters
to purchase, severally and not jointly, up to an aggregate of 280,000 and
50,000 Optional Common Shares, respectively, at the purchase price per
share to be paid for the Firm Common Shares, for use solely in covering any
over-allotments made by you for the account of the Underwriters in the sale and
distribution of the Firm Common Shares. If the Underwriters exercise such
option, the Company agrees to sell to the Underwriters an aggregate of
280,000 Optional Common Shares and the Selling Shareholder agrees to sell to the
Underwriters in the respective amounts set forth in Schedule B attached hereto,
an aggregate of 50,000 Optional Common Shares. If the option granted
hereby is exercised in part, the respective number of Optional Common Shares to
be sold by the Company and the Selling Shareholder shall be determined on a
pro rata basis in the same proportion as (x) the number of Optional Common
Shares that the Company or such Selling Shareholder would have sold had the
option been exercised in whole bears to (y) the total number of Optional Common
Shares that would have been sold had the option been exercised in whole, with
such adjustments made by you as are necessary to avoid fractional shares. The
option granted hereunder may be exercised at any time (but not more than once)
within 30 days after the first date that any of the Common Shares are released
by you for sale to the public, upon notice by you to the Company and the Selling
Shareholder setting forth the aggregate number of Optional Common Shares as to
which the Underwriters are exercising the option, the names and denominations in
which the certificates for such shares are to be registered and the time and
place at which such certificates will be delivered. Such time of delivery (which
may not be earlier than the First Closing Date), being herein referred to as the
"Second Closing Date," shall be determined by you, but if at any time other than
the First Closing Date shall not be earlier than three nor later than four full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company and
the Selling Shareholder pursuant to such notice of exercise by a fraction, the
numerator of which is the number of Firm Common Shares to be purchased by such
Underwriter as set forth opposite its name in Schedule A and the denominator of
which is the total number of Firm Common Shares (subject to such adjustments to
eliminate any fractional share purchases as you in your discretion may make).
Certificates for the Optional Common Shares will be made available for checking
and packaging on the business day preceding the Second Closing Date at such
location in New York, New York as may be designated by you. The manner of
payment for and delivery of the Optional Common Shares shall be the same as for
the Firm Common Shares purchased from the Company and the Selling Shareholder as
specified in the two preceding paragraphs. At any time before lapse of the
option, you may cancel such option by giving written notice of such cancellation
to the Company and the Selling Shareholder. If the option is cancelled or
expires unexercised in whole or in part, the Company will deregister under the
Act the number of Optional Common Shares as to which the option has not been
exercised.
Subject to the terms and conditions hereof, you propose to make a public
offering of their respective portions of the Common Shares as soon after the
effective date of the Registration Statement as in your judgment is advisable
and at the public offering price set forth on the cover page of and on the terms
set forth in the final prospectus, if one is used, or on the first page of the
Term Sheet, if one is used.
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Not later than 4:00 p.m. on the business day following the date the Common
Shares are released by you for sale to the public, the Company shall deliver or
cause to be delivered copies of the Prospectus in such quantities and at such
places as you shall request.
SECTION 6. Covenants of the Company. The Company covenants and agrees
------------------------
that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing
of the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to you of such timely filing. The Company will promptly
advise you in writing (i) of the receipt of any comments of the Commission,
(ii) of any request of the Commission for amendment of or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information,
(iii) when the Registration Statement shall have become effective, and (iv)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its best efforts to obtain the
lifting of such order as soon as practicable. The Company will not file
any amendment or supplement to the Registration Statement (either before or
after it becomes effective), any Preliminary Prospectus or the Prospectus
of which you have not been furnished with a copy a reasonable time prior to
such filing or to which you reasonably object or which is not in compliance
with the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration
Statement or the Prospectus which in your judgment may be necessary or
advisable to enable you to continue the distribution of the Common Shares
and will use its best efforts to cause the same to become effective as
promptly as possible. The Company will fully and completely comply with
the provisions of Rule 430A of the Rules and Regulations with respect to
information omitted from the Registration Statement in reliance upon such
Rule.
(c) Within the time during which a prospectus relating to the Common
Shares is, in the opinion of counsel for the Underwriters or counsel for
the Company, required under the Act to be delivered in connection with
sales by an Underwriter or dealer, the Company will comply as far as it is
able with all requirements imposed upon it by the Act and by the Rules and
Regulations, as from time to time are in force, so far as necessary to
permit the continuance of sales of or dealings in the Common Stock as
contemplated by the provisions hereof and the Prospectus. If during such
period any event occurs, as a result of which the Prospectus, as then
amended or supplemented would include an untrue statement of a material
fact, or omit to state a material fact necessary to make the statements
therein, in light of the circumstances then existing, not misleading, or if
during such period it is necessary to amend or supplement the Registration
Statement or Prospectus to comply with the Act, the Company will promptly
notify you and will amend or supplement the Registration Statement or
Prospectus (at the expense of the Company) so as to correct such statement
or omission or effect such statement or omission or effect such compliance.
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(d) As soon as practicable, but not later than 45 days after the end
of the first quarter ending after one year following the "effective date of
the Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a period
of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to you or mail to your order
copies of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents in each
case as soon as available and in such quantities as you and the Selling
Shareholder may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions
from the application of) the Blue Sky laws of such jurisdictions as you
designate, will comply with such laws and will continue such
qualifications, registrations and exemptions in effect so long as
reasonably required for the distribution of the Common Shares. The Company
shall not be required to qualify as a foreign corporation or to file a
general consent to service of process in any such jurisdiction where it is
not presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise you promptly of the
suspension of the qualification or registration of (or any such exemption
relating to) the Common Shares for offering, sale or trading in any
jurisdiction or any initiation or threat of any proceeding for any such
purpose, and in the event of the issuance of any order suspending such
qualification registration or exemption, the Company, with your
cooperation, will use its best efforts to obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will
furnish to the Underwriters: (i) as soon as practicable after the end of
each fiscal year, copies of the Annual Report of the Company containing the
balance sheet of the Company as of the close of such fiscal year and
statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public
accountants; (ii) as soon as practicable after the filing thereof, copies
of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q, Report on Form 8-K or other report filed by the Company with the
Commission, the NASD or any securities exchange; and (iii) as soon as
available, copies of any report or communication of the Company mailed
generally to holders of its Common Stock.
(h) During the period of 90 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of Montgomery Securities or each of you, acting jointly,
(which consent may be withheld at the sole discretion of Montgomery
Securities or you, as the case may be), the Company will not, other than in
connection with an acquisition by the Company (provided that any securities
issued in connection therewith are subject to the restrictions provided in
Section 8(c)(vii) hereof for the remainder of such 90 day period) or
pursuant to an exercise of outstanding stock options or the grant or
issuance of options or shares pursuant to stock plans disclosed in the
Prospectus, issue, offer, sell, grant options to purchase or otherwise
dispose of any of the Company's equity securities or any other securities
convertible into or exchangeable with its Common Stock or other equity
security.
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(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary
trading in the Company's Common Stock in California), will comply with such
Blue Sky laws, and will continue such qualifications, registrations and
exemptions in effect for a period of five years after the date hereof.
(k) The Company will use its best efforts to list the Common Stock as
a national market system security on the Nasdaq National Market.
You may, in your sole discretion, waive in writing the performance by the
Company of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the Selling
Shareholder, agree to pay in such proportions as they may agree among
themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each Preliminary Prospectus and the Prospectus, and
all amendments and supplements thereto, this Agreement, the Agreement Among
UnderwriterS, the Selected Dealers Agreement, the Underwriters' Questionnaire,
the Underwriters' Power of Attorney and the Blue Sky memorandum, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the Blue Sky laws, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Shares, (viii) the fees and expenses
associated with listing the Common Shares on the Nasdaq National Market, and
(ix) all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. The Underwriters may deem the Company to be the primary
obligor with respect to all costs, fees and expenses to be paid by the Company
and by the Selling Shareholder. Except as provided in this Section 7, Section 9
and Section 11 hereof, the Underwriters shall pay all of their own expenses,
including the fees and disbursements of their counsel (excluding those relating
to qualification registration or exemption under the Blue Sky laws and the Blue
Sky memorandum referred to above). This Section 7 shall not affect any
agreements relating to the payment of expenses between the Company and the
Selling Shareholder.
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SECTION 8. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the Underwriters to purchase and pay for the Firm Common Shares
on the First Closing Date and the Optional Common Shares on the Second Closing
Date shall be subject to the accuracy of the representations and warranties on
the part of the Company and the Selling Shareholder herein set forth as of the
date hereof and as of the First Closing Date or the Second Closing Date, as the
case may be, to the accuracy of the statements of Company officers and the
Selling Shareholder made pursuant to the provisions hereof, to the performance
by the Company and the Selling Shareholder of their respective obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m. (or, in the case of a registration statement filed pursuant
to Rule 462(b) of the Rules and Regulations relating to the Common Shares,
not later than 10 p.m.), Washington, D.C. Time, on the date of this
Agreement, or at such later time as shall have been consented to by you; if
the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule
424(b) of the Rules and Regulations; and prior to such Closing Date, no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or, to the knowledge of the Company, the
Selling Shareholder or you, shall be contemplated by the Commission; and
any request of the Commission for inclusion of additional information in
the Registration Statement, or otherwise, shall have been complied with to
your satisfaction.
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i)
there shall not have been any change in the capital stock (other than
pursuant to the exercise of outstanding options or the grant or issuance of
options or shares pursuant to stock plans disclosed in the Prospectus) of
the Company or any of its subsidiaries or any material change in the
indebtedness (other than in the ordinary course of business) of the Company
or any of its subsidiaries, (ii) except as set forth or contemplated by the
Registration Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the Company
or any of its subsidiaries, which is not in the ordinary course of business
or which could result in a material reduction in the future earnings of the
Company and its subsidiaries, considered as one entity, (iii) no loss or
damage (whether or not insured) to the property of the Company or any of
its subsidiaries shall have been sustained which materially and adversely
affects the condition (financial or otherwise), business, results of
operations or prospects of the Company and its subsidiaries, considered as
one entity, (iv) no legal or governmental action, suit or proceeding
affecting the Company or any of its subsidiaries which is material to the
Company and its subsidiaries, considered as one entity, or which affects or
may affect the transactions contemplated by this Agreement shall have been
instituted or threatened and (v) there shall not have been any material
change in the condition (financial or otherwise), business, management,
results of operations or prospects of the Company and its subsidiaries,
considered as one entity, which makes it impractical or inadvisable in your
judgment to proceed with the public offering or purchase the Common Shares
as contemplated hereby.
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(c) There shall have been furnished to you, as Underwriters, on
each Closing Date, in form and substance satisfactory to you, except as
otherwise expressly provided below:
(i) An opinion of Riordan & McKinzie, counsel for the Company and
the Selling Shareholder, addressed to you and dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect
that:
(1) The Company and each of its subsidiaries have been duly
incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business as a foreign
corporation and are in good standing in all other jurisdictions
where the ownership or leasing of their respective properties or
the conduct of their respective businesses requires such
qualification, except for jurisdictions in which the failure to
so qualify would not have a material adverse effect on the
Company and its subsidiaries, considered as one entity, and have
full corporate power and authority to own their respective
properties and conduct their respective businesses as described
in the Registration Statement;
(2) The Common Shares have been approved for listing on the
Nasdaq National Market, subject to notice of issuance;
(3) The certificates evidencing the Common Shares to be
delivered hereunder are in due and proper form under California
law, and when duly countersigned by the Company's transfer agent
and registrar, and delivered to you or upon your order against
payment of the agreed consideration therefor in accordance with
the provisions of this Agreement, the Common Shares delivered by
the Company represented thereby will be duly authorized and
validly issued, fully paid and nonassessable, and will conform in
all respects to the description thereof contained in the
Prospectus;
(4) (a) The Registration Statement has become effective
under the Act, and, to the best of such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement or preventing the use of the Prospectus has been issued
and no proceedings for that purpose have been instituted or are
pending or contemplated by the Commission; any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b)
of the Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b);
(b) The Registration Statement as of its effective
date, the Prospectus and each amendment or supplement thereto at
the time it became effective (except for the financial
statements, schedules, pro forma and other financial and
statistical data included therein and the exhibits to the
Registration Statement as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
16
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(c) To the best of such counsel's knowledge, there are
no franchises, leases, contracts, agreements or documents of a
character required to be disclosed in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as required;
(5) The Company has full corporate right, power and
authority to enter into this Agreement and to sell and deliver
the Common Shares to be sold by it to the several Underwriters;
this Agreement has been duly and validly authorized by all
necessary corporate action by the Company, has been duly and
validly executed and delivered by and on behalf of the Company,
and is a valid and binding agreement of the Company enforceable
in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors'
rights generally and except as to those provisions relating to
indemnity or contribution for liabilities arising under the Act,
as to which no opinion need be expressed; and no approval,
authorization, order, consent, registration, filing,
qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is required
for the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required under
applicable Blue Sky laws in connection with the purchase and
distribution of the Common Shares by the Underwriters and the
clearance of such offering with the NASD;
(6) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not
conflict with, result in the breach of, or constitute, either by
itself or upon notice or the passage of time or both, a default
under, any agreement, mortgage, deed of trust, lease, franchise,
license, indenture, permit or other instrument known to such
counsel to which the Company or any of its subsidiaries is a
party or may be bound or by which any of the property of the
Company or any of its subsidiaries may be subject and which is
material to the Company and its subsidiaries, considered as one
entity, or violate any of the provisions of the articles of
incorporation or bylaws, or other organizational documents, of
the Company or any of its subsidiaries or, so far as is known to
such counsel, violate any statute, judgment, decree, order, rule
or regulation of any court or governmental body having
jurisdiction over the Company or any of its subsidiaries or any
of the property of the Company or any of its subsidiaries;
(7) To the best of such counsel's knowledge, no holders of
securities of the Company have rights which have not been waived
to the registration of shares of Common Stock or other
securities, because of the filing of the Registration Statement
by the Company or the offering contemplated hereby;
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(8) To the best of such counsel's knowledge, this Agreement
and the Shareholders Agreement have been duly authorized,
executed and delivered by or on behalf of the Selling
Shareholder; the Agent has been duly and validly authorized to
act as the custodian of the Common Shares to be sold by each such
Selling Shareholder; and the performance of this Agreement and
the Shareholders Agreement and the consummation of the
transactions herein contemplated by the Selling Shareholder will
not result in a breach of, or constitute a default under, any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument known to such counsel to which the
Selling Shareholder is a party or by which the Selling
Shareholder or any of properties may be bound, or violate any
statute, judgment, decree, order, rule or regulation known to
such counsel of any court or governmental body having
jurisdiction over the Selling Shareholder or any of their
properties; and to the best of such counsel's knowledge, no
approval, authorization, order or consent of any court,
regulatory body, administrative agency or other governmental body
is required for the execution and delivery of this Agreement or
the Shareholders Agreement or the consummation by the Selling
Shareholder of the transactions contemplated by this Agreement
or the Shareholders Agreement, except such as have been obtained
and are in full force and effect under the Act and such as may be
required under the rules of the NASD and applicable Blue Sky
laws;
(9) To the best of such counsel's knowledge, the Selling
Shareholder has full right, power, and authority to enter into
this Agreement and the Shareholder Agreement and to sell,
transfer and deliver the Common Shares to be sold on such Closing
Date by the Selling Shareholder hereunder and good and
marketable title to such Common Shares so sold, free and clear of
all liens, encumbrances, equities, claims, restrictions, security
interests, voting trusts, or other defects of title whatsoever,
has been transferred to the Underwriters (whom counsel may assume
to be bona fide purchasers) who have purchased such Common Shares
hereunder; and
(10) To the best of such counsel's knowledge, this
Agreement and the Shareholders Agreement are valid and binding
agreements of the Selling Shareholder enforceable in accordance
with their terms except as enforceability may be limited by
general equitable principles, bankruptcy, insolvency,
reorganization, moratorium or other laws affecting creditors'
rights generally and except with respect to those provisions
relating to indemnities or contributions for liabilities under
the Act, as to which no opinion need be expressed.
(11) The authorized, issued and outstanding capital stock
of the Company is as set forth under the caption "Capitalization"
in the Prospectus as of the date set forth therein; all necessary
and proper corporate proceedings have been taken in order to
authorize validly such authorized Common Stock; all outstanding
shares of Common Stock (including the Firm Common Shares and any
Optional Common Shares) have been duly and validly issued, are
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fully paid and nonassessable, have been issued in compliance with
federal and state securities laws, were not issued in violation
of or subject to any preemptive rights or, to the best of such
counsel's knowledge, other rights to subscribe for or purchase
any securities and conform to the description thereof contained
in the Prospectus; except as described in the Prospectus, there
are no preemptive or, to the best of such counsel's knowledge,
other rights to subscribe for or purchase any of the Common
Shares to be sold by the Company hereunder;
(12) When the certificates representing the Common Shares
have been duly countersigned by the Company's transfer agent and
registrar, and delivered to the Underwriters or upon the order of
the Underwriters against payment of the agreed consideration
therefor in accordance with the provisions of this Agreement, the
Common Shares delivered by the Company represented thereby, to
the best of such counsel's knowledge, will not have been issued
in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities.
(13) Except as disclosed in or specifically contemplated by
the Prospectus, to the best of such counsel's knowledge, there
are no outstanding options, warrants or other rights calling for
the issuance of, and no commitments, plans or arrangements to
issue, any shares of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the
Company;
(14) To the best of such counsel's knowledge, there are no
legal or governmental actions, suits or proceedings pending or
threatened against the Company or any of its subsidiaries which
are required to be described in the Prospectus which are not
described as required; and
(15) Neither the Company nor any of its subsidiaries is in
violation or default of any provision of its articles of
incorporation or bylaws or, to the best of such counsel's
knowledge, in breach of or default with respect to any provision
of any agreement, judgment, decree, order, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other
instrument known to such counsel to which the Company or any of
its subsidiaries is a party or by which it or any of them may be
bound or any of the property of the Company or any of its
subsidiaries may be subject and which is material to the Company
and its subsidiaries, considered as one entity, nor any provision
of any judgment, decree or order against the Company or any of
its subsidiaries known to such counsel, except where such breach
or default would not materially adversely affect the Company and
its subsidiaries, considered as one entity; and, to the best of
such counsel's knowledge, the Company and each of its
subsidiaries are in compliance with all laws, rules, regulations
and statutes of any court or jurisdiction to which they are
subject except where noncompliance would not materially adversely
affect the Company and its subsidiaries, considered as one
entity.
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In rendering such opinion, such counsel may rely on opinions of
counsel to the Selling Shareholder and as to matters of fact, on
certificates of the Selling Shareholder and of officers of the Company and
of governmental officials, in which case their opinion is to state that
they are so doing and that the Underwriters are justified in relying on
such opinions or certificates and copies of said opinions or certificates
are to be attached to the opinion. Such counsel shall also include a
statement to the effect that no facts have come to such counsel's attention
that would lead such counsel to believe that either at the effective date
of the Registration Statement or at the applicable Closing Date the
Registration Statement or the Prospectus, or any such amendment or
supplement, contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading (excluding financial statements,
schedules, pro forma and other financial and statistical data contained
therein).
(ii) Such opinion or opinions of Latham & Watkins, counsel for
the Underwriters, dated the First Closing Date or the Second Closing
Date, as the case may be, with respect to the incorporation of the
Company, the sufficiency of all corporate proceedings and other legal
matters relating to this Agreement, the validity of the Common Shares,
the Registration Statement and the Prospectus and other related
matters as you may reasonably require, and the Company and the Selling
Shareholder shall have furnished to such counsel such documents and
shall have exhibited to them such papers and records as they may
reasonably request for the purpose of enabling them to pass upon such
matters. In connection with such opinions, such counsel may rely on
representations or certificates of officers of the Company and
governmental officials.
(iii) A certificate of the Company executed by the Chairman of
the Board or President and the chief financial or accounting officer
of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied on or prior to such
Closing Date;
(2) To the best of such officers' knowledge, the Commission
has not issued any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; to the best of
such officers' knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued; and
to the best of such officers' knowledge, no proceedings for that
purpose have been instituted or are pending or contemplated under
the Act;
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus;
in such officers' opinion and to the best of such officers'
knowledge, the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all statements required
to be stated therein regarding the Company; and neither
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the Registration Statement nor the Prospectus nor any amendment
or supplement thereto includes any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction
or event has occurred which should have been set forth in an
amendment to the Registration Statement or in a supplement to or
amendment of any prospectus which has not been disclosed in such
a supplement or amendment;
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, there
has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), business, properties, results of operations,
management or prospects of the Company and its subsidiaries,
considered as one entity; and no legal or governmental action,
suit or proceeding is pending or, to the best of such officers'
knowledge, threatened against the Company or any of its
subsidiaries which is material to the Company and its
subsidiaries, considered as one entity, whether or not arising
from transactions in the ordinary course of business, or which
may adversely affect the transactions contemplated by this
Agreement; since such dates and except as so disclosed, neither
the Company nor any of its subsidiaries has entered into any
verbal or written agreement or other transaction which is not in
the ordinary course of business or which could result in a
material reduction in the future earnings of the Company and its
subsidiaries, considered as one entity, or incurred any material
liability or obligation, direct, contingent or indirect, made any
change in its capital stock, made any material change in its
short-term debt or funded debt or repurchased or otherwise
acquired any of the Company's capital stock; and the Company has
not declared or paid any dividend, or made any other
distribution, upon its outstanding capital stock payable to
stockholders of record on a date prior to the First Closing Date
or Second Closing Date; and
(6) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except
as disclosed in or contemplated by the Prospectus, neither the
Company nor its subsidiaries has sustained a material loss or
damage by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(iv) On the First Closing Date or the Second Closing Date, as the
case may be, a certificate, dated the First Closing Date or the Second
Closing Date, as the case may be, and addressed to you, signed by or
on behalf of the Selling Shareholder to the effect that the
representations and warranties of the Selling Shareholder in this
Agreement are true and correct, as if made at and as of such First
Closing Date or Second Closing Date, as the case may be, and the
Selling Shareholder has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied prior to
the First Closing Date or Second Closing Date, as the case may be.
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(v) On the date of execution of this Agreement, and also on the
First Closing Date and the Second Closing Date, a letter addressed to
you, as the Underwriters, from Deloitte & Touche LLP, independent
accountants, the first one to be dated the date of execution of this
Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance satisfactory to you.
(vi) On the date of execution of this Agreement, and also on the
First Closing Date and the Second Closing Date, a letter addressed to
you, as the Underwriters, from Arthur Anderson LLP, independent
accountants, the first one to be dated the date of execution of this
Agreement, the second one to be dated the First Closing Date and the
third one (in the event of a Second Closing) to be dated the Second
Closing Date, in form and substance satisfactory to you.
(vii) On or before the First Closing Date, letters from the
Selling Shareholder, each holder of 5% or more of the Company's Common
Stock, and each director and officer of the Company, in form and
substance satisfactory to you, confirming that for a period of 90 days
after the first date that any of the Common Shares are released by you
for sale to the public, such holder, officer or director, as the case
may be, will not offer to directly or indirectly sell, offer to sell,
contract to sell, pledge, grant any rights with respect to or
otherwise dispose of any shares of Common Stock (or rights to acquire
such stock, including options, warrants or any other securities
convertible into or exchangeable for Common Stock), without the prior
written consent of Montgomery Securities, which consent may be
withheld at the sole discretion of Montgomery Securities.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Latham & Watkins, counsel for the Underwriters. The Company shall furnish
you with such manually signed or conformed copies of such opinions,
certificates, letters and documents as you request. Any certificate signed by
any officer of the Company and delivered to you or to your counsel shall be
deemed to be a representation and warranty by the Company to you as to the
statements made therein.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification by you, as Underwriters to the
Company and the Selling Shareholder without liability on the part of any
Underwriter, the Company or the Selling Shareholder, except for the expenses to
be paid or reimbursed by the Company, and the Selling Shareholder pursuant to
Sections 7 and 9 hereof and except to the extent provided in Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding any
---------------------------------------
other provisions hereof, if this Agreement shall be terminated by you pursuant
to Section 8, or if the sale to the Underwriters of the Common Shares at the
First Closing is not consummated because of any refusal, inability or failure on
the part of the Company or the Selling Shareholder to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
you upon demand for all out-of-pocket expenses that shall have been reasonably
incurred by you in connection with the proposed purchase and the sale of the
Common Shares, including but not limited to fees and disbursements of counsel,
printing expenses, travel expenses, postage, telegraph charges and telephone
charges relating directly to the offering contemplated by the Prospectus. Any
such
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termination shall be without liability of any party to any other party except
that the provisions of this Section 9, Section 7 and Section 11 shall at all
times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You, the Company
---------------------------------------
and the Selling Shareholder will use your, its and their respective best
efforts to cause the Registration Statement to become effective, to prevent the
issuance of any stop order suspending the effectiveness of the Registration
Statement and, if such stop order be issued, to obtain as soon as possible the
lifting thereof.
SECTION 11. Indemnification.
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(a) The Company and the Selling Shareholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the Act against any
losses, claims, damages, liabilities or expenses, joint or several, to
which such Underwriter or such controlling person may become subject, under
the Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company or the
Selling Shareholder, as the case may be), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading (in the case of a Preliminary Prospectus or the Prospectus, in
light of the circumstances in which they are made); and will reimburse each
Underwriter and each such controlling person for any legal and other
expenses as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending,
settling (only with the indemnifying party's written approval, as provided
above), compromising or paying any such loss, claim, damage, liability,
expense or action; provided, however, that neither the Company nor the
Selling Shareholder will be liable in any such case to the extent that any
such loss, claim, damage, liability or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus or any amendment or supplement thereto (i) in reliance upon
and in conformity with the information furnished to the Company by the
Underwriters pursuant to Section 4 hereof or (ii) with respect to the
Underwriter from whom the person asserting the loss, claim, damage or
liability purchased securities, made in any Preliminary Prospectus if a
copy of the Prospectus (as amended or supplemented, if the Company shall
have furnished the Underwriters with such amendments or supplements thereto
on a timely basis) was not delivered by or on behalf of any of the
Underwriters to the person asserting the claim or action, if required by
law to have been so delivered by the Underwriter seeking indemnification,
at or prior to the written confirmation of the sale of the Common Shares,
and it shall be finally determined by a court of competent jurisdiction, by
a judgment not subject to appeal or review, that the Prospectus (as amended
or supplemented) would have corrected such untrue statement or omission;
and provided further that, under this Agreement, the liability of the
Selling Shareholder shall not exceed the aggregate gross proceeds received
by the Selling Shareholder upon the sale of the Common Shares by the
Selling Shareholder to the Underwriters. The Company and the
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Selling Shareholder may agree, as among themselves and without limiting
the rights of the Underwriters under this Agreement, as to the respective
amounts of such liability for which they each shall be responsible.
In addition to their other obligations under this Section 11(a), the
Company and the Selling Shareholder agree that as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement, all as described in
this Section 11(a), they will reimburse in the manner set forth above each
Underwriter and each such controlling person on a quarterly basis for all
reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the Company's or
the Selling Shareholder's obligation to reimburse each Underwriter and each
such controlling person for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is
so held to have been improper, each Underwriter and each such controlling
person shall promptly return it to the Company and the Selling
Shareholder, as the case may be, together with interest compounded daily,
determined on the basis of the prime rate (or other commercial lending rate
for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate").
Any such interim reimbursement payments which are not made to an
Underwriter within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which the Company or the
Selling Shareholder may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, the Selling Shareholder and each person, if any,
who controls the Company or the Selling Shareholder within the meaning of
the Act against any losses, claims, damages, liabilities or expenses to
which the Company, or any such director, officer, Selling Shareholder or
controlling person may become subject, under the Act, the Exchange Act, or
other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof as contemplated below) arise out of or are based upon any untrue or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, (i) in reliance upon and in conformity
with the information furnished to the Company by the Underwriters pursuant
to Section 4 hereof or (ii) with respect to the Underwriter from whom the
person asserting the loss, claim, damage or liability purchased securities,
made in any Preliminary Prospectus if a copy of the Prospectus (as amended
or supplemented, if the Company shall have furnished the Underwriters with
such amendments or supplements thereto on a timely basis) was not delivered
by or on behalf of any of the Underwriters to the person asserting the
claim or action, if required by law to have been so delivered by the
Underwriter seeking indemnification, at or prior to the written
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confirmation of the sale of the Common Shares, and it shall be finally
determined by a court of competent jurisdiction, by a judgment not subject
to appeal or review, that the Prospectus (as amended or supplemented) would
have corrected such untrue statement or omission, and will reimburse the
Company, or any such director, officer, Selling Shareholder or controlling
person for any legal and other expense as such expenses are reasonably
incurred by the Company, or any such director, officer, Selling Shareholder
or controlling person in connection with investigating, defending, settling
(only with the indemnifying party's written approval, as provided above),
compromising or paying any such loss, claim, damage, liability, expense or
action. In addition to its other obligations under this Section 11(b),
each Underwriter severally agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
arising out of or based upon any statement or omission, or any alleged
statement or omission, described in this Section 11(b) which relates to
information furnished to the Company by the Underwriters pursuant to
Section 4 hereof, it will reimburse the Company (and, to the extent
applicable, each officer, director, Selling Shareholder or controlling
person) on a quarterly basis for all reasonable legal or other expenses
incurred in connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability
of the Underwriters' obligation to reimburse the Company (and, to the
extent applicable, each officer, director, Selling Shareholder or
controlling person) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is
so held to have been improper, the Company (and, to the extent applicable,
each officer, director, Selling Shareholder or controlling person) shall
promptly return it to the Underwriters together with interest, compounded
daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within 30 days of
a request for reimbursement shall bear interest at the Prime Rate from the
date of such request. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party for contribution or otherwise than under the indemnity agreement
contained in this Section or to the extent it is not prejudiced as a
proximate result of such failure. In case any such action is brought
against any indemnified party and such indemnified party seeks or intends
to seek indemnity from an indemnifying party, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified
party; provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting
the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from
or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of its
election so to assume the
25
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defense of such action and approval by the indemnified party of counsel,
the indemnifying party will not be liable to such indemnified party under
this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defenses in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel, approved by the Underwriters in the case of paragraph (a), and
approved by the indemnified parties in the case of paragraph (b),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified party to represent the indemnified party
within a reasonable time after notice of commencement of the action, in
each of which cases the fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) If the indemnification provided for in this Section 11 is required
by its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a),
(b) or (c) in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then each applicable indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company, the Selling Shareholder and the
Underwriters from the offering of the Common Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company, the Selling Shareholder and the Underwriters in connection with
the statements or omissions or inaccuracies in the representations and
warranties herein which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The respective relative benefits received by the Company,
the Selling Shareholder and the Underwriters shall be deemed to be in the
same proportion in the case of the Company and the Selling Shareholder as
the proceeds received by the Company and by the Selling Shareholder,
respectively, for the Common Shares sold by them to the Underwriters (net
of underwriting commissions but before deducting expenses), and in the case
of the Underwriters as the underwriting commissions received by them bears
to the total of such amounts paid to the Company and to the Selling
Shareholder and received by the Underwriters as underwriting commissions.
The relative fault of the Company, the Selling Shareholder and the
Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact or the inaccurate or
the alleged inaccurate representation and/or warranty relates to
information supplied by the Company, the Selling Shareholder or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in subparagraph (c) of
this Section 11, any legal or other reasonable fees or expenses reasonably
incurred by such party in connection with investigating or defending any
action or claim. The provisions set forth in subparagraph (c) of this
Section 11 with respect to notice of commencement of any action shall apply
if a claim for contribution is to be made under this subparagraph (d);
provided, however, that no additional notice shall be required with respect
to any action for which notice has been given under subparagraph (c) for
purposes of
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indemnification. The Company, the Selling Shareholder and the
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or
by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provisions of this Section 11, no
Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting commissions received by such Underwriter
in connection with the Common Shares underwritten by it and distributed to
the public. The Selling Shareholder shall not be required to contribute any
amount in excess of the aggregate gross proceeds received by the Selling
Shareholder upon the sale of the Common Shares by the Selling Shareholder
to the Underwriters. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to
this Section 11 are several in proportion to their respective underwriting
commitments and not joint.
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 11(a) and
11(b) hereof, including the amounts of any requested reimbursement payments
and the method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board
of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written notice
of intention to arbitrate, therein electing the arbitration tribunal. In
the event the party demanding arbitration does not make such designation of
an arbitration tribunal in such demand or notice, then the party responding
to said demand or notice is authorized to do so. Such an arbitration would
be limited to the operation of the interim reimbursement provisions
contained in Sections 11(a) and 11(b) hereof and would not resolve the
ultimate propriety or enforceability of the obligation to reimburse
expenses which is created by the provisions of such Sections 11(a) and
11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company and the Selling Shareholder to sell
and deliver the Common Shares hereunder that, except as hereinafter in this
paragraph provided each of you shall purchase and pay for all the Common Shares
agreed to be purchased by you hereunder upon tender to you of all such shares in
accordance with the terms hereof. If any Underwriter or Underwriters default in
their obligations to purchase Common Shares hereunder on either the First or
Second Closing Date and the aggregate number of Common Shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase on such
Closing Date does not exceed 10% of the total number of Common Shares which the
Underwriters are obligated to purchase on such Closing Date, the nondefaulting
Underwriters shall be obligated severally, in proportion to their respective
commitments hereunder, to purchase the Common Shares which such defaulting
Underwriters agreed but failed to purchase on such Closing Date. If any
Underwriter or Underwriters so default and arrangements satisfactory to the
Underwriters and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Shareholder, except for the expenses to be paid by the
Company pursuant to Section 7 hereof and except to the extent provided in
Section 11 hereof.
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In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Underwriters or the Company shall have the right to postpone the First or Second
Closing Date, as the case may be, for not more than five business days in order
that the necessary changes in the Registration Statement, Prospectus and any
other documents, as well as any other arrangements, may be effected. As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
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immediately as to Sections 7, 9, 12, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 p.m., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 p.m., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. Termination. Without limiting the right to terminate this
-----------
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Selling Shareholder or by you by notice to the Company and the
Selling Shareholder at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company or the Selling Shareholder
to any Underwriter (except for the expenses to be paid or reimbursed by the
Company and the Selling Shareholder pursuant to Sections 7 and 9 hereof
and except to the extent provided in Section 11 hereof) or of any
Underwriter to the Company or the Selling Shareholder (except to the
extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if additional material
governmental restrictions, not in force and effect on the date hereof,
shall have been imposed upon trading in securities generally or minimum or
maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or in the over the counter market by the
NASD, or a general banking moratorium shall have been established by
federal, New York or California authorities, (ii) if an outbreak of major
hostilities or other national or international calamity or any substantial
change in political, financial or economic conditions shall have occurred
or shall have accelerated or escalated to such an extent, as, in your
judgment, to affect adversely the marketability of the Common Shares, (iii)
if any adverse event shall have occurred or shall exist which makes untrue
or incorrect in any material respect any statement or information contained
in the Registration Statement or Prospectus or which is not reflected in
the Registration Statement or Prospectus but should be reflected therein in
order to make the statements or information contained
28
<PAGE>
therein not misleading in any material respect, or (iv) if there shall have
been any development or prospective development involving particularly the
business or properties or securities of the Company or the transactions
contemplated by this Agreement, which, in your reasonable judgment, may
materially and adversely affect the Company's business or earnings and
makes it impracticable or inadvisable to offer or sell the Common Shares.
Any termination pursuant to this subsection (b) shall be without liability
on the part of any Underwriter to the Company or the Selling Shareholder
or on the part of the Company or the Selling Shareholder to any
Underwriter (except for expenses to be paid or reimbursed by the Company
and the Selling Shareholder pursuant to Sections 7 and 9 hereof and except
to the extent provided in Section 11 hereof).
SECTION 15. Failure of the Selling Shareholder to Sell and Deliver. If
-------------------------------------------------------
the Selling Shareholder shall fail to sell and deliver to the
Underwriter the Common Shares to be sold and delivered by the Selling
Shareholder at the First Closing Date under the terms of this Agreement, then
the Underwriters may at their option, by written notice from you to the Company
and the Selling Shareholder, either (i) terminate this Agreement without any
liability on the part of any Underwriter or, except as provided in Sections 7, 9
and 11 hereof, the Company or the Selling Shareholder, or (ii) purchase the
shares which the Company has agreed to sell and deliver in accordance with the
terms hereof. In the event of a failure by the Selling Shareholder to sell and
deliver as referred to in this Section, either you or the Company shall have the
right to postpone the First Closing Date for a period not exceeding seven
business days in order that the necessary changes in the Registration Statement,
Prospectus and any other documents, as well as any other arrangements, may be
effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholder and of
the Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf of
any Underwriter or the Company or any of its or their partners, officers or
directors or any controlling person or the Selling Shareholder, as the case may
be, and will survive delivery of and payment for the Common Shares sold
hereunder and any termination of this Agreement.
SECTION 17. Notices. All communications hereunder shall be in writing
-------
and, if sent to the Underwriters shall be mailed, delivered or telegraphed and
confirmed to you at 600 Montgomery Street San Francisco, California 94111,
Attention: [Frank Dunlevy], with a copy to Latham & Watkins, 633 West 5th
Street, 40th Floor, Los Angeles, California 90071-2007, Attention: Mary Ellen
Kanoff, Esq.; and if sent to the Company or the Selling Shareholder shall be
mailed, delivered or telegraphed and confirmed to the Company at 4400 MacArthur
Boulevard, Suite 600, Newport Beach, California 92660-2037, Attention: David M.
Connell, with a copy to Riordan & McKinzie, 695 Town Center Drive, Suite 1500,
Costa Mesa, California 92626, Attention: James W. Loss, Esq. The Company, the
Selling Shareholder or you may change the address for receipt of communications
hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of and
----------
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations
29
<PAGE>
hereunder. The term "successors" shall not include any purchaser of the Common
Shares as such from any of the Underwriters merely by reason of such purchase.
SECTION 19. Partial Unenforceability. The invalidity or
------------------------
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 20. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 21. General. This Agreement constitutes the entire agreement of
-------
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original and all of which shall
constitute one and the same document.
In this Agreement the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Shareholder and you.
Any person executing and delivering this Agreement as Attorney-in-fact for
the Selling Shareholder represents by doing so that he has been duly appointed
as Attorney-in-fact by the Selling Shareholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action. Any action taken under this Agreement by the Attorney-in-fact on
behalf of the Selling Shareholder will be binding on the Selling Shareholder.
30
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed copies hereof, whereupon it will
become a binding agreement among the Company, the Selling Shareholder and you,
all in accordance with its terms.
Very truly yours,
DATA PROCESSING RESOURCES
CORPORATION
By:
____________________________
Mary Ellen Weaver
Chief Executive Officer
SELLING SHAREHOLDER
By:
____________________________
Mary Ellen Weaver
31
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written
MONTGOMERY SECURITIES
ROBERT W. BAIRD & CO. INCORPORATED
LEHMAN BROTHERS
By: MONTGOMERY SECURITIES
By:_________________________
Managing Director
By: ROBERT W. BAIRD & CO. INCORPORATED
By:_________________________
Managing Director
By: LEHMAN BROTHERS
By:_________________________
Managing Director
32
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Number of Optional
Common Shares Common Shares
Name of Underwriter to be Purchased to be Sold
- ------------------- --------------- ------------------
<S> <C> <C>
Montgomery Securities................................
--------- ----------
Robert W. Baird & Co. Incorporated...................
--------- ----------
Lehman Brothers......................................
--------- ----------
TOTAL.............................................. 2,000,000 280,000
========= ==========
</TABLE>
33
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm Number of
Common Shares Optional Common Shares
Name of Selling Shareholder to be Sold to Be Sold
- ------------------------------ -------------- ----------------------
<S> <C> <C>
Mary Ellen Weaver 200,000 50,000
TOTAL
</TABLE>
34
<PAGE>
EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
BY AND AMONG
DATA PROCESSING RESOURCES CORPORATION,
LEARDATA INFO-SERVICES, INC.
AND
THE SHAREHOLDERS OF LEARDATA INFO-SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS.............................................. 1
1.1 Defined Terms............................................ 1
1.2 Other Defined Terms...................................... 4
ARTICLE 2 PURCHASE AND SALE OF LEARDATA STOCK...................... 6
2.1 Sale of Leardata Stock................................... 6
2.2 Purchase Price........................................... 6
2.3 Escrowed Shares.......................................... 7
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF LEARDATA............... 7
3.1 Organization and Qualification of Leardata............... 7
3.2 Authorization............................................ 8
3.3 Due Execution and Delivery; Binding Obligations.......... 8
3.4 No Conflict or Violation................................. 8
3.5 Consents and Approvals................................... 8
3.6 Pending Litigation....................................... 9
3.7 Capitalization of Leardata............................... 9
3.8 Financial Statements..................................... 9
3.9 Undisclosed Liabilities.................................. 9
3.10 Absence of Certain Changes or Events..................... 10
3.11 Properties............................................... 11
3.12 Books and Records........................................ 11
3.13 Intellectual Property.................................... 12
3.14 Leases................................................... 12
3.15 Receivables.............................................. 12
3.16 Contracts................................................ 13
3.17 Employment Matters; Employee Benefits.................... 14
3.18 Transactions with Affiliated Parties..................... 15
3.19 Certain Payments......................................... 15
3.20 Taxes.................................................... 15
3.21 Compliance with Laws..................................... 16
3.22 Permits.................................................. 16
3.23 Insurance................................................ 16
3.24 Brokers, Finders, etc.................................... 16
3.25 No Subsidiaries.......................................... 16
3.26 Full Disclosure.......................................... 16
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS............................................. 17
4.1 Authorization............................................ 17
4.2 Due Execution and Delivery; Binding Obligations.......... 17
4.3 No Conflict or Violation................................. 17
4.4 Consents and Approvals................................... 18
4.5 Title to Leardata Stock.................................. 18
4.6 Leardata's Representations and Warranties................ 18
4.7 Securities Law Matters................................... 18
4.8 Full Disclosure.......................................... 19
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PURCHASER.............. 19
5.1 Organization............................................. 19
5.2 Authorization............................................ 19
5.3 Due Execution and Delivery; Binding Obligations.......... 19
5.4 No Conflict or Violation................................. 20
5.5 Consents and Approvals................................... 20
5.6 Valid Issuance of Shareholders' Shares................... 20
5.7 Pending Litigation....................................... 20
5.8 Capital Structure........................................ 20
5.9 No Materially Adverse Change............................. 21
5.10 Compliance with Law...................................... 21
5.11 SEC Compliance........................................... 21
5.12 Full Disclosure.......................................... 21
ARTICLE 6 THE SHAREHOLDERS' AND LEARDATA'S OBLIGATIONS
BEFORE CLOSING........................................... 21
6.1 Access to Information.................................... 21
6.2 Conduct of Business...................................... 22
6.3 Confidentiality.......................................... 22
6.4 Additional Financial Statements.......................... 22
6.5 Consents; Regulatory Approvals; Reasonable Efforts....... 22
6.6 No Solicitation.......................................... 23
6.7 No Press Release......................................... 23
6.8 Fulfillment of Conditions and Covenants.................. 23
ARTICLE 7 PURCHASER'S OBLIGATIONS BEFORE CLOSING................... 23
7.1 Confidentiality.......................................... 23
7.2 Third Party Consents..................................... 23
7.3 Fulfillment of Conditions and Covenants.................. 24
ARTICLE 8 CONDITIONS TO OBLIGATIONS OF PURCHASER................... 24
8.1 Accuracy of Representations and Warranties............... 24
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
8.2 Shareholders' and Leardata's Performance of Covenants.... 24
8.3 Shareholders' and Leardata's Officer's Certificate....... 24
8.4 Consents and Regulatory Approvals........................ 24
8.5 Escrow Agreement......................................... 24
8.6 Employment Agreements.................................... 24
8.7 Registration Rights Agreement............................ 25
8.8 Termination of Certain Agreements........................ 25
8.9 Letters of Resignation................................... 25
8.10 Opinion of Counsel....................................... 25
8.11 Payments by Shareholders................................. 25
ARTICLE 9 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS
AND LEARDATA............................................. 25
9.1 Accuracy of Representations and Warranties............... 25
9.2 Purchaser's Performance of its Covenants................. 25
9.3 Purchaser's Officer's Certificate........................ 25
9.4 Consents................................................. 26
9.5 Employment Agreements.................................... 26
9.7 Registration Rights Agreement............................ 26
9.8 Opinion of Counsel....................................... 26
ARTICLE 10 TERMINATION.............................................. 26
10.1 Termination.............................................. 26
10.2 Effect on Obligations.................................... 26
ARTICLE 11 THE CLOSING.............................................. 27
11.1 Closing.................................................. 27
11.2 Deliveries by the Shareholders and Leardata.............. 27
11.3 Deliveries by Purchaser.................................. 28
ARTICLE 12 POST CLOSING............................................. 28
12.1 Survival of Representations and Warranties............... 28
12.2 Special Bonus Payments................................... 29
12.3 Indemnification Obligations.............................. 29
12.4 Restriction on Transfer.................................. 32
12.5 Post-Closing Adjustment.................................. 32
12.6 Further Assurances....................................... 33
12.7 Expenses................................................. 33
</TABLE>
iii
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 13 COVENANT NOT TO COMPETE................................. 33
13.1 Non-Compete Covenant.................................... 33
13.2 Definition of Compete................................... 33
13.3 Direct or Indirect Competition.......................... 34
13.4 Confidential Data....................................... 34
13.5 Reasonableness of Restrictions.......................... 34
13.6 Injunctive Relief....................................... 34
ARTICLE 14 MISCELLANEOUS PROVISIONS................................ 35
14.1 Entire Agreement........................................ 35
14.2 Governing Law........................................... 35
14.3 Interpretation.......................................... 35
14.4 Waiver and Amendment.................................... 35
14.5 Assignment.............................................. 36
14.6 Successors and Assigns.................................. 36
14.7 Notices................................................. 36
14.8 Severability............................................ 36
14.9 Specific Performance.................................... 36
14.10 Cumulative Remedies..................................... 37
14.11 Warranty of Authority................................... 37
14.12 Counterparts............................................ 37
</TABLE>
iv
<PAGE>
LIST OF EXHIBITS
----------------
A Leardata Adjusted Net Worth at the Balance Sheet Date
B Leardata Adjusted Working Capital at the Balance Sheet Date
C Form of Escrow Agreement
D Form of Smith Employment Agreement
E Form of Other Employment Agreement
F Form of Registration Rights Agreement
LIST OF SCHEDULES
-----------------
1.1 Long-Term/Shareholder Liabilities
2.2(a) Allocation of Cash Consideration
2.2(b) Third Party Payments
2.2(c) Allocation of the Shareholders' Shares
3.1 Articles and Bylaws of Leardata
3.5 Leardata's Consents and Approvals
3.6 Leardata's Litigation
3.7 Capitalization of Leardata
3.8 Financial Statements
3.9 Undisclosed Liabilities
3.10 Absence of Certain Changes or Events
3.11 Properties
3.13 Intellectual Property
3.14 Leases
3.15 Receivables
3.16 Contracts and Major Customers
3.17 Employment Matters
3.18 Transactions With Affiliated Parties
3.20 Tax Matters
3.22 Permits
3.23 Insurance
5.5 Purchaser's Consents and Approvals
5.7 Purchaser's Litigation
12.2 Special Bonus Payments Amount
v
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
---------
as of this 17th day of December 1996 (the "Execution Date"), by and among Data
--------------
Processing Resources Corporation, a California corporation ("Purchaser"),
---------
Leardata Info-Services, Inc., a Texas corporation ("Leardata"), General
--------
Atlantic Leardata Partners, L.P., a Delaware limited partnership ("GALP"), Bruce
----
M. Smith, an individual ("B. Smith"), Chris P. Smith, an individual ("C.
-------- --
Smith"), Steve P. Donaldson, an individual ("Donaldson"), Robert M. Howe, an
---------
individual ("Howe"), and Barbara A. Kuhler, an individual ("Kuhler"). GALP, B.
---- ------
Smith, C. Smith, Donaldson, Howe and Kuhler are collectively referred to herein
as the "Shareholders" and sometimes individually referred to as a "Shareholder."
------------ -----------
R E C I T A L S
- - - - - - - -
A. Leardata provides temporary technical personnel to third parties (the
"Business"), with offices situated at 5910 North Central Expressway, Suite 1900,
--------
Dallas, Texas, and portions of 121 SW Salmon Street, Suite 1100, Portland,
Oregon.
B. The Shareholders collectively own all of the issued and outstanding
shares of the capital stock of Leardata (the "Leardata Stock").
--------------
C. Purchaser desires to purchase, and the Shareholders desire to sell,
for the purchase price and upon the terms and subject to the conditions of this
Agreement, all of the Leardata Stock, and by virtue thereof, all of the
Shareholders' interest in Leardata.
A G R E E M E N T
- - - - - - - - -
In consideration of the foregoing recitals and the respective covenants,
agreements, representations and warranties contained herein, the parties,
intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Defined Terms. For purposes of this Agreement, the following terms
-------------
shall have the following meanings:
"Action" shall mean any action, claim, suit, litigation, proceeding,
------
arbitration, mediation or other dispute.
"Affiliate" shall mean an "affiliate" under the meaning of Rule 405 of
---------
Regulation C promulgated under the Securities Act of 1933, as amended.
<PAGE>
"Books and Records" shall mean all books, ledgers, files, records,
-----------------
manuals and other materials (in any form or medium) related to the Business,
including, but not limited to, all correspondence, personnel records, data base
of current, former and prospective technical contractors, purchasing materials
and records, vendor lists, operation and quality control records and procedures,
research and development files, Intellectual Property disclosures and
documentation, accounting records and systems, litigation files, sales order
files, purchase order files, advertising materials, catalogs, product brochures,
mailing lists, customer lists, distribution lists, sales and promotional
materials and all other records utilized by Leardata in connection with the
Business and all computer hardware, software and data files necessary to access
or review or continue to compile or utilize any of the foregoing.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Contracts" shall mean all of the contracts, licenses, Leases,
---------
arrangements, understandings and other agreements related in any way to the
Business, including, without limitation, all of the Contracts described on
Schedules 3.13, 3.14 and 3.16 hereto.
- -------------- ---- ----
"DPRC Average Closing Price" shall mean, with respect to the DPRC
--------------------------
Common Shares, the average closing price as publicly reported by the Nasdaq
Stock Market as of 4:00 p.m. Eastern Time of DPRC Common Shares over the last 20
trading days ending on (and including) the trading day immediately prior to the
Execution Date.
"Employee Benefit Plan(s)" shall mean: (a) Any "employee welfare
------------------------
benefit plan," as defined in Section 3(1) of ERISA, (i) which Leardata sponsors
or to which Leardata contributes or is required to contribute, or under which
Leardata may incur any liability, and (ii) which covers an employee or former
employee of Leardata including each multi-employer welfare benefit plan; (b) any
"multi-employer plan," as defined in Section 4001(a)(3) of ERISA, (i) to which
Leardata (or any person which is a member of a "controlled group of
corporations" with or under "common control" with Leardata as defined in Section
414(b) or (c) of the Code ("Common Control Entity")) has contributed or been
---------------------
obligated to contribute at any time or under which Leardata may incur any
liability, and (ii) which covers an employee or former employee of Leardata; (c)
any "employee pension benefit plan," as defined in Section 3(2) of ERISA, (i)
which Leardata sponsors or to which Leardata or any Common Control Entity
contributes or is required to contribute or under which Leardata may incur any
liability, and (ii) which covers an employee or former employee of Leardata; and
(d) any deferred compensation plan, bonus plan, profit sharing plan, stock
option plan, employee stock purchase plan and any other employee benefit plan,
agreement, arrangement or commitment maintained by Leardata which covers an
employee or former employee of Leardata.
"Encumbrances" shall mean any claim, lien, pledge, option, charge,
------------
easement, security interest, deed of trust, mortgage, right-of-way,
encroachment, restriction, encumbrance or other right of third parties, of any
kind or nature.
2
<PAGE>
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, and any successor statute, including the
rules and regulations promulgated thereunder.
"Intellectual Property" shall mean all of Leardata's intellectual
---------------------
property rights including, without limitation, all of Leardata's (a) common law,
state, federal and statutory rights in any trademarks, trademark registrations
and applications, service marks and trade names, copyrights, copyright
registrations; patents, patent applications, design rights, inventions, trade
secrets, technical and business confidential information (including, but not
limited to designs, plans, specifications, formulas, processes, methods, shop
rights, know-how and other business or technical confidential information in
each case whether or not such rights are patentable, copyrightable or
registerable); (b) computer software programs and systems, know-how, formulae
and designs and documentation relating to the foregoing or used or useable in
the Business; and (c) other proprietary information owned, controlled, created
or used or useable by or on behalf of Leardata in connection with the conduct of
the Business in which Leardata has any interest whatsoever, whether or not
registered, including rights or obligations under any license agreement with any
other person.
"Laws" shall mean all federal, state or local statutes, regulations,
----
ordinances, orders, decrees, or any other laws, common law theories or reported
decisions of any state or federal court now or at any time hereafter in effect.
"Leardata Adjusted Net Worth" shall mean the difference between (a)
---------------------------
all of the assets of Leardata, and (b) all of the liabilities of Leardata other
than the Special Bonus Payments Amount and the Long-Term/Shareholder
Liabilities, as determined in accordance with generally accepted accounting
principles, consistently applied with prior practice. The Leardata Adjusted Net
Worth at the Balance Sheet Date is shown on Exhibit A hereto. The Leardata
---------
Adjusted Net Worth at the Closing Date shall be determined in the same manner
used by the parties to determine the Leardata Adjusted Net Worth at the Balance
Sheet Date.
"Leardata Adjusted Working Capital" shall mean the difference between
---------------------------------
(a) all of the current assets of Leardata, and (b) all of the current
liabilities of Leardata other than the Special Bonus Payments Amount and the
current portion of the Long-Term/Shareholder Liabilities, as determined in
accordance with generally accepted accounting principles, consistently applied
with prior practice. The Leardata Adjusted Working Capital at the Balance Sheet
Date is shown on Exhibit B hereto. The Leardata Adjusted Working Capital at the
---------
Closing Date shall be determined in the same manner used by the parties to
determine the Leardata Adjusted Working Capital at the Balance Sheet Date.
"Long-Term/Shareholder Liabilities" shall mean all long and short term
---------------------------------
bank, working capital line, institutional, shareholder-related and other
interest bearing debt, accrued interest and income tax liabilities of Leardata,
whether current or deferred, including, without limitation, those set forth on
Schedule 1.1 hereto.
- ------------
3
<PAGE>
"Permits" shall mean all franchises, permits, licenses,
-------
qualifications, rights-of-way, easements, municipal and other approvals,
authorizations, orders, consents and other rights from, and filings with, any
governmental authority of any jurisdiction worldwide relating to the conduct of
the Business.
"Permitted Transfer" shall mean (a) any Transfer by GALP to any of its
------------------
Affiliates, (b) any Transfer on the terms and subject to the conditions of the
Registration Rights Agreement, or (c) any Transfer by a Shareholder during his
or her lifetime to (i) a revocable trust established by such Shareholder (or
jointly established by such Shareholder and his or her spouse), and in which
such Shareholder (or such Shareholder and his or her spouse) retains during his
or her (or their) life the entire beneficial interest and such Shareholder (or
such Shareholder and his or her spouse or any professional trustee or trustees)
serves (or serve), until his or her (or their) death or incapacity as the sole
trustee(s), or (ii) an irrevocable trust established by such Shareholder (or
jointly established by such Shareholder and his or her spouse) in which the
entire beneficial interest is granted to such Shareholder's (or such
Shareholder's and his or her spouse's) siblings, parents or issue (except that
residual grants to other persons shall be permissible in the event that any of
the foregoing persons do not survive the trustor(s)).
"Representatives" shall mean any officer, director, manager,
---------------
principal, shareholder, member, partner, attorney, accountant, advisor, agent,
trustee, employee or other representative of a party.
"Tax(es)" shall mean all taxes, charges, fees, levies or other
-------
assessments imposed by and required to be paid to any federal, state, local or
foreign taxing authority, including, without limitation, income, excise,
property, sales, transfer, ad valorem, payroll and franchise taxes (including
any interest, penalties or additions attributable to or imposed on or with
respect to any such assessment) and any estimated payments or estimated taxes.
"Tax Return" shall mean any return, report, information return or
----------
other document (including any related or supporting information) filed or
required to be filed with any federal, state, local or foreign governmental
entity or other authority in connection with the determination, assessment or
collection of any Tax (whether or not such Tax is imposed on Leardata) or the
administration of any Laws, regulations or administrative requirements relating
to any Tax.
1.2 Other Defined Terms. The following capitalized terms shall have the
-------------------
meanings given to them in the Sections set forth below:
4
<PAGE>
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Accountants 12.5(a)
Affiliated Party(ies) 3.18
Agreement Introduction
Ancillary Agreements 3.2
B. Smith Introduction
Balance Sheet 3.8
Balance Sheet Date 3.8
Business Recital A
C. Smith Introduction
Cash Consideration 2.2(a)
Closing 11.1
Closing Date 11.1
Damages 12.3(a)
Donaldson Introduction
DPRC Common Shares 2.2(c)
DPRC Preferred Shares 5.8
Escrow Agent 2.3
Escrow Agreement 2.3
Execution Date Introduction
Financial Statements 3.8
GALP Introduction
Indemnitee 12.3(c)
Indemnitor 12.3(c)
Howe Introduction
Kuhler Introduction
Leardata Introduction
Leardata Stock Recital B
Leases 3.14
Major Customers 3.16(b)
Non-Compete Period 13.1
Obligated Shareholders 13.1
Other Employment Agreements 8.6
Pledging Shareholder(s) 2.3
Purchase Price 2.2
Purchaser Introduction
Purchaser Representatives 12.3(a)
Registration Rights Agreement 8.7
Shareholder(s) Introduction
Shareholder Representatives 12.3(b)
Shareholders' Shares 2.2(c)
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Smith Employment Agreement 8.6
Special Bonus Payments Amount 2.2(a)(iv)
Survival Date 12.1
Territory 13.1
Third Party Payments 2.2(b)
Transfer 12.4
Warranty Claims 12.3(e)
</TABLE>
ARTICLE 2
PURCHASE AND SALE OF LEARDATA STOCK
-----------------------------------
2.1 Sale of Leardata Stock. On the terms and subject to the conditions of
----------------------
this Agreement, at the Closing, the Shareholders shall sell, assign, transfer
and deliver to Purchaser, and Purchaser shall purchase and acquire from the
Shareholders, all of the Leardata Stock, free and clear of all Encumbrances.
Schedule 3.7 hereto sets forth the number and type of shares of Leardata Stock
- ------------
that each of the Shareholders will sell, assign, transfer and deliver to
Purchaser hereunder.
2.2 Purchase Price. In consideration of the sale, assignment, transfer
--------------
and delivery of all of the Leardata Stock to Purchaser and the Shareholders'
respective obligations under Article 13, below, on the terms and subject to the
conditions of this Agreement, Purchaser will pay or cause to be paid the
following amounts to the following persons (collectively, the "Purchase Price"):
--------------
(a) Cash by wire transfer to each of the Shareholders' accounts (the
"Cash Consideration"), in the amounts set forth opposite each of such
- -------------------
Shareholders' names on Schedule 2.2(a) hereto, which amounts, in the aggregate,
---------------
shall be equal to the following:
(i) Fourteen Million Eight Hundred Fifty Thousand and No/100
Dollars ($14,850,000.00); plus
(ii) Seventy-Five Percent (75%) of the verifiable amount of cash
held by Leardata at the Closing Date; minus
(iii) The amount of the Long-Term/Shareholder Liabilities at the
Closing Date; minus
(iv) The amount of the Third Party Payments which are not Long-
Term Shareholder Liabilities; minus
(v) Four Hundred Forty Thousand and No/100 Dollars ($440,000.00)
(the "Special Bonus Payments Amount").
-----------------------------
6
<PAGE>
(b) Cash by wire transfer to the accounts of each of the persons set
forth on Schedule 2.2(b) hereto (the "Third Party Payments"), in the amounts set
--------------- --------------------
forth opposite each of such persons' names on Schedule 2.2(b) hereto; and
---------------
(c) Stock certificates of Purchaser, certifying that each of the
Shareholders is the record holder of that number of shares of the common stock
of Purchaser (the "DPRC Common Shares") set forth opposite each of such
------------------
Shareholders' names on Schedule 2.2(c) hereto (collectively, the "Shareholders'
--------------- -------------
Shares"), which number of shares, in the aggregate, shall be equal to the number
- ------
of shares which when multiplied by the DPRC Average Closing Price, equals the
following:
(i) Four Million Nine Hundred Fifty Thousand and No/100 Dollars
($4,950,000.00); plus
(ii) Twenty-Five Percent (25%) of the verifiable amount of cash
held by Leardata at the Closing Date.
2.3 Escrowed Shares. All of the Shareholders' Shares to be issued in the
---------------
name of GALP, B. Smith and C. Smith (collectively referred to herein as the
"Pledging Shareholders" and sometimes individually as a "Pledging Shareholder")
- ---------------------- --------------------
shall be held by an escrow agent (the "Escrow Agent") pursuant to an escrow
------------
agreement in substantially the form attached hereto as Exhibit C (the "Escrow
--------- ------
Agreement"), to secure claims by Purchaser for the indemnification obligations
- ---------
of the Pledging Shareholders pursuant to Section 12.3, below. All costs and
expenses of the Escrow Agent in connection with the Escrow Agreement shall be
paid by Purchaser.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF LEARDATA
------------------------------------------
Leardata hereby represents and warrants to Purchaser that the following
statements are true and complete and not misleading as of the date of this
Agreement:
3.1 Organization and Qualification of Leardata. Leardata is a corporation
------------------------------------------
duly organized, validly existing and in good standing under the Laws of the
State of Texas. Leardata has the requisite corporate power and authority to own
and operate the Business, to carry on the Business as presently conducted and to
consummate the transactions contemplated hereby. Leardata is qualified to do
business as a foreign corporation in each jurisdiction in which its conduct of
the Business or the ownership or leasing of properties makes such qualification
necessary except to the extent that failure to so qualify would not have a
material adverse effect on Leardata or the Business. Leardata has complete
corporate power and authority to consummate the transaction contemplated hereby.
Copies of Leardata's Articles of Incorporation, certified by the Secretary of
State of the State of Texas, and Bylaws, certified by Leardata's Secretary, each
of which is attached hereto as Schedule 3.1, are complete and correct and, since
------------
the respective
7
<PAGE>
dates of certification thereof, there have not been any amendments to such
Articles of Incorporation or Bylaws.
3.2 Authorization. Leardata has the requisite power, authority and legal
-------------
right and capacity to enter into this Agreement and the agreements contemplated
hereby (the "Ancillary Agreements"), to perform its obligations hereunder and
--------------------
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by Leardata of this Agreement and the
Ancillary Agreements have been duly authorized by all necessary corporate action
on the part of Leardata to make this Agreement and the Ancillary Agreements
valid and binding upon Leardata in accordance with their respective terms.
3.3 Due Execution and Delivery; Binding Obligations. This Agreement has
-----------------------------------------------
been, and each of the Ancillary Agreements will be, duly executed and delivered
by Leardata. This Agreement constitutes, and each of the Ancillary Agreements
will constitute, the legal, valid and binding agreement and obligation of
Leardata, enforceable against Leardata in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or conveyance or similar Laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability and except as rights of indemnity or contribution may
be limited by federal or state securities or other Laws or the public policy
underlying such Laws.
3.4 No Conflict or Violation. Neither the execution and delivery of this
------------------------
Agreement and the Ancillary Agreements by Leardata, nor the consummation of the
transactions contemplated hereby and thereby, will result in (a) a violation of,
or a conflict with, Leardata's charter documents or any subscription,
shareholders' or similar types of agreements or understandings to which Leardata
is a party; (b) a breach of, or a default (or an event which, with notice or
lapse of time or both would constitute a default) under or result in the
termination of, or accelerate the performance required by, or create a right of
termination or acceleration under, any Contract or Encumbrance or, to Leardata's
knowledge, any Permit to which Leardata is a party or by which the Business is
bound or affected; (c) the payment by, or the creation of any obligation
(absolute or contingent) to pay on behalf of, any party of any severance,
termination, "golden parachute" or other similar payments pursuant to any
employment or other Contracts of Leardata, or Leardata's current or former
officers, directors or employees; (d) to Leardata's knowledge, a violation by
Leardata of any applicable Law; (e) a violation by Leardata of any order,
judgment, writ, injunction decree or award to which Leardata is a party or by
which the Business is affected; or (f) an imposition of any Encumbrance.
3.5 Consents and Approvals. Except as set forth on Schedule 3.5 hereto,
---------------------- ------------
no consent, Permit, approval or authorization of, or declaration, filing,
application, transfer, registration with, any governmental or regulatory
authority, or any other person or entity is required to be made or obtained by
Leardata by virtue of its execution, delivery and performance of this Agreement
or any of the Ancillary Agreements or to avoid the loss of any Permit, or the
violation, breach or termination of, or any default under, or the creation of
Encumbrances on any of the assets or
8
<PAGE>
properties of Leardata pursuant to the terms of any Law, or to enable Purchaser
to own the Leardata Stock and continue the lawful operation of the Business
following the Closing Date as presently conducted.
3.6 Pending Litigation. Except as disclosed on Schedule 3.6 hereto, there
------------------ ------------
is no pending or, to Leardata's knowledge, threatened Action, whether private or
public, affecting Leardata or the Business which could reasonably be expected to
affect the enforceability of this Agreement or any of the Ancillary Agreements
or which could reasonably be expected to materially and adversely affect the
Business, Leardata's assets or properties, or Leardata's ability to consummate
the transactions contemplated by or perform its obligations under this Agreement
or any of the Ancillary Agreements.
3.7 Capitalization of Leardata. The authorized capital stock of Leardata
--------------------------
consists of 5,000,000 shares of preferred stock, $0.10 par value, of which
3,864,480 shares are issued and outstanding, and 1,000,000 shares of common
stock, $0.01 par value, of which 386,452 shares are issued and outstanding. The
issued and outstanding shares of capital stock of Leardata consist solely of the
Leardata Stock, which is more specifically described on Schedule 3.7 hereto, and
------------
held entirely by the Shareholders. Other than this Agreement, there is not
outstanding any subscription, option, warrant, call, right or other agreement or
commitment obligating Leardata to issue, sell, deliver or transfer (including
any right of conversion or exchange under any outstanding security or other
instrument) any shares of the Leardata Stock or any other shares of the capital
stock of Leardata. All of the shares of the Leardata Stock are duly and validly
authorized, issued and outstanding, fully paid and non-assessable.
3.8 Financial Statements. Leardata has furnished to Purchaser copies of:
--------------------
(a) the audited balance sheets of Leardata at December 31, 1995, 1994 and 1993,
and the related statements of income, shareholders' equity and cash flows for
the periods then ended, together with the related notes thereto and the
auditors' report thereon, and (b) Leardata's internally prepared balance sheet
(the "Balance Sheet") at October 31, 1996 (the "Balance Sheet Date"), and the
------------- ------------------
related statements of income and cash flows for the period then ended. All
financial statements referred to in this Section 3.8 (the "Financial
---------
Statements") are complete and correct, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the respective periods (except that the Balance Sheet does not include certain
year-end adjustments and footnotes required under generally accepted accounting
principles), and fairly present the financial condition of Leardata as at the
respective dates thereof and the results of operations of Leardata for the
respective periods covered by the statements of income contained therein. The
Financial Statements are attached hereto as Schedule 3.8. All reserves made by
------------
Leardata in the Financial Statements are appropriate and adequate for all known
or anticipated liabilities. Leardata has provided and disclosed to Purchaser,
its accountants and other Representatives all material facts and information
relating to the preparation of the Financial Statements.
3.9 Undisclosed Liabilities. Except as set forth on Schedule 3.9 hereto,
----------------------- ------------
Leardata does not have any liabilities or obligations (absolute, accrued,
contingent or otherwise) related to the
9
<PAGE>
Business or its assets or properties except (a) liabilities reflected on the
Financial Statements, (b) liabilities incurred since the Balance Sheet Date in
the ordinary course of business, and (c) liabilities arising under any Contract
in the ordinary course of conducting the Business.
3.10 Absence of Certain Changes or Events. Since the Balance Sheet Date,
------------------------------------
except as set forth on Schedule 3.10 hereto, there has not been any:
-------------
(a) Amendment to Leardata's Articles of Incorporation or Bylaws;
issuance of any shares of the capital stock of Leardata; or issuance or creation
of any warrants, obligations, subscriptions, options, convertible securities or
other commitments under which any additional shares of the capital stock of
Leardata of any class have been or might be, directly or indirectly, authorized,
issued or transferred;
(b) Declaration, setting aside or payment of any dividend by Leardata;
distribution in respect of the capital stock of Leardata; or purchase or
redemption, directly or indirectly, of any shares of the capital stock of
Leardata;
(c) Except for any payments contemplated by the Special Bonus Payments
Amount, increase in the salary or other compensation payable or to become
payable by Leardata to any of its officers, directors, partners or employees;
the declaration, payment, commitment or obligation of any kind for the payment
by Leardata, of a bonus or other additional salary or compensation to any such
person; the repayment by Leardata of any loan from such person; or the payment
by Leardata of any accrued but unpaid salaries, distributions or any other
payments, whether in cash or property, to any such person;
(d) Change in accounting methods or practices by Leardata (including,
without limitation, any change in depreciation, amortization or valuation
policies or rates or any change in billing and revenue recognition policies) or
revaluation of any of its assets, liabilities or reserves reflected on the
Financial Statements, or any change in any assumption underlying or methods of
calculating any bad debt, contingency or other reserves related to the Business;
(e) Agreement entered into not in the usual and ordinary course of the
Business; agreement entered into in the usual and ordinary course of the
Business having a term of at least 12 months or involving an amount exceeding
$10,000; or capital expenditure, or the incurring of any obligation to make any
capital expenditure, by Leardata in excess of $10,000;
(f) Agreement entered into to provide technical contractors at other
than an hourly rate or at a margin or rate-of-return that is less than the
historical average;
(g) Payment by or on behalf of Leardata of any obligation or
liability, whether fixed or contingent, other than current liabilities; waiver
or compromise by Leardata of any right or claim; or cancellation by Leardata,
without full payment, of any note, loan or other obligation owed to Leardata;
10
<PAGE>
(h) Failure to pay or satisfy when due any obligation of Leardata
except where such failure would not adversely affect Leardata, the Business, its
assets or its liabilities;
(i) Amendment, rescission, expiration or termination of any of
Leardata's existing Contracts or agreements, including, without limitation, the
lapse, expiration or termination of any insurance coverage;
(j) Sale, transfer or disposal of, or agreement to sell, transfer or
otherwise dispose of, any of the assets, properties or rights of Leardata other
than in the ordinary course of business; destruction, damage to, or loss of any
of Leardata's material assets or properties (whether or not covered by
insurance) used or useable in the Business; or disposition or lapsing of any
Intellectual Property or any disclosure to any person (other than persons
subject to confidentiality agreements) of any Intellectual Property;
(k) Labor dispute or other event or condition of any character
adversely affecting the prospects, earnings, properties or condition, financial
or otherwise, of the Business;
(l) Other event or condition of any character which it is reasonable
to expect will, individually or in the aggregate, materially and adversely
affect Leardata, its assets or the Business or Leardata's ability to perform its
obligations hereunder; or
(m) Agreement by Leardata or the Shareholders to do or cause any of
the things described in clauses (a) through (l), above.
3.11 Properties. Schedule 3.11 hereto sets forth a complete and correct
---------- -------------
list of all assets owned by Leardata as of the Balance Sheet Date which have
been treated as capital assets. Leardata does not own any real property.
Except as set forth on Schedule 3.11 hereto, Leardata has good, indefeasible and
-------------
marketable title to, or a valid leasehold interest in, or a valid license to
use, all of the personal property used in and material to the Business, in each
case free and clear of all Encumbrances. All personal property owned or leased
by Leardata is in good order and operating condition, ordinary wear and tear
excepted, and free from any defects, except for such minor defects which do not
substantially interfere with the continued use thereof in the conduct of normal
operations in the manner and to the extent such assets are presently being used.
3.12 Books and Records. Leardata has made and kept (and given Purchaser's
-----------------
Representatives access to) the Books and Records, which, in reasonable detail,
accurately and fairly reflect the activities and transactions of Leardata
related to the Business, the dispositions of assets related to the Business, and
the financial condition of Leardata and the Business, including, without
limitation, the existence of any and all liabilities, whether actual or
contingent, including, without limitation, the Long-Term/Shareholder
Liabilities.
11
<PAGE>
3.13 Intellectual Property.
---------------------
(a) Schedule 3.13 hereto is a complete and correct list of all of the
-------------
material Intellectual Property. Except as set forth on Schedule 3.13 hereto,
-------------
(a) the Intellectual Property is owned by Leardata or Leardata has a valid
license to use the same, (b) neither the Shareholders nor Leardata has received
any notice or claim disputing Leardata's right to own or use any such
Intellectual Property, and (c) to Leardata's knowledge, Leardata's right to own
or use the Intellectual Property is not disputed by any third party. Except as
set forth on Schedule 3.13 hereto, the Intellectual Property is owned by
-------------
Leardata free and clear of all Encumbrances. The Intellectual Property
constitutes all of the proprietary rights necessary and sufficient for the
lawful operation of the Business as presently conducted. To Leardata's
knowledge, Leardata is not infringing upon or otherwise acting adversely to any
property owned by any other person with respect to the Intellectual Property
which has been received and used by Leardata, nor is there any Action by any
person pending or, to Leardata's knowledge, threatened with respect thereto.
(b) Schedule 3.13 hereto accurately discloses all licenses,
-------------
sublicenses or agreements by which Leardata holds or has given to others the
right to use the Intellectual Property. Leardata is not in default and, to
Leardata's knowledge, no third party is in default, under any such license,
sublicense or agreement.
3.14 Leases. Schedule 3.14 hereto sets forth a true, correct and complete
------ -------------
list and description of all leases, subleases, licenses and other occupancy or
lease agreements, together with all amendments, supplements and nondisturbance
agreements pertaining thereto, under which Leardata leases, subleases, licenses,
occupies or uses any real or personal property (the "Leases"). All of the
------
Leases are in good standing, legal, valid, binding and in full force and effect,
all rents and additional rents due to date under each such Lease have been paid
in full, and there is not under any of such Leases any existing default,
violation or breach by Leardata or event or condition which after notice or
lapse of time or both would constitute a default, violation or breach. Leardata
has provided Purchaser with true and correct copies of all such Leases.
3.15 Receivables. Attached hereto as Schedules 3.15 are true and complete
----------- --------------
lists of the Receivables at November 30, 1996 and Unbilled Receivables as of
November 30, 1996, including, without limitation, all Receivables from and
Unbilled Receivables with respect to Affiliated Parties. Except to the extent
collected since such date, all Receivables are reflected on Schedule 3.15, and
-------------
all Receivables and Unbilled Receivables accruing or created between such dates
and the Effective Date are and will be (a) valid bona fide claims against
debtors for sales or other charges, and (b) subject to no known or asserted
defenses, set-offs or counterclaims. No additional loss reserves are required
with respect to the Receivables and Unbilled Receivables other than that which
is currently provided for in the Financial Statements. Leardata has no reason
to believe that the Receivables and Unbilled Receivables are not collectible in
accordance with their terms. Leardata will update Schedule 3.15 at Closing to
-------------
list all Receivables and Unbilled Receivables as of December 31, 1996.
12
<PAGE>
3.16 Contracts.
---------
(a) Schedule 3.16 hereto contains a complete and correct list of all
-------------
Contracts, whether written or oral, (i) to which Leardata is a party or by which
it is bound, or (ii) by which any of the assets, properties or the Business is
bound or subject, and, in either case, which constitute:
(i) Mortgages, indentures, security agreements and other
agreements and instruments relating to the borrowing of money by, or any
extension or credit to, Leardata;
(ii) Sales agency or marketing agreement;
(iii) Agreements or commitments for capital expenditures;
(iv) Brokerage or finder's agreements;
(v) Partnership, joint venture or other arrangements or
agreements involving a sharing of profits or expenses;
(vi) Contracts or commitments to sell, lease or otherwise dispose
of any assets, properties or business other than in the ordinary course of
business;
(vii) Contracts or commitments limiting the freedom of Leardata to
compete in any line of business or in any geographic area or with any person;
(viii) Other agreements, contracts or commitments which in any case
are not terminable on at least 30 days' prior written notice or involve payments
or receipts of more than $10,000 per annum; and
(ix) Any other agreements, contracts or commitments material
to the Business, operations or financial condition of Leardata.
(b) Schedule 3.16 hereto sets forth a correct and complete list of the
-------------
10 largest customers (by sales volume) (the "Major Customers") of the Business
---------------
during the 12-month period ended at the Balance Sheet Date indicating the sales
to such Major Customers within such period and the existing contractual
arrangements with each such Major Customer. As of the Balance Sheet Date,
Leardata had no outstanding Contracts with customers requiring payments or
credits in excess of $5,000, except for those listed on Schedule 3.16 hereto.
-------------
There are no outstanding disputes with any Major Customer, and no Major Customer
has refused to do business with Leardata or has stated its intention not to
continue to do business with or increase or reduce its purchases from Leardata
or Purchaser upon consummation of the transactions contemplated hereby.
Leardata has no reason to believe that any customer account is not collectible
in
13
<PAGE>
accordance with its terms. No existing contractual arrangement with a customer
contains any fixed price arrangement.
(c) As of the Balance Sheet Date, Leardata had no outstanding
Contracts with suppliers or vendors requiring payments in excess of $10,000 on
an annualized basis except those listed on Schedule 3.16 hereto.
-------------
(d) Leardata has delivered to Purchaser or its Representatives
complete and correct copies of all written Contracts, together with all
amendments thereto, and accurate descriptions of all oral Contracts, listed on
Schedules 3.13, 3.14 and 3.16 hereto or required to be listed thereon. All of
- -------------- ---- ----
the Contracts are valid and in full force and effect and Leardata has duly
performed all of its obligations under each Contract to the extent those
obligations have accrued, and no default, violation or breach by Leardata under
any Contract has occurred which affects the enforceability of such Contract or
any parties' rights thereunder.
3.17 Employment Matters; Employee Benefits.
-------------------------------------
(a) Schedule 3.17 hereto sets forth a complete and correct list of all
-------------
the names, current annual rates of salary, bonuses, employee benefits, accrued
vacation times, sick pay and other compensation, date of hire and location of
all the current employees, consultants, contractors and agents of Leardata who
provide services in connection with the Business. Except for the Special Bonus
Payments Amount, none of such persons has received or will receive an increase
in salary or other compensation from Leardata prior to the Closing Date. Except
as set forth on Schedule 3.17 hereto, there are no employment or consulting
-------------
contracts or arrangements, including pensions, bonus or profit sharing plans, or
other severance or termination contracts or arrangements which constitute
contractual obligations of Leardata not terminable on 10 days' notice. There
are no collective bargaining agreements with any union or other bargaining group
for any of Leardata's employees, nor is Leardata aware of any efforts by its
employees or contractors to organize or participate in any of the foregoing. To
Leardata's knowledge, no employee or contractor is in violation of any of its
obligations to, or any employment agreement with, a prior employer. No key
employee, consultant or contractor of Leardata has left Leardata since the
Balance Sheet Date and no current key employee or contractor has indicated any
present or future intention to terminate its, his or her employment with
Leardata. Leardata has made available to Purchaser true and correct copies of
all performance reviews conducted of the persons set forth on Schedule 3.17.
-------------
(b) Leardata has complied with all provision of Law pertaining to the
employment and terminating of employees and the hiring and terminating of
consultants and contractors, including, without limitation all such Laws
relating to labor relations, equal employment practices, fair employment
practices, entitlements, prohibited discrimination, terms and conditions of
employment, wages and hours, independent contractor classification, withholding
requirements or other similar employment or hiring practices or acts, and
Leardata is not engaged in any unfair labor practices and is not a party to any
Action involving a violation
14
<PAGE>
or alleged violation of any of any of the foregoing Laws. Without limiting the
generality of the foregoing, Leardata has complied in all respects with the WARN
Act, COBRA, the Immigration and Nationality Act, as amended, and the Immigration
Reform and Control Act of 1986, including, without limitation, completing a Form
I-9 for every employee of Leardata, and maintaining all such Form I-9(s) and
related information in accordance with such acts. Except as set forth on
Schedule 3.6 hereto, no employee, consultant, contractor or governmental agency
- ------------
or authority has brought or threatened an Action against Leardata with respect
to any matter arising out of, relating to or in connection with such employee's,
consultants' or contractor's employment by Leardata.
(c) Except as set forth on Schedule 3.17 hereto, there are no pension,
-------------
bonus, profit sharing, stock option or employee benefit plans maintained by
Leardata or to which Leardata contributes or is required to contribute. All
such plans set forth on Schedule 3.17 hereto, and their related trusts, if any,
-------------
comply with the provisions of and have been administered in compliance with the
provisions of ERISA, and all other applicable Laws.
3.18 Transactions with Affiliated Parties. Attached hereto as Schedule
------------------------------------ --------
3.18 is a true and complete list and description of all transactions requiring
- ----
payments in excess of $10,000 engaged in between Leardata and any director,
officer, employee, shareholder (including the Shareholders) or agent of Leardata
or any of their spouses or children, any trust of which any such person is the
grantor, trustee or beneficiary, any corporation of which any such person or
party is a shareholder, employee, officer or director, or any partnership or
other entity in which any such person or party owns an interest (all such
persons, trusts, corporations and entities being herein referred to collectively
as "Affiliated Parties" and individually as an "Affiliated Party"). No
------------------ ----------------
Affiliated Party has any ownership interest, directly, indirectly or
beneficially, in any competitor or potential competitor, supplier or customer of
Leardata.
3.19 Certain Payments. Neither the Shareholders nor Leardata, nor to
----------------
Leardata's knowledge, any other entity has, directly or indirectly, on behalf of
or with respect to Leardata: (a) made an unreported political contribution; (b)
made or received any payment which was not legal to make or receive; (c) engaged
in any transaction or made or received any payment which was not properly
recorded in the Books and Records; (d) created or used any "off-book" bank or
cash account or "slush fund"; or (e) engaged in any conduct constituting a
violation of the Foreign Corrupt Practices Act of 1977.
3.20 Taxes.
-----
(a) All federal, state and other Tax Returns of Leardata required by
Law to be filed have been duly filed on a timely basis. All Tax Returns filed
or to be filed with respect to all fiscal periods through and including the
fiscal year ended December 31, 1995 by Leardata are true, correct and complete
in all material respects and no Taxes (other than those already paid or reserved
for with respect to such Tax returns) are or will be required to be paid. True
and correct copies of all Tax Returns for the past three years have been
provided to Purchaser. All Taxes
15
<PAGE>
which are due and payable by Leardata have been paid in full and all deposits
required by Law to be made by Leardata with respect to any such Taxes have been
duly made.
(b) Schedule 3.20 hereto lists each jurisdiction in which Leardata is
-------------
required to file Tax Returns in connection with the conduct of the Business.
Except as set forth on Schedule 3.20 hereto, Leardata is not delinquent in the
-------------
payment of any Taxes nor does Leardata have any Tax deficiency or claim
outstanding, proposed or assessed against it, and there is no basis for any such
deficiency of claim. There is not now in force any extension of time with
respect to the date on which any Tax Return was or is due to be filed by or with
respect to Leardata, or any waiver or agreement by Leardata for the extension or
the assessment of any Tax.
(c) The charges, accruals and reserves on the books of Leardata in
respect of federal, state and local Taxes for all periods since the fiscal year
ended December 31, 1995, and in respect of other Taxes for all outstanding
periods, are adequate and Leardata is not aware of any additional assessments
for such years or any basis therefor.
3.21 Compliance with Laws. Leardata's operation of the Business is in
--------------------
compliance in all material respects with all applicable Laws (including, but not
limited to, environmental Laws). Leardata has not received any notice from or
otherwise been advised that any governmental authority or other person is
claiming any violation or potential violation of any Law.
3.22 Permits. Leardata holds, free from all Encumbrances and burdensome
-------
restrictions, all Permits. Each of the Permits is sufficient for the lawful
operation of the Business as presently conducted. Attached hereto as Schedule
--------
3.22 is a list of all such Permits, true and complete copies of which have been
- ----
furnished to Purchaser. All Permits required for the lawful operation of the
Business as presently conducted will be in full force and effect on the Closing
Date.
3.23 Insurance. Attached as Schedule 3.23 hereto is a true and complete
--------- -------------
list of all insurance maintained by Leardata with respect to the Business during
the past three years. Leardata has provided Purchaser with true and correct
copies of all such insurance policies. Leardata has not agreed to modify or
cancel any of such insurance, nor has Leardata received notice of any actual or
threatened modification or cancellation of such insurance.
3.24 Brokers, Finders, etc. All negotiations relating to this Agreement
---------------------
and the transaction contemplated hereby have been carried on without the
intervention of any person acting on behalf of the Shareholders or Leardata in
such manner as to give rise to any claim against Purchaser, Leardata or any of
their respective Representatives for any brokerage or finders' commission, fee
or similar compensation.
3.25 No Subsidiaries. Leardata does not own, directly or indirectly, any
---------------
interest or investment (whether equity or debt) in any corporation, partnership,
business, trust or other entity.
16
<PAGE>
3.26 Full Disclosure. No representation, warranty or other statement of
---------------
Leardata contained in this Agreement, or any other document, certificate or
written statement furnished to Purchaser in connection with the transactions
contemplated by this Agreement, contains any untrue statement of a fact or omits
to state a fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to Leardata which adversely
affects the prospects, earnings, properties or condition, financial or
otherwise, of the Business that has not been disclosed herein or in such other
documents, certificates and statements furnished to Purchaser for use in
connection with the transactions contemplated hereby.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
Each of the Shareholders, jointly and not severally, represents and
warrants to Purchaser that the following statements are true and correct and not
misleading as of the Execution Date; provided, however, that each of the
-------- -------
Shareholders other than the Pledging Shareholders is only representing and
warranting to Purchaser pursuant to Section 4.7, below:
4.1 Authorization. Such Pledging Shareholder has the requisite power,
-------------
authority and legal right and capacity to enter into this Agreement and the
Ancillary Agreements, to perform such Pledging Shareholder's obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby.
4.2 Due Execution and Delivery; Binding Obligations. This Agreement has
-----------------------------------------------
been, and each of the Ancillary Agreements will be, duly executed and delivered
by such Pledging Shareholder. This Agreement constitutes, and each of the
Ancillary Agreements will constitute, the legal, valid and binding agreement and
obligation of such Pledging Shareholder, enforceable against such Pledging
Shareholder in accordance with their respective terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer or conveyance or similar Laws relating to or limiting creditors' rights
generally or by equitable principles relating to enforceability and except as
rights of indemnity or contribution may be limited by federal or state
securities or other Laws or the public policy underlying such Laws.
4.3 No Conflict or Violation. Neither the execution and delivery of this
------------------------
Agreement and the Ancillary Agreements by such Pledging Shareholder nor the
consummation of the transactions contemplated hereby and thereby, will result in
(a) a violation of, or a conflict with, any subscription, shareholders' or
similar types of agreements or understandings to which such Pledging Shareholder
is a party; (b) a breach of, or a default (or an event which, with notice or
lapse of time or both would constitute a default) under or result in the
termination of, or accelerate the performance required by, or create a right of
termination or acceleration under, any Contract or Encumbrance or, to such
Pledging Shareholder's knowledge, any Permit to which such Pledging Shareholder
is a party; (c) to such Pledging Shareholder's knowledge, a violation by
17
<PAGE>
such Pledging Shareholder of any applicable Law; or (d) a violation by such
Pledging Shareholder of any order, judgment, writ, injunction decree or award to
which such Pledging Shareholder is a party.
4.4 Consents and Approvals. No consent, Permit, approval or authorization
----------------------
of, or declaration, filing, application, transfer, registration with, any
governmental or regulatory authority, or any other person or entity is required
to be made or obtained by such Pledging Shareholder by virtue of such Pledging
Shareholders' execution, delivery and performance of this Agreement or any of
the Ancillary Agreements, or to enable Purchaser to own the Leardata Stock.
4.5 Title to Leardata Stock. Such Pledging Shareholder owns beneficially
-----------------------
and of record the number of shares of the Leardata Stock opposite such Pledging
Shareholder's name as set forth on Schedule 3.7 hereto, free and clear of all
------------
Encumbrances affecting his or her ability to transfer such shares to Purchaser.
Except as set forth on Schedule 3.7 hereto, there is not outstanding any
------------
subscription, option, warrant, call, right or other agreement or commitment
obligating such Pledging Shareholder or Leardata to issue, sell, deliver or
transfer (including any right of conversion or exchange under any outstanding
security or other instrument) any shares of the Leardata Stock or any other
shares of the capital stock of Leardata.
4.6 Leardata's Representations and Warranties. All of the representations
-----------------------------------------
and warranties of Leardata contained herein are true and correct and not
materially misleading as of the Execution Date.
4.7 Securities Law Matters. Such Shareholder represents and warrants to
----------------------
Purchaser that: (a) Such Shareholder is acquiring its, his or her Shareholders'
Shares for its, his or her account, and not with a view to any sale,
distribution or disposition in violation of any federal or state securities
Laws; (b) such Shareholder has been given the opportunity to obtain any
information or documents, and to ask questions and receive answers about such
documents, about Purchaser which such Shareholder deems necessary to evaluate
the merits and risks related to its, his or her investment in its, his or her
Shareholders' Shares and such Shareholder understands and has taken cognizance
of all risk factors related to such transactions; and (c) such Shareholder can
afford to bear the economic risk of holding the unregistered Shareholders'
Shares for an indefinite period of time, can afford to suffer a complete loss of
its, his or her investment in its, his or her Shareholders' Shares, and such
Shareholder has adequate means for providing for such Shareholder's needs and
contingencies. Such Shareholder acknowledges that the Shareholders' Shares will
be characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired directly from Purchaser in a transaction not
involving a public offering and that all certificates and instruments evidencing
its, his or her Shareholders' Shares will bear the following legends in addition
to any other legend that may be required under the Escrow Agreement:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES
AND MAY NOT BE SOLD OR
18
<PAGE>
OFFERED FOR SALE EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT OF 1933,
AS AMENDED.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, AS MORE SPECIFICALLY SET FORTH IN A STOCK
PURCHASE AGREEMENT DATED DECEMBER 17, 1996, AMONG DATA PROCESSING
RESOURCES CORPORATION, LEARDATA INFO-SERVICES, INC., AND ALL OF THE
SHAREHOLDERS OF LEARDATA INFO-SERVICES, INC.
4.8 Full Disclosure. No representation, warranty or other statement of
---------------
such Pledging Shareholder contained in this Agreement, or any other document,
certificate or written statement furnished to Purchaser in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
fact or omits to state a fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to such
Pledging Shareholder which adversely affects the prospects, earnings, properties
or condition, financial or otherwise, of the Business that has not been
disclosed herein or in such other documents, certificates and statements
furnished to Purchaser for use in connection with the transactions contemplated
hereby.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser hereby represents and warrants to the Shareholders that the
following statements are true and complete and not misleading as of the date of
this Agreement:
5.1 Organization. Purchaser is a corporation duly organized, validly
------------
existing and in good standing under the Laws of the State of California.
Purchaser has the requisite corporate power and authority to own and operate its
business, to carry on its business as presently conducted and to consummate the
transactions contemplated hereby. Purchaser is qualified to do business as a
foreign corporation in each jurisdiction in which the conduct of its business or
the ownership or leasing of properties makes such qualification necessary except
to the extent that failure to so qualify would not have a material adverse
effect on Purchaser. Purchaser has complete corporate power and authority to
consummate the transaction contemplated hereby.
5.2 Authorization. Purchaser has the requisite corporate power, authority
-------------
and legal right and capacity to enter into this Agreement and the Ancillary
Agreements, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby.
19
<PAGE>
5.3 Due Execution and Delivery; Binding Obligations. The execution,
-----------------------------------------------
delivery and performance by Purchaser of this Agreement and the Ancillary
Agreements have been duly authorized by the Board of Directors of Purchaser. No
further corporate action is necessary on the part of Purchaser to make this
Agreement and the Ancillary Agreements valid and binding upon Purchaser in
accordance with their respective terms. This Agreement has been, and the
Ancillary Agreements will be, duly executed and delivered by Purchaser. This
Agreement constitutes, and each of the Ancillary Agreements will constitute, the
valid and binding obligations of Purchaser, enforceable against Purchaser in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
conveyance or similar Laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability and except as rights of
indemnity or contribution may be limited by federal or state securities or other
Laws or the public policy underlying such Laws.
5.4 No Conflict or Violation. Neither the execution and delivery of this
------------------------
Agreement and the Ancillary Agreements, nor the consummation of the transactions
contemplated hereby and thereby, will result in (a) a violation of, or a
conflict with, Purchaser's charter documents or any subscription, shareholders'
or similar types of agreements or understandings to which Purchaser is a party;
(b) to Purchaser's knowledge, a violation by Purchaser of any Law; or (c) to
Purchaser's knowledge, a violation by Purchaser of any order, judgment, writ,
injunction decree or award to which Purchaser is a party.
5.5 Consents and Approvals. Except as set forth on Schedule 5.5 hereto,
---------------------- ------------
no consent, permit, approval or authorization of, or declaration, filing,
application, transfer or registration with, any governmental or regulatory
authority, or to Purchaser's knowledge, any other person or entity is required
to be made or obtained by Purchaser by virtue of its execution, delivery and
performance of this Agreement, any of the Ancillary Agreements or Purchaser's
consummation of the transactions contemplated hereby or thereby other than state
and federal filings that may be required under securities Laws with respect to
the issuance and sale of the Shareholders' Shares.
5.6 Valid Issuance of Shareholders' Shares. Each of the Shareholders'
--------------------------------------
Shares when issued, sold and delivered in accordance with the terms hereof, will
be duly and validly issued, fully-paid and nonassessable, free and clear of all
Encumbrances (other than Encumbrances generally imposed on the transfer of
securities under federal and state securities Laws), and not subject to any
preemptive rights.
5.7 Pending Litigation. Except as disclosed on Schedule 5.7 hereto, there
------------------ ------------
is no pending or, to Purchaser's knowledge, threatened Action, whether private
or public, affecting Purchaser or its business which could reasonably be
expected to affect the enforceability of this Agreement or any of the Ancillary
Agreements or which could reasonably be expected to materially and adversely
affect its business, Purchaser's assets or properties, or Purchaser's ability
20
<PAGE>
to consummate the transactions contemplated by or perform its obligations under
this Agreement or any of the Ancillary Agreements.
5.8 Capital Structure. The authorized capital stock of Purchaser consists
-----------------
of 20,000,000 DPRC Common Shares and 2,000,000 shares of Preferred Stock ("DPRC
----
Preferred Shares"). As of July 31, 1996, there were not more than 7,492,321
- ----------------
DPRC Common Shares outstanding and no shares of DPRC Preferred Shares
outstanding.
5.9 No Materially Adverse Change. Since October 31, 1996, there have been
----------------------------
no changes in the condition, financial or otherwise, of Purchaser's business, or
in its earnings or properties, whether or not arising from transactions in the
ordinary course of business, that, individually or in the aggregate, have been,
or could reasonably be expected to be, materially adverse to the prospects,
earnings, properties or condition, financial or otherwise, of Purchaser or
Purchaser's business.
5.10 Compliance with Law. To Purchaser's knowledge, Purchaser's conduct of
-------------------
its business is in compliance with all applicable Laws, except where the failure
to comply would not materially and adversely affect Purchaser or its business.
5.11 SEC Compliance. Since Purchaser's initial public offering of common
--------------
stock in March 1996, Purchaser has filed all necessary disclosure documents and
reports in connection with its securities and, to Purchaser's knowledge, all
such documents and reports contain no untrue statement of material fact or omit
to state any material fact necessary to make the information contained therein,
in light of the circumstances under which they were made, not misleading.
5.12 Full Disclosure. No representation, warranty or other statement of
---------------
Purchaser contained in this Agreement, or any other document, certificate or
written statement furnished to Leardata or the Shareholders in connection with
the transactions contemplated by this Agreement, contains any untrue statement
of a fact or omits to state a fact necessary in order to make the statements
contained herein or therein not misleading.
ARTICLE 6
THE SHAREHOLDERS' AND LEARDATA'S OBLIGATIONS BEFORE CLOSING
-----------------------------------------------------------
Each of the Shareholders and Leardata covenants that during the period from
the Execution Date through the Closing Date:
6.1 Access to Information. Purchaser and its counsel, accountants and
---------------------
other Representatives shall have full access during normal business hours to all
properties, Books and Records, Contracts, Permits and other documents of or
relating to Leardata and the Business so that Purchaser may have full
opportunity to make such investigation as it shall desire to make of
21
<PAGE>
the affairs of Leardata relating to the Business. Leardata shall furnish or
cause to be furnished to Purchaser and its Representatives all data and
information concerning the Business, finances and properties that may reasonably
be requested. The Pledging Shareholders and Leardata shall remain fully liable
and responsible for all of the Pledging Shareholders' and Leardata's
representations, warranties, covenants, agreements and conditions in this
Agreement, notwithstanding any such investigation performed or information
received by Purchaser after the Execution Date.
6.2 Conduct of Business. Except as specifically contemplated by this
-------------------
Agreement, Leardata will conduct the Business in the ordinary course of business
and consistent with past practice, and will use all reasonable effort to
preserve intact its advantageous business relationships, to keep available the
service of its employees and technical contractors and to maintain satisfactory
relationships with its contractors, distributors, customers and other persons
sharing business relationships with them. Without limiting the generality of
the foregoing, Leardata will not, without the prior written consent of
Purchaser, take or undertake or incur or permit to exist any of the acts,
transactions, events or occurrences specified in Section 3.10, above, unless
such actions are specifically contemplated by this Agreement. Each of the
Pledging Shareholders and Leardata shall give Purchaser prompt written notice of
any change in any of the information contained in the representations and
warranties made in Articles 3 and 4, above, which occur prior to the Closing
Date.
6.3 Confidentiality. Each of the Shareholders and Leardata will hold, and
---------------
Leardata will cause each of its employees, contractors, officers, directors and
other Representatives to hold, in strict confidence, and will not use to the
detriment of Purchaser, any information or data obtained in connection with this
Agreement; and if the transaction contemplated by this Agreement is not
consummated, Leardata and the Shareholders will return to Purchaser all such
information and data as Purchaser may request, including, but not limited to,
worksheets, test reports, manuals, lists, memoranda and other documents prepared
or made available to the Shareholders, Leardata or their respective
Representatives in connection with this transaction.
6.4 Additional Financial Statements. As soon as reasonably practicable
-------------------------------
after they become available, the Shareholders and Leardata will furnish to
Purchaser Leardata's balance sheet for each month after October 31, 1996 ending
prior to the Closing Date, and the related statements of income and cash flow
for such period, together with the related notes thereto. All such financial
statements referred to in this Section 6.4 shall be complete and correct,
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the respective periods (except as otherwise permitted
for the Balance Sheet), fairly present the financial condition of Leardata as at
the respective dates thereof and the results of operations of Leardata for the
respective periods covered by the statements of income contained therein, and
each shall be in a form reasonably satisfactory to Purchaser and its
accountants.
6.5 Consents; Regulatory Approvals; Reasonable Efforts. Each of the
--------------------------------------------------
Shareholders and Leardata agrees to utilize its, his or her best efforts and
cooperate with each other in every
22
<PAGE>
way, to take, as promptly as possible, or cause to be taken, all action and do,
or cause to be done, all things necessary, proper or advisable to consummate and
make effective the transactions contemplated by this Agreement and each of the
Shareholders and Leardata, as the case may be, will use its, his or her best
efforts to obtain all waivers, Permits, consents, approvals, authorizations and
clearances and to effect all registrations, filings and notices with or to third
parties or governmental, regulatory or public bodies or authorities which are in
the opinion of Purchaser necessary or desirable in connection with the
transactions contemplated by this Agreement.
6.6 No Solicitation. Neither the Shareholders nor Leardata will directly
---------------
or indirectly, through any officer, director, partner, agent or otherwise,
solicit, initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of any equity interest in, or all or a
substantial portion of the assets of, Leardata or any business combination with
Leardata, or participate in any negotiations regarding or furnish to any other
person any information with respect to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek any of the foregoing, except as provided for
herein. Neither the Shareholders nor Leardata shall sell or otherwise transfer
or agree to sell or grant an option to buy any of the capital stock of Leardata
or all or a substantial portion of the assets of Leardata except as contemplated
hereby.
6.7 No Press Release. The Shareholders and Leardata expressly agree that
----------------
they will not, whether before, on, or after the Closing Date, issue or authorize
to be issued any press release or similar announcement concerning this Agreement
or any of the transactions contemplated hereby without the prior written
approval of Purchaser. The Shareholders and Leardata acknowledge that Purchaser
may make any press release or similar announcement reasonably required so as to
allow Purchaser or any of its Affiliates to comply with the disclosure
requirements of any applicable securities Laws.
6.8 Fulfillment of Conditions and Covenants. Neither the Shareholders nor
---------------------------------------
Leardata shall take any course of action inconsistent with the satisfaction of
the requirements or conditions applicable to the Shareholders and Leardata set
forth in this Agreement. The Shareholders and Leardata shall each promptly do
all acts and take all measures as may be appropriate to enable them to perform
as early as possible the obligations herein provided to be performed by them.
ARTICLE 7
PURCHASER'S OBLIGATIONS BEFORE CLOSING
--------------------------------------
Purchaser covenants that during the period from the date of this Agreement
to the Closing Date:
7.1 Confidentiality. Purchaser and its employees, officers, directors and
---------------
other Representatives will hold in strict confidence, and will not use to the
detriment of Leardata, any
23
<PAGE>
information or data provided to Purchaser by Leardata or its Representatives in
connection with this Agreement; and if the transaction contemplated by this
Agreement is not consummated, Purchaser will return to Leardata all such
information and data as Leardata may reasonably request.
7.2 Third Party Consents. Purchaser shall obtain from third parties all
--------------------
requisite consents, waivers, authorizations and approvals necessary to enable
Purchaser to consummate the transactions contemplated by this Agreement.
7.3 Fulfillment of Conditions and Covenants. Purchaser shall not take any
---------------------------------------
course of action inconsistent with the satisfaction of the requirements or
conditions applicable to it set forth in this Agreement. Purchaser shall
promptly do all acts and take all measures as may be appropriate to enable it to
perform as early as possible the obligations herein provided to be performed by
it.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF PURCHASER
--------------------------------------
The obligations of Purchaser to perform its obligations under this
Agreement are subject to the satisfaction, on or before to the Closing Date, of
each of the following conditions, unless waived in writing by Purchaser:
8.1 Accuracy of Representations and Warranties. All representations and
------------------------------------------
warranties of the Shareholders and Leardata contained in this Agreement or in
any document delivered pursuant hereto shall be true and correct in all material
respects when made and on and as of the Closing Date as though made at that
time.
8.2 Shareholders' and Leardata's Performance of Covenants. All covenants,
-----------------------------------------------------
agreements and obligations required by the terms of this Agreement to be
performed, satisfied or complied with by the Shareholders or Leardata at or
before the Closing Date shall have been duly and properly performed in all
material respects.
8.3 Shareholders' and Leardata's Officer's Certificate. Purchaser shall
--------------------------------------------------
have received a certificate, dated the Closing Date, signed and verified by each
of the Pledging Shareholders and the President of Leardata, certifying that the
conditions specified in Sections 8.1 and 8.2, above, have each been fulfilled.
8.4 Consents and Regulatory Approvals. All licenses, Permits,
---------------------------------
authorizations, consents and approvals of and filings with any governmental or
regulatory agency or any other third party required to be obtained or made in
connection with the consummation of the transactions contemplated by this
Agreement shall have been duly obtained or made by or on behalf of the
Shareholders or Leardata.
24
<PAGE>
8.5 Escrow Agreement. Purchaser shall have obtained an executed Escrow
----------------
Agreement from each of the Pledging Shareholders and the Escrow Agent.
8.6 Employment Agreements. Purchaser shall have obtained an executed
---------------------
employment agreement from (a) each of B. Smith and C. Smith in the form of
Exhibit D hereto (each, a "Smith Employment Agreement"), and (b) each of Tom
- --------- --------------------------
Bodensteiner, Shelley Casinos, Cathi Coan, Chris Cuberos, Steve P. Donaldson,
Jon Hibbs, Todd Kirkby, Diane Klein, Barbara A. Kuhler, Terry Mathews, Stacey
Siebert and Dawn Spear in the form of Exhibit E hereto (each, an "Other
--------- -----
Employment Agreement");
- --------------------
8.7 Registration Rights Agreement. Purchaser shall have obtained an
-----------------------------
executed registration rights agreement from each of the Shareholders in the form
of Exhibit F hereto (the "Registration Rights Agreement").
--------- -----------------------------
8.8 Termination of Certain Agreements. Purchaser shall have received
---------------------------------
evidence, in form and substance reasonably satisfactory to Purchaser, of the
termination of each of the following: (a) that certain Shareholders' Agreement
dated January 15, 1991, by and among Leardata and each of the Pledging
Shareholders; (b) that certain 1990 Incentive Stock Option Plan for Leardata;
and (c) those certain employment agreements between Leardata and each of B.
Smith and C. Smith, together with B. Smith's and C. Smith's agreement to waive
any and all rights, benefits and privileges thereunder without any additional
cost or expense to Leardata.
8.9 Letters of Resignation. Purchaser shall have received the written
----------------------
resignations of all the officers and directors of Leardata.
8.10 Opinion of Counsel. Purchaser shall have received from Glast, Philips
------------------
& Murray, legal counsel for the Shareholders and Leardata, an opinion, dated the
Closing Date, as to such matters as Purchaser may reasonably request.
8.11 Payments by Shareholders. Each of the Shareholders shall have paid to
------------------------
Leardata all amounts outstanding under all loans made by Leardata to such
Shareholder.
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS AND LEARDATA
----------------------------------------------------------
The obligations of the Shareholders and Leardata to perform their
respective obligations under this Agreement are subject to the satisfaction, on
or before the Closing Date, of each of the following conditions, unless waived
in writing by the Shareholders or Leardata:
9.1 Accuracy of Representations and Warranties. All representations and
------------------------------------------
warranties of Purchaser contained in this Agreement or in any document delivered
pursuant hereto shall be
25
<PAGE>
true and correct in all material respects when made and on and as of the Closing
Date as though made at that time.
9.2 Purchaser's Performance of its Covenants. All covenants, agreements
----------------------------------------
and obligations required by the terms of this Agreement to be performed,
satisfied or complied with by Purchaser at or before the Closing Date shall have
been duly and properly performed in all material respects.
9.3 Purchaser's Officer's Certificate. The Shareholders and Leardata
---------------------------------
shall have received a certificate, dated the Closing Date, signed and verified
by the President or Chief Financial Officer of Purchaser, and certifying that
the conditions specified in Sections 9.1 and 9.2, above, have each been
fulfilled.
9.4 Consents. All necessary agreements, waivers, approvals,
--------
authorizations, assurances and consents of third parties to the consummation of
the transactions contemplated by this Agreement shall have been obtained by
Purchaser and delivered to Leardata.
9.5 Employment Agreements. Leardata shall have obtained executed copies
---------------------
of (a) the Smith Employment Agreements from each of B. Smith and C. Smith, and
(b) the Other Employment Agreements from each of Tom Bodensteiner, Shelley
Casinos, Cathi Coan, Chris Cuberos, Steve P. Donaldson, Jon Hibbs, Todd Kirkby,
Diane Klein, Barbara A. Kuhler, Terry Mathews, Stacey Siebert and Dawn Spear.
9.6 Escrow Agreement. Each of the Pledging Shareholders shall have
----------------
obtained an executed Escrow Agreement from Purchaser and the Escrow Agent.
9.7 Registration Rights Agreement. Each of the Shareholders shall have
-----------------------------
obtained an executed counterpart of the Registration Rights Agreement.
9.8 Opinion of Counsel. Each of the Shareholders shall have received from
------------------
Riordan & McKinzie, counsel for Purchaser, an opinion, dated the Closing Date,
as to such matters as the Shareholders may reasonably request.
ARTICLE 10
TERMINATION
-----------
10.1 Termination. This Agreement and the transactions contemplated herein
-----------
may be terminated at any time prior to Closing:
(a) By the mutual written consent of Purchaser and the Pledging
Shareholders;
26
<PAGE>
(b) By either Purchaser or the Pledging Shareholders in writing,
without liability to the party terminating this Agreement on account of such
termination, if the Closing shall not have occurred on or before January 15,
1997; or
(c) By either Purchaser or the Pledging Shareholders in writing,
without liability to the party terminating this Agreement on account of such
termination, if Purchaser or the Pledging Shareholders, as the case may be,
shall (i) fail to perform in any material respect its agreements contained
herein required to be performed prior to the Closing Date, or (ii) materially
breaches any of its representations, warranties or covenants contained herein.
10.2 Effect on Obligations. Termination of this Agreement pursuant to this
---------------------
Article 10 shall terminate all obligations of the parties hereunder and this
Agreement shall become void and have no effect without any liability on the part
of any party or the shareholders, directors, officers or partners in respect
thereof, except for the obligations under Sections 6.3, 7.1 and 12.3, below;
provided, however, that termination pursuant to clause (c) of Section 10.1,
- -------- -------
above, shall not relieve the defaulting or breaching party from any liability to
the other party.
ARTICLE 11
THE CLOSING
-----------
11.1 Closing. The closing of the sale and purchase of the Leardata Stock
-------
(the "Closing" or "Closing Date") shall take place at the offices of Glast,
------- ------------
Philips & Murray, 13355 Noel Road, Suite 2200, Dallas, Texas, at 10:00 a.m.
local time on January 6, 1997, or at such other place, time and date as may be
mutually agreed to by the parties. Notwithstanding anything in this Agreement
to the contrary, the Closing shall be deemed effective as of the close of
business on the Closing Date.
11.2 Deliveries by the Shareholders and Leardata. At the Closing, the
-------------------------------------------
Shareholders and Leardata shall deliver the following:
(a) Certificates representing all of the Leardata Stock, registered in
the names of the Shareholders, duly endorsed by the Shareholders for transfer to
Purchaser or accompanied by an assignment of the shares of the Leardata Stock
duly executed by the Shareholders, and any other documents that are necessary to
transfer to Purchaser good and marketable title to all shares of Leardata Stock;
(b) The certificates contemplated by Section 8.3, above;
(c) Evidence of having obtained the consents required to be obtained
by Leardata and the Shareholders pursuant to Section 8.4, above;
(d) The Escrow Agreement referred to in Section 8.5, above;
27
<PAGE>
(e) The Smith Employment Agreements and the Other Employment
Agreements referred to in Section 8.6, above;
(f) The Registration Rights Agreement referred to in Section 8.7,
above;
(g) Evidence of the termination of each of the agreements required by
Section 8.8, above;
(h) The letters of resignation required by Section 8.9, above;
(i) The legal opinion contemplated by Section 8.10, above;
(j) Evidence that each of the Shareholders shall have paid to Leardata
all amounts outstanding under all loans made by Leardata to such Shareholder, as
required by Section 8.11, above;
(k) The stock books, stock ledgers, minute books and corporate seal of
Leardata; and
(l) All other agreements, documents, instruments and writings required
to be delivered by the Shareholders at the Closing Date pursuant to this
Agreement.
11.3 Deliveries by Purchaser. At the Closing, Purchaser shall deliver the
-----------------------
following:
(a) Cash by wire transfer to the Shareholders' accounts, in the amount
set forth opposite each of such Shareholders' names on Schedule 2.2(a) hereto,
---------------
as contemplated under Section 2.2(a), above;
(b) Cash by wire transfer to each of the persons set forth on Schedule
--------
2.2 hereto, in the amount set forth opposite each of such persons' names on
- ---
Schedule 2.2 hereto, as contemplated under Section 2.2(b), above;
- ------------
(c) Stock certificates deliverable to each of the Shareholders,
certifying that such Shareholder is the record holder of the Shareholders'
Shares set forth opposite such Shareholders' name on Schedule 2.2(c) hereto, as
---------------
contemplated under Section 2.2(c), above;
(d) The officer's certificate contemplated by Section 9.3, above;
(e) Evidence of having obtained the consents required to be obtained
by Purchaser pursuant to Section 9.4, above;
(f) The Smith Employment Agreements and the Other Employment
Agreements contemplated by Section 9.5, above;
28
<PAGE>
(g) The Escrow Agreement contemplated by Section 9.6, above;
(h) The Registration Rights Agreement referred to in Section 9.7,
above;
(i) The legal opinion contemplated by Section 9.8, above; and
(i) All other agreements, documents, instruments and writings required
to be delivered by Purchaser at the Closing pursuant to this Agreement.
ARTICLE 12
POST CLOSING
------------
12.1 Survival of Representations and Warranties. Regardless of any
------------------------------------------
investigation at any time made by or on behalf of any party, or of any
information any party may have in respect thereof, all representations and
warranties made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive the Execution Date for a period
of 14 months after the Closing Date, except all representations and warranties
under Section 3.7, above, and with respect to Tax matters shall survive through
the applicable statute of limitations (each, a "Survival Date").
-------------
12.2 Special Bonus Payments. As soon as practicable after the Closing,
----------------------
Leardata shall pay bonuses to the employees and in the amounts set forth on
Schedule 12.2 hereto, which bonuses shall be in the aggregate amount of the
- -------------
Special Bonus Payments Amount. Purchaser hereby authorizes and directs B. Smith
and C. Smith to execute and deliver all checks to the employees and in the
amounts set forth on Schedule 12.2 hereto.
-------------
12.3 Indemnification Obligations.
---------------------------
(a) Indemnification by the Pledging Shareholders. The Pledging
--------------------------------------------
Shareholders shall indemnify, defend and hold harmless Purchaser and any of its
Affiliates and their respective officers, directors, partners, agents,
employees, attorneys and Representatives, and their respective heirs, executors,
administrators, successors and assigns (collectively, the "Purchaser
---------
Representatives"), and shall reimburse Purchaser and any of its Affiliates and
- ---------------
the Purchaser Representatives, on demand, for any claim, demand, loss,
liability, damage or expense, including without limitation interest, penalties
and reasonable attorneys', accountants' and experts' fees and costs of
investigation incurred as a result thereof ("Damages"), resulting from any of
-------
the following:
(i) Any breach or default in the performance by the Shareholders or
Leardata of any covenant or agreement of the Shareholders or Leardata contained
herein, in any agreement contemplated hereby, or in any Schedule or Exhibit
hereto or thereto, or in any certificate or other instrument delivered or to be
delivered by or on behalf of the Shareholders or Leardata pursuant hereto or
thereto;
29
<PAGE>
(ii) Any breach of warranty or inaccurate or erroneous representation
made by the Shareholders or Leardata herein, in any agreement contemplated
hereby, or in any Schedule or Exhibit hereto or thereto, or in any certificate
or other instrument delivered or to be delivered by or on behalf of the
Shareholders or Leardata pursuant hereto or thereto;
(iii) Any Taxes arising out of, resulting from, or in connection with
the operation and conduct of the Business prior to the Closing Date; and
(iv) Any liability arising out of any and all Actions, demands,
judgments, costs and expenses incident to any of the foregoing.
(b) Indemnification by Purchaser. Purchaser shall indemnify, defend
----------------------------
and hold harmless the Pledging Shareholders, and any of their respective
attorneys and representatives, and their respective heirs, executors,
administrators, successors and assigns (collectively, the "Shareholder
-----------
Representatives"), and shall reimburse the Pledging Shareholders and the
- ---------------
Shareholder Representatives, on demand, for any Damages resulting from any of
the following:
(i) Any breach or default in the performance by Purchaser of any
covenant or agreement of Purchaser contained herein, in any agreement
contemplated hereby, or in any Schedule or Exhibit hereto or thereto, or in any
certificate or other instrument delivered or to be delivered by or on behalf of
Purchaser pursuant hereto or thereto;
(ii) Any breach of warranty or inaccurate or erroneous representation
made by Purchaser herein, in any agreement contemplated hereby, or in any
Schedule or Exhibit hereto or thereto, or in any certificate or other instrument
delivered or to be delivered by or on behalf of Purchaser pursuant hereto or
thereto;
(iii) Leardata's operation and conduct of the Business after the Closing
Date, but only to the extent that such Damages are not caused by the gross
negligence, reckless or wilful misconduct of the Shareholders; and
(iv) Any liability arising out of any and all Actions, demands,
judgments, costs and expenses incident to any of the foregoing.
(c) Claims for Indemnity. Whenever a claim for Damages shall arise
--------------------
for which one party ("Indemnitee") shall be entitled to indemnification
----------
hereunder, Indemnitee shall notify the other party ("Indemnitor") in writing
----------
within 30 days of the first receipt of notice of such claim, and in any event
within such shorter period as may be necessary for Indemnitor to take
appropriate action to resist such claim. Such notice shall specify all facts
known to Indemnitee giving rise to such indemnity rights and shall estimate the
amount of the liability arising therefrom. The right of Indemnitee to
indemnification and the estimated amount thereof, as set forth in this notice,
shall be deemed agreed to by Indemnitor unless, within 30 days after the mailing
of such notice, Indemnitor shall notify Indemnitee in writing that it disputes
the right of
30
<PAGE>
Indemnitee to indemnification, or that Indemnitor elects to defend such claim in
the manner provided in Section 12.3(d), below. If Indemnitee shall be duly
notified of such dispute, the parties shall attempt to settle and compromise the
same, or if unable to do so within 20 days of Indemnitor's delivery of notice of
a dispute, such dispute shall be settled by binding arbitration before a single
arbitrator in the County of Dallas, State of Texas, in proceedings conducted by
the American Arbitration Association and pursuant to such organization's rules
for commercial disputes, and any rights of indemnification established by reason
of such settlement, compromise or arbitration shall promptly thereafter be paid
and satisfied by Indemnitor.
(d) Defense of Claims. Upon receipt by Indemnitor of a notice from
-----------------
Indemnitee with respect to any claim of a third party against Indemnitee, and
acknowledgment by Indemnitor (whether after resolution of a dispute or
otherwise) of Indemnitee's right to indemnification hereunder with respect to
such claim, Indemnitor shall assume the defense of such claim with counsel
reasonably satisfactory to Indemnitee and Indemnitee shall cooperate to the
extent reasonably requested by Indemnitor in defense or prosecution thereof and
shall furnish such records, information and testimony and attend all such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested by Indemnitor in connection therewith. If Indemnitor shall
acknowledge Indemnitee's right to indemnification and elect to assume the
defense of such claim, Indemnitee shall have the right to employ its own counsel
in any such case, but the fees and expenses of such counsel shall be at the
expense of Indemnitee. If Indemnitor has assumed the defense of any claim
against Indemnitee, Indemnitor shall have the right to settle any claim for
which indemnification has been sought and is available hereunder; provided that,
to the extent that such settlement requires Indemnitee to take, or prohibits
Indemnitee from taking, any action or purports to obligate Indemnitee, then
Indemnitor shall not settle such claim without the prior written consent of
Indemnitee. If Indemnitor does not assume the defense of a third party claim and
disputes Indemnitee's right to indemnification, Indemnitor shall have the right
to participate in the defense of such claim through counsel of its choice, at
Indemnitor's expense, and Indemnitee shall have control over the litigation and
authority to resolve such claim subject to this Section 12.3. If the Pledging
Shareholders, as the indemnifying party, fail to give written notice to
Purchaser, as the indemnified party, of the Pledging Shareholders' intention to
contest or settle any such claim within 20 calendar days after Purchaser has
notified the Pledging Shareholders that any such claim has been made in writing
and received by Purchaser, or if any such notice is given but any such claim is
not properly contested by the Pledging Shareholders, notwithstanding any
provision herein to the contrary, Purchaser shall have the right to satisfy and
discharge the same by payment, compromise or otherwise, in accordance with the
procedures set forth in the Escrow Agreement. Purchaser's rights, benefits and
privileges, and the Pledging Shareholders' liabilities, obligations and
commitments, under and pursuant to the Escrow Agreement are more specifically
described therein and incorporated herein by this reference.
(e) Limitations on Warranty Claims.
------------------------------
31
<PAGE>
(i) Notwithstanding anything to the contrary in Sections 12.3(a) and
(b), above, Indemnitor shall not be obligated to indemnify Indemnitee for any
Damages caused by or arising out of, and Indemnitee shall not be entitled to
make any claim for Damages due to, any breach of warranty or inaccurate or
erroneous representation made by Indemnitor herein (other than pursuant to
Section 3.7, above), in any agreement contemplated hereby, or in any Schedule or
Exhibit hereto or thereto, or in any certificate or other instrument delivered
or to be delivered by or on behalf of Indemnitor pursuant hereto or thereto
(collectively, "Warranty Claims"), unless and until the amount of all of such
---------------
Indemnitee's claims for Damages caused by or arising out of Warranty Claims, in
the aggregate, shall be equal to $100,000, in which case Indemnitee shall
indemnify Indemnitor for all Damages then sustained or incurred by Indemnitor
including such initial $100,000 in Damages.
(ii) Maximum Liability. Notwithstanding the foregoing, Purchaser also
-----------------
agrees that the maximum, aggregate amount of claims for Damages for which
Purchaser shall be entitled to indemnification under Warranty Claims and Section
12.3(a)(iii), above, is $5,500,000.
(f) Defense of Claimed Breaches. For purposes of this Section, any
---------------------------
assertion of fact and/or law by a third party which, if true, would constitute a
breach of a representation or warranty made by a party to this Agreement shall,
on the date that assertion is made, be deemed a breach of such representation or
warranty and immediately invoke that party's obligation to protect, defend, hold
harmless and indemnify the other party to this Agreement.
12.4 Restriction on Transfer. Except for a Permitted Transfer, no
-----------------------
Shareholder shall, directly or indirectly, during the one year period after the
Closing Date, sell or engage in any Transaction which may result in a change in
the legal, beneficial or record ownership of such Shareholders' Shares, or any
interest therein, including, without limitation, a voluntary or involuntary
sale, assignment, transfer, pledge, hypothecation, encumbrance, disposal, loan,
gift, attachment or levy (a "Transfer"), without first obtaining the prior
--------
written consent of Purchaser to the Transfer, which consent may be withheld by
Purchaser in its sole and absolute discretion.
12.5 Post-Closing Adjustment.
-----------------------
(a) Within 90 days after the Closing Date, Purchaser shall compute the
amount of the Leardata Adjusted Working Capital at the Closing Date and the
Leardata Adjusted Net Worth at the Closing Date, and shall provide to the
Pledging Shareholders, for the Pledging Shareholders' review and approval, its
computations and working papers reflecting how such computations were made. If
the Pledging Shareholders have any objections to the amount of Leardata Adjusted
Net Working Capital or Leardata Adjusted Net Worth determined by Purchaser, they
will deliver detailed statements describing their objections to Purchaser within
30 days after receiving Purchaser's computations and working papers reflecting
how Purchaser's computations were made. The parties will use their reasonable
efforts to resolve any such objections. If, however, the parties do not obtain
final resolution of this matter within 30 days after Purchaser has received the
statements of objections, the dispute shall be referred to Deloitte
32
<PAGE>
& Touche LLP (the "Accountant") within 15 days following such 30-day period. The
----------
Accountant's determination of such Leardata Adjusted Working Capital and
Leardata Adjusted Net Working Capital shall be binding upon all parties.
Purchaser and the Pledging Shareholders shall use their best efforts to aid the
Accountant in reaching a decision within 30 days from the date the Accountant is
so selected. Purchaser and the Shareholders will share responsibility for the
fees and expenses of the Accountant based on the degree to which the Accountant
accepts the respective positions of the parties, as conclusively determined by
the Accountant.
(b) If either the Leardata Adjusted Working Capital at the Closing
Date is less than $4.8 million or the Leardata Adjusted Net Worth at the Closing
Date is less than $5.0 million, then, in such event, the Pledging Shareholders
shall pay to Purchaser within 10 business days of such determination a cash
amount equal to the greater of the following:
(i) The difference between $4.9 million and the Leardata Adjusted
Working Capital at the Closing Date; and
(ii) The difference between $5.1 million and the Leardata
Adjusted Net Worth at the Closing Date.
12.6 Further Assurances. The Shareholders, at any time on or after the
------------------
Closing Date, will execute, acknowledge and deliver any further assignments and
other assurances, documents and instruments of transfer, reasonably requested by
Purchaser, and will take any other action that may be requested by Purchaser,
for the purpose of assigning, transferring, granting, conveying and confirming
to Purchaser, or reducing to possession, any or all of the Leardata Stock.
12.7 Expenses. The Shareholders will be solely responsible for and bear
--------
all of their and Leardata's respective cost and expenses, including, without
limitation, expenses of legal counsel, accountants, brokers, finders and other
advisors, incurred in connection with evaluating, negotiating and consummating
the proposed transaction incident to this Agreement. Purchaser will be solely
responsible for and bear all of its cost and expenses, including, without
limitation, expenses of legal counsel, accountants, brokers, finders and other
advisors, incurred in connection with evaluating, negotiating and consummating
the proposed transaction incident to this Agreement.
ARTICLE 13
COVENANT NOT TO COMPETE
-----------------------
13.1 Non-Compete Covenant. In consideration for the payment by Purchaser
--------------------
to the Shareholders of $100,000 of the Purchase Price, the Shareholders agree
that, from the Closing Date and ending on the third anniversary thereof (the
"Non-Compete Period"), each of the Shareholders who holds more than 150,000
- -------------------
shares of the Leardata Stock (collectively, the "Obligated Shareholders") will
----------------------
not, without the prior written consent of Purchaser, directly or
33
<PAGE>
indirectly, in the States of Arizona, Colorado, Kansas, Minnesota, Missouri,
Nebraska, New Mexico, Oklahoma, Oregon, Texas and Washington (the "Territory"),
---------
own, manage, finance, operate, join, control or participate in the ownership,
management, financing, operation or control of, or be employed or connected in
any manner with, any business that competes with the Business; provided,
--------
however, that, with respect to B. Smith and C. Smith, the Non-Compete Period
- -------
shall extend from the Closing Date through the third anniversary of the
termination of each of such Shareholder's Smith Employment Agreement.
13.2 Definition of Compete. For purposes of this Agreement, with respect
---------------------
to the Obligated Shareholders other than GALP, the term "compete" shall mean (a)
calling on, soliciting or taking away, as a client or customer any individual,
partnership, corporation or association that is a client or customer of
Purchaser or Leardata or was a client or customer of Leardata during the 36
calendar month period immediately preceding any such act for the purpose of
competing with Purchaser; (b) hiring, soliciting, taking away or attempting to
hire, solicit or take away, either on behalf of itself or any other person or
entity, any person who is an employee or technical consultant of Leardata or
Purchaser, or was an employee or technical consultant of Leardata during the 12
calendar month period immediately preceding any such act; or (c) entering into
or attempting to enter into any business substantially similar to or competing
in any way with the Business within the Territory, either alone or with any
individual, partnership, corporation or association. With respect to GALP, the
term "compete" shall mean hiring, soliciting, taking away or attempting to hire,
solicit or take away, either on behalf of itself, its Affiliates or any other
person or entity, any person who is an employee or technical consultant of
Leardata or Purchaser, or was an employee or technical consultant of Leardata
during the 12 calendar month period immediately preceding any such act for the
purpose of competing with Purchaser.
13.3 Direct or Indirect Competition. For purposes of this Agreement, the
------------------------------
words "directly or indirectly" as they modify the word "compete" shall mean (a)
acting as an agent, representative, consultant, officer, director, independent
contractor or employee of any entity or enterprise, which is competing (as
defined in Section 13.2, above) with the Business; (b) participating in any such
competing entity or enterprise, or the Affiliate of such entity or enterprise,
as an owner, partner, limited partner, joint venturer, creditor or shareholder;
or (c) communicating to any such competing entity or enterprise the names or
addresses or any other information concerning any past, present or identified
prospective client or customer of Leardata.
13.4 Confidential Data. The Shareholders agree that, during the period set
-----------------
forth in Section 13.1, above, and thereafter, each of them will keep
confidential and not directly or indirectly divulge, furnish, make accessible to
anyone, or appropriate for their own use any confidential information of
Leardata, and that at no time will either of them divulge, furnish and make
accessible to anyone or appropriate for their own use any trade secrets of
Leardata. Each of the Shareholders and Leardata further acknowledges and agrees
that Purchaser has a legitimate interest in protecting proprietary customer
information from misappropriation or diversion by the Shareholders or any
competitor. The Shareholders hereby acknowledge and agree that the prohibitions
against disclosure of confidential data recited herein are in addition to, and
not in lieu
34
<PAGE>
of, any rights or remedies which Purchaser may have available pursuant to the
Laws of any jurisdiction or at common law to prevent the disclosure of trade
secrets and other confidential proprietary data, and the enforcement by
Purchaser of its rights and remedies pursuant to this Agreement shall not be
construed as a waiver of any other rights or available remedies which it may
possess in Law or equity absent this Agreement.
13.5 Reasonableness of Restrictions. The Obligated Shareholders recognize
------------------------------
that the territorial and time limitations set forth in Section 13.1, above, are
reasonable, not burdensome and are properly required by Law for the adequate
protection of Purchaser, and in the event that such territorial or time
limitations are deemed to be unreasonable by a court of competent jurisdiction,
then the Obligated Shareholders and Purchaser agree and submit to the reduction
of either said territorial or time limitation, or both, to such an area or
period as said court shall deem reasonable.
13.6 Injunctive Relief. The Obligated Shareholders acknowledge that their
-----------------
expertise in the Business is of a special, unique, unusual, extraordinary and
intellectual character, which gives said expertise a peculiar value, and that a
breach by either or all of them of the provisions of this Agreement cannot be
reasonably or adequately compensated in Damages in an Action at Law and that
such breach will cause Purchaser and Leardata irreparable injury and damage. The
Obligated Shareholders further acknowledge that each of them possesses unique
skills, knowledge and ability that competition in violation of this Agreement
would be extremely detrimental to Purchaser and Leardata. By reason thereof, the
Obligated Shareholders agree that Purchaser and Leardata shall be entitled, in
addition to any other remedies each of them may have under this Agreement or
otherwise, to temporary, preliminary and/or permanent injunctive and other
equitable relief to prevent or curtail any breach of this Agreement, without
proof of actual damages that have been or may be caused to Purchaser or Leardata
by such breach or threatened breach; provided, however, that no specification in
-------- -------
this Agreement of a specific legal or equitable remedy shall be construed as a
waiver or prohibition against the pursuing of other legal or equitable remedies
in the event of a breach, by either party.
ARTICLE 14
MISCELLANEOUS PROVISIONS
------------------------
14.1 Entire Agreement. This Agreement, together with the agreements
----------------
referred to herein and in the Schedules and Exhibits hereto and thereto, set
forth the entire agreement between the parties with regard to the subject matter
of this Agreement. All agreements, covenants, representations and warranties,
express or implied, oral and written, of the parties with regard to the subject
matter of this Agreement (including, without limitation, the letter of intent
between the parties dated October 29, 1996) are contained in this Agreement, in
the Schedules and Exhibits to this Agreement, and the documents referred to or
implementing the provisions of this Agreement. This is an integrated agreement.
35
<PAGE>
14.2 Governing Law. The validity, construction and performance of this
-------------
Agreement, and any Action arising out of or relating to this Agreement or any of
the Ancillary Agreements, shall be governed by the Laws, without regard to the
Laws as to choice or conflict of Laws, of the State of California. Each party
agrees to accept service of process in any such Action in the manner provided
for in Section 14.7, below.
14.3 Interpretation. The language in all parts of this Agreement and each
--------------
of the other Ancillary Agreements shall be in all cases construed simply
according to its fair meaning and not strictly for or against any party.
Whenever the context requires, all words used in the singular will be construed
to have been used in the plural, and vice versa, and each gender will include
any other gender. The captions of the Sections and Subsections of this
Agreement are for convenience only and shall not affect the construction or
interpretation of any of the provisions of this Agreement.
14.4 Waiver and Amendment. This Agreement may be amended, supplemented,
--------------------
modified and/or rescinded only through an express written instrument signed by
all parties or their respective successors and permitted assigns. Any party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but only to the extent such provision is for the benefit of the
waiving party, and no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any act for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future, and no forbearance by a
party to seek a remedy for noncompliance or breach by another party shall be
construed as a waiver of any right or remedy with respect to such noncompliance
or breach.
14.5 Assignment. Except as specifically provided otherwise in this
----------
Agreement, neither this Agreement nor any interest herein shall be assignable
(voluntarily, involuntarily, by judicial process, operation of Law or
otherwise), in whole or in part, by any party without the prior written consent
of all other parties. Any attempt at such an assignment without such consent
shall be void and, at the option of the non-consenting party, shall be an
incurable breach of this Agreement resulting in the termination of this
Agreement. Notwithstanding the foregoing, Purchaser may, without the consent of
the Shareholders or Leardata, assign all of its rights and obligations under
this Agreement (other than the issuance of the Shareholders' Shares) to any
Affiliate of Purchaser.
14.6 Successors and Assigns. Each of the terms, provisions and obligations
----------------------
of this Agreement shall be binding upon, shall inure to the benefit of, and
shall be enforceable by the parties and their respective legal representatives,
successors and permitted assigns.
14.7 Notices. All notices, requests, demands and other communications made
-------
under this Agreement shall be in writing, correctly addressed to the recipient
at the addresses set forth under such recipient's signature on the signature
page hereto and shall be deemed to have been duly given; (a) upon delivery, if
served personally on the party to whom notice is to be given; or (b) on
36
<PAGE>
the date or receipt, refusal or non-delivery indicated on the receipt if mailed
to the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by air courier. Any party may give written notice
of a change of address in accordance with the provisions of this Section 14.7
and after such notice of change has been received, any subsequent notice shall
be given to such party in the manner described at such new address.
14.8 Severability. Each provision of this Agreement is intended to be
------------
severable. Should any provision of this Agreement or the application thereof be
judicially declared to be or becomes illegal, invalid, unenforceable or void,
the remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties.
14.9 Specific Performance. Each party's obligations under this Agreement
--------------------
are unique. If any party should default in any of its obligations under this
Agreement, the parties each acknowledge that it would be impracticable to
measure the resulting damages. Accordingly, without prejudice to the right to
seek and recover monetary damages, each nondefaulting party shall be entitled to
sue in equity for specific performance of this Agreement or other injunctive
relief, and each party hereby waives any defense that a remedy in damages would
be adequate.
14.10 Cumulative Remedies. No remedy made available hereunder by any of
-------------------
the provisions of this Agreement is intended to be exclusive of any other
remedy, and each and every remedy shall be cumulative and shall be in addition
to every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
14.11 Warranty of Authority. Each of the individuals signing this
---------------------
Agreement on behalf of a party hereto warrants and represents that such
individual is duly authorized and empowered to enter into this Agreement and
bind such party hereto.
14.12 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single agreement.
[rest of page intentionally left blank]
37
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first set forth above.
<TABLE>
<CAPTION>
<S> <C>
"PURCHASER": THE "PLEDGING SHAREHOLDERS":
DATA PROCESSING GENERAL ATLANTIC LEARDATA
RESOURCES CORPORATION, PARTNERS, L.P., a Delaware limited
a California corporation partnership
By: General Atlantic Partners, LLC,
By:_________________________ a Delaware limited liability company,
Its:________________________ its general partner
Address: By:___________________________________
- -------- Stephen P. Reynolds
4400 MacArthur Boulevard Managing Member
Suite 610 Address:
Newport Beach, CA 92660-2037 --------
Phone No.: (714) 752-9111 3 Pickwick Plaza
FAX No.: (714) 752-5850 Greenwich, CT 06830
Phone No.: (203) 629-8600
FAX No.: (203) 622-8818
"LEARDATA":
LEARDATA INFO-SERVICES, -------------------------------------
INC., a Texas corporation BRUCE M. SMITH
Address:
By:_________________________ --------
Its:________________________ c/o Leardata Info-Services, Inc.
5910 North Central Expressway
Suite 1900
Address: Dallas, TX 75206
- -------- Phone No.: (214) 306-9008
5910 North Central Expressway FAX No.: (214) 363-1384
Suite 1900
Dallas, TX 75206
Phone No.: (214) 306-9008 -------------------------------------
FAX No.: (214) 363-1384 CHRIS P. SMITH
Address:
--------
c/o Leardata Info-Services, Inc.
5910 North Central Expressway
Suite 1900
Dallas, TX 75206
Phone No.: (214) 306-9008
FAX No.: (214) 363-1384
</TABLE>
38
<PAGE>
--------------------------------
STEVE P. DONALDSON
Address:
--------
c/o Leardata Info-Services, Inc.
5910 North Central Expressway
Suite 1900
Dallas, TX 75206
Phone No.: (214) 306-9008
FAX No.: (214) 363-1384
--------------------------------
ROBERT M. HOWE
Address:
--------
c/o Leardata Info-Services, Inc.
5910 North Central Expressway
Suite 1900
Dallas, TX 75206
Phone No.: (214) 306-9008
FAX No.: (214) 363-1384
--------------------------------
BARBARA A. KUHLER
Address:
--------
c/o Leardata Info-Services, Inc.
5910 North Central Expressway
Suite 1900
Dallas, TX 75206
Phone No.: (214) 306-9008
FAX No.: (214) 363-1384
39
<PAGE>
EXHIBIT 2.4
FORM OF REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
---------
entered into as of this 6th day of January 1997, by and between Data Processing
Resources Corporation, a California corporation (the "Company"), General
-------
Atlantic Leardata Partners, L.P., a Delaware limited partnership ("GALP"), Bruce
----
M. Smith, an individual ("B. Smith"), Chris P. Smith, an individual ("C.
-------- --
Smith"), Steve P. Donaldson, an individual ("Donaldson"), Robert M. Howe, an
---------
individual ("Howe"), and Barbara A. Kuhler, an individual ("Kuhler"). GALP, B.
---- ------
Smith, C. Smith, Donaldson, Howe and Kuhler are collectively referred to herein
as the "Shareholders" and sometimes individually referred to as a "Shareholder."
------------ -----------
R E C I T A L S
- - - - - - - -
A. The Company, the Shareholders and Leardata Info-Services, Inc., a
Texas corporation ("Leardata"), have entered into a Stock Purchase Agreement
--------
dated December 17, 1996 (the "Purchase Agreement"), pursuant to which Purchaser
------------------
is acquiring from the Shareholders all of the issued and outstanding shares of
capital stock of Leardata (the "Leardata Stock").
--------------
B. The Company has issued to the Shareholders __________________
shares of the common stock of the Company (the "DPRC Shares") as part of the
-----------
consideration for the Leardata Stock purchased by the Company pursuant to the
Purchase Agreement and the terms of the Purchase Agreement require the Company
to provide the Shareholders certain registration rights with respect to the DPRC
Shares.
A G R E E M E N T
- - - - - - - - -
In consideration of the foregoing recitals and the mutual covenants
and conditions contained herein, the parties, intending to be legally bound,
agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Certain Defined Terms. For purposes of this Agreement, the
---------------------
following terms shall have the following meanings:
"Act" shall mean the Securities Act of 1933, as amended.
---
"Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Act.
"Holder" shall mean the Shareholders and any person beneficially
------
owning Registerable Securities through permitted assignment thereof in
accordance with Article 6, below.
<PAGE>
"Registerable Securities" shall mean the DPRC Shares and any shares of
-----------------------
the Company's common stock issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of the DPRC Shares, excluding
any Registerable Securities sold by a person in a transaction in which its, his
or her rights under this Agreement are not assigned; provided further that
shares which would otherwise constitute Registerable Securities shall cease to
do so once they have been sold to the public.
"Register," "registered" and "registration" refer to a registration
-------- ---------- ------------
effected by preparing and filing a registration statement in compliance with the
Act and the declaration or ordering of effectiveness of such registration
statement.
1.2 Other Defined Terms. The following capitalized terms shall have
-------------------
the meanings given to them in the Sections set forth below:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Advice 7.1
Company's Notice 3.1
Holder's Notice 3.1
Indemnified Party 5.1
Indemnifying Party 5.1
Maximum Number of Shares 3.2
Permitted Interruptions 7.2
Registration Expenses 4.2
Shelf Registration 2.1
</TABLE>
1.3 Other Defined Terms. All other capitalized terms used herein but
-------------------
which are not otherwise defined shall have the meanings given to them in the
Purchase Agreement.
ARTICLE 2
SHELF REGISTRATION
------------------
2.1 Shelf Registration. On or before October 31, 1997, the Company shall
------------------
prepare and file with the Commission, a registration statement on any
appropriate form under the Act for an offering to be made on a continuous basis
covering all of the Registerable Securities (the "Shelf Registration"). The
------------------
Company shall use its best efforts to cause the Shelf Registration to become
effective under the Act on or about January 6, 1998 and, subject to Permitted
Interruptions, the Company shall use its best efforts to keep the Shelf
Registration continuously effective for the lesser of (a) a period of one year
from the date on which the Shelf Registration becomes effective under
2.
<PAGE>
the Act, (b) a period ending on the date upon which all Registerable Securities
covered bythe Shelf Registration have been sold, (c) a period ending on the date
after which restrictions on sales of securities by persons other than affiliates
pursuant to Commission Rule 144 (or any successor provision) terminate, or (d) a
period ending on the date after which the Holders no longer own any of the
Registerable Securities. The Company shall also, subject to Permitted
Interruptions, supplement or make amendments to the Shelf Registration if
required by the rules, regulations or instructions applicable to the
registration form used by the Company or if otherwise required by the Act. Each
of the Holders agrees to provide the Company with at least five business days
notice prior to selling any Registrable Securities into the public market while
the Shelf Registration remains effective.
2.2 Limitations on Rights. The Company shall not be required to prepare
---------------------
and file a registration statement pursuant to Section 2.1, above, (a) which
would become effective within six months following the effective date of a
registration statement filed by the Company with the Commission pertaining to an
underwritten public offering of securities for which each of the Shareholders
was entitled to request registration of its Registerable Securities pursuant to
Section 3.1, below, or (b) which is effected more than two years after the date
of this Agreement.
ARTICLE 3
PIGGY-BACK REGISTRATION
-----------------------
3.1 Registration Rights. If, at any time and from time to time during the
-------------------
period commencing on July 1, 1997 and ending on the second anniversary of the
date of this Agreement, the Company shall propose to register in a public
offering any of its common stock (whether for the Company's account or for the
account of other shareholders) to be offered for cash pursuant thereto (other
than a registration statement (a) on Form S-4 or Form S-8 (or any substitute or
successor form that may be adopted by the Commission), (b) filed in connection
with any employee stock option or other benefit plan, (c) for an exchange offer
or offering of securities solely to the Company's existing shareholders, or (d)
for a dividend reinvestment plan), it shall give written notice (the "Company's
---------
Notice") to all Holders of Registerable Securities of its intention to do so at
- ------
least 15 days prior to the anticipated filing date. If any Holder of
Registerable Securities desires to dispose of all or part of such Holder's
Registerable Securities, it may request registration thereof in connection with
the Company's registration by delivering to the Company, within five days after
receipt of the Company's Notice, written notice of such request (the "Holder's
--------
Notice") stating the number of shares of Registerable Securities to be included.
- ------
The Company shall use its best efforts to cause all shares specified in the
Holder's Notices to be registered under the Act so as to permit the sale or
other disposition by such Holder or Holders of the shares so registered, subject
however, to the limitations set forth in Section 3.2, below.
3.
<PAGE>
3.2 Limitations on Incidental Registration. If the managing underwriter
--------------------------------------
or underwriters for a registration under Section 3.1, above, advises the Company
and the Holders requesting inclusion in such registration in writing, that the
dollar amount or number of shares of Registrable Securities and other shares of
common stock or securities to be included in the offering exceeds the maximum
dollar amount or number that can be sold in such offering without adversely
affecting the proposed offering price, the timing, the distribution method or
the probability of success of such offering (the "Maximum Number of Shares"),
------------------------
then the Company shall include in such registration:
(a) if the registration is a primary offering for the Company, (i)
first, the shares of common stock or other securities that the Company proposes
to sell which can be sold without exceeding the Maximum Number of Shares; (ii)
second, to the extent the Maximum Number of Shares has not been reached under
the foregoing clause (i), the shares of common stock or other securities
requested to be included in such registration by other shareholders with
registration rights granted prior to the date hereof which can be sold without
exceeding the Maximum Number of Shares (allocated pro rata among such other
shareholders, as nearly as practicable, on the basis of the number of shares of
common stock or other securities requested to be included in such offering by
such other shareholders); and (iii) third, to the extent the Maximum Number of
Shares has not been reached under the foregoing clauses (i) and (ii), the
Registrable Securities and shares of common stock or other securities requested
to be included in such registration by the Holders and other shareholders with
registration rights which can be sold without exceeding the Maximum Number of
Shares (allocated pro rata among such Holders and other shareholders, as nearly
as practicable, on the basis of the number of shares of Registrable Securities
and common stock or other securities requested to be included in such offering
by the Holders and such other shareholders); and
(b) if the registration is for a secondary offering for any of the
Company's security holders, (i) first, if the registration was requested by
other shareholders with demand registration rights, the shares of common stock
or other securities that such other shareholders have requested to be included
in such offering which can be sold without exceeding the Maximum Number of
Shares; (ii) second, to the extent the Maximum Number of Shares has not been
reached under the foregoing clause (i), the shares of common stock or other
securities requested to be included in such registration by other shareholders
with registration rights granted prior to the date hereof which can be sold
without exceeding the Maximum Number of Shares (allocated pro rata among such
other shareholders, as nearly as practicable, on the basis of the number of
shares of common stock or other securities requested to be included in such
offering by such other shareholders); and (iii) third, to the extent the Maximum
Number of Shares has not been reached under the foregoing clauses (i) and (ii),
the Registrable Securities and shares of common stock or other securities
requested to be included in such registration by the Holders and other
shareholders with registration rights which can be sold without exceeding the
Maximum Number of Shares (allocated pro rata among such Holders and other
shareholders, as nearly as practicable, on the basis of the number of shares of
Registrable Securities and common stock or other securities requested to be
included in such offering by the Holders and such other shareholders).
4.
<PAGE>
ARTICLE 4
REGISTRATION PROCEDURES
-----------------------
4.1 General. If and when the Company is required by the provisions of
-------
this Agreement to effect, or use its best efforts to effect, the registration of
shares of Registerable Securities, the Company shall:
(a) Subject to Permitted Interruptions, prepare and file with the
Commission, within the time period specified herein, a registration statement
with respect to such shares and use its best efforts to cause such registration
statement to become and remain effective for the periods provided herein;
(b) Subject to Permitted Interruptions, prepare and file with the
Commission such amendments and post-effective amendments to each registration
statement as may be necessary to keep such registration statement continuously
effective for the applicable period; and cause the related prospectus to be
supplemented by any required prospectus supplement;
(c) Use its best efforts to notify the Holders promptly (i) when a
prospectus or any prospectus supplement or post-effective amendment related to
such Registerable Securities has been filed, and, with respect to Registerable
Securities, when the same has become effective, (ii) of the receipt of any
comments from the Commission, (iii) of any request by the Commission for
amendments or supplements to a registration statement or related prospectus or
for additional information, (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of a registration statement of the initiation
of any proceeding for that purpose, (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registerable Securities for sale in any
jurisdiction of the United States of America or the initiation or threatening of
any proceeding for such purpose, (vii) of the happening of any event (the nature
and pendency of which need not be disclosed during a Permitted Interruption)
which makes any statement made in such registration statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue or which requires the making of changes in a registration
statement or related prospectus so that such documents will not contain any
untrue statement of material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and (vii) of the
Company's reasonable determination that a post-effective amendment to a
registration statement would be appropriate;
(d) Use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of a registration statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registerable Securities for sale in any jurisdiction of the United States of
America, at the earliest possible moment;
5.
<PAGE>
(e) If reasonably requested by any Holder of Registerable Securities
covered by a registration statement, (i) promptly incorporate in a prospectus
supplement or post-effective amendment such information as such Holder
reasonably requests to be included therein as may be required by applicable law,
(ii) make all required filings of such prospectus supplement or such post-
effective amendment as soon as the Company has received notification of the
matters to be incorporated in such prospectus supplement or post-effective
amendment, and (iii) supplement or make amendments to any registration statement
if reasonably requested by any Holder of Registerable Securities covered by such
registrations statement as may be required by applicable law;
(f) Furnish to the Holders of Registerable Securities covered by the
registration statement, without charge, at least one signed copy of the
registration statement or statements and any post-effective amendment thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those previously furnished or
incorporated by reference), at the earliest practicable time under the
circumstances after the filing of such document;
(g) Deliver to each Holder of Registerable Securities covered by a
registration statement, without charge, as many copies of the prospectus or
prospectuses (including each preliminary prospectus) and any amendment or
supplement thereto as such person may reasonably request; the Company consents
to the use of such prospectus or any amendment or supplement thereto by each of
such Holders in connection with the offering and sale of Registerable Securities
covered by such prospectus or any amendment or supplement thereto;
(h) Prior to any public offering of Registerable Securities, to use
its best efforts to register or qualify or cooperate with the Holders of
Registerable Securities in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registerable
Securities for offer and sale under the securities or blue sky laws of such
state or local jurisdictions as any seller reasonably requests in writing;
subject to the provisions herein regarding Permitted Interruptions, keep such
registration or qualification (or exemption therefrom) effective during the
period such registration statement is required to be kept effective and do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdiction of the Registerable Securities covered by the applicable
registration statement; provided, however, the Company shall not be required to
-------- -------
(i) qualify generally to do business in any jurisdiction where it is not then so
qualified, (ii) take any action which could subject it to general service of
process in any such jurisdiction where it is not then so subject, or (iii)
subject itself to taxation in any such jurisdiction;
(i) Cooperate with the selling Holders of Registerable Securities to
facilitate the timely preparation and delivery of certificates representing
Registerable Securities to be sold, which certificates shall not bear any
restrictive legends;
6.
<PAGE>
(j) Subject to Permitted Interruptions, cause the Registerable
Securities covered by the applicable registration statement to be registered
with or approved by such other federal, state and local governmental regulatory
agencies or authorities in the United States as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Registerable
Securities; and
(k) Subject to Permitted Interruptions, upon the occurrence of any
event contemplated by Section 4(c)(vi) or 4(c)(vii), above, as promptly as
practicable thereafter, prepare and file with the Commission a supplement or
post-effective amendment to the applicable registration statement or a
supplement to the related prospectus of any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registerable Securities being sold thereunder, such
prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
4.2 Registration Expenses. Except as provided below, all of the expenses
---------------------
incurred by the Company in effecting any registration requested pursuant to
Section 2.1, above, including, without limitation, all registration and filing
fees, printing expenses, expenses of compliance with Blue Sky laws (including,
without limitation, fees and disbursements of underwriters counsel relating
thereto), fees and disbursements of counsel for the Company, and expenses of any
audits incidental to or required by any such registration ("Registration
------------
Expenses") shall be paid by GALP unless such Registration Expenses exceed
- --------
$30,000, in which case the Company shall pay all Registration Expenses that
exceed $30,000; provided, however, that if shareholders (other than the
-------- -------
Shareholders) with registration rights are included in such registration, the
Registration Expenses shall be allocated pro rata among the participating
Holders and each of such other shareholders of the Company, as nearly as
practicable, on the basis of the fair market value of Registrable Securities,
common stock and other securities of the Company requested by the Holders and
such other shareholders of the Company to be included in such registration, but
in no event shall the participating Holders' share of the expenses exceed
$30,000. In either event, notwithstanding anything in this Section 4.2 to the
contrary, the Company shall have no obligation to pay or otherwise bear (a) any
underwriting discounts or brokerage fees or commissions relating to the sale of
Registerable Securities by the Holders, or (b) any Registration Expenses if the
payment of such expenses by the Company is prohibited by the laws of a state in
which such offering is qualified and only to the extent so prohibited, or (c)
any expenses of any compliance with Blue Sky laws which pertains only to an
individual Holder, or (d) any fees and disbursements of counsel for the Holders.
7.
<PAGE>
ARTICLE 5
INDEMNIFICATION
---------------
5.1 Indemnification by the Company. The Company will indemnify, hold
------------------------------
harmless and defend each Holder, its officers, directors, partners, legal
counsel and accountants, and each person who controls a Holder within the
meaning of Section 15 of the Act, against any and all expenses, claims, losses,
damages and liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereof, incident to
any registration or qualification of the Registrable Securities, or which arise
out of or are based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by the Company of any rule or regulation promulgated under the
Act or any state securities laws applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each such
indemnified party for any legal and any other expenses reasonably incurred by
them in connection with investigating, preparing or defending any such claim,
loss, damage, liability or action. The Company also shall indemnify any
underwriter of the Registrable Securities, their officers, directors, partners,
members and agents and each person who controls such underwriters on
substantially the same basis as that of the indemnification of the Holders
provided in this Section 5.1.
The indemnity agreement contained in this Section 5.1 shall not apply
to amounts paid in settlement of any such loss, claim, damage or liability or
any action in respect thereof if such settlement is effected without the consent
of the Company, nor shall the Company be liable to any Holder or its officers,
directors, partners, members or agents in any such case for any loss, claim,
damage, liability or any action in respect thereof to the extent that it arises
solely from or is based solely upon and is in conformity with written
information relating to such Holder furnished expressly for use in connection
with such registration by such Holder or its agents, nor shall the Company be
liable to any Holder for any such loss, claim, damage or liability or any action
in respect thereof to the extent it arises solely from or is based solely upon
(a) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating to the
Registrable Securities delivered by such Holder after the Company had provided
written notice to such Holder that such registration statement or prospectus
contained such untrue statement or alleged untrue statement of a material fact,
(b) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
after the Company had provided written notice to such Holder that such
registration statement or prospectus contained such omission or alleged
omission, or (c) the failure of such Holder to deliver any preliminary or final
prospectus, or any amendments or supplements thereto, required under
8.
<PAGE>
applicable securities laws, including the Act,to be so delivered, provided that
a sufficient number of copies thereof had been timely provided by the Company to
such Holder.
5.2 Indemnification by the Holders. Each Holder will, if Registrable
------------------------------
Securities held by such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, and each of its officers, directors, legal counsel and accountants, and
each person who controls the Company within the meaning of Section 15 of the
Act, against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Holder of any rule or regulation promulgated under the Act or any state
securities laws applicable to the Holder and relating to action or inaction
required by the Holder in connection with any such registration, qualification
or compliance, and will reimburse each such indemnified person for any legal or
any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged omission)
is made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by or on behalf of such Holder and
stated to be specifically for use therein. Each Holder shall also indemnify and
hold harmless any underwriter of the Registrable Securities, their officers,
directors, partners, members and agents and each person who controls such
underwriters on substantially the same basis as that of the indemnification of
the Company provided in this Section 5.2; provided, however, that in no event
-------- -------
shall any indemnity obligation under this Section 5.2 exceed the dollar amount
of the net proceeds actually received by such Holder from the sale of
Registrable Securities which gave rise to such indemnification obligations under
such registration statement or prospectus.
5.3 Indemnification Procedures. Each person to be indemnified pursuant to
--------------------------
this Article 5 (the "Indemnified Party") will, promptly after its receipt of
-----------------
written notice of the commencement of any action against such Indemnified Party
in respect of which indemnity may be sought from an indemnifying person under
this Article 5 (the "Indemnifying Party") notify the Indemnifying Party in
------------------
writing of the commencement thereof, provided, however, that the failure of any
-------- -------
person to give notice as provided herein shall not relieve the Indemnifying
Party of its obligations under this Agreement except to the extent that such
Indemnifying Party is actually materially and adversely prejudiced by such
failure to give notice. If any such action shall be brought against any
Indemnified Party and it shall notify an Indemnifying Party of the commencement
thereof, the Indemnifying Party will be entitled to participate therein and, to
the extent it may desire, jointly with any other Indemnifying Party similarly
notified, to assume the defense thereof with counsel satisfactory to such
Indemnified Party, and after notice from the Indemnifying Party to such
Indemnified Party of its election so to assume the defense thereof, the
Indemnifying Party will not
9.
<PAGE>
be liable to such Indemnified Party under this Article 5 for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation unless (a) the
Indemnified Party shall have employed counsel in an action in which the
Indemnified Party and Indemnifying Party are both defendants and there is a
conflict of interest between such parties that would prevent counsel from
adequately representing both parties, (b) the Indemnifying Party shall not have
employed counsel satisfactory within the exercise of reasonable judgment of the
Indemnified Party to represent the Indemnified Party within a reasonable time
after the notice of the commencement of the action, or (c) the Indemnifying
Party has authorized the employment of counsel for the Indemnified Party at the
expense of the Indemnifying Party. The undertaking contained in this Section 5.3
shall be in addition to any liabilities which the Indemnifying Party may have
pursuant to law.
5.4 Contribution Obligations. If the indemnification provided for in this
------------------------
Article 5 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements, actions or omissions which resulted in such
loss, liability, claim, damage or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
ARTICLE 6
TRANSFER OF REGISTRATION RIGHTS
-------------------------------
The rights to cause the Company to register securities granted to a Holder
under Articles 2 and 3, above, may be transferred or assigned by such Holder to
a transferee or assignee in connection with any transfer or assignment of
Registerable Securities, provided that: (a) such transfer or assignment may
otherwise be effected in accordance with applicable securities laws, (b) prompt
written notice of such transfer or assignment is given to the Company, and (c)
such transferee or assignee expressly agrees in a writing delivered to the
Company to be bound by the provisions of this Agreement.
10.
<PAGE>
ARTICLE 7
DISCONTINUANCE OF DISPOSITION OF REGISTERABLE SECURITIES
--------------------------------------------------------
7.1 Certain Discontinuances. Each Holder of Registrable Securities agrees
-----------------------
by acquisition of such Registrable Securities that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
4(c)(iii), 4(c)(iv), 4(c)(v), 4(c)(vi) or 4(c)(vii), above, or a Permitted
Interruption, such Holder will forthwith discontinue disposition of any
Registrable Securities covered by a registration statement or prospectus until
such Holder's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 4(k), above, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable prospectus may be
- -------
resumed, and has received copies of any additional or supplemental filings which
are incorporated or deemed to be incorporated by reference in such prospectus.
7.2 Permitted Interruptions. Anything in this Agreement to the contrary
-----------------------
notwithstanding, it is understood and agreed that the Company shall not be
required to prepare or file a registration statement, amendment or post-
effective amendment thereto or prospectus supplement or to supplement or amend
any registration statement or otherwise facilitate the resale of Registrable
Securities, and it shall be free voluntarily to take or omit to take any other
action that would result in the impracticality of any such filing, supplement or
amendment if such action is taken or omitted to be taken by the Company in good
faith and for valid business reasons, including, without limitation, matters
relating to acquisitions or divestitures, so long as the Company shall, as
promptly as practicable thereafter, make such filing, supplement or amendment
and, so long as the Company shall as promptly as is practicable thereafter,
comply with the requirements of Section 4(k), above, if applicable (any period
described in this Section 7.2 during which Holders of Registrable Securities are
not able to sell such Registrable Securities under a registration statement is
herein called a "Permitted Interruption"). The Company hereby agrees to notify
----------------------
each of the Holders of Registrable Securities of the occurrence of, and the
termination of, each Permitted Interruption (the nature and pendency of which
need not be disclosed during such Permitted Interruption).
7.3 Standoff or Lock-Up Agreement. Each Holder of Registerable Securities
-----------------------------
agrees in connection with any firmly underwritten public offering of the
Company's common stock that, upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, such Holder
shall not sell, make any short sale of, loan, grant any option for the purchase
of, or otherwise dispose of any Registerable Securities (other than those
included in the registration) without the prior written consent of the Company
or such underwriters, as the case may be, during the 14 days prior to, and
during the 120-day period beginning on, the effective date of the registration
statement relating to such offering (except as part of such registration
statement). In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registerable Securities until the
end of such period.
11.
<PAGE>
ARTICLE 8
TERMINATION OF REGISTRATION RIGHTS
----------------------------------
Notwithstanding any provision in this Agreement to the contrary, in no
event shall any Holder be entitled to request registration or inclusion in any
registration pursuant to Article 2 or 3, above, after the date on which all
Registrable Securities held by such Holder may be sold under Commission Rule 144
during any 90-day period.
ARTICLE 9
MISCELLANEOUS
-------------
9.1 Amendment. Any modification, amendment or waiver of this Agreement or
---------
any provision hereof shall be effective only if in writing and executed by the
Holders of at least a majority of the Registrable Securities and the Company.
9.2 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California without regard to its conflicts of laws
principles.
9.3 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, permitted assigns, heirs, executors and administrators of
the parties hereto.
9.4 Notices. All notices and other communications required or permitted
-------
hereunder shall be made in accordance with the Purchase Agreement.
9.5 Severability. If any provision of this Agreement shall be judicially
------------
determined to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions of this Agreement shall not in any
way be affected or impaired thereby.
9.6 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties with regard to the subject
matter hereof.
9.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
12.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first set forth above.
"PURCHASER": THE "SHAREHOLDERS":
DATA PROCESSING GENERAL ATLANTIC LEARDATA
RESOURCES CORPORATION, PARTNERS, L.P., a Delaware limited
a California corporation partnership
By: General Atlantic Partners, LLC,
By:_____________________ a Delaware limited liability
Its:____________________ company, its general partner
By:_______________________
Stephen P. Reynolds
Managing Member
-------------------------------------
BRUCE M. SMITH
-------------------------------------
CHRIS P. SMITH
-------------------------------------
STEVE P. DONALDSON
-------------------------------------
ROBERT M. HOWE
-------------------------------------
BARBARA A. KUHLER
13.
<PAGE>
EXHIBIT 21.1
<TABLE>
<CAPTION>
SUBSIDIARIES STATE OF ORGANIZATION PERCENTAGE OWNED
------------ --------------------- ----------------
<S> <C> <C>
Professional Software Consultants, Inc. Arizona 100%
</TABLE>
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Data Processing
Resources Corporation on Form S-1 of our report dated September 19, 1996
(October 25, 1996 as to Note 12), appearing in the Prospectus, which is part
of this Registration Statement and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Costa Mesa, California
December 23, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use in this Form
S-1 Registration Statement of our reports dated February 1, 1996, and May 16,
1994, included in or made a part of this Registration Statement and to all
references to our firm included in this Registration Statement.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
December 20, 1996
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Data Processing
Resources Corporation on Form S-1 of our report on the financial statements of
Leardata Info-Services, Inc. dated March 11, 1996, appearing in the
Prospectus, which is part of this Registration Statement on Form S-1 of Data
Processing Resources Corporation and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Dallas, Texas
December 23, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNALLY
PREPARED FINANCIAL STATEMENTS OF LEARDATA INFO-SERVICES, INC. FOR THE 12 MONTHS
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM S-1 PERIOD ENDED DECEMBER 31, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,855
<SECURITIES> 0
<RECEIVABLES> 2,203
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,174
<PP&E> 524
<DEPRECIATION> 437
<TOTAL-ASSETS> 4,261
<CURRENT-LIABILITIES> 176
<BONDS> 0
0
386
<COMMON> 3
<OTHER-SE> 173
<TOTAL-LIABILITY-AND-EQUITY> 4,261
<SALES> 0
<TOTAL-REVENUES> 13,954
<CGS> 0
<TOTAL-COSTS> 9,355
<OTHER-EXPENSES> 2,880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,781
<INCOME-TAX> 670
<INCOME-CONTINUING> 1,111
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,111
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERNALLY
PREPARED FINANCIAL STATEMENTS OF LEARDATA INFO-SERVICES, INC. FOR THE 9 MONTHS
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM S-1 PERIOD ENDED SEPTEMBER 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,286
<SECURITIES> 0
<RECEIVABLES> 2,773
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,220
<PP&E> 692
<DEPRECIATION> 471
<TOTAL-ASSETS> 5,441
<CURRENT-LIABILITIES> 314
<BONDS> 0
0
386
<COMMON> 3
<OTHER-SE> 173
<TOTAL-LIABILITY-AND-EQUITY> 5,441
<SALES> 0
<TOTAL-REVENUES> 12,019
<CGS> 0
<TOTAL-COSTS> 8,267
<OTHER-EXPENSES> 2,246
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,564
<INCOME-TAX> 531
<INCOME-CONTINUING> 1,033
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,033
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
