<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1998
REGISTRATION NO. 333-61017
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
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
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZA- CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
TION)
</TABLE>
4400 MACARTHUR BOULEVARD, SUITE 600
NEWPORT BEACH, CALIFORNIA 92660
(949) 553-1102
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
MICHAEL A. PIRAINO
EXECUTIVE VICE PRESIDENT
4400 MACARTHUR BOULEVARD, SUITE 600
NEWPORT BEACH, CALIFORNIA 92660
(949) 553-1102
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
ELAINE R. LEVIN, ESQ.
TIMOTHY R. RUPP, ESQ.
RIORDAN & MCKINZIE
695 TOWN CENTER DRIVE, SUITE 1500,
COSTA MESA, CALIFORNIA 92626
(714) 433-2900
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES
EFFECTIVE.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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, 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(d)
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. [_] ________
----------------
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
===============================================================================
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
[LOGO OF DPRC APPEARS HERE]
, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Data Processing Resources Corporation, a California corporation ("DPRC"), at
The Sutton Place Hotel located at 4500 MacArthur Boulevard, Newport Beach,
California 92660 on [ ,] 1998, at [ ], local time (the "DPRC
Special Meeting").
DPRC and DPRC Acquisition Corp., a North Carolina corporation and wholly
owned subsidiary of DPRC ("Acquisition Corp."), entered into an Agreement and
Plan of Merger, dated June 16, 1998, by and among DPRC, Acquisition Corp.,
Systems & Programming Consultants, Inc., a North Carolina corporation ("SPC"),
and certain shareholders of SPC, which was amended on October 13, 1998 and
October 20, 1998, (the "Merger Agreement"). Pursuant to and subject to the
terms and conditions of the Merger Agreement, Acquisition Corp will be merged
with and into SPC (the "Merger") and each outstanding share of SPC common
stock will be converted into shares of DPRC common stock ("DPRC Common Stock")
in accordance with an exchange ratio (the "Exchange Ratio") based on the total
consideration to be delivered with respect to the Merger. In connection with
the Merger, DPRC will assume SPC's existing stock option plan. Following the
Merger, SPC will be a wholly owned subsidiary of DPRC.
The aggregate consideration to be delivered in connection with the Merger
will be paid exclusively in shares of DPRC Common Stock having an implied
value on the date the amendment of October 20, 1998 to the Merger Agreement
was signed of $71.5 million less deductions for certain costs and liabilities
to be assumed by DPRC (the "Merger Consideration"). The total number of shares
of DPRC Common Stock anticipated to be issued in connection with the Merger is
estimated to be between 2.8 million and 3.3 million (the "Share Issuance"). Of
such number of shares, approximately two-thirds are expected to be issued upon
consummation of the Merger in exchange for the outstanding shares of SPC
common stock and for the cancellation of the SPC performance stock options and
the remaining number of shares, approximately one-third, will be issued from
time to time thereafter upon exercise of the remaining SPC stock options under
the stock option plan which is being assumed by DPRC in the Merger.
The exact number of shares of DPRC Common Stock to be issued in connection
with the Merger will not be determined until the closing of the Merger since
the amount of the deductions for certain costs and liabilities to be assumed
by DPRC cannot be determined until such time. Although the amount of these
deductions will not be fixed until the closing, the other amounts used to
calculate the Exchange Ratio are fixed. The implied consideration of $71.5
million and the price of $21.00 for each share of DPRC Common Stock used to
calculate the Exchange Ratio were determined and fixed at the time the
amendment of October 20, 1998 to the Merger Agreement was signed and will not
be changed regardless of whether the market price of DPRC Common Stock is
higher or lower. Therefore, although the actual number of shares of DPRC
Common Stock to be issued in connection with the Merger will not change due to
any change in the market price of such stock, the market value of such shares
and the aggregate value of the transaction will depend on the current market
price of DPRC Common Stock at the time the Merger is consummated and,
consequently, will not be known at the time of the Special Meeting. The same
Exchange Ratio will be used to determine the number of shares of DPRC Common
Stock to be received by the holders of SPC Common Stock, SPC Time-Vesting
Options and SPC Performance-Vesting Options. As a result, the risk of any
decline or benefit of any increase in the market price of DPRC Common Stock
from such date will similarly affect the holders of SPC Common Stock, SPC
Time-Vesting Options and SPC Performance-Vesting Options.
<PAGE>
At the DPRC Special Meeting, you will be asked to approve (i) the Merger
Agreement, (ii) the Share Issuance, (iii) an amendment to DPRC's Articles of
Incorporation to increase the number of authorized shares of DPRC Common Stock
from 20.0 million shares to 60.0 million shares (the "Charter Amendment") and
(iv) an amendment to DPRC's 1994 Stock Option Plan to increase the number of
shares of DPRC Common Stock reserved for issuance upon exercise of stock
options granted thereunder from 2.0 million shares to 3.0 million shares (the
"Option Plan Amendment").
FOR THE REASONS SET FORTH IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS,
THE DPRC BOARD OF DIRECTORS (THE "BOARD") UNANIMOUSLY BELIEVES THAT THE
MERGER, THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE OPTION PLAN
AMENDMENT ARE IN THE BEST INTERESTS OF THE SHAREHOLDERS OF DPRC AND,
ACCORDINGLY, UNANIMOUSLY RECOMMENDS THAT DPRC'S SHAREHOLDERS VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF SUCH PROPOSALS.
In making its determination as to the fairness of the Merger Consideration,
the DPRC Board received and considered materials prepared by NationsBanc
Montgomery Securities LLC ("NMS") which evaluated the Merger Consideration to
be paid from a financial point of view. The DPRC Board also received the oral
opinion of NMS (subsequently confirmed in writing) that the Merger
Consideration to be paid by DPRC pursuant to the Merger Agreement was fair to
DPRC from a financial point of view as of October 21, 1998 (the "NMS
Opinion"). A copy of the NMS Opinion and a copy of the written opinion
previously delivered by NMS dated June 15, 1998 and confirmed in a letter
dated June 16, 1998, including the assumptions, qualifications and other
matters contained therein, is included in the accompanying Proxy
Statement/Prospectus as Annex B.
Consummation of the Merger is subject to certain conditions, including the
approval of the Merger by the shareholders of both DPRC and SPC.
The enclosed Notice and Proxy Statement/Prospectus contain details
concerning the Merger, the Share Issuance, the Charter Amendment and the
Option Plan Amendment. We urge you to read and consider these documents
carefully. Whether or not you plan to attend the DPRC Special Meeting, please
be sure to sign, date and return the enclosed proxy card in the enclosed,
postage-paid envelope as promptly as possible so that your shares may be
represented at the DPRC Special Meeting and voted in accordance with your
wishes. It is important that your shares be represented at the DPRC Special
Meeting. Your vote is important regardless of the number of shares you own.
Sincerely,
Mary Ellen Weaver
Chairman and Chief Executive Officer
2
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF DATA PROCESSING RESOURCES CORPORATION
TO BE HELD , 1998
----------------
TO THE SHAREHOLDERS OF DATA PROCESSING RESOURCES CORPORATION:
A Special Meeting of Shareholders (the "Special Meeting") of Data Processing
Resources Corporation, a California corporation ("DPRC"), will be held on
,1998 at [ a.m.], local time, at The Sutton Place Hotel located at 4500
MacArthur Boulevard, Newport Beach, California 92660, for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of June 16, 1998, as amended October 13, 1998 and
October 20, 1998 (the "Merger Agreement"), by and among DPRC, DPRC
Acquisition Corp., a North Carolina corporation and wholly owned subsidiary
of DPRC ("Acquisition Corp."), Systems & Programming Consultants, Inc., a
North Carolina corporation ("SPC"), and certain shareholders of SPC
pursuant to which, among other things, Acquisition Corp. will be merged
with and into SPC (the "Merger"), with SPC surviving as a wholly owned
subsidiary of DPRC. Upon consummation of the Merger, the outstanding shares
of SPC common stock and certain options to purchase shares of SPC common
stock outstanding immediately prior to the effective time of the Merger
will be converted into the right to receive, on a pro rata basis, shares of
common stock of DPRC (the "DPRC Common Stock"). In addition, pursuant to
the Merger Agreement, DPRC will be assuming the remaining stock options.
The aggregate consideration to be delivered in connection with the Merger
will be paid exclusively in shares of DPRC Common Stock having an implied
value on the date the amendment of October 20, 1998 to the Merger Agreement
was signed of $71.5 million less deductions for certain payments and
liabilities to be assumed by DPRC (the "Merger Consideration"). The total
number of shares of DPRC Common Stock anticipated to be issued in
connection with the Merger is estimated to be between 2.8 million and
3.3 million. Of such number of shares, approximately two-thirds are
expected to be issued upon consummation of the Merger in exchange for the
outstanding shares of SPC common stock and for the cancellation of certain
SPC stock options and the remaining number of shares, approximately one-
third, will be issued from time to time thereafter upon exercise of the
remaining SPC stock options under the stock option plan being assumed by
DPRC. The exact number of shares of DPRC Common Stock to be issued in
connection with the Merger will not be determined until the closing of the
Merger since the amount of the deductions for certain costs and liabilities
to be assumed by DPRC cannot be determined until such time. Although the
amount of these deductions will not be fixed until the closing, the other
amounts used to calculate the Exchange Ratio are fixed. The implied
consideration of $71.5 million and the price of $21.00 for each share of
DPRC Common Stock used to calculate the Exchange Ratio were determined and
fixed at the time the amendment of October 20, 1998 to the Merger Agreement
was signed and will not be changed regardless of whether the market price
of DPRC Common Stock is higher or lower. Therefore, although the actual
number of shares of DPRC Common Stock to be issued in connection with the
Merger will not change due to any change in the market price of such stock,
the market value of such shares and the aggregate value of the transaction
will depend on the current market price of DPRC Common Stock at the time
the Merger is consummated and, consequently, will not be known at the time
of the Special Meeting. The same Exchange Ratio will be used to determine
the number of shares of DPRC Common Stock to be received by the holders of
SPC Common Stock, SPC Time-Vesting Options and SPC Performance-Vesting
Options. As a result, the risk of any decline or benefit of any increase in
the market price of DPRC Common Stock from such date will similarly affect
the holders of SPC Common Stock, SPC Time-Vesting Options and SPC
Performance-Vesting Options.
2. To consider and vote upon a proposal to issue shares of DPRC Common
Stock with an aggregate value equal to the Merger Consideration of $71.5
million less deductions for certain costs and liabilities to be assumed by
DPRC. The total number of shares of DPRC Common Stock to be issued in the
Merger is estimated to be between 2.8 million and 3.3 million (the "Share
Issuance").
<PAGE>
3. To consider and vote upon a proposal to amend DPRC's Articles of
Incorporation, to increase the number of authorized shares of DPRC Common
Stock from 20.0 million shares to 60.0 million shares (the "Charter
Amendment").
4. To consider and vote upon a proposal to amend DPRC's 1994 Stock Option
Plan to increase the number of shares of DPRC Common Stock reserved for
issuance upon exercise of stock options granted thereunder from 2.0 million
shares to 3.0 million shares (the "Option Plan Amendment").
5. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
Approval of each of the Merger Agreement, the Charter Amendment and the
Option Plan Amendment requires the affirmative vote of a majority of the
outstanding shares of DPRC Common Stock entitled to vote thereon at the
Special Meeting. Approval of the Share Issuance requires the affirmative vote
of a majority of the votes cast with respect to such proposal; provided that
the total number of votes cast on such proposal represents more than 50% of
the outstanding shares of DPRC Common Stock entitled to vote thereon at the
Special Meeting. Approval of the Merger Agreement, the Charter Amendment and
the Share Issuance is required for the Merger to be consummated. If any one of
the foregoing three proposals is not approved, even if the other two proposals
are approved, the Merger cannot be consummated. Approval of the Option Plan
Amendment is not required to consummate the Merger, and if approved, will
independently be effected even if any of the other proposals are not approved.
The board of directors of DPRC (the "DPRC Board") unanimously recommends
that shareholders vote FOR approval and adoption of the Merger Agreement, the
Share Issuance, the Charter Amendment and the Option Plan Amendment.
The DPRC Board has fixed the close of business on November 2, 1998 as the
record date for the determination of shareholders entitled to notice of, and
to vote at, the DPRC Special Meeting or any adjournment thereof. Only holders
of record of DPRC Common Stock at the close of business on the record date are
entitled to notice of, and to vote at, the DPRC Special Meeting. A complete
list of such shareholders will be available for examination by any DPRC
shareholder, for any purpose related to the DPRC Special Meeting at the
offices of DPRC in Newport Beach, California, during normal business hours for
a period of ten days prior to the DPRC Special Meeting.
SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE DPRC SPECIAL
MEETING, TO SIGN, DATE AND MAIL THE ENCLOSED PROXY CARD IN THE POSTAGE-PAID
RETURN ENVELOPE PROVIDED. THE GIVING OF YOUR PROXY WILL NOT AFFECT YOUR RIGHT
TO VOTE IN PERSON IF YOU ATTEND THE MEETING. If a shareholder who has returned
a proxy attends the DPRC Special Meeting in person, such shareholder may
revoke the proxy and vote in person on all matters submitted for a vote of
shareholders at the DPRC Special Meeting.
By Order of the Board of Directors
Michael A. Piraino
Executive Vice President and
Secretary
Newport Beach, California
, 1998
<PAGE>
SYSTEMS & PROGRAMMING CONSULTANTS, INC.
, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Systems & Programming Consultants, Inc., a North Carolina corporation ("SPC")
at the [ ], [ ], [ ], on ,
1998 at [ ], local time. The purpose of the Special Meeting is set forth
below and in the accompanying Notice of Special Meeting of SPC Shareholders
and is described in detail in the accompanying Proxy Statement/Prospectus.
SPC entered into an Agreement and Plan of Merger, dated June 16, 1998, by
and among Data Processing Resources Corporation, a California corporation
("DPRC") and DPRC Acquisition Corp., a North Carolina corporation and wholly
owned subsidiary of DPRC ("Acquisition Corp."), SPC and certain shareholders
of SPC, which was amended on October 13, 1998 and October 20, 1998 (the
"Merger Agreement"). Pursuant to and subject to the terms and conditions of
the Merger Agreement, Acquisition Corp will be merged with and into SPC (the
"Merger") and each outstanding share of SPC common stock ("SPC Common Stock")
will be converted into shares of DPRC common stock ("DPRC Common Stock") in
accordance with an exchange ratio (the "Exchange Ratio") based on the total
consideration to be delivered with respect to the Merger. Following the
Merger, SPC will be a wholly owned subsidiary of DPRC.
In addition, in connection with the Merger, DPRC will assume SPC's existing
stock option plan. Such plan has outstanding certain stock options to purchase
shares of SPC Common Stock which options, following the Merger, will remain
outstanding and be exercisable for shares of DPRC Common Stock of equivalent
value, as determined by the Exchange Ratio. All of such SPC stock options are
currently fully vested and exercisable at an Exchange Ratio adjusted price
substantially below the market value of DPRC Common Stock. Certain other
options to purchase shares of SPC common stock which are outstanding under
SPC's stock option plan (the "SPC Performance Options") will be canceled in
the Merger in exchange for shares of DPRC Common Stock with an aggregate value
equal to the appraised value of the SPC Performance Options. The number of
shares of DPRC Common Stock issued in connection with the Merger
Consideration, as defined below, will be reduced by the number of shares of
DPRC Common Stock issued in consideration of the cancellation of the SPC
Performance Options.
The aggregate consideration to be delivered in connection with the Merger
will be paid exclusively in shares of DPRC Common Stock having an implied
value on the date the amendment of October 20, 1998 to the Merger Agreement
was signed of $71.5 million less deductions for certain costs and liabilities
to be assumed by DPRC (the "Merger Consideration"). The total number of shares
of DPRC Common Stock anticipated to be issued in connection with the Merger is
estimated to be between 2.8 million and 3.3 million. Of such number of shares,
approximately two-thirds are expected to be issued upon consummation of the
Merger in exchange for the outstanding shares of SPC common stock and for the
cancellation of the SPC Performance Options and the remaining number of
shares, approximately one-third, will be issued from time to time thereafter
upon exercise of the SPC stock options under the SPC stock option plan being
assumed by DPRC.
The exact number of shares of DPRC Common Stock to be issued in connection
with the Merger will not be determined until the closing of the Merger since
the amount of the deductions for certain costs and liabilities to be assumed
by DPRC cannot be determined until such time. Although the amount of these
deductions will not be fixed until the closing, the other amounts used to
calculate the Exchange Ratio are fixed. The implied consideration of $71.5
million and the price of $21.00 for each share of DPRC Common Stock used to
calculate the Exchange Ratio were determined and fixed at the time the
amendment of October 20, 1998 to the Merger Agreement was signed and will not
be changed regardless of whether the market price of DPRC Common Stock is
higher or lower. Therefore, although the actual number of shares of DPRC
Common Stock to be issued in
<PAGE>
connection with the Merger will not change due to any change in the market
price of such stock, the market value of such shares and the aggregate value
of the transaction will depend on the current market price of DPRC Common
Stock at the time the Merger is consummated and, consequently, will not be
known at the time of the Special Meeting. The same Exchange Ratio will be used
to determine the number of shares of DPRC Common Stock to be received by the
holders of SPC Common Stock, SPC Time-Vesting Options and SPC Performance-
Vesting Options. As a result, the risk of any decline or benefit of any
increase in the market price of DPRC Common Stock from such date will
similarly affect the holders of SPC Common Stock, SPC Time-Vesting Options and
SPC Performance-Vesting Options.
It is anticipated that each share of outstanding SPC Common Stock will be
converted in the Merger into the right to receive between approximately 5.50
and 6.40 shares of DPRC Common Stock. See the attached Proxy
Statement/Prospectus for the calculation of this estimate. The Exchange Ratio
is estimated for purposes of this Proxy Statement/Prospectus since the amount
of deductions for certain costs and liabilities to be assumed by DPRC cannot
be determined until the consummation of the Merger. Since all other amounts
used to calculate the Exchange Ratio are fixed, the number of shares of DPRC
Common Stock to be issued in connection with the Merger will vary only
depending upon the amount of the deductions for costs and liabilities and not
for any changes in the market price of DPRC Common Stock. Based upon the most
recent information available, the estimated aggregate costs and liabilities to
be deducted from the implied valuation for SPC's tax liabilities, bank debt
outstanding and portion of pre-payment penalty, aged receivables outstanding,
noncompetition payments, costs and expenses of the Merger and appraised value
of SPC Performance-Vesting Options range from $4.3 million to $13.7 million,
which results in the 5.50 to 6.40 estimated Exchange Ratio. However, there is
no minimum Exchange Ratio and the actual number of shares may be less than
estimated above if the costs and liabilities to be assumed by DPRC in the
Merger are more than estimated above. As a result, the exact number of shares
of DPRC Common Stock and the market value at the time of the Merger of such
shares to be received by SPC shareholders and option holders will not be known
at the time of the Special Meeting.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF SPC AND ITS SHAREHOLDERS. ACCORDINGLY, THE
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RELATED TRANSACTIONS
AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
You are urged to read the accompanying Proxy Statement/Prospectus, which
provides you with a description of the terms of the proposed transaction. A
copy of the Merger Agreement is included as Annex A to the Proxy
Statement/Prospectus.
It is important that your shares be represented at the Special Meeting.
Whether or not you plan to attend the Special Meeting in person, you are urged
to complete, date and sign the enclosed proxy card and return it in the
enclosed postage paid envelope as promptly as possible.
If you have any questions prior to the Special Meeting or need further
assistance, please call Richard K. Carlisle at SPC's corporate offices at
(704) 348-9000.
Thank you for your time and attention to the accompanying Notice of Special
Meeting and Proxy Statement/Prospectus.
Very truly yours,
Thomas G. Carlisle
Chairman, President and Treasurer
2
<PAGE>
SYSTEMS & PROGRAMMING CONSULTANTS, INC.
---------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF
SYSTEMS & PROGRAMMING CONSULTANTS, INC.
TO BE HELD , 1998
---------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Systems & Programming Consultants, Inc., a North Carolina
corporation ("SPC"), will be held at the [ ],
[ ], [ ], North Carolina [ ], on
, 1998, beginning at [ ], local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of June 16, 1998, as amended October 13, 1998 and
October 20, 1998 (the "Merger Agreement"), by and among Data Processing
Resources Corporation, a California corporation ("DPRC"), DPRC Acquisition
Corp., a North Carolina corporation and wholly owned subsidiary of DPRC
("Acquisition Corp."), SPC, and certain shareholders of SPC pursuant to
which, among other things, Acquisition Corp. will be merged with and into
SPC (the "Merger"), with SPC surviving as a wholly owned subsidiary of
DPRC. Upon consummation of the Merger, the outstanding shares of SPC common
stock and certain options to purchase shares of SPC common stock
outstanding immediately prior to the effective time of the Merger will be
converted into the right to receive, on a pro rata basis, shares of common
stock of DPRC ("DPRC Common Stock"). In addition, pursuant to the Merger
Agreement, DPRC will be assuming the remaining stock options. The aggregate
consideration to be delivered in connection with the Merger will be paid
exclusively in shares of DPRC Common Stock having an implied value on the
date the amendment of October 20, 1998 to the Merger Agreement was signed
of $71.5 million less deductions for certain costs and liabilities to be
assumed by DPRC. The total number of shares of DPRC Common Stock
anticipated to be issued in connection with the Merger is estimated to be
between 2.8 million and 3.3 million. Of such number of shares,
approximately two-thirds are expected to be issued upon consummation of the
Merger in exchange for the outstanding shares of SPC common stock and for
the cancellation of certain SPC stock options and the remaining number of
shares, approximately one-third, will be issued from time to time
thereafter upon exercise of the remaining SPC stock options under the stock
option plan being assumed by DPRC. It is anticipated that each share of
outstanding SPC Common Stock will be converted in the Merger into the right
to receive between approximately 5.50 and 6.40 shares of DPRC Common Stock.
The Exchange Ratio is estimated for purposes of this Proxy
Statement/Prospectus since the amount of deductions for certain costs and
liabilities to be assumed by DPRC cannot be determined until the
consummation of the Merger. Since all other amounts used to calculate the
Exchange Ratio are fixed, the number of shares of DPRC Common Stock to be
issued in connection with the Merger will vary only depending upon the
amount of the deductions for the costs and liabilities and not for any
changes in the market price of DPRC Common Stock. However, there is no
minimum Exchange Ratio and the actual number of shares may be less than
estimated above if the costs and liabilities to be assumed by DPRC in the
Merger are more than estimated. As a result, the exact number of shares of
DPRC Common Stock and the market value at the time of the Merger of such
shares to be received by SPC shareholders and option holders will not be
known at the time of the Special Meeting. However, the same Exchange Ratio
will be used to determine the number of shares of DPRC Common Stock to be
received by the holders of SPC Common Stock, SPC Time-Vesting Options and
SPC Performance-Vesting Options. As a result, the risk of any decline or
benefit of any increase in the market price of DPRC Common Stock from such
date will similarly affect the holders of SPC Common Stock, SPC
Time-Vesting Options and SPC Performance-Vesting Options.
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Only shareholders of record at the close of business on November 2, 1998,
the record date for the Special Meeting, will be entitled to vote at the
Special Meeting.
Approval of the proposal described in item 1 above requires the affirmative
vote of the holders of a majority of the outstanding shares of SPC Common
Stock entitled to be voted with respect to such proposal.
<PAGE>
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED
TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS PROMPTLY AS POSSIBLE. Any stockholder who
signs and mails a proxy may revoke such proxy by delivering written notice of
such revocation to the Secretary of SPC prior to the time voting is declared
closed or by attending the Special Meeting and voting in person. Please see
the accompanying Proxy Statement/Prospectus for further details regarding the
treatment of proxies at the Special Meeting.
Please do not mail any stock certificates at this time.
By Order of the Board of Directors
Richard K. Carlisle
Vice President and Secretary
Charlotte, North Carolina
, 1998
<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 NOVEMBER 6, 1998
[LOGO OF DATA PROCESSING RESOURCES CORPORATION APPEARS HERE]
DATA PROCESSING RESOURCES CORPORATION
-----------
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON , 1998
-----------
PROSPECTUS FOR UP TO 3,313,769 SHARES OF DPRC COMMON STOCK ISSUABLE IN
CONNECTION WITH THE MERGER WITH SPC
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") relates to
the proposed merger of DPRC Acquisition Corp. ("Acquisition Corp."), a North
Carolina corporation and wholly owned subsidiary of Data Processing Resources
Corporation, a California corporation ("DPRC"), with and into Systems &
Programming Consultants, Inc., a North Carolina corporation ("SPC"), pursuant
to an Agreement and Plan of Merger, dated as of June 16, 1998, by and among
DPRC, Acquisition Corp., SPC and certain shareholders of SPC, as amended
October 13, 1998 and October 20, 1998 (the "Merger Agreement").
In accordance with the terms of the Merger Agreement, Acquisition Corp will
be merged with and into SPC (the "Merger") and each outstanding share of SPC
common stock, no par value per share ("SPC Common Stock") will be converted
into shares of DPRC common stock, no par value per share ("DPRC Common Stock"),
in accordance with an exchange ratio (the "Exchange Ratio") based on the total
consideration to be delivered with respect to the Merger. Following the Merger,
SPC will be a wholly owned subsidiary of DPRC.
In addition, in connection with the Merger, DPRC will assume SPC's existing
stock option plan. Such plan has outstanding certain stock options to purchase
shares of SPC Common Stock which options, following the Merger, will remain
outstanding and be exercisable for shares of DPRC Common Stock of equivalent
value, as determined by the Exchange Ratio (the "SPC Time-Vesting Options").
All of the SPC Time-Vesting Options are currently fully vested and exercisable
at a price, after adjustment in accordance with the Exchange Ratio,
substantially below the market value of DPRC Common Stock. Certain other
options to purchase shares of SPC Common Stock which are outstanding under
SPC's stock option plan (the "SPC Performance-Vesting Options") will be
canceled in the Merger in exchange for shares of DPRC Common Stock with an
aggregate value equal to the appraised value of the SPC Performance-Vesting
Options. The number of shares of DPRC Common Stock issued in connection with
the Merger Consideration, as defined below, will be reduced by the number of
shares of DPRC Common Stock issued in consideration of the cancellation of the
SPC Performance-Vesting Options.
The aggregate consideration to be delivered in connection with the Merger
will be paid exclusively in shares of DPRC Common Stock having an implied value
on the date the amendment of October 20, 1998 to the Merger Agreement was
signed of $71.5 million less deductions for certain costs and liabilities to be
assumed by DPRC (the "Merger Consideration"). The total number of shares of
DPRC Common Stock anticipated to be issued in connection with the Merger is
estimated to be between 2.8 million and 3.3 million (the "Share Issuance"). Of
such number of shares, approximately two-thirds are expected to be issued upon
consummation of the Merger in exchange for the outstanding shares of SPC Common
Stock and for the cancellation of the SPC Performance-Vesting Options and the
remaining number of shares, approximately one-third, will be issued from time
to time thereafter upon exercise of the SPC Time-Vesting Options under the SPC
stock option plan being assumed by DPRC.
<PAGE>
The exact number of shares of DPRC Common Stock to be issued in connection
with the Merger will not be determined until the closing of the Merger since
the amount of the deductions for certain costs and liabilities to be assumed
by DPRC cannot be determined until such time. Although the amount of these
deductions will not be fixed until the closing, the other amounts used to
calculate the Exchange Ratio are fixed. The implied consideration of $71.5
million and the price of $21.00 for each share of DPRC Common Stock used to
calculate the Exchange Ratio were determined and fixed at the time the
amendment of October 20, 1998 to the Merger Agreement was signed and will not
be changed regardless of whether the market price of DPRC Common Stock is
higher or lower. Therefore, although the actual number of shares of DPRC
Common Stock to be issued in connection with the Merger will not change due to
any change in the market price of such stock, the market value of such shares
and the aggregate value of the transaction will depend on the current market
price of DPRC Common Stock at the time the Merger is consummated and,
consequently, will not be known at the time of the Special Meeting. The same
Exchange Ratio will be used to determine the number of shares of DPRC Common
Stock to be received by the holders of SPC Common Stock, SPC Time-Vesting
Options and SPC Performance-Vesting Options. As a result, the risk of any
decline or benefit of any increase in the market price of DPRC Common Stock
from such date will similarly affect the holders of SPC Common Stock, SPC
Time-Vesting Options and SPC Performance-Vesting Options.
It is anticipated that each share of outstanding SPC Common Stock will be
converted in the Merger into the right to receive between approximately 5.50
and 6.40 shares of DPRC Common Stock. The Exchange Ratio is estimated for
purposes of this Proxy Statement/Prospectus since the amount of deductions for
certain costs and liabilities to be assumed by DPRC cannot be determined until
the consummation of the Merger. Since all other amounts used to calculate the
Exchange Ratio are fixed, the number of shares of DPRC Common Stock to be
issued in connection with the Merger will vary only depending upon the amount
of the deductions for costs and liabilities and not for any changes in the
market price of DPRC Common Stock. Based upon the most recent information
available, the estimated aggregate costs and liabilities to be deducted from
the implied valuation for SPC's tax liabilities, bank debt outstanding and
portion of pre-payment penalty, aged receivables outstanding, noncompetition
payments, costs and expenses of the Merger and appraised value of SPC
Performance-Vesting Options range from $4.3 million to $13.7 million, which
results in the 5.50 to 6.40 estimated Exchange Ratio. However, there is no
minimum Exchange Ratio and the actual number of shares may be less than
estimated above if the costs and liabilities to be assumed by DPRC in the
Merger are more than estimated above. As a result, the exact number of shares
of DPRC Common Stock and the market value at the time of the Merger of such
shares to be received by SPC shareholders and option holders will not be known
at the time of the Special Meeting.
This Proxy Statement/Prospectus is being furnished to the holders of DPRC
Common Stock in connection with the solicitation of proxies by the Board of
Directors of DPRC (the "DPRC Board") for use at a special meeting of
shareholders of DPRC to be held on , 1998, and any and all
adjournments and postponements thereof (the "DPRC Special Meeting").
At the DPRC Special Meeting, holders of DPRC Common Stock will be asked to
consider proposals to: (i) approve the Merger Agreement, (ii) approve the
Share Issuance, (iii) approve an amendment to DPRC's Articles of Incorporation
to increase the number of authorized shares of DPRC Common Stock from 20.0
million shares to 60.0 million shares (the "Charter Amendment") and (iv)
approve an amendment to DPRC's 1994 Stock Option Plan to increase the number
of shares of DPRC Common Stock reserved for issuance upon exercise of stock
options granted thereunder from 2.0 million shares to 3.0 million shares (the
"Option Plan Amendment").
This Proxy Statement/Prospectus also constitutes the prospectus of DPRC with
respect to the shares of DPRC Common Stock to be issued to the shareholders
and option holders of SPC pursuant to the Merger Agreement filed as part of a
Registration Statement on Form S-4 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). DPRC will apply to have the shares
of DPRC Common Stock issued pursuant to the Merger listed on the Nasdaq
National Market (the "NNM").
<PAGE>
On June 15, 1998, the last full day of trading prior to the announcement of
the execution of the Merger Agreement, the last reported sale price of DPRC
Common Stock, as reported on the NNM, was $30.875. On November 5, 1998, the
last trading day prior to the date of this Proxy Statement/Prospectus, the
last reported sale price of DPRC Common Stock as reported on the NNM, was $20
11/16.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to shareholders of DPRC on or about , 1998.
THE 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 PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 19 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY THE SHAREHOLDERS OF DPRC WITH RESPECT TO THE
MERGER.
----------------
The date of this Proxy Statement/Prospectus is [ ], 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<C> <S> <C>
AVAILABLE INFORMATION.................................................. ii
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................ iii
SUMMARY................................................................ 1
RISK FACTORS........................................................... 19
THE SPECIAL MEETINGS................................................... 28
THE MERGER............................................................. 32
Background of the Merger............................................ 32
DPRC's Reasons for the Merger; Recommendations of the DPRC Board.... 36
SPC's Reasons for the Merger; Recommendations of the SPC Board...... 38
Opinion of NMS, Financial Advisor to DPRC........................... 41
The Merger Agreement................................................ 45
Listing of DPRC Common Stock........................................ 52
Resale of Shares of DPRC Common Stock Issued in the Merger;
Affiliates......................................................... 52
Interests of Certain Persons in the Merger.......................... 53
Board of Directors and Management Following the Merger.............. 53
Accounting Treatment of the Merger.................................. 54
Material Federal Income Tax Consequences of the Merger to SPC
Shareholders....................................................... 55
Federal Income Tax Treatment of Stock Options....................... 55
Rights of DPRC Dissenting Shareholders.............................. 56
Rights of SPC Dissenting Shareholders............................... 58
COMPARATIVE MARKET DATA................................................ 61
DESCRIPTION OF CAPITAL STOCK OF DPRC................................... 62
COMPARATIVE RIGHTS OF SHAREHOLDERS..................................... 63
DPRC SELECTED CONSOLIDATED FINANCIAL DATA.............................. 67
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.................. 69
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET......................... 70
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA.............. 71
BUSINESS OF SPC........................................................ 74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SPC.. 75
SELECTED FINANCIAL DATA OF SPC......................................... 76
SPC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................. 78
PROPOSED DPRC SHARE ISSUANCE........................................... 84
PROPOSED DPRC CHARTER AMENDMENT........................................ 85
PROPOSED AMENDMENT OF DPRC 1994 STOCK OPTION PLAN...................... 86
OTHER BUSINESS......................................................... 89
SUBMISSION OF DPRC SHAREHOLDER PROPOSALS............................... 89
LEGAL MATTERS.......................................................... 90
EXPERTS................................................................ 90
FINANCIAL STATEMENTS................................................... F-1
ANNEXES
ANNEX A: AGREEMENT AND PLAN OF MERGER, AS AMENDED................... A-1
ANNEX B: OPINION OF NATIONSBANC MONTGOMERY SECURITIES LLC........... B-1
ANNEX C-1: CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
RELATING TO DISSENTERS' RIGHTS OF SHAREHOLDERS............. C-1-1
ANNEX C-2: TEXT OF CHAPTER 55, ARTICLE 13 OF THE GENERAL STATUTES OF
NORTH CAROLINA CONCERNING RIGHTS OF DISSENTING
SHAREHOLDERS............................................... C-2-1
ANNEX D: DATA PROCESSING RESOURCES CORPORATION 1994 STOCK OPTION
PLAN, AS AMENDED........................................... D-1
</TABLE>
i
<PAGE>
AVAILABLE INFORMATION
DPRC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the rules and regulations
thereunder, and in accordance therewith, files reports, proxy statements,
registration statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by DPRC with the Commission, including the reports and other information
incorporated by reference into this Prospectus, can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates or from the Commission's Internet Web site at
http://www.sec.gov. Such reports, proxy statements and other information
concerning DPRC are also available for inspection at the offices of The Nasdaq
Stock Market at 17 K Street, N.W., Washington, D.C. 20006.
DPRC has filed with the Commission the Registration Statement with respect
to the DPRC Common Stock to be issued pursuant to the Merger Agreement, of
which this Proxy Statement/Prospectus constitutes a part. The information
contained herein with respect to DPRC and its affiliates has been provided by
DPRC. This Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement, certain items of which were omitted
in accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement. Any
statements contained herein concerning the contents of any contract, agreement
or other document referred to herein and filed as an exhibit to the
Registration Statement or otherwise filed with the Commission are not
necessarily complete. With respect to each such contract, agreement or other
document filed with the Commission as an exhibit, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement is qualified by such reference.
-ii-
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by DPRC with the Commission pursuant to the
Exchange Act are incorporated herein by reference:
(a) The Annual Report of DPRC on Form 10-K (File No. 0-27612) for its
fiscal year ended July 31, 1998.
(b) The definitive Proxy Statement of DPRC, as filed with the Commission
November 17, 1997.
(c) The Current Report of DPRC on Form 8-K dated July 1, 1996, as filed
with the Commission on July 16, 1996, and the Form 8-K/A filed with the
Commission on August 28, 1996.
(d) The Current Report of DPRC on Form 8-K dated January 27, 1998, as
filed with the Commission on February 11, 1998, and the Forms 8-K/A filed
with the Commission on March 5, 1998, March 20, 1998 and September 29,
1998.
(e) The Current Report of DPRC on Form 8-K dated August 6, 1998, as filed
with the Commission on August 6, 1998.
(f) The Current Report of DPRC on Form 8-K dated October 20, 1998, as
filed with The Commission on October 22, 1998.
(g) The 424(b)(3) Prospectus dated June 11, 1998, as filed with the
Commission on June 18, 1998 relating to the Registration Statement of DPRC
on Form S-3 (File No. 333-53371).
(h) The Registration Statement of DPRC on Form 8-A/A Amendment No. 1,
filed with the Commission on March 1, 1996, registering DPRC Common Stock
under Section 12(g) of the Exchange Act.
(i) All documents filed by DPRC with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this Proxy Statement/Prospectus and prior to the date of the DPRC Special
Meeting shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Proxy Statement/Prospectus to
the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED
BY REFERENCE THEREIN, ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING
ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST TO DATA PROCESSING RESOURCES CORPORATION, 4400
MACARTHUR BOULEVARD, SUITE 600, NEWPORT BEACH, CALIFORNIA 92660, TELEPHONE
(949) 553-1102, ATTENTION MICHAEL A. PIRAINO. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY DPRC BY
, 1998 [5 BUSINESS DAYS PRIOR TO MEETING].
----------------
NO PERSON IS AUTHORIZED BY DPRC TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS,
IN CONNECTION WITH THE SOLICITATION AND THE OFFERING MADE BY THIS PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY OR AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES IN
ANY JURISDICTION IN WHICH SUCH SOLICITATION OR OFFERING MAY NOT LAWFULLY BE
MADE.
-iii-
<PAGE>
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION
OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF DPRC SINCE THE DATE HEREOF.
WHEN USED IN THIS PROXY STATEMENT/PROSPECTUS, STATEMENTS CONTAINING THE
WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES," "BELIEVES" AND WORDS OF SIMILAR
IMPORT MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. SUCH
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING THOSE SET FORTH
UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROXY STATEMENT/PROSPECTUS, THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED. FOR A
DISCUSSION OF SUCH RISKS, SEE "RISK FACTORS." READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS
OF THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
-iv-
<PAGE>
SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus and may not contain all of the information that is
important. To understand the Merger fully and for a more complete description
of the legal terms of the Merger, shareholders should read carefully this
entire document, including the annexes, and the documents incorporated by
reference. See "Available Information" and "Incorporation of Certain Documents
by Reference." Shareholders should also carefully consider the information set
forth below in "Risk Factors." Except as otherwise noted, references to "DPRC"
refer to Data Processing Resources Corporation and its subsidiaries.
THE COMPANIES
DPRC
Data Processing Resources Corporation ("DPRC") is a leading provider of
information technology ("IT") staffing services to a diverse group of corporate
clients. Utilizing full-time salaried and hourly technical consultants, DPRC
offers a wide range of staffing solutions to meet its clients' enterprise-wide
IT needs. DPRC'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. In addition, DPRC also
provides other specialty staffing services such as Year 2000 conversion,
network management and desktop services, internet/intranet development and
support, packaged software implementation (including responsibility for
deliverables), software engineering and help desk support.
Early in fiscal 1994, DPRC began to implement a growth strategy focused on
expanding its geographic coverage, increasing its service offerings and
enhancing overall profitability. DPRC has expanded from three California
offices in 1996 to 17 offices in 12 states and four international recruiting
offices (two in England, one in Australia and one in Canada) as of September
30, 1998. Of the 14 new offices, six were internally developed and eight were
acquired. In addition, through internal development and acquisitions, DPRC has
added a number of high margin, specialty service areas and increased its
percentage of full-time salaried consultants.
DPRC plans to continue its acquisition strategy in order to further expand
its geographic scope and broaden its service offerings. DPRC believes that both
the size and fragmented nature of the IT services industry provides continuing
opportunities for expansion. DPRC continually reviews potential acquisitions
and is currently in various stages of investigating and negotiating with
several acquisition candidates. There are no proposed material acquisitions,
singly or in the aggregate, which are probable. DPRC has not entered into a
definitive purchase agreement with any acquisition candidate and there is no
assurance that DPRC will consummate a transaction with any of the candidates
with whom it is currently in negotiations.
DPRC'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, develop and retain qualified technical consultants. To
compete for scarce IT resources, DPRC focuses on: (i) expanding its pool of
experienced and specialized recruiters; (ii) offering its technical consultants
competitive wages; (iii) offering its technical consultants an opportunity to
purchase a comprehensive employee benefits package; (iv) effectively
communicating with its technical consultants; (v) providing specialized
training through licensed training programs; and (vi) expanding its national
recruiting organization. In connection with a prior acquisition, DPRC acquired
international recruiting capabilities with two offices in England, one in
Australia and one in Canada. DPRC also attracts new consultants in its
established markets through referrals and the internet.
DPRC 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. DPRC's telephone number is (949) 553-1102.
1
<PAGE>
SPC
SPC, founded in 1980, is headquartered in Charlotte, North Carolina and
provides IT services, including contract resources, custom solutions, software
services and systems integration, to Fortune 500 organizations as well as
regional companies throughout the Southeast. SPC has branch offices in Atlanta,
Georgia, Charlotte, North Carolina, Dallas, Texas, Nashville, Tennessee,
Raleigh, North Carolina, Richmond, Virginia, St. Louis, Missouri and Tampa,
Florida and has targeted locations in the Northeast, Southeast and Southwest
for the opening of additional branch offices.
SPC's strategy to date has been to grow internally by providing services of
the highest quality and responding to its clients' changing technological
needs. SPC's rigorous recruiting process is designed to locate and retain top
candidates in the industry. These candidates are screened for their technical
skills and their ability to fit within the culture of SPC. SPC's national
recruiting organization supplements the local branch office recruiting efforts
by providing such branches with additional employee candidates and assisting
them in overall recruiting efforts. In this manner, a more uniform skill level
for technical consultants is distributed throughout SPC's geographical markets.
Once a consultant is hired, SPC continues to support its quality objectives
by providing quality plan reviews and feedback to the consultants. SPC has a
formal training plan that was developed and is updated by its professional
development committee. SPC has developed a training infrastructure that
provides dedicated resources such as a training coordinator and a state-of-the-
art training room with high-end PCs. SPC's top technical professionals are
employed to develop and teach courses. SPC currently has approximately
500 technical professionals comprised of project managers/business
analysts/consultants, database administrators/tech leads, senior
programmers/analysts, programmers/analysts and programmers in addition to its
administrative staff.
SPC has approximately 135 active clients across many industries with
concentrations in financial services, telecommunications, manufacturing and
information technology. SPC's five largest accounts comprised approximately
56.0% of total revenue for eight month period ended August 31, 1998 and its two
largest customers, NationsBank and First Union National Bank, accounted for
24.7% and 16.6%, respectively, of such revenue. SPC's expansive network of
contacts throughout the technical community alerts SPC to changes in the
marketplace and opportunities for SPC's clients and employees. Working closely
with clients in the conceptual planning and analysis phases of new
opportunities allows SPC to timely respond to needs for contract personnel. The
combination of providing quality services in a timely and responsive manner has
led to the development of long-term relationships between SPC and many of its
clients.
SPC was incorporated as a South Carolina corporation in 1980 and became a
North Carolina corporation in 1992. Its principal executive offices are located
at 212 South Tryon, Suite 700, Charlotte, North Carolina 28281. SPC's telephone
number is (704) 348-9000.
ACQUISITION CORP.
Acquisition Corp., which is a wholly owned subsidiary of DPRC, was
incorporated in North Carolina on June 15, 1998, solely for the purpose of
engaging in the transactions contemplated by the Merger Agreement and has
engaged in no business other than incident to its creation and the Merger
Agreement and the transactions contemplated by the Merger. Acquisition Corp.
has its principal executive offices at Suite 600, 4400 MacArthur Boulevard,
Newport Beach, California 92660.
OPERATIONS AFTER THE MERGER
The merger of DPRC and SPC will provide the combined company with a platform
to accelerate DPRC's aggressive, yet disciplined, domestic growth plan. The
Merger will position DPRC as a provider of IT services with a network of 24
branch offices serving approximately 550 clients nationwide. The addition of
SPC will add
2
<PAGE>
seven offices in new geographic markets to the Company's existing operations
and will increase its penetration in two existing markets. Only the Dallas,
Texas and St. Louis, Missouri offices of SPC are located in areas in which DPRC
currently has offices. Following the Merger, DPRC will have offices located in
17 states: Arizona, California, Colorado, Florida, Georgia, Iowa, Illinois,
Kansas, Missouri, Minnesota, Nebraska, North Carolina, Oregon, Tennessee,
Texas, Virginia and Washington and four offices located internationally. Also,
SPC's national recruiting organization is expected to complement DPRC's
national recruiting organization and expand the number and skills of its
technical consultants.
DPRC has identified synergies expected to be realized as a result of the
Merger, mainly derived from: (i) the ability of SPC and DPRC to cross-sell
value-added services to the other's existing and potential customers; (ii) a
greater presence in markets through its expanded national network of offices;
(iii) the addition of more salaried, rather than hourly, technical consultants;
(iv) an expanded national recruiting organization to augment the number and
skills of its technical consultants; (v) enhanced purchasing efficiencies; and
(vi) improvements in skill mix. Many of these synergies should be achieved by
combining the resources of DPRC and SPC and by applying DPRC's existing
programs to SPC's business. After giving effect to these expected synergies
resulting from the Merger, the Merger is expected by DPRC to be accretive to
its earnings in the fiscal year ending July 31, 1999 and thereafter. See "The
Merger--DPRC's Reasons for the Merger; Recommendations of the DPRC Board." No
assurances can be made, however, that any of these synergies will be realized,
or even if realized, that they will have a positive effect on DPRC's financial
condition.
THE SPECIAL MEETINGS
DPRC
PURPOSE. At the DPRC Special Meeting, DPRC shareholders will be asked to: (i)
approve the Merger Agreement; (ii) approve the Share Issuance; (iii) approve
the Charter Amendment; (iv) approve the Option Plan Amendment; and (v) transact
any other business that properly may come before the meeting or any
adjournments or postponements thereof.
TIME, PLACE AND DATE. The DPRC Special Meeting will be held at The Sutton
Place Hotel located at 4500 MacArthur Boulevard, Newport Beach, California
92660, on , 1998, at [ .], local time.
RECORD DATE; QUORUM; VOTES REQUIRED. Holders of shares of DPRC Common Stock
as of the close of business on November 2, 1998, which has been set as the
"DPRC Record Date," will be entitled to vote at the DPRC Special Meeting. As of
the DPRC Record Date, 11,786,947 shares of DPRC Common Stock were outstanding
and entitled to vote, of which 22% was beneficially owned by the directors and
executive officers of DPRC. The presence in person or by proxy of a majority of
the outstanding shares of DPRC Common Stock at the DPRC Special Meeting
constitutes a quorum, thus enabling the shareholders to transact business at
the DPRC Special Meeting. Approval of each of the Merger Agreement, the Charter
Amendment and the Option Plan Amendment requires the affirmative vote of a
majority of the outstanding shares of DPRC Common Stock entitled to vote
thereon at the DPRC Special Meeting. Approval of the Share Issuance requires
the affirmative vote of a majority of the votes cast with respect to such
proposal; provided that the total number of votes cast on such proposal
represents more than 50% of the outstanding shares of DPRC Common Stock
entitled to vote thereon at the DPRC Special Meeting. Approval of the Merger
Agreement, the Charter Amendment and the Share Issuance is Required for the
Merger to be consummated. If any one of the foregoing three proposals is not
approved, even if the other two proposals are approved, the Merger cannot be
consummated. Approval of the Option Plan Amendment is not required to
consummate the Merger, and if approved, will independently be effected even if
any of the other proposals are not approved. See "The Special Meetings."
3
<PAGE>
SPC
PURPOSE. At a special meeting of the shareholders of SPC (the "SPC Special
Meeting"), SPC shareholders will be asked to: (i) approve the Merger Agreement;
and (ii) transact any other business that properly may come before the meeting
or any adjournments or postponements thereof.
TIME, PLACE AND DATE. The SPC Special Meeting will be held at the
[ ], located at [ ], North Carolina[ ] on , 1998,
at [ ], local time.
RECORD DATE; QUORUM; VOTES REQUIRED. Holders of shares of SPC Common Stock as
of the close of business on November 2, 1998, which has been set as the "SPC
Record Date," will be entitled to vote at the SPC Special Meeting. As of the
SPC Record Date, 329,168 shares of SPC Common Stock were outstanding and
entitled to vote, of which approximately 87% was beneficially owned by the
directors and executive officers of SPC. The presence in person or by proxy of
a majority of the outstanding shares of SPC Common Stock at the Special Meeting
constitutes a quorum, thus enabling the shareholders to transact business at
the SPC Special Meeting. Approval of the Merger Agreement requires the
affirmative vote of a majority of all outstanding shares of SPC Common Stock
entitled to vote at the SPC Special Meeting. See "The Special Meetings." 69,895
shares of SPC Common Stock, representing approximately 21% of the outstanding
shares of SPC Common Stock, are held by the Systems & Programming Consultants,
Inc. Stock Bonus Plan ("Stock Bonus Plan"). Those shares are held in the names
of Thomas G. Carlisle and Richard K. Carlisle, as the trustees of the Stock
Bonus Plan ("Trustees"). However, as required by law, each participant in the
Stock Bonus Plan is entitled to direct the Trustees as to how to vote the
shares of SPC Common Stock held in his or her account. Should a participant
fail to direct the Trustees how to vote those shares, the Trustees shall
decide, in their discretion, how those shares are to be voted. In exercising
their discretion in this regard, the Trustees are subject to the fiduciary
responsibility rules of the Employee Retirement Income Security Act of 1974.
THE MERGER
REASONS FOR THE MERGER
The DPRC Board unanimously approved the Merger Agreement for several reasons.
The DPRC Board believes that the IT services industry is currently undergoing
significant consolidation and that by joining the operations of DPRC and SPC,
the Merger will create a stronger, more geographically diverse, yet regionally
operated, company. The Merger will provide DPRC with a greater market presence
through an expanded national network of offices. Such a geographical base will
allow DPRC to continue growing in both existing and new markets. The critical
mass, strong regional networks and integrated recruiting programs of DPRC and
SPC will make it an attractive provider of services to clients seeking a broad
range of IT services. DPRC's increased size should provide enhanced purchasing
efficiencies. The Merger should provide opportunities for DPRC and SPC to
cross-sell value-added services to each other's existing and potential
customers. Additionally, the Merger will increase DPRC's percentage of salaried
technical consultants and the skill mix of its consultants. DPRC should be able
to take advantage of certain synergies expected to result from the combining of
the complementary recruiting and IT service operations of DPRC and SPC,
particularly with the combined national recruiting organizations of DPRC and
SPC. After giving effect to these expected synergies resulting from the Merger,
the Merger is expected by DPRC to be accretive to its earnings in the fiscal
year ending July 31, 1999 and thereafter. See "The Merger--DPRC's Reasons for
the Merger; Recommendations of the DPRC Board." No assurances can be made,
however, that any of these synergies will be realized, or even if realized,
that they will have a positive effect on DPRC's financial condition.
In reaching a decision to recommend the Merger, each of the DPRC and SPC
Boards of Directors considered a number of factors in addition to those set
forth above, including, with respect to the DPRC Board, the oral opinion of
NationsBanc Montgomery Securities LLC ("NMS") (subsequently confirmed in
writing) that the Merger Consideration to be paid by DPRC pursuant to the
Merger Agreement was fair to DPRC from a financial point of view as of October
21, 1998 (the "NMS Opinion"). A copy of the NMS Opinion and a copy
4
<PAGE>
of the written opinion previously delivered by NMS dated June 15, 1998 and
confirmed in a letter dated June 16, 1998 are attached as Annex B. See "The
Merger--DPRC's Reasons for the Merger; Recommendations of the DPRC Board" and
"The Merger--SPC's Reasons for the Merger; Recommendations of the SPC Board."
RECOMMENDATIONS TO DPRC SHAREHOLDERS
THE DPRC BOARD BELIEVES THAT THE MERGER AGREEMENT, THE SHARE ISSUANCE, THE
CHARTER AMENDMENT AND THE OPTION PLAN AMENDMENT ARE IN THE BEST INTERESTS OF
DPRC AND ITS SHAREHOLDERS AND THE DPRC BOARD UNANIMOUSLY RECOMMENDS THAT DPRC'S
SHAREHOLDERS VOTE FOR THE PROPOSALS TO APPROVE THE MERGER AGREEMENT, THE SHARE
ISSUANCE, THE CHARTER AMENDMENT AND THE OPTION PLAN AMENDMENT. SEE "THE
MERGER--DPRC'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE DPRC BOARD."
RECOMMENDATIONS TO SPC SHAREHOLDERS
THE BOARD OF DIRECTORS OF SPC (THE "SPC BOARD") BELIEVES THAT THE MERGER IS
FAIR TO AND IN THE BEST INTERESTS OF SPC AND ITS SHAREHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT SPC SHAREHOLDERS VOTE FOR THE PROPOSAL TO APPROVE AND ADOPT THE
MERGER AGREEMENT. SEE "THE MERGER--SPC'S REASONS FOR THE MERGER;
RECOMMENDATIONS OF THE SPC BOARD."
OPINION OF FINANCIAL ADVISOR
In making its determination as to the fairness of the Merger Consideration,
the DPRC Board received and considered materials prepared by NMS which
evaluated the Merger Consideration to be paid from a financial point of view.
The DPRC Board also received the NMS Opinion. A copy of the NMS Opinion and a
copy of the written opinion previously delivered by NMS dated June 15, 1998 and
confirmed in a letter dated June 16, 1998, including the assumptions,
qualifications and other matters contained therein, are included in the
accompanying Proxy Statement/Prospectus as Annex B. See "The Merger--Opinion of
NMS, Financial Advisor to DPRC."
LISTING OF DPRC COMMON STOCK
At the time the Merger is consummated, the shares of DPRC Common Stock to be
issued pursuant to the Merger Agreement will be approved for listing on the NNM
under the trading symbol "DPRC".
RESALE RESTRICTIONS
All shares of DPRC Common Stock received by SPC shareholders and option
holders in the Merger will be freely transferable, except that the shareholders
deemed "affiliates" of SPC at the time the Merger becomes final are subject to
certain regulatory and contractual restrictions regarding the resale of their
shares of DPRC Common Stock. See "The Merger--Resale of Shares of DPRC Common
Stock Issued in the Merger; Affiliates."
BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER
Upon consummation of the Merger, Thomas G. Carlisle, a current member of the
Board of Directors of SPC and SPC's current president, will become a member of
the five-person DPRC Board. Management of DPRC will not change as a result of
the Merger. Following the Merger, the Board of Directors of SPC will consist of
5
<PAGE>
David M. Connell and Michael A. Piraino, two of the current executive officers
of DPRC, and Thomas G. Carlisle. The existing executive officers of SPC are
expected to, pursuant to employment agreements effective concurrently with the
consummation of the Merger, remain at SPC following the Merger, with different
titles, as part of the new management of SPC which will also include some of
the current executive officers of DPRC.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In reviewing the actions of the SPC Board with respect to the Merger
Agreement, SPC shareholders should be aware that certain directors and officers
of SPC may have interests in the Merger that are different from, or in addition
to, the interests of SPC shareholders generally. Such interests include the
receipt of employment agreements and the receipt of compensation in exchange
for covenants not to compete with SPC. See "The Merger--Interests of Certain
Persons in the Merger" and "Security Ownership of Certain Beneficial Owners and
Management of SPC."
FEDERAL INCOME TAX CONSEQUENCES
The Merger constitutes a tax-free reorganization for federal income tax
purposes under Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), so that neither SPC nor its respective shareholders or option
holders will recognize any gain or loss for Federal income tax purposes in the
Merger (except for any cash received by SPC shareholders in lieu of fractional
shares and for holders of SPC Performance Vesting Options being cancelled in
connection with the Merger). See "The Merger--Material Federal Income Tax
Consequences of the Merger to SPC Shareholders" and "The Merger--Federal Income
Tax Treatment of Stock Options."
ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles
("GAAP"), which means that DPRC will restate its historical consolidated
financial statements to include the assets, liabilities, shareholders' equity
and results of operations of SPC. Consummation of the Merger is conditioned
upon receipt at the closing of the Merger of the opinion of DPRC's independent
public accountant that the Merger will qualify for pooling of interests
accounting treatment. See "The Merger--Accounting Treatment of the Merger."
DISSENTERS' RIGHTS
Under California law, in limited circumstances, DPRC shareholders who make
written demand upon DPRC or its transfer agent prior to the Special Meeting and
who vote against the Merger, may, under certain circumstances and by following
prescribed statutory procedures, receive cash in an amount equal to the fair
market value of their shares. The failure of a dissenting stockholder to follow
such procedures may result in the termination or waiver of such stockholder's
rights as a dissenter. See "The Merger--Rights of DPRC Dissenting Shareholders"
and Chapter 13 of the California General Corporation Law (the "CGCL"), a copy
of which is attached hereto as Annex C-1.
Under North Carolina law, SPC shareholders and participants in the SPC Stock
Bonus Plan who vote against the Merger may, under certain circumstances, and by
following prescribed statutory procedures receive cash in an amount equal to
the fair market value of their shares. Failure to follow any such procedures
will result in a termination or waiver of such shareholder's rights as a
dissenter. See "The Merger--Rights of SPC Dissenting Shareholders" and Article
13 of the North Carolina Business Corporation Act (the "NCBCA"), a copy of
which is attached hereto as Annex C-2.
6
<PAGE>
THE MERGER AGREEMENT
A copy of the Merger Agreement is attached as Annex A to this Proxy
Statement/Prospectus. Shareholders are strongly encouraged to read the Merger
Agreement as it is the legal document that governs the Merger.
TERMS OF THE MERGER AGREEMENT
The Merger Agreement provides that Acquisition Corp will be merged with and
into SPC and each outstanding share of SPC Common Stock will be converted into
shares of DPRC Common Stock in accordance with the Exchange Ratio based on the
Merger Consideration to be delivered with respect to the Merger. Following the
Merger, SPC will be a wholly owned subsidiary of DPRC.
The aggregate Merger Consideration to be delivered in connection with the
Merger will be paid exclusively in shares of DPRC Common Stock having an
implied value on the date the amendment of October 20, 1998 to the Merger
Agreement was signed of $71.5 million less deductions for certain costs and
liabilities to be assumed by DPRC. The total number of shares of DPRC Common
Stock anticipated to be issued in connection with the Merger is estimated to be
between 2.8 million and 3.3 million. Of such number of shares, approximately
two-thirds are expected to be issued upon consummation of the Merger in
exchange for the outstanding shares of SPC Common Stock and for the
cancellation of the SPC Performance-Vesting Options and the remaining number of
shares, approximately one-third, will be issued from time to time thereafter
upon exercise of the SPC Time-Vesting Options under the stock option plan being
assumed by DPRC. Cash will be paid in lieu of any fractional shares of DPRC
Common Stock.
The exact number of shares of DPRC Common Stock to be issued in connection
with the Merger will not be determined until the closing of the Merger since
the amount of the deductions for certain costs and liabilities to be assumed by
DPRC cannot be determined until such time. Although the amount of these
deductions will not be fixed until the closing, the other amounts used to
calculate the Exchange Ratio are fixed. The implied consideration of $71.5
million and the price of $21.00 for each share of DPRC Common Stock used to
calculate the Exchange Ratio were determined and fixed at the time the
amendment of October 20, 1998 to the Merger Agreement was signed and will not
be changed regardless of whether the market price of DPRC Common Stock is
higher or lower. Therefore, although the actual number of shares of DPRC Common
Stock to be issued in connection with the Merger will not change due to any
change in the market price of such stock, the market value of such shares and
the aggregate value of the transaction will depend on the current market price
of DPRC Common Stock at the time the Merger is consummated and, consequently,
will not be known at the time of the Special Meeting. The same Exchange Ratio
will be used to determine the number of shares of DPRC Common Stock to be
received by the holders of SPC Common Stock, SPC Time-Vesting Options and SPC
Performance-Vesting Options. As a result, the risk of any decline or benefit of
any increase in the market price of DPRC Common Stock from such date will
similarly affect the holders of SPC Common Stock, SPC Time-Vesting Options and
SPC Performance-Vesting Options.
It is anticipated that each share of outstanding SPC Common Stock will be
converted in the Merger into the right to receive between approximately 5.50
and 6.40 shares of DPRC Common Stock. Assuming a minimum and maximum Exchange
Ratio of 5.50 and 6.40, approximately 2.8 million and 3.3 million shares,
respectively, of DPRC Common Stock would be issued or reserved in connection
with the Merger (including 938,080 and 1,091,584 shares, respectively, of DPRC
Common Stock to be issued from time to time after the consummation of the
Merger upon the exercise of the SPC Time-Vesting Options), which represent
approximately 24% and 28%, respectively, of the 11,786,947 shares of DPRC
Common Stock outstanding on the DPRC Record Date. Also, although the Merger
will dilute the percentage holdings of DPRC's current shareholders since the
percentage of DPRC owned by each current shareholder will be reduced by the
shares issued in the Merger, the shareholders will own a portion of the larger
combined companies, with the consolidation of DPRC with SPC's revenues and
assets. See"--Comparative Per Share Data" and "Unaudited Pro Forma Consolidated
Financial Statements."
7
<PAGE>
The Exchange Ratio is estimated for purposes of this Proxy
Statement/Prospectus since the amount of deductions for certain costs and
liabilities to be assumed by DPRC cannot be determined until the consummation
of the Merger. Since all other amounts used to calculate the Exchange Ratio are
fixed, the number shares of DPRC Common Stock to be issued in connection with
the Merger will vary only depending upon the amount of the deductions for costs
and liabilities and not for any changes in the market price of DPRC Common
Stock. Although the exact amounts of the deductions for certain costs and
liabilities to be assumed by DPRC in the Merger will not be known until the
date of the closing of the Merger, the expected maximum, minimum and likely
amounts of each of these costs and liabilities have been estimated based upon
the most recent information available considering historical financial
information of SPC and contractual requirements. Since such amounts are
estimates, the actual amounts determined as of the closing of the Merger, may
be more or less.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
LIKELY MAXIMUM MINIMUM
TYPE OF DEDUCTION AMOUNT AMOUNT AMOUNT
----------------- ---------- ----------- ----------
<S> <C> <C> <C>
SPC's Tax Liabilities(a).................. $ 600,000 $ 2,500,000 $ --
SPC's Bank Debt Liability(b).............. 2,500,000 5,500,000 --
SPC's Aged Receivables Over 90 Days(c).... 350,000 400,000 --
Noncompetition Payments(d)................ 400,000 400,000 400,000
Merger Costs and Expenses(e).............. 2,000,000 3,000,000 1,500,000
One-half of the prepayment penalty on
SPC's Revolving Line of Credit(f)........ 6,250 6,250 6,250
---------- ----------- ----------
Subtotal................................ 5,856,250 11,806,250 1,906,250
Appraised Value of SPC Performance-Vesting
Options(g)............................... 2,231,103 1,937,964 2,425,710
---------- ----------- ----------
Total Deductions........................ $8,087,353 $13,744,214 $4,331,960
========== =========== ==========
Assumed Exchange Ratio(h)................. 6.04 5.50 6.40
========== =========== ==========
</TABLE>
- --------
(a) The amount of tax liabilities at September 30, 1998 was $819,574.
(b) Amounts represent the maximum and minimum credit advances allowed under
SPC's Revolving Credit Facility with CIT Group/BBC, Inc. The principal
amount outstanding under SPC's Revolving Credit Facility at September 30,
1998 was $2.4 million.
(c) Amounts are estimated based on the historical aged receivables of SPC. The
amount of receivables which had aged more than 90 days at July 31, 1997 was
$199,410 and at September 30, 1998 was $311,109.
(d) Amount is fixed by the terms of the Noncompetition Agreement. See Exhibit I
to the Merger Agreement.
(e) Estimated amounts are for the following costs and expenses expected to be
incurred by SPC in the Merger: broker's fees, legal fees, accounting fees,
travel and other expenses of management of SPC.
(f) Amount is fixed under the terms of SPC's Revolving Credit Facility with CIT
Group/BBC, Inc.
(g) Estimated value based upon preliminary appraisal taking into account
whether the performance thresholds for vesting of such options would be
met, and the payment of the exercise price. The appraisal will not be
completed until the consummation of the Merger since it is dependent upon
the actual Exchange Ratio.
(h) Calculated as follows: $71.5 million implied value, less total deductions,
divided by the fixed $21.00 DPRC Common Stock price, divided by 499,728
(outstanding shares of SPC Common Stock and SPC Time-Vesting Options).
8
<PAGE>
The Merger shall become effective immediately upon the filing of the Articles
of Merger with the Secretary of State of the State of North Carolina in
accordance with Section 55-11-06 of the NCBCA, or at such later time, which
shall be as soon as reasonably practicable thereafter, specified as the
effective time in the Articles of Merger (the "Effective Date"). See "The
Merger--The Merger Agreement."
SPC SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL INSTRUCTED
TO DO SO AFTER THE MERGER IS FINAL.
DPRC shareholders will retain ownership of their existing shares of DPRC
Common Stock.
TREATMENT OF STOCK OPTIONS. Two types of options exist under the SPC Stock
Option Plan which was adopted on December 1, 1996. There are SPC Time-Vesting
Options which vested immediately upon issuance and SPC Performance-Vesting
Options which vest only upon the achievement of certain performance-based
thresholds. As of November 2, 1998, there were outstanding SPC Time-Vesting
Options to purchase 170,560 shares of SPC Common Stock, all of which were fully
vested and had Exchange Ratio adjusted exercise prices significantly below the
current fair market value of DPRC Common Stock. Also as of November 2, 1998
there were outstanding SPC Performance-Vesting Options to purchase 28,846
shares of SPC Common Stock, none of which were fully vested. The Merger
Agreement provides that the SPC Time-Vesting Options outstanding at the
effective date of the Merger will be assumed by DPRC and will be exercisable
for shares of DPRC Common Stock at a price, after adjustment in accordance with
the Exchange Ratio, expected to be approximately $3.78 (for 82.5% of such
options) and $6.74 (for 17.5% of such options) per share of DPRC Common Stock.
In connection with the assumption of the SPC Time-Vesting Options, DPRC has
agreed to prepare and file with the Commission a registration statement on Form
S-8 (or another appropriate form) registering the number of shares of DPRC
Common Stock that can be purchased upon exercise of the SPC Time-Vesting
Options. The Merger Agreement further provides that, as of the consummation of
the Merger, SPC shall have caused each of the holders of outstanding SPC
Performance-Vesting Options to execute an option cancellation agreement to
cancel the SPC Performance-Vesting Options in consideration of the right to
receive that number of shares of DPRC Common Stock having value as of the
relevant valuation date equal to the fair market value of the holder's SPC
Performance-Vesting Options, as determined by an independent appraiser. These
options will be exchanged for a number of shares of DPRC Common Stock based on
the relative fair value of the other essentially residual equity interests. The
same Exchange Ratio will be used by the appraiser in the calculation to
determine the number of shares to be issued in cancellation of the SPC
Performance-Vesting Options as will be used to convert all other shares of SPC
Common Stock in the Merger. See "The Merger--The Merger Agreement--Treatment of
SPC Performance-Vesting Options."
CONDITIONS TO THE MERGER. Completion of the Merger depends upon the
satisfaction of a number of conditions, including, but not limited to, the
following:
(a) the approval and adoption of the Merger Agreement by the
shareholders of DPRC and SPC;
(b) the approval of the Share Issuance by the shareholders of DPRC;
(c) a vote against the Merger by holders of no more than 10% of the SPC
Common Stock;
(d) the approval for listing on the NNM of the DPRC Common Stock
issuable to the shareholders of SPC pursuant to the Merger
Agreement; and
(e) the receipt at the closing of the Merger of an opinion by DPRC's
independent public accountants that the Merger will qualify for
pooling of interests accounting treatment.
Certain conditions to the Merger may be waived by the party entitled to
assert the condition. See "The Merger--The Merger Agreement--Conditions."
9
<PAGE>
FEES AND EXPENSES OF THE MERGER. If the Merger is consummated, all reasonable
fees and expenses incurred by SPC in connection with the Merger and the
transactions contemplated thereby will be paid by reducing the Merger
Consideration payable to the shareholders of SPC in the Merger. If the Merger
Agreement is terminated and the Merger is not consummated for any reason, each
party shall bear its own fees and expenses. However, the parties have agreed
that one-half or $50,000, whichever is less, of the following DPRC fees and
expenses shall be paid by SPC: (i) the filing fee paid to the Commission with
respect to the Registration Statement; and (ii) the printing and mailing
expenses incurred with respect to the Proxy Statement/Prospectus and the
Registration Statement.
TERMINATION OF THE MERGER AGREEMENT. DPRC and SPC may agree, by mutual
written consent, to terminate the Merger Agreement without completing the
Merger. In addition, the Merger Agreement may be terminated:
(a) by DPRC, if SPC or a controlling shareholder of SPC who signed the
Merger Agreement shall have breached in any material respect any of
its or his representations or warranties contained in the Merger
Agreement, or if SPC or a controlling shareholder of SPC fails to
comply in any material respect with any of its or his covenants or
agreements contained in the Merger Agreement which are material in
the context of the Merger;
(b) by SPC, if DPRC or Acquisition Corp. shall have breached in any
material respect any of its representations or warranties contained
in the Merger Agreement, or if DPRC or Acquisition Corp. fails to
comply in any material respect with any of its covenants or
agreements contained in the Merger Agreement which are material in
the context of the Merger;
(c) by either DPRC or SPC on written notice to the other party, if the
Merger shall not have been consummated on or before December 31,
1998; provided, however, that neither party may terminate if such
failure to consummate the Merger is the result of a failure to
satisfy any of the conditions to such party's obligation to effect
the Merger;
(d) by SPC, if upon a vote at the SPC Meeting, SPC's shareholders do not
approve the Merger Agreement;
(e) by DPRC, if upon a vote at the DPRC Meeting, DPRC's shareholders do
not approve the Merger Agreement and the Share Issuance; and
(f) by DPRC on written notice to SPC, if, at any time prior to the
Effective Date, DPRC's independent accountant shall have indicated
in writing to DPRC that it is unable to render the letter regarding
the pooling of interest accounting treatment.
RESALE RESTRICTIONS. All shares of DPRC Common Stock received by SPC
shareholders in the Merger will be freely transferable, except that the
shareholders deemed "affiliates" of SPC at the time the Merger becomes final
are subject to certain regulatory and contractual restrictions regarding the
resale of their shares of DPRC Common Stock. See "The Merger--Resale of Shares
of DPRC Common Stock Issued in the Merger; Affiliates."
RISK FACTORS
The information set forth under "Risk Factors" should be reviewed and
carefully considered by the shareholders of DPRC and SPC in evaluating the
Merger Agreement, the Share Issuance, the Charter Amendment and the Option Plan
Amendment.
10
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF
DATA PROCESSING RESOURCES CORPORATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial data set forth below as of and for the
fiscal years ended July 31, 1994, 1995, 1996, 1997 and 1998 have been derived
from the audited consolidated financial statements of DPRC. The following
information should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
---------------------------------------------
1994 1995 1996(1) 1997(2) 1998(3)
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues........................ $34,165 $49,558 $58,145 $115,022 $210,568
Cost of professional services... 28,047 40,082 45,918 85,979 150,541
------- ------- ------- -------- --------
Gross margin.................... 6,118 9,476 12,227 29,043 60,027
Selling, general and
administrative expenses(4)..... 5,581 5,769 6,719 18,654 39,434
------- ------- ------- -------- --------
Operating income(4)............. 537 3,707 5,508 10,389 20,593
Interest income (expense), net.. (401) (764) (162) 869 (382)
------- ------- ------- -------- --------
Income before provision for
income taxes................... 136 2,943 5,346 11,258 20,211
Provision for income taxes...... 56 1,205 2,096 4,542 8,949
------- ------- ------- -------- --------
Net income(4)................... $ 80 $ 1,738 $ 3,250 $ 6,716 $ 11,262
======= ======= ======= ======== ========
Net income per share--basic(5).. $ 0.01 $ 0.43 $ 0.61 $ 0.74 $ 1.00
======= ======= ======= ======== ========
Net income per share--
diluted(5)..................... $ 0.01 $ 0.38 $ 0.54 $ 0.71 $ 0.96
======= ======= ======= ======== ========
Weighted average common shares
outstanding--basic(5).......... 6,323 4,000 5,314 9,090 11,242
======= ======= ======= ======== ========
Weighted average common shares
outstanding--diluted(5)........ 6,323 4,580 6,039 9,460 11,696
======= ======= ======= ======== ========
OTHER CONSOLIDATED FINANCIAL DA-
TA:
EBITDA(6)....................... $ 609 $ 3,790 $ 5,716 $ 12,036 $ 24,963
Cash flow provided by (used in)
operating activities........... $ (804) $ 2,130 $ 1,787 $ 2,857 $ 6,589
Cash flow provided by (used in)
investing activities........... $ (441) $ 108 $(9,397) $(46,275) $(97,105)
Cash flow provided by (used in)
financing activities........... $ 1,243 $(2,015) $29,217 $ 39,375 $113,285
<CAPTION>
AS OF JULY 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....... $ 25 $ 248 $21,855 $ 17,812 $ 40,581
Working capital................. 267 1,833 26,901 30,180 114,074
Total assets.................... 5,638 7,623 44,029 110,287 264,843
Total debt(7)................... 8,555 5,146 -- -- 111,288
Series A Convertible Preferred
Stock(8)....................... -- 1,485 -- -- --
Shareholders' equity
(deficit)(8)(9)(10)(11)........ (4,524) (2,878) 40,036 99,659 121,673
</TABLE>
11
<PAGE>
- --------
(1) The statement of income and balance sheet data include the results of
operations and acquired net assets of the Company and AD&D beginning July
1, 1996.
(2) The statement of income and balance sheet data include the results of
operations and acquired net assets of the Company and PSC beginning
November 27, 1996, Leardata beginning January 7, 1997, Computec beginning
April 30, 1997, and SelecTech beginning July 11, 1997.
(3) The statement of income and balance sheet data include the results of
operations and acquired net assets of the Company and S/3/G Inc. beginning
January 28, 1998, and EXi Corp. beginning May 21, 1998. See "Unaudited Pro
Forma Consolidated Statement of Income Data."
(4) Selling, general and administrative expenses for fiscal 1994 include
management fees of $820,000 $586,000, which were paid to a management
company controlled by one of the founders of DPRC. This management fee was
terminated in February 1994 upon the redemption of such founder's
ownership interest in DPRC. Selling, general and administrative expenses
for fiscal 1994 and 1995 also include compensation paid to Ms. Weaver of
$1.7 million and $921,000, respectively. Effective March 1995,
Ms. Weaver's annual compensation was significantly reduced.
(5) In the second quarter of 1998, DPRC adopted SFAS No. 128, "Earnings Per
Share." In accordance with SFAS No. 128, net income per share for all
fiscal years has been restated. Basic net income per share is computed
using the weighted average number of common shares outstanding during the
reporting period. Diluted net income per share is computed using the
weighted average number of common shares outstanding and the dilutive
effect of stock options and convertible preferred stock.
(6) EBITDA represents the sum of operating income and depreciation and
amortization. EBITDA is not intended to represent cash flows from
operations as defined by GAAP and should not be considered as an
alternative to net income as an indicator of DPRC's operating performance
or to cash flow as a measure of liquidity. EBITDA is included herein as it
is a basis upon which DPRC assesses its financial performance and its
ability to service indebtedness.
(7) On March 24, 1998, the Company completed the sale of $115.0 million of its
convertible subordinated Notes due 2005. The notes were recorded net of a
discount and issue costs of $3,950,000, which will be amortized over seven
years based on the effective interest method.
(8) The outstanding shares of Series A Convertible Preferred Stock were
subject to mandatory redemption by DPRC 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 DPRC Common Stock immediately prior to the consummation
of the initial public offering of DPRC's Common Stock in March 1996.
(9) DPRC recorded a charge to retained earnings of $4.8 million in February
1994 in connection with the redemption of all shares of DPRC Common Stock
not owned by Ms. Weaver.
(10) In January 1997, the Company completed a second public offering of
2,395,000 shares of its Common Stock at an offering price of $17.50 per
share for net proceeds of $38.9 million.
(11) In March 1996, the Company completed an initial public 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.
12
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF
SYSTEMS & PROGRAMMING CONSULTANTS, INC.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below as of and for the years ended
December 31, 1994, 1995, 1996, and 1997 have been derived from the audited
financial statements of SPC. The selected financial data as of July 31, 1998
and for the year ended December 31, 1993 and the seven months ended July 31,
1997 and 1998 have been derived from the unaudited financial statements of SPC,
which include all adjustments (consisting only of normal recurring adjustments)
which SPC considers necessary for a fair presentation of the results of
operations for the period presented. The results of operations for the seven
months ended July 31, 1998 are not necessarily indicative of results that may
be expected for SPC's year ending December 31, 1998. The following information
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SEVEN MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JULY 31
------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $14,015 $16,981 $19,685 $26,385 $39,285 $20,814 $33,919
Cost of professional
services............... 10,021 12,856 13,618 17,906 27,546 14,809 24,100
------- ------- ------- ------- ------- ------- -------
Gross margin............ 3,994 4,125 6,067 8,479 11,739 6,005 9,819
Selling, general and
administrative
expenses(1)............ 3,856 4,957 5,518 7,534 11,378 5,891 7,632
Compensation expense
associated with
Performance-Vesting
Options(4)............. -- -- -- -- -- -- 2,175
------- ------- ------- ------- ------- ------- -------
Operating income........ 138 (832) 549 945 361 114 12
Interest expense, net... (125) (224) (216) (68) (126) (61) (78)
------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................. 13 (1,056) 333 877 235 53 (66)
Provision for income
taxes.................. 1 (108) 2 300 162 14 (1)
------- ------- ------- ------- ------- ------- -------
Net income (loss) ...... 12 (948) 331 577 73 39 (65)
Less preferred stock
dividends.............. 0 0 (15) (68) (21) (21) 0
------- ------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
shareholders........... $ 12 $ (948) $ 316 $ 509 $ 52 $ 18 $ (65)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share--basic(3)........ $ 0.05 $ (4.09) $ 1.29 $ 1.99 $ 0.19 $ 0.07 $ (0.20)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share--diluted(3)...... $ 0.05 $ (4.09) $ 1.29 $ 1.99 $ 0.17 $ 0.06 $ (0.20)
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding--
basic.................. 222 232 245 256 277 277 328
Weighted average common
shares outstanding--
diluted................ 222 232 245 256 311 299 328
OTHER FINANCIAL DATA:
EBITDA(2)............... $ 196 $ (694) $ 616 $ 1,018 $ 439 $ 159 $ 52
Cash flow provided by
(used in) operating
activities............. $ (298) $ 1,226 $ (105) $ 1,066 $(1,812) $(1,510) $(1,409)
Cash flow provided by
(used in) investing
activities............. $(1,142) $ (966) $ 648 $ (54) $ (38) $ (68) $ 237
Cash flow provided by
(used in) financing
activities............. $ 1,154 $ (97) $ (595) $ (275) $ 1,001 $ 733 $ 1,472
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------
1993 1994 1995 1996 1997 AS OF JULY 31, 1998
------ ------ ------ ------ ------ -------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ -- $ 163 $ 112 $ 849 $ -- $ 300
Working capital
(deficit).............. (277) 329 1,071 1,548 2,682 4,366
Total assets............ 4,087 4,273 3,361 4,736 7,126 10,571
Total debt.............. 2,023 1,927 719 542 1,016 2,522
Redeemable common stock
held by Stock Bonus
Plan................... -- 896 1,082 1,549 2,699 11,891
Preferred stock......... -- -- 680 680 -- --
Shareholders' equity
(deficit).............. 1,122 (605) 303 515 751 (6,182)
</TABLE>
13
<PAGE>
- --------
(1) Selling, general and administrative expenses for fiscal 1996 and 1997 and
the seven months ended July 31, 1998 include compensation paid to four key
employees of SPC of $1,686,000, $2,969,000 and $714,000, respectively.
Effective with the consummation of the Merger, compensation to these
individuals will be significantly reduced.
(2) EBITDA represents the sum of operating income and depreciation and
amortization. EBITDA is not intended to represent cash flows from
operations as defined by GAAP and should not be considered as an
alternative to net income as an indicator of SPC's operating performance
or to cash flow as a measure of liquidity. EBITDA is included herein as it
is a basis upon which SPC assesses its financial performance and its
ability to service indebtedness.
(3) Net income (loss) per share is computed in accordance with SFAS No. 128,
"Earnings per Share." Basic net income (loss) per share is computed by
dividing net income available to common shareholders by the weighted
average number of common shares outstanding during the reporting period.
Diluted net income (loss) per share is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding and the dilutive effect of stock options.
(4) Amount represents the estimated value of Performance-Vesting Options which
vest upon achievement of certain performance goals. Such options have been
accounted for as variable stock options for which compensation is
recognized based on the value of the underlying stock to be received.
14
<PAGE>
SUMMARY PRO FORMA SELECTED FINANCIAL DATA
On June 16, 1998, DPRC entered into an agreement, which was amended on
October 13, 1998 and October 20, 1998, to acquire SPC by merger of a wholly
owned subsidiary of DPRC into SPC. DPRC anticipates that the Merger will be
accounted for as a pooling of interests.
The following unaudited pro forma consolidated balance sheet data at July 31,
1998 reflects the historical consolidated balance sheets of DPRC and SPC,
adjusted to give effect to the Merger as if the Merger had occurred at July 31,
1998.
The following unaudited pro forma consolidated statement of income data is
presented to reflect the acquisition of SPC as if the Merger had occurred on
August 1, 1997 for the year ended July 31, 1998. Additionally the unaudited pro
forma consolidated statement of income data also reflects DPRC's acquisition of
S3G, Inc., a purchase effective January 27, 1998, as if this transaction had
taken place August 1, 1997. The acquisition of EXi, Inc. by DPRC, a purchase
transaction effective May 21, 1998, is not included since the transaction was
not a significant acquisition.
The following unaudited summary pro forma consolidated financial information
is provided for comparative purposes only and should be read in conjunction
with the Unaudited Pro Forma Consolidated Financial Statements and the
financial statements and notes thereto of DPRC and SPC included elsewhere
herein. The following unaudited summary pro forma consolidated financial
information does not purport to be indicative of the results that would have
occurred if the transactions described above had been consummated on the dates
indicated or that may be obtained in the future.
15
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
UNAUDITED SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR
ENDED
JULY 31,
1998
--------
<S> <C>
STATEMENT OF INCOME DATA:
Net revenues........................................................ $270,290
Income from operations.............................................. 26,209
Net income.......................................................... 14,014
Net income per share--basic......................................... 1.06
Net income per share--diluted....................................... .96
BALANCE SHEET DATA (AS OF PERIOD END):
Working capital..................................................... $118,067
Total assets........................................................ 275,414
Long-term liabilities............................................... 111,288
Shareholders' equity................................................ 126,182
</TABLE>
16
<PAGE>
COMPARATIVE PER SHARE DATA
The following table presents certain historical, pro forma consolidated and
pro forma equivalent per share financial data for DPRC Common Stock and SPC
Common Stock. The pro forma data do not purport to be indicative of the results
of future operations or the results that would have occurred had the Merger
been consummated at the beginning of the periods presented. The information
presented herein should be read in conjunction with the Unaudited Pro Forma
Consolidated Financial Statements and the notes thereto, appearing elsewhere in
this Proxy Statement/Prospectus. Neither DPRC nor SPC paid cash dividends on
their respective common stock for any of the periods presented.
<TABLE>
<CAPTION>
EXCHANGE RATIO EXCHANGE RATIO EXCHANGE RATIO OF
OF 6.04 OF 5.50 6.40
--------------------- --------------------- ---------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31, YEAR ENDED JULY 31,
--------------------- --------------------- ---------------------
1996 1997 1998 1996 1997 1998 1996 1997 1998
------ ------ ------- ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DPRC
Book value per share at
period end:
Historical............ $ 5.34 $ 9.05 $ 10.52 $ 5.34 $ 9.05 $ 10.52 $ 5.34 $ 9.05 $ 10.52
Pro forma consolidated
for merger of DPRC
and SPC.............. 4.57 7.82 9.31 4.64 7.92 9.43 4.52 7.75 9.23
Net income per share
from continuing
operations:
Historical
Basic(1)............ 0.61 0.74 1.00 0.61 0.74 1.00 0.61 0.74 1.00
Diluted(1).......... 0.54 0.71 0.96 0.54 0.71 0.96 0.54 0.71 0.96
Pro forma consolidated
for merger of DPRC
and SPC
Basic(1)............ 0.48 0.64 1.06 0.49 0.64 1.08 0.48 0.63 1.05
Diluted(1).......... 0.44 0.58 0.96 0.45 0.59 0.98 0.43 0.58 0.95
SPC
Book value per share at
period end:
Historical............ 1.85 2.31 (18.79) 1.85 2.31 (18.79) 1.85 2.31 (18.79)
Pro forma
equivalent(4)........ 27.59 47.20 56.23 25.55 43.57 51.89 28.92 49.57 59.07
Net income per share
from continuing
operations:
Historical SPC
Basic(1)............ 0.25 0.43 0.19 0.25 0.43 0.19 0.25 0.43 0.19
Diluted(1).......... 0.25 0.32 0.12 0.25 0.32 0.12 0.25 0.31 0.12
Pro forma equivalent
Basic(3)............ 2.92 3.84 6.42 2.71 3.54 5.92 3.05 4.03 6.74
Diluted(3).......... 2.64 3.52 5.81 2.45 3.26 5.39 2.76 3.68 6.08
</TABLE>
- -------
The comparative per share data presented above is being presented based on the
Company's estimate of the Exchange Ratio of 6.04 expected to be calculated as
of the closing of the Merger. The Company's estimate is based upon the amount
of the deductions as of September 30, 1998 and is not the midpoint of the range
of the exchange ratios set forth above. See "--The Merger Agreement--Terms of
the Merger." Additionally, the comparative per share data is also presented to
illustrate the impact of a likely range of Exchange Ratios since the amount of
deductions for certain costs and liabilities assumed by DPRC cannot be
determined at such time. Consequently, it is anticipated that each share of
outstanding SPC Common Stock will be converted in the Merger into the right to
receive between approximately 5.50 and 6.40 shares of DPRC Common Stock. A
$500,000 increase or decrease in the amount of deductions has less than a 1%
effect on the exchange rate. Such change in deductions has an insignificant
impact on the pro forma equivalent amounts. For further explanation of the
underlying assumptions supporting the range of the Exchange Ratio see "The
Merger Agreement".
17
<PAGE>
(1) Net income per share is calculated by dividing total actual historical and
pro forma net income available to common shareholders for the indicated
periods by the actual historical and pro forma, basic and diluted weighted
average number of shares of common stock outstanding, for the period
indicated. The basic weighted average number of shares of common stock
outstanding for DPRC and SPC have been presented by calculating the
weighted average number of common shares outstanding. The diluted weighted
average number of shares of common stock outstanding for DPRC and SPC gives
effect to both the average number of shares of common stock outstanding and
the calculation, based on the treasury stock method, of the number of
common stock equivalent shares outstanding resulting from the issuance of
stock options.
(2) Book value per share is calculated by dividing the total actual historical
and pro forma common shareholders' equity as of the end of the indicated
period by the actual historical and pro forma shares outstanding as of the
same date.
(3) The pro forma equivalent net income per share represents the pro forma
basic and diluted net income per common share for the indicated periods
multiplied by the assumed Exchange Ratio of shares of DPRC Common Stock for
each weighted average share of SPC Common Stock for the period indicated.
(4) The pro forma equivalent book value per share of SPC Common Stock
represents the pro forma book value per common share after giving effect to
the lapsing of the redemption feature associated with the SPC Common Stock
held by the SPC Stock Bonus Plan as of the end of the period indicated
multiplied by the assumed Exchange Ratio of shares of DPRC Common Stock for
each share of SPC Common Stock.
MARKET PRICE DATA
DPRC Common Stock is listed on the NNM under the symbol "DPRC." The following
table sets forth the closing price per share of DPRC Common Stock as reported
on the NNM, and the "equivalent per share price" (as defined) of SPC Common
Stock as of: (i) June 15, 1998, the date preceding public announcement of the
Merger, and (ii) November 3, 1998, the last practicable date prior to the date
of this Proxy Statement/Prospectus. The "equivalent per share price" of SPC
Common Stock as of any date equals the closing price per share of DPRC Common
Stock on such date multiplied by the Exchange Ratio, assuming that 6.04 shares
of DPRC Common Stock were issued in the Merger for each share of SPC Common
Stock.
<TABLE>
<CAPTION>
DPRC EQUIVALENT PER
MARKET PRICE PER SHARE AS OF COMMON STOCK SHARE PRICE
---------------------------- ------------ --------------
<S> <C> <C>
June 15, 1998....................................... $30 7/8 $186 1/2
November 5, 1998.................................... $20 11/16 $124 15/16
</TABLE>
THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE OF THE DPRC COMMON STOCK AT
ANY TIME BEFORE, AT OR AFTER THE EFFECTIVE DATE OF THE MERGER. SPC SHAREHOLDERS
ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR DPRC COMMON STOCK. The DPRC
Common Stock issued in connection with the Merger will be listed on the NNM.
18
<PAGE>
RISK FACTORS
In considering whether to approve the Merger Agreement, the Share Issuance,
the Charter Amendment and the Option Plan Amendment, the following factors
should be considered by the shareholders of DPRC and SPC. When used in this
Proxy Statement/Prospectus, including the information incorporated by
reference, the words "anticipate," "estimate," "project," "expect" and similar
expressions are intended to identify forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act, and are intended to be covered by the safe harbors created thereby.
Although DPRC believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations
will prove to have been correct. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated,
projected or expected. Among the key factors that may have a direct bearing on
DPRC's and SPC's operating results are DPRC's and SPC's ability to recruit,
develop and retain qualified technical consultants; identify, acquire and
integrate suitable acquisition candidates; obtain sufficient working capital
to support such growth; and compete successfully with existing and future
competitors.
FIXED EXCHANGE RATIO DESPITE POSSIBLE CHANGE IN STOCK PRICES
The Merger Consideration to be delivered in connection with the Merger will
be paid exclusively in shares of DPRC Common Stock having an implied value on
the date the amendment of October 20, 1998 to the Merger Agreement was signed
of $71.5 million less deductions for certain costs and liabilities to be
assumed by DPRC. It is anticipated that each share of outstanding SPC Common
Stock will be converted in the Merger into the right to receive between
approximately 5.50 and 6.40 shares of DPRC Common Stock. The Exchange Ratio is
estimated for purposes of this Proxy Statement/Prospectus since the amount of
deductions for certain costs and liabilities to be assumed by DPRC cannot be
determined until the consummation of the Merger. Since all other amounts used
to calculate the Exchange Ratio are fixed, the number of shares of DPRC Common
Stock to be issued in connection with the Merger will vary only depending upon
the amount of the deductions of costs and liabilities and not for any changes
in the market price of DPRC Common Stock. Based upon the most recent
information available, the estimated aggregate costs and liabilities to be
deducted from the implied valuation for SPC's tax liabilities, bank debt
outstanding and portion of pre-payment penalty, aged receivables outstanding,
noncompetition payments, costs and expenses of the Merger and appraised value
of SPC Performance-Vesting Options range from $4.3 million to $13.7 million,
which results in the 5.50 to 6.40 estimated Exchange Ratio. However, there is
no minimum Exchange Ratio and the actual number of shares may be less than
estimated above if the costs and liabilities to be assumed by DPRC in the
Merger are more than estimated above. As a result, the exact number of shares
of DPRC Common Stock and the market value at the time of the Merger of such
shares to be received by SPC shareholders and option holders will not be known
at the time of the Special Meeting.
However, the stock price of DPRC Common Stock used to determine the Exchange
Ratio of the number of shares of DPRC Common Stock into which each share of
SPC Common Stock is to be converted in the Merger is fixed. It is based on a
price of $21.00 per share of DPRC Common Stock. The Exchange Ratio will not be
adjusted in the event of any increase or decrease in the price of either DPRC
Common Stock or SPC Common Stock. The price of either DPRC Common Stock or SPC
Common Stock at the Effective Date of the Merger may vary from such price at
the date the Merger Agreement was entered into, the date of this Proxy
Statement/Prospectus and at the dates of the Special Meetings, possibly by a
material amount, and the risk of any decline or benefit of any increase in the
market price of DPRC Common Stock will be borne by the holders of SPC Common
Stock and options. Such variations may be the result of changes in the
business, operations or prospects of DPRC or SPC, market assessments of the
likelihood that the Merger will be consummated and the timing thereof,
regulatory considerations, general market and economic conditions, factors
affecting the staffing services industry in general and other factors. Because
the Effective Date may occur at a date later than the
19
<PAGE>
Special Meetings, there can be no assurance that the price of either DPRC
Common Stock or SPC Common Stock on the date of the Special Meetings will be
indicative of such price at the Effective Date. The Effective Date is expected
to occur as soon as practicable following the Special Meetings. Shareholders
of DPRC and SPC are urged to obtain current market quotations for DPRC Common
Stock. See "Comparative Market Data."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price and volume of DPRC Common Stock has fluctuated over a broad
range since the completion of DPRC's initial public offering in March 1996.
Numerous factors, including announcements of fluctuations in DPRC's or its
competitors' operating results and market conditions for IT staffing or
technology stocks in general, could have a significant impact on the future
price of DPRC 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 DPRC Common Stock.
Also, the implied consideration of $71.5 million and the price of $21.00 for
each share of DPRC Common Stock used to calculate the Exchange Ratio were
determined and fixed at the time the amendment of October 20, 1998 to the
Merger Agreement was signed and will not be changed regardless of whether the
market price of DPRC Common Stock is higher or lower. Therefore, although the
actual number of shares of DPRC Common Stock to be issued in connection with
the Merger will not change due to any change in the market price of such
stock, the market value of such shares and the aggregate value of the
transaction will depend on the current market price of DPRC Common Stock at
the time the Merger is consummated. Although the price of the DPRC Common
Stock to be used to determine the Exchange Ratio was fixed at the time the
amendment of October 20, 1998 to the Merger Agreement was signed at a price of
$21.00 per share, the price range of DPRC Common Stock has varied over the 90
day period ending November 5, 1998 from a high of $32 to a low of $17 1/16.
See "Comparative Market Data."
UNCERTAINTIES IN INTEGRATING BUSINESS OPERATIONS AND ACHIEVING COST SAVINGS
DPRC has never made an acquisition the size of the Merger. The process of
integrating the DPRC and SPC operations will present a significant challenge
to management of both DPRC and SPC and may lead to unanticipated costs. There
can be no assurance that DPRC and SPC will be successful in completing this
integration. In addition, the integration of the DPRC and SPC operations and
accounting, personnel, administrative, legal and other functions involves the
risk that key employees, who cannot be easily replaced, may leave even when
offered continuing employment. The integration of DPRC and SPC will require
the devotion of a significant amount of time by senior executives, which may
detract from the business operations and development of the combined company.
In determining that the Merger is in the best interests of its shareholders,
each of the DPRC Board and the SPC Board considered the operating efficiencies
and other synergies expected to result following the consummation thereof. See
"The Merger--DPRC's Reasons for the Merger; Recommendations of the DPRC Board"
and "The Merger--SPC's Reasons for the Merger; Recommendations of the SPC
Board." There can be no assurance that any of such operating efficiencies or
other synergies will be realized, or even if realized, that they will have a
positive effect on DPRC's financial condition.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the SPC Board's recommendation that SPC shareholders vote in
favor of the Merger Agreement and the transactions contemplated thereby, SPC
shareholders should be aware that the four directors/ executive officers of
SPC, Richard Carlisle, Thomas Carlisle, Jeffery Carter and Robert Gallagher,
will receive employment agreements and receive compensation in exchange for
covenants not to compete if the Merger is consummated. Specifically, each of
the four directors/executive officers of SPC will receive $100,000 to agree
20
<PAGE>
that for a period of three years from the date of execution of the
noncompetition agreement or two years after the date of termination of his
employment with Acquisition Corp, whichever is the last to occur, such
director will not, without the prior written consent of DPRC, directly or
indirectly, in the United States, be connected in any manner with any business
which competes with the business of Acquisition Corp. The four
directors/executive officers of SPC will also each receive, effective upon
consummation of the Merger, an employment agreement with a term of one to
three years which provides for a base salary of $125,000 plus the right to
receive a bonus of up to 40% of that base salary if certain earnings
thresholds for the business of SPC are achieved. Also, the employment
agreements provide that if such person is terminated without cause, such
person must receive 90 days' advance written notice and be paid such person's
base salary plus the same health and life insurance benefits to which he was
entitled as an employee until the earlier to occur of: (i) six months after
termination, (ii) the expiration of the employment agreement or (iii) the
full-time employment of the person with another company. In addition, the
Merger Agreement provides that options to purchase 250,000 shares of DPRC
Common Stock are to be granted to certain SPC employees under DPRC's 1994
Stock Option Plan as of the Effective Date of the Merger at an exercise price
equal to the then current fair market value of DPRC Common Stock. Any number
of these options may, but not necessarily, be allocated to directors and
officers of SPC, including the four affiliates of SPC. See "The Merger
Agreement--Security Ownership of Certain Beneficial Owners and Management of
SPC." Such interests provide the executive officers of SPC with interests in
the Merger that are different from, or in addition to, the interests of SPC
shareholders and such interests, together with other relevant factors, were
considered by the SPC Board in making its recommendation and approving the
Merger Agreement.
LIMITATIONS OF FAIRNESS OPINION TO DPRC
The NMS Opinion only addresses the fairness of the Merger Consideration to
DPRC and no fairness opinion addressing the fairness of the Merger
Consideration from the perspective of the holders of SPC Common Stock has been
or will be received. The NMS Opinion is directed to the DPRC Board and does
not constitute a recommendation to any shareholder as to how such shareholder
should vote with respect to the Merger. Further, the parent corporation of NMS
is a significant customer of SPC and has been during recent periods. The full
text of the NMS Opinion is attached hereto as Annex B and should be read
carefully, particularly with respect to its assumptions and limitations. In
connection with its review, NMS did not assume any obligation independently to
verify the information provided to it by DPRC, SPC or obtained from other
sources and relied upon its being accurate and complete in all respects. With
respect to the financial forecasts of SPC provided to NMS by DPRC's management
on behalf of SPC's management and DPRC's Forecasts (as defined in "The
Merger--Opinion of NMS, Financial Advisors to DPRC") upon their advice and
with the consent of the DPRC Board, NMS assumed for purposes of its opinion
that the forecasts were reasonably prepared on bases reflecting the best
available estimates and judgments of their respective managements at the time
of preparation as to the future financial performance of SPC and DPRC, and
that they provide a reasonable basis upon which NMS could form its opinion.
NMS also assumed that there have been no material changes in SPC's or DPRC's
assets, financial condition, results of operations, business or prospects
since the respective dates of their last financial statements made available
to NMS. NMS relied on advice of counsel to DPRC as to all legal matters with
respect to DPRC, the Merger and Merger Agreement. NMS assumed that the Merger
will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act, the Exchange Act and all other
applicable federal and state statutes, rules and regulations. In addition, NMS
did not assume responsibility for making an independent evaluation, appraisal
or physical inspection of the assets or liabilities (contingent or otherwise)
of SPC or DPRC, nor was NMS furnished with any such appraisals. Finally, NMS's
opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to NMS as of, the date of its
opinion. NMS further assumed with the consent of the DPRC Board that the
Merger will be consummated in accordance with the terms of the Merger
Agreement, without further amendment thereto, and without waiver by DPRC of
any of the conditions to its obligations thereunder. NMS shall provide, if
practicable, an update of the NMS Opinion to the DPRC Board as of the
Effective Date; provided, however, that subsequent developments may affect
NMS's ability to provide such an opinion.
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NO SPC FAIRNESS OPINION
No fairness opinion addressing the fairness of the Merger Consideration from
the perspective of the holders of SPC Common Stock has been or will be
received. Approximately 87% of the outstanding common stock of SPC was
beneficially owned by the four directors and executive officers of SPC as of
the SPC Record Date. Shareholders of SPC are urged to review the discussion
contained in "The Merger--SPC's Reasons for the Merger; Recommendations of the
SPC Board" and "The Merger--The Merger Agreement--Interests of Certain Persons
in the Merger."
DEPENDENCE ON AVAILABILITY, RECRUITMENT AND MANAGEMENT OF TECHNICAL
CONSULTANTS
DPRC's and SPC's success is dependent upon their ability to attract and
manage technical consultants who possess the skills and experience necessary
to meet the IT staffing requirements of their clients. Qualified technical
consultants are in great demand worldwide and are likely to remain a limited
resource for the foreseeable future. Accordingly, competition for individuals
with proven technical skills is intense. DPRC and SPC compete 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. Furthermore, as DPRC or SPC 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 DPRC or SPC 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 DPRC's results of operations and financial
condition. In addition, DPRC and SPC employ 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 DPRC's
results of operations and financial condition.
VARIABILITY OF QUARTERLY OPERATING RESULTS; SEASONALITY
Variations in DPRC's and SPC's revenues and operating results occur from
quarter to quarter as a result of a number of factors, including the timing of
client engagements during a quarter, changes in pricing of DPRC's and SPC's
services, timing and rate of entrance, introduction of product groups,
availability of qualified technical consultants, the number of business days
in a quarter, consultant hiring and utilization rates, the length of DPRC's
and SPC's sales cycles, the ability of clients to terminate engagements
without penalty, the size and scope of assignments and general economic
conditions. Because a significant portion of DPRC's expenses are relatively
fixed, a variation in the number of client assignments or the timing of the
initiation or the completion of client assignments can cause significant
variations in operating results from quarter to quarter. To the extent that
increases in the number of consultants are not followed by corresponding
increases in revenues, DPRC's operating results could be materially and
adversely affected. Furthermore, DPRC has on occasion experienced a seasonal
pattern in its operating results, with a smaller proportion of DPRC's revenues
and lower operating income occurring in the second quarter of the fiscal year.
DPRC believes these results can be attributed to vacation and holidays taken
by both its clients and its consultants. As a result of the foregoing factors,
DPRC's operating results for a future quarter may be below the expectations of
public market analysts and investors. In such event, the price of DPRC Common
Stock would likely be negatively affected.
MANAGEMENT OF GROWTH
DPRC's business has experienced rapid growth over the years that could
strain DPRC's managerial and other resources. DPRC's continued growth depends
on adding key managers, attracting, developing and retaining consultants,
adding specialty services and growing its infrastructure. DPRC has broadened
its range of services to include specialty services such as Year 2000
conversion, network management and desktop services,
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internet/intranet development and support, packaged software implementation,
software engineering and help desk support. DPRC has expanded from three
offices in the State of California in 1996 to 17 offices in 12 states and four
international recruiting offices (two in England, one in Australia and one in
Canada) as of September 30, 1998. Effective management of these growth
initiatives will require DPRC to continue to improve its operational,
financial and other management processes and systems. The failure to manage
growth effectively could have a material adverse effect on DPRC's business,
operating results and financial condition.
GROWTH THROUGH ACQUISITIONS
A primary component of DPRC's growth strategy is the acquisition of IT
staffing companies to complement and expand DPRC's existing business,
principally in new geographic markets. The successful implementation of this
strategy is dependent on DPRC's ability to identify suitable acquisition
candidates, acquire such companies on suitable terms and integrate their
operations with those of DPRC. There can be no assurance that DPRC will be
able to acquire other companies on suitable terms or otherwise successfully
enter other markets through acquisitions. 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 DPRC's reported
operating results, including increased goodwill amortization related to
acquired companies and interest expense related to debt incurred to effect
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 DPRC's expansion
into new geographic markets. The occurrence of some or all of the events
described in these risks could have a material adverse effect on DPRC's
operations and financial performance.
DPRC continually reviews and evaluates acquisition candidates to complement
and expand its business, and is at various stages of evaluation and discussion
with a number of such candidates. DPRC has not entered into a definitive
purchase agreement with respect to any acquisition candidate and there is no
assurance that DPRC will consummate a transaction with any of the candidates
with whom it is currently in negotiations. In addition, it is possible that a
substantial number of shares of Common Stock or significant amount of cash
could be used for one or more acquisitions. DPRC intends, when possible, to
use its Common Stock to pay for all or a portion of the purchase price for
future acquisitions. DPRC's ability to so use its Common Stock could be
adversely affected in the event that DPRC's Common Stock does not maintain
sufficient value, potential acquisition candidates are unwilling to accept
DPRC's Common Stock as consideration for the sale of their businesses, or DPRC
does not then have a sufficient number of authorized shares of Common Stock to
effect such acquisition. With respect to the latter, an increase in the
authorized number of shares of Common Stock requires the consent of the
shareholders of DPRC. Although this Proxy Statement/Prospectus is soliciting
the approval of DPRC's shareholders of the Charter Amendment which would
increase the authorized number of shares of Common Stock from 20.0 million to
60.0 million, no assurances can be given that the shareholders of DPRC will
approve such an increase or any future increases. If DPRC is unable to so use
its Common Stock, DPRC may be required to utilize more of its cash resources,
if available, in order to continue its acquisition program. If DPRC 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 DPRC
is unable to obtain sufficient financing, it may be unable to implement its
growth strategy fully.
DEVELOPMENT OF NEW OFFICES
DPRC's growth strategy involves the internal development of new offices as
well as the acquisition of existing businesses. The successful development of
new offices is dependent on a number of factors, many of which are beyond
DPRC's control, including DPRC's ability to: (i) hire, integrate and retain
qualified managers in existing markets as well as markets in which DPRC has no
prior operating experience; (ii) apply its management practices to a
significantly larger and geographically dispersed organization; (iii) initiate
and
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develop new client relationships; (iv) hire, integrate and retain qualified
technical consultants; and (v) identify suitable locations for new offices.
There can be no assurance that DPRC will be able to implement successfully any
of the above components of its strategy.
DEDUCTIBILITY OF INTEREST ON DEBT IN CONNECTION WITH ACQUISITIONS
A primary component of DPRC's growth strategy is the acquisition of IT
staffing companies to complement and expand DPRC's existing business,
principally in new geographic markets and expand its range of specialty
services. To the extent that DPRC uses cash to pay the purchase price for any
of its acquisitions, it is subject to Section 279 of the Code. Section 279 of
the Code, disallows the deduction of interest paid or accrued with respect to
certain subordinated convertible debt which is issued to provide consideration
for the acquisition of stock or assets of another corporation ("Section 279
Acquisition Debt"). Such a disallowance applies to the interest paid or
accrued with respect to Section 279 Acquisition Debt to the extent interest
paid or accrued with respect to such debt in any given taxable year plus
interest paid or accrued on other debt incurred to provide consideration for
an acquisition of stock or assets in such taxable year exceeds a $5.0 million
threshold (the "Five Million Dollar Basket"). To the extent that DPRC uses the
proceeds it received from the issuance in March 1998 of $115.0 million
aggregate principal amount of its 5 1/4% Convertible Subordinated Notes Due
2005 (the "Notes") to acquire stock or assets of another corporation, such
Notes will constitute Section 279 Acquisition Debt if DPRC fails either a
certain debt to equity ratio or a projected earnings to annual interest
expense test. If DPRC is unable to satisfy both of these tests in any given
taxable year, then all or a portion of the Notes would be deemed to be Section
279 Acquisition Debt, and Section 279 would disallow the interest deduction
with respect to the Notes to the extent the interest paid on the Notes in any
given taxable year exceeds the Five Million Dollar Basket. DPRC intends to
continue to acquire companies. To the extent that DPRC uses proceeds it
received from the initial issuance of the Notes to acquire companies, DPRC may
not be able to deduct all or a portion of the interest paid on the Notes in
any given taxable year in which the total interest paid or accrued on
acquisition debt by DPRC exceeds the Five Million Dollar Basket. If such
interest is not deductible, it could have a material adverse effect on the
financial condition of DPRC after the Merger and adversely affect the market
price of DPRC Common Stock. Currently, all of the interest payable on the
Notes is deductible and DPRC estimates that the maximum amount of interest
payable on the Notes that would not be deductible under Section 279 of the
Code would not exceed $1.1 million in any year.
COMPETITION
The IT staffing industry is highly competitive. DPRC and SPC compete 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. DPRC and SPC also
compete for technical consultants with the IT staffs of its clients and
potential clients and other technology companies. Several of DPRC's and SPC's
competitors are substantially larger than DPRC, SPC or DPRC and SPC on a
combined basis and have greater financial and other resources. Several of such
competitors have also been in business much longer than DPRC or SPC and have
significantly greater name recognition throughout the United States or a
specific geographic region, including the geographic areas in which DPRC or
SPC 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 DPRC or SPC and compete more
effectively for national accounts. There can be no assurance that DPRC, even
with SPC, will be able to compete successfully with its existing and future
competitors.
IMMIGRATION ISSUES
DPRC believes that its success has resulted in part from its ability to
attract, develop and retain persons from other countries with technical and
project management skills. Under current law, there is a limit of 115,000 new
H-1B non-immigrant work permitted visa classification petitions that the
United States Immigration and Naturalization Service may approve in any
government fiscal year. In years in which this limit is reached, DPRC
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may be unable to obtain H-1B visas necessary to bring critical foreign
consultants to the United States. For the government's fiscal year ended
September 30, 1997, the previous limit of 65,000 was reached in August 1997,
and for the current fiscal year ending September 30, 1998, the limit of 65,000
was reached in May 1998. Recent legislation increased the limits from 65,000
in the government fiscal year 1998 to 115,000 in fiscal 1999, 115,000 in
fiscal year 2000 and 107,500 in fiscal year 2001. The limit will return to
65,000 in fiscal year 2002. The new law also contains provisions that would
require H-1B dependent employers to obtain recruitment and layoff
attestations. Under the new law, an employer is defined as H-1B dependent if
its total H-1B non-immigrant employees total 15% or more of the employers'
total full-time equivalent employees. However H-1B dependent employers will
not have to obtain attestations under the proposed legislation if the H-1B
employee has a Masters or equivalent degree or will earn $60,000 or more per
year. Approximately 13.7% of DPRC's total full-time equivalent employees have
H-1B visas and the majority of these H-1B employees have Masters degrees or
earn greater than $60,000 per year. (Including SPC, the percentage of H-1B
employees to total full-time employees of the combined companies would be
10.6%.) Compliance with existing United States immigration laws, or changes in
such laws making it more difficult to hire foreign nationals or limiting the
ability of DPRC to retain H-1B employees in the United States, could have a
material adverse effect on DPRC's results of operations and financial
condition after the Merger and adversely affect the market price of DPRC
Common Stock.
DEPENDENCE ON CERTAIN CLIENTS; INDUSTRY AND GEOGRAPHIC CONCENTRATION
DPRC's 10 largest clients accounted for approximately 25.6% of its revenues
in fiscal 1998, with its largest two clients accounting for approximately 3.9%
and 3.6% of its revenues, respectively during that period. A significant
decrease in demand by, or the loss of, a large client could have a substantial
adverse effect on DPRC's revenues and results of operations. Furthermore,
revenues from any one client often vary materially from period to period.
Although DPRC 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, DPRC's contracts are normally cancelable by the client at any time
without penalty.
DPRC's business is dependent in part on the economic strength of its
clients. While DPRC serves a large number of clients in a range of industry
groups, approximately 14.3% of DPRC's revenues in fiscal 1998 were derived
from eight foreign automobile and motorcycle manufacturers with operations in
Southern California. Regulatory changes which adversely affect this industry
group could have an adverse effect on DPRC's revenues and profitability.
Similarly, a substantial deterioration in general economic conditions in
Southern California could adversely affect DPRC.
SPC has approximately 135 active clients across many industries with
concentrations in financial services, telecommunications, manufacturing and
information technology. SPC's five largest accounts comprised approximately
56.0% of total revenue for the eight month period ending August 31, 1998 and
its two largest customers, NationsBank and First Union National Bank,
accounted for 24.7% and 16.6%, respectively, of such revenue. A significant
increase or decrease in demand of SPC's services by a large client could have
a substantial effect on SPC's revenues.
RISKS ASSOCIATED WITH YEAR 2000 CONVERSION EFFORTS
As the year 2000 approaches, many date-sensitive computer applications will
fail because they are unable to process dates properly beyond December 31,
1999. As a result, businesses have been and will be required to devote
significant resources to converting their information systems over the next
two years. In the event that Year 2000 conversions result in a significant
increase in competition for technical consultants or DPRC's or SPC's clients
devote substantial resources to such conversions and decrease their
expenditures on projects worked on by DPRC's or SPC's technical consultants,
DPRC's business, financial condition and results of operations may be
materially adversely affected. DPRC earned approximately 4.0% and 10.0% of its
revenue from Year 2000 conversions in the 1997 fiscal year and the 1998 fiscal
year, respectively. DPRC expects that it
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will continue to receive increased revenues from additional Year 2000
conversions in the near term. However, DPRC expects that revenues derived from
Year 2000 conversions will steadily decline. In the absence of additional
revenue from other sources, a decline in such engagements could have a
material adverse effect on DPRC's business, operating results and financial
condition.
In addition, DPRC's and SPC's own computer applications are subject to risk
of failure from Year 2000 issues. DPRC's principal staffing and financial
systems are licensed from and maintained by third party software development
companies, which DPRC believes are Year 2000 compliant. Also, DPRC is
currently in the process of selecting a new financial system, which management
believes is, and the software vendor has represented as being, Year 2000
compliant. Although SPC's existing financial computer applications are not
currently Year 2000 compliant, SPC and DPRC anticipate that SPC will use the
new financial system, which DPRC is in the process of selecting, after the
consummation of the Merger. Furthermore, suppliers, customers and creditors of
DPRC and SPC face Year 2000 issues. Should these entities be unable to
successfully address their Year 2000 issues, it may have an adverse effect on
DPRC.
The extent and magnitude of the Year 2000 problem as it will affect DPRC and
SPC, both before and for some period after January 1, 2000, are difficult to
predict or quantify for a number of reasons. Among the most important are the
lack of control over systems that are used by the third parties who are
critical to DPRC's and SPC's operation, such as telecommunications and
utilities companies, the complexity of testing inter-connected networks and
applications that depend on third party networks and the uncertainty
surrounding how others will deal with liability issues raised by Year 2000
related failures.
Although DPRC is not currently aware of any material operational issues
associated with preparing its internal systems for the Year 2000, or material
issues with respect to the adequacy of mission-critical third party systems,
there can be no assurance, due to the overall complexity of the Year 2000
issue, that DPRC and/or SPC will not experience material unanticipated
negative consequences and/or material costs caused by undetected errors or
defects in such systems or by DPRC's or SPC's failure to adequately prepare
for the results of such errors or defects, including costs or related
litigation, if any. The impact if such consequences could have a material
adverse effect on DPRC's business, financial condition or results of
operations.
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 DPRC has
not historically experienced any material claims of these types, there can be
no assurance that DPRC will not experience such claims in the future.
CONTROL OF DPRC
Upon consummation of the Merger assuming that 1,902,708 shares of DPRC
Common Stock are issued in the Merger (1,810,424 shares of DPRC Common Stock
for the outstanding shares of SPC Common Stock and 92,284 shares of DPRC
Common Stock in cancellation of the SPC Performance-Vesting Options, assuming
the minimum Exchange Ratio of 5.50), but assuming no exercise of outstanding
SPC Time-Vesting Options or DPRC stock options, the directors of DPRC will
control the vote of approximately 26.9% of the outstanding shares of DPRC
Common Stock. Mary Ellen Weaver will control the vote of approximately 15.2%
of the outstanding shares of DPRC Common Stock, J. Christopher Lewis will
control the vote of approximately 0.8% of the outstanding shares of DPRC
Common Stock, Patrick Haden will control the vote of approximately 0.7% of the
outstanding shares of DPRC Common Stock, Christopher Lancashire and his wife
will control the vote of approximately 5.5% of the outstanding shares of the
DPRC Common Stock and Thomas Carlisle will control the vote of approximately
4.9% of the outstanding shares of DPRC Common Stock. While not controlling a
majority of the outstanding shares, Ms. Weaver, Mr. Lewis, Mr. Haden,
Mr. Lancashire and Mr. Carlisle have significant influence with respect to the
election of directors and other issues submitted to DPRC's shareholders. Such
concentration of ownership could also have the effect of making it more
difficult for a third party to acquire control of DPRC and may discourage
third parties from attempting to do so. See "Description of Capital Stock."
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of DPRC Common Stock in the public market, or
the perception that such sales could occur, could adversely affect the
prevailing market price for the DPRC Common Stock and the ability of DPRC to
raise equity capital. As of November 2, 1998, the DPRC Record Date, DPRC had
11,786,947 shares of DPRC Common Stock outstanding. Approximately 70.2% of the
outstanding shares of DPRC Common Stock are freely tradeable, except those
shares acquired in the public market by "affiliates" to DPRC, as that term is
defined in Rule 144 of the Securities Act ("Rule 144"). The remaining
outstanding shares of DPRC Common Stock are "restricted securities" within the
meaning of Rule 144 and may only be sold subject to the limitations imposed by
Rule 144. Of such restricted securities, approximately 85.1% of such shares
are now eligible for resale under Rule 144. All shares issued in the Merger
will be freely tradeable, except those acquired by "affiliates."
DPRC has also granted certain "piggyback" and demand registration rights
with respect to certain restricted securities. As of November 2, 1998,
approximately 2,326,560 shares are, or in the next six months will be, subject
to piggyback registration rights, and approximately 1,927,782 of such shares
are, or in the next six months will be, also subject to demand registration
rights. In addition, all shares of DPRC Common Stock to be issued in
connection with the earnout arrangement agreed to in connection with the
acquisition of Computec International Strategic Resources, Inc. in April 1997
(the "Computec Acquisition") will be subject to both piggyback and demand
registration rights and all shares of DPRC Common Stock to be issued in
connection with the earnout arrangement agreed to in connection with the
acquisition of S3G, Inc. in January 1998 (the "S3G Acquisition") will be
subject to piggyback registration rights. Upon the exercise of such piggyback
registration rights or upon any of such holder's exercise of its demand
registration rights, such exercise could result in the sale of a significant
number of shares of DPRC Common Stock into the public market.
As of November 2, 1998, options to purchase 1,729,714 shares of DPRC Common
Stock have been granted and are outstanding under DPRC's 1994 Stock Option
Plan, as amended, and options to purchase an additional 7,726 shares may be
granted under such plan if the proposed increase from 2.0 million to 3.0
million shares under the plan is not approved by the shareholders of DPRC at
the DPRC Special Meeting. As of November 2, 1998, an additional 172,454 shares
of DPRC Common Stock may be issued under DPRC's Employee Stock Purchase Plan.
In addition, pursuant to the earnout arrangements agreed to in connection with
the Computec Acquisition and the S3G Acquisition, DPRC is required to pay 40%
and 15%, respectively, of such earnout in shares of restricted DPRC Common
Stock.
Also, in connection with the Merger, DPRC is assuming the outstanding SPC
Time-Vesting Options under the SPC Stock Option Plan. All SPC Time-Vesting
Options are fully vested and 82.5% are exercisable at any time and from time
to time until December 15, 2006 and 17.5% are exercisable at any time and from
time to time until December 8, 2007. Upon consummation of the Merger, these
options will be exercisable to purchase approximately 1,030,182 shares of DPRC
Common Stock at an Exchange Ratio adjusted price of approximately $3.78 (for
82.5% of such options) and $6.74 (for 17.5% of such options) per share of DPRC
Common Stock, which is substantially below the current market price of DPRC
Common Stock. Also, as of the Effective Date of the Merger, options to
purchase 250,000 shares of DPRC Common Stock will be granted to certain
employees of SPC, which may include its affiliates, under DPRC's 1994 Stock
Option Plan at an exercise price equal to the then current fair market value
of DPRC Common Stock.
In addition, 3,239,436 shares of DPRC Common Stock may be issued from time
to time upon conversion of DPRC's $115.0 million aggregate principal amount of
5 1/4% Convertible Subordinated Notes due 2005 (the "Notes"). The Notes are
convertible at the option of the holder into DPRC Common Stock, at any time
prior to maturity, at a conversion price of $35.50. The Notes and the DPRC
Common Stock issuable upon conversion of the Notes may be resold at any time
privately in accordance with Rule 144A under the Securities Act or publicly
under the effective DPRC shelf registration statement.
DPRC intends, when possible, to use DPRC Common Stock to pay all or a
portion of the purchase price for future acquisitions. DPRC is in preliminary
negotiations with several other acquisition candidates whereby all or
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a portion of the purchase price could be paid in DPRC Common Stock. It is
possible that a substantial number of shares of DPRC Common Stock could be
issued in connection with one or more of these or any subsequent acquisitions.
In addition, DPRC is proposing to increase the number of its authorized shares
of DPRC Common Stock from 20.0 million to 60.0 million in connection with the
Charter Amendment which DPRC shareholders are voting on at the DPRC Special
Meeting. See "Description of Capital Stock."
DPRC can make no prediction as to the effect, if any, that sales of shares
of DPRC Common Stock, or the availability of shares for future sale, will have
on the market price of DPRC Common Stock prevailing from time to time or on
DPRC's ability to sell equity securities or equity-related securities at times
and prices that it deems appropriate.
ABILITY TO ISSUE PREFERRED STOCK WITHOUT FURTHER SHAREHOLDER APPROVAL
DPRC's Articles of Incorporation permit the DPRC Board to establish the
rights, preferences, privileges and restrictions of, and to issue, shares of
Preferred Stock (as defined herein) without any further vote or action by
DPRC's shareholders. The issuance of Preferred Stock could adversely affect
the holders of DPRC Common Stock and could have the effect of delaying,
deferring or preventing a change in control of DPRC. DPRC has no present plans
to issue any shares of Preferred Stock. See "Description of Capital Stock."
INTANGIBLE ASSETS
A significant percentage of DPRC's total assets are intangible assets. These
intangible assets substantially represent amounts attributable to goodwill
recorded in connection with DPRC's acquisitions. Any impairment in the value
of such assets could have a material adverse effect on DPRC's financial
condition and results of operations.
THE SPECIAL MEETINGS
DPRC is furnishing this Proxy Statement/Prospectus to holders of DPRC Common
Stock in connection with the solicitation of proxies by the DPRC Board for use
at the DPRC Special Meeting. This Proxy Statement/Prospectus and accompanying
form of proxy are first being mailed to the shareholders of DPRC on or about
, 1998.
DPRC SPECIAL MEETING
PURPOSE; TIME AND PLACE. At the DPRC Special Meeting, holders of DPRC Common
Stock will be asked to vote upon proposals (the "DPRC Proposals") to approve
the Merger Agreement, the Share Issuance, the Charter Amendment, the Option
Plan Amendment and to transact such other matters as may properly come before
the DPRC Special Meeting. The Special Meeting will be held at The Sutton Place
Hotel located at 4500 MacArthur Boulevard, Newport Beach, California 92660, on
, 1998, starting at [ a.m.], local time.
The DPRC Board has unanimously determined that the approval of the Merger
Agreement, the Share Issuance, the Charter Amendment and the Option Plan
Amendment are in the best interests of DPRC and the shareholders of DPRC and
the DPRC Board has approved the Merger Agreement, the Share Issuance, the
Charter Amendment and the Option Plan Amendment. THE DPRC BOARD UNANIMOUSLY
RECOMMENDS THAT THE SHAREHOLDERS OF DPRC VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT, THE SHARE ISSUANCE, THE CHARTER AMENDMENT AND THE OPTION PLAN
AMENDMENT. See "The Merger--DPRC's Reasons for the Merger; Recommendations of
the DPRC Board."
For a discussion of the potential interests that certain officers of DPRC
may have with respect to the Merger that are different from, or in addition
to, the interests of shareholders of DPRC generally, see "The Merger--
Interests of Certain Persons in the Merger." Such interests, together with
other relevant factors, including
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financial analysis which was summarized and confirmed in the NMS Opinion which
is attached as Annex B, were considered by the DPRC Board in making its
recommendation.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL. The DPRC Board has fixed the
close of business on November 2, 1998, as the record date for voting at the
DPRC Special Meeting (the "DPRC Record Date"). Only holders of record of
shares of DPRC Common Stock on the DPRC Record Date are entitled to notice of
and to vote at the DPRC Special Meeting. On the DPRC Record Date, there were
11,786,947 shares of DPRC Common Stock outstanding and entitled to vote at the
Special Meeting, held by approximately 77 shareholders of record. Each holder
of record of DPRC Common Stock, as of the DPRC Record Date, is entitled to
cast one vote per share. The presence, in person or by proxy, of the holders
of a majority of the outstanding shares of DPRC Common Stock at the DPRC
Special Meeting shall constitute a quorum at the DPRC Special Meeting. In the
event that a quorum is not present at the DPRC Special Meeting, it is expected
that such meeting will be adjourned or postponed to solicit additional
proxies. Approval of each of the Merger Agreement, the Charter Amendment and
the Option Plan Amendment requires the affirmative vote of a majority of the
outstanding shares of DPRC Common Stock entitled to vote thereon at the DPRC
Special Meeting. Approval of the Share Issuance requires the affirmative vote
of a majority of the votes cast with respect to such proposal; provided that
the total number of votes cast on such proposal represents more than 50% of
the outstanding shares of DPRC Common Stock entitled to vote thereon at the
DPRC Special Meeting. Approval of the Merger Agreement, the Charter Amendment
and the Share Issuance is required for the Merger to be consummated. If any
one of the foregoing the proposals is not approved, even if the other two
proposals are approved, the Merger cannot be consummated. Approval of the
Option Plan Amendment is not required to consummate the Merger, and if
approved, will independently be effected even if any of the other proposals
are not approved.
SHARE OWNERSHIP OF MANAGEMENT. At the close of business on the DPRC Record
Date, directors and executive officers of DPRC, as a group, were the
beneficial owners of an aggregate of 3,010,932 shares (approximately 22%) of
the DPRC Common Stock then outstanding.
PROXIES. All shares of DPRC Common Stock represented by properly executed
proxies received prior to or at the DPRC Special Meeting and not revoked will
be voted in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed returned proxy, such proxies
will be voted FOR the approval of the DPRC Proposals. A properly executed
proxy marked "ABSTAIN," although counted for purposes of determining whether
there is a quorum and for purposes of determining the aggregate voting power
and number of shares represented and entitled to vote at the DPRC Special
Meeting, will not be voted. In accordance with NNM rules, brokers and nominees
are precluded from exercising their voting discretion with respect to the
approval and adoption of any of the DPRC Proposals and thus, absent specific
instructions from the beneficial owner of such shares, are not empowered to
vote such shares with respect to the approval and adoption of such proposals.
The affirmative vote of a majority of the shares of DPRC Common Stock entitled
at the DPRC Special Meeting to vote on the Merger Agreement, the Charter
Amendment and the Option Plan Amendment is required to approve such proposals
and the affirmative vote of a majority of the votes cast with respect to the
Share Issuance is required to approve such proposal; provided that the total
number of votes cast with respect to the Share Issuance represents more than
50% of the outstanding shares of DPRC Common Stock entitled to vote thereon.
Therefore, a "broker non-vote" (i.e., shares held by brokers or nominees which
are represented at a meeting but with respect to which the broker or nominee
is not empowered to vote on a particular proposal) will not be counted as a
vote cast on any of the DPRC Proposals. Shares represented by "broker non-
votes" will, however, be counted in determining whether there is a quorum at
the DPRC Special Meeting for the purpose of approving the Share Issuance.
The DPRC Board is not currently aware of any business to be acted upon at
the DPRC Special Meeting other than as described herein. If, however, other
matters are properly brought before the DPRC Special Meeting, or any
adjournments or postponements thereof, the persons appointed as proxies will
have discretion to vote or act thereon according to their judgment. Such
adjournments may be for the purpose of soliciting additional proxies in the
absence of a quorum at the DPRC Special Meeting.
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A shareholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of DPRC a signed notice of revocation or a later-
dated signed proxy or by attending the DPRC Special Meeting and voting in
person. Attendance at the DPRC Special Meeting will not in itself constitute
the revocation of a proxy.
It is the policy of DPRC to keep confidential proxy cards, ballots and
voting tabulations that identify individual shareholders, except where
disclosure is mandated by law and in other limited circumstances.
The cost of the solicitation of proxies will be paid by DPRC for proxies. In
addition to solicitation by mail, arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxy materials
to beneficial owners, and DPRC will, upon request, reimburse them for their
reasonable expenses. To the extent necessary in order to ensure sufficient
representation at the DPRC Special Meeting, DPRC, through its officers and
regular employees, who will receive no compensation in excess of their regular
salaries for their services, may request by telephone or telegram the return
of proxy cards. The extent to which this will be necessary depends entirely
upon how promptly proxy cards are returned. Shareholders are urged to send in
their proxies without delay.
DPRC SHAREHOLDERS DO NOT NEED TO TAKE ANY ACTION WITH RESPECT TO THEIR STOCK
CERTIFICATES, WHICH WILL CONTINUE TO EVIDENCE THE SAME NUMBER OF SHARES OF
DPRC COMMON STOCK FOLLOWING THE MERGER.
SPC SPECIAL MEETING
SPC is furnishing this Proxy Statement/Prospectus to holders of SPC Common
Stock in connection with the solicitation of proxies by the SPC Board for use
at the SPC Special Meeting. This Proxy Statement/Prospectus and accompanying
form of proxy are first being mailed to the shareholders of SPC on or about
, 1998.
PURPOSE; TIME AND PLACE. At the SPC Special Meeting, holders of SPC Common
Stock will be asked to vote upon and to approve the Merger and to transact
such other matters as may properly come before the SPC Special Meeting. The
Special Meeting will be held at the [ ] located at [ ],
Charlotte, North Carolina [ ], on , 1998, starting at [ ],
local time.
The SPC Board has unanimously determined that the Merger is in the best
interests of SPC and the shareholders of SPC and has approved the Merger
Agreement. THE SPC BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF SPC
VOTE "FOR" APPROVAL OF THE MERGER. See "The Merger--SPC's Reasons for the
Merger; Recommendations of the SPC Board."
For a discussion of the potential interests that certain officers of SPC may
have with respect to the Merger that are different from, or in addition to,
the interests of shareholders of SPC generally, see "The Merger--Interests of
Certain Persons in the Merger." Such interests, together with other relevant
factors, were considered by the SPC Board in making its recommendation.
VOTING RIGHTS; VOTES REQUIRED FOR APPROVAL. The SPC Board has fixed the
close of business on November 2, 1998, as the record date for voting at the
SPC Special Meeting (the "SPC Record Date"). Only holders of record of shares
of SPC Common Stock on the SPC Record Date are entitled to notice of and to
vote at the SPC Special Meeting. On the SPC Record Date, there were 329,168
shares of SPC Common Stock outstanding and entitled to vote at the SPC Special
Meeting, held by 11 shareholders of record. One of the shareholders of record
is the Systems & Programming Consultants, Inc. Stock Bonus Plan (the "Stock
Bonus Plan"), which has 298 participants, who are each entitled to direct the
trustees of the Stock Bonus Plan as to how to vote the shares of SPC Common
Stock held in each participant's account. The Stock Bonus Plan owns 69,895
shares of SPC Common Stock, representing approximately 21% of the outstanding
shares of SPC Common Stock. Each holder of record of SPC Common Stock, as of
the SPC Record Date, is entitled to cast one vote per share. The presence, in
person or by proxy, of the holders of a majority of the outstanding shares of
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SPC Common Stock at the SPC Special Meeting shall constitute a quorum at the
SPC Special Meeting. In the event that a quorum is not present at the SPC
Special Meeting, it is expected that such meeting will be adjourned or
postponed to solicit additional proxies. Approval of the Merger Agreement
requires the affirmative vote of a majority of the votes cast with respect to
such proposal; provided that the total number of votes cast on such proposal
represents more than 50% of the outstanding shares of SPC Common Stock
entitled to vote thereon at the SPC Special Meeting.
SHARE OWNERSHIP OF MANAGEMENT. At the close of business on the SPC Record
Date, directors and executive officers of SPC, as a group, were the beneficial
owners of an aggregate of 285,597 shares (approximately 87%) of the SPC Common
Stock then outstanding and owned SPC Time-Vested Options to purchase 162,613
shares of SPC Common Stock which are fully-vested and are exercisable for a
price substantially below the market value of SPC Common Stock. See "Security
Ownership of Certain Beneficial Owners and Management of SPC."
PROXIES. All shares of SPC Common Stock represented by properly executed
proxies received prior to or at the SPC Special Meeting and not revoked will
be voted in accordance with the instructions indicated in such proxies. If no
instructions are indicated on a properly executed returned proxy, such proxies
will be voted FOR the approval of the Merger. A properly executed proxy marked
"ABSTAIN," although counted for purposes of determining whether there is a
quorum and for purposes of determining the aggregate voting power and number
of shares represented and entitled to vote at the SPC Special Meeting, will
not be voted. Any shares of SPC Common Stock not voted at the SPC Special
Meeting, whether due to abstentions, broker non-votes or otherwise, will have
the effect of a vote against the Merger.
69,895 shares of SPC Common Stock, representing approximately 21% of the
outstanding shares of SPC Common Stock, are held by the Stock Bonus Plan.
Those shares are held in the names of Thomas G. Carlisle and Richard K.
Carlisle, as the trustees of the Stock Bonus Plan ("Trustees"). However, as
required by law, each participant in the Stock Bonus Plan, as a beneficial
owner of shares of SPC Common Stock, is entitled to direct the Trustees as to
how to vote the SPC Common Stock held in his or her account. Should a
participant fail to direct the Trustees how to vote those shares (the
"Undirected Shares"), SPC, as the Named Fiduciary of the Stock Bonus Plan
shall use its discretion in deciding how to direct the Trustees to vote, or
whether to abstain from voting the Undirected Shares. SPC will act in this
capacity through its Board of Directors. In exercising its discretion in this
regard, the Named Fiduciary is subject to the fiduciary responsibility rules
of the Employee Retirement Income Security Act of 1974 ("ERISA"), which
supersedes any otherwise applicable state laws. The members of SPC's Board of
Directors are also executive officers and large shareholders of SPC and
accordingly have personal interests in the Merger. See "The Merger--Interests
of Certain Persons in the Merger." Nevertheless, in SPC's role as the Named
Fiduciary of the Stock Bonus Plan, the members of the Board of Directors must
act in accordance with the fiduciary responsibility rules of ERISA in SPC's
decision to direct the Trustees to vote for, against or abstain from voting
the Undirected Shares. The fiduciary responsibility rules of ERISA require
that the Named Fiduciary, SPC, execute its duties for the exclusive benefit of
the participants in the Stock Bonus Plan, in the manner that a prudent person
would act under the circumstances.
The SPC Board is not currently aware of any business to be acted upon at the
SPC Special Meeting other than as described herein. If, however, other matters
are properly brought before the SPC Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion
to vote or act thereon according to their judgment. Such adjournments may be
for the purpose of soliciting additional proxies in the absence of a quorum at
the SPC Special Meeting.
A shareholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of SPC a signed notice of revocation or a later-
dated signed proxy or by attending the SPC Special Meeting and voting in
person. Attendance at the SPC Special Meeting will not in itself constitute
the revocation of a proxy.
It is the policy of SPC to keep confidential proxy cards, ballots and voting
tabulations that identify individual shareholders, except where disclosure is
mandated by law and in other limited circumstances.
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The cost of the solicitation of proxies will be paid by SPC. In addition to
solicitation by mail, officers and regular employees of SPC, who will receive
no compensation in excess of their regular salaries for their services, may
solicit proxies from SPC shareholders by telephone or otherwise. SPC will also
reimburse brokers and other nominees for their reasonable expenses in
communicating with persons for whom they hold SPC Common Stock.
SHAREHOLDERS SHOULD NOT SEND IN ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS FOR THE SURRENDER OF STOCK
CERTIFICATES FOR SPC COMMON STOCK WILL BE MAILED TO FORMER SPC SHAREHOLDERS AS
SOON AS PRACTICABLE AFTER THE CONSUMMATION OF THE MERGER.
THE MERGER
BACKGROUND OF THE MERGER
Initiation of discussions between DPRC and SPC was principally a response to
the continuing consolidation of the information technology ("IT") staffing
services industry. This consolidation has occurred primarily because of the
trend toward outsourcing skilled labor in the United States to provide
corporations with a flexible work force which can be rapidly expanded or
shrunk to meet the needs of those corporations as new projects are commenced
or old projects are completed. Large corporations with branch locations
throughout the United States are interested in securing the IT staffing they
require for all their locations through a single IT staffing services provider
with extensive geographic coverage. In addition to positioning providers of IT
staffing services to handle the accounts of large, geographically diverse
corporations, consolidation allows the larger, merged IT staffing service
provider to have access to a larger number of technical consultants with more
variety of skills to service its customers.
As a result of these factors, DPRC has engaged in a strategy of
consolidation over the past two years which has resulted in a series of
acquisitions enabling DPRC to expand its regional geographical presence
through a national network of offices and the variety of IT services which it
provides. As part of this strategy, the DPRC Board and DPRC's senior
management began to consider the possibility of entering into a business
combination with another large provider of IT services which serviced a
geographical market in the Southeastern United States, a region in which DPRC
currently had little or no presence.
Through its own experience, DPRC has noted that the business of providing IT
services is relationship-based and, although the industry is consolidating,
still regional. As a result, when a well established, high-quality IT service
provider already exists in a certain geographic area, it is easier to develop
a major presence in that new geographic area through the acquisition of the
existing provider than to develop a start-up branch office in the new area.
This is due in part to the regional nature of the industry in which an IT
service provider with a successful operation in one region is unlikely to have
the benefit of any name recognition in another region. In addition, when an
existing provider is acquired, DPRC doesn't have to incur the start up costs
which it would otherwise incur during the first 12 months of operations. DPRC
has internally created branch offices in some other regions of the country
where there was no prominent IT service provider; however, SPC's strong
presence in the Southeast, together with its long-standing relationships in
the financial services industry and its expertise in that industry made such a
strategy less attractive in this instance.
Prior to SPC's introduction to DPRC it had developed a strategic growth plan
which included opening new branch offices at a rate of two per twelve to
eighteen month period. Due to SPC's lack of capital, expansion was projected
on the basis of SPC's ability to finance its own growth through cash flow. By
late 1997, SPC had successfully completed the opening of three branches and
was formulating plans for two more. It had identified ten target cities.
It was obvious to SPC that it would need more capital than could be
generated from cash flow if it wanted to expand at a faster rate. SPC
investigated the three obvious sources of capital; an initial public offering,
late-stage financing and a merger. A public offering had been ruled out for
the immediate future due to SPC's
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sales volume which was perceived as below the minimum required for a public
company. During 1996 and 1997, SPC made inquiries regarding possible mergers
with other information technology staffing companies, and actually met with
executives from three leading companies. For various reasons, the SPC Board
did not feel there was a strategic and cultural fit with these companies, and
did not pursue merger discussions. For example, several of the companies had
collateral divisions such as proprietary software development. Due to SPC's
own unfavorable experiences with other lines of business, it was decided to
narrow its focus to merging with pure IT staffing companies.
On December 4, 1997, DPRC management met with SPC management in Newport
Beach, California, and preliminarily discussed the possibility of a
combination of the two companies and the consolidation in the industry.
During the month of January 1998, the senior management of DPRC and SPC
separately evaluated the merits of a possible combination of DPRC and SPC,
reviewed their respective strategic and operational plans and considered other
strategic and financial alternatives. Thomas Carlisle, SPC's President, had
several phone conversations with DPRC's senior management to discuss
preliminary planning and procedural issues.
Possible methods of valuing SPC were also considered. It was preliminarily
discussed that the purchase price would be based upon a multiple of SPC's
earnings before interest and taxes ("EBIT") once certain adjustments had been
made to EBIT to more accurately reflect the operations of SPC subsequent to
the merger ("Recast EBIT"). Accretion analyses were prepared internally by
DPRC to determine pricing based on multiples of Recast EBIT which could be
paid before the merger ceased to be accretive to DPRC's earnings per share
("EPS") if the merger was accounted for as a purchase transaction. Based upon
multiples of Recast EBIT as of February 1998, the estimated aggregate merger
consideration would have been approximately $37.0 million if accounted for as
a purchase.
On February 5 through 8, 1998, the SPC Board met at Key West, Florida to
conduct its annual planning conference. During the course of this meeting the
SPC Board discussed and evaluated the merits of a combination of SPC and DPRC.
On February 9 and 10, 1998, Mary Ellen Weaver, DPRC's Chief Executive
Officer, and Michael A. Piraino, DPRC's Chief Financial Officer, met in
Charlotte, North Carolina with Thomas Carlisle, SPC's President, and SPC's
financial adviser, Arthur Andersen LLP ("Arthur Andersen"), to discuss the
respective business strengths, operational strategies, financial results of
each of DPRC and SPC, potential synergies which might result from a
combination of the two companies and procedural matters with respect to a
potential transaction. Issues regarding the valuation of SPC and the type of
consideration to be offered in a merger were also discussed. Representatives
from NMS joined the discussion to talk about the IT staffing services
industry, DPRC's position in the industry and the possibility of a combination
of the two companies.
From February 10, 1998 until March 9, 1998 the SPC Board conducted numerous
telephone conferences with its financial advisors at Arthur Andersen regarding
the terms of a possible merger of SPC and DPRC. These discussions culminated
with a board meeting on March 9, 1998 which was attended by SPC's legal
counsel. At this meeting a letter of intent with DPRC was signed which
contemplated structuring the merger as a pooling of interests and valuing SPC
using a multiple of Recast EBIT of 17.7. The change in the structuring of the
Merger reflected DPRC's estimate that by using pooling of interests accounting
the merger consideration could be 25% to 30% higher than that offered under a
merger accounted for as a purchase and the Merger would still be accretive to
DPRC's EPS. DPRC also signed this letter of intent on March 9, 1998.
During the week of April 20, 1998, representatives from DPRC and its legal
and financial advisors began to conduct a detailed review of SPC's business,
examining operational, financial and legal information. Simultaneously,
representatives from SPC and its legal and financial advisors began a similar
review of DPRC's operational, financial and legal information.
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During this time, Arthur Andersen's representatives continued to negotiate
with DPRC on behalf of SPC regarding the pricing of the Merger. These
negotiations were discussed at a teleconference with SPC's senior management
and SPC's legal counsel on May 20, 1998. As a result of this conference Arthur
Andersen was given instructions to continue its efforts to obtain an agreement
regarding pricing of the Merger. The negotiations in May regarding the pricing
of the merger consideration focused on which accounting period would be used
to determine the Recast EBIT number to be used in the calculation of the
merger consideration. SPC's twelve-month trailing EBIT continued to increase
each month throughout the first five months of 1998 at a rate of approximately
6.4%. As a result, the valuation of SPC, being a multiple of EBIT, increased
each month by a proportionate percentage. Because the approximate date of the
signing of a definitive merger agreement and the subsequent date on which a
merger would become effective could not be predicted, the parties wanted to
agree on which months' EBIT would be used in determining the merger
consideration.
On May 29, 1998, senior management of SPC met with senior management of DPRC
in Newport Beach, California to negotiate the terms of the Merger and to
continue their respective due diligence reviews. Later on the same date, the
directors of SPC met to discuss the most recent developments in the
negotiations between SPC and DPRC, including the proposed Merger Consideration
and the noncompetition agreements from the senior management of SPC, and
reviewed the material terms of the employment and severance arrangements with
senior management. The SPC Board also conducted a general due diligence review
of the warranties and representations contained in the draft agreement. This
meeting resulted in a teleconference with DPRC officers and legal counsel to
discuss pricing issues.
On June 2, 1998, the DPRC Board held a board meeting and discussed the
business, operating and financial results and prospects of SPC, DPRC's and
SPC's detailed due diligence investigations and the potential strategic and
financial benefits of such a transaction. The DPRC Board authorized its
officers to continue DPRC's investigation of SPC and to continue negotiations
with SPC.
On June 9, 1998, the SPC Board met with SPC's legal counsel to discuss the
latest draft of the Merger Agreement and to conduct a general due diligence
review of the warranties and representations contained in the draft agreement.
This meeting resulted in a teleconference with DPRC officers and legal counsel
to discuss pricing issues. The major unresolved pricing issue at this time
continued to be which months' EBIT would be used in calculating the merger
consideration. The twelve-month trailing Recast EBIT of SPC for the months of
March, April and May of 1998 was estimated to be $4.0 million, $4.3 million
and $4.4 million, respectively. Based on this continued increase in SPC's
Recast EBIT and the difficulty in resolving the issue of which months' EBIT to
use in determining the purchase price, the parties agreed to discontinue its
discussion of determining a price based upon the 17.7 multiple of EBIT and,
instead, to negotiate a fixed purchase price. The parties agreed upon a fixed
price of $87.5 million and a share value of $29.33, equal to the 20-day
trailing average stock price as of the date the Merger Agreement was signed.
DPRC agreed to this valuation based on the fact that this purchase price would
still allow the transaction to have an accretive effect on DPRC's earnings, on
a trailing basis. SPC was willing to accept this value because the SPC Board
concluded that it was in SPC's best interest that the transaction have an
accretive effect rather than a dilutive effect on DPRC's earnings on a
combined basis, assuming that the Merger was accounted for as a pooling of
interests. It was concluded that a dilutive transaction would have a negative
short-term impact on the market price of DPRC stock.
On June 10 and 11, 1998, Rusty Smith, DPRC's Vice President of Sales,
conducted due diligence and reviewed the operations of SPC's branch offices.
On June 15, 1998, the DPRC Board held a special meeting to consider the
terms of the proposed transaction. Members of DPRC's senior management and
DPRC's legal advisor made presentations to the DPRC Board and discussed with
the members certain operational, financial and legal analyses of various
aspects of the proposed merger and certain strategic benefits and post-merger
operational efficiencies, including potential synergies, resulting therefrom.
In addition, the Board reviewed financial analyses regarding the fairness of
the Merger Consideration to be paid, which was prepared by NMS, DPRC's
financial advisor. During the course of such meeting, the DPRC Board raised
certain questions regarding specific terms of the draft Merger Agreement and
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the related transactions and instructed DPRC's legal advisors to continue
negotiations. Following this discussion, the DPRC Board determined by a
unanimous vote that (i) the transactions contemplated by the Merger Agreement
were in the best interests of DPRC and (ii) the consideration to be paid in
the Merger is fair to the shareholders of DPRC from a financial point of view.
Subsequently, the DPRC Board adopted and approved the Merger Agreement and the
transactions contemplated thereby, including the Share Issuance.
On June 15, 1998 three members of the SPC Board, its legal counsel and its
independent auditor met at the Sutton Place Hotel, Newport Beach, California
and discussed the principal economic terms of the proposed transaction. SPC's
legal counsel discussed with the SPC Board the proposed terms of the draft
Merger Agreement and the open issues with respect to the proposed transaction,
including issues relating to each party's due diligence, confirmation of the
availability of pooling of interests accounting treatment, various matters
relating to the draft Merger Agreement and noncompetition agreements from the
senior management of SPC. Richard Carlisle and SPC's legal counsel and
independent auditors met with DPRC's legal counsel and together completed a
revised draft of the Merger Agreement. Negotiations between the parties
continued regarding pricing issues which were not resolved until the morning
of June 16, 1998.
On June 16, 1998, a special meeting of the SPC Board was held. The SPC Board
reviewed the final draft of the Merger Agreement and unanimously resolved that
the Merger and the Merger Agreement were fair to and in the best interests of
SPC and its shareholders, approved the Merger, the Merger Agreement and the
related transactions and recommended that the holders of SPC Common Stock
approve and adopt the Merger Agreement.
On October 13, 1998, DPRC and SPC entered into a letter agreement amending
the Merger Agreement to fix the number of shares to be deposited in escrow and
to limit the aggregate amount of the indemnification to be paid to DPRC by the
controlling shareholders of SPC to not exceed 10% of the total number of
shares of DPRC Common Stock issued in exchange for the outstanding shares of
SPC Common Stock and for the cancellation of the SPC Performance-Vesting
Options. This limitation was estimated to reduce the number of shares
deposited in escrow from approximately 238,663 to 192,042. The DPRC Board
considered this amendment fair to DPRC's shareholders because it was necessary
in order for the Merger to qualify for pooling of interests accounting and
DPRC's shareholders would benefit from such accounting treatment. In addition,
due to a subsequent increase in the number of shares of DPRC Common Stock to
be issued in the Merger reflected in the October 20, 1998 amendment to the
Merger Agreement, the actual number of shares of DPRC Common Stock to be
deposited in escrow will increase to approximately 209,441 shares from the
192,042 shares which were previously estimated to have been deposited in the
escrow based on the $87.5 million implied value of the prior Merger
Consideration.
During the week preceding October 20, 1998, management of SPC had numerous
discussions with management of DPRC regarding more recent estimates of SPC's
EBIT, the recent trading prices of DPRC Common Stock and the valuation methods
and multiples recently being used to purchase companies.
On October 20, 1998, members of the SPC Board reviewed the pricing of the
Merger to consider revising the pricing for changes since the date the Merger
Agreement was signed. The SPC Board considered the recent increase in the
estimate for SPC's EBIT for the calendar year ending December 31, 1998 of
approximately $7.0 million and the recent declines in DPRC's stock price and
concluded that an upward adjustment in the Merger Consideration should be
negotiated. In addition, SPC continued to believe that the accretion analysis
originally used by the parties in arriving at the original Merger
Consideration should be used as a basis for renegotiating the Merger
Consideration rather than determining the new price based upon the 17.7
multiple of EBIT. This analysis revealed that a valuation of $71.5 million
could be used without causing the transaction to be dilutive to DPRC's
earnings on a combined basis assuming the Merger was accounted for as a
pooling of interests. The SPC Board also took into account recent market
trends which indicated a decline in valuations paid for companies recently
acquired. The SPC Board also considered that the repricing results in a larger
number of DPRC shares for SPC shareholders (the estimated increased from
2.7 million to 3.0 million to 2.8 to 3.3 million). The SPC Board concluded
that this was a fair and adequate concession by DPRC to offset the
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impact of the recent decline in DPRC's stock price and to reflect the
continued growth of SPC's sales, EBIT, net worth and working capital relative
to those of DPRC. The SPC Board determined by unanimous written consent that
SPC should enter into an amendment to the Merger Agreement to reprice and fix
the aggregate implied value of the Merger Consideration at $71.5 million and
that the new Merger Consideration offered by DPRC, i.e., a larger number of
shares of DPRC Common Stock, was fair and was in the best interest of SPC.
On October 21, 1998, the DPRC Board held a special meeting to review the
revised pricing of the Merger. The DPRC Board reviewed the amount of time that
had elapsed since the date the Merger Agreement was signed, and the continued
increase in SPC's EBIT, the volatility of the market price of DPRC Common
Stock and of the stock market in general over such intervening time. Based
upon a more recent estimate of SPC's EBIT for the calendar year ending
December 31, 1998 of approximately $7.0 million, the DPRC Board determined
that a valuation of $71.5 million could be used in calculating the revised
Merger Consideration. This valuation was arrived at using the same accretion
analysis originally used by DPRC in valuing SPC. At this valuation, the Merger
would still be accretive to DPRC's trailing earnings on a combined basis,
assuming that the transaction would be accounted for as a pooling of
interests. The DPRC Board then calculated the implied value of the Merger
Consideration using a price of $21.00 per share to more closely reflect recent
market prices of DPRC Common Stock. This resulted in an increase of the
estimated range in the number of shares to be issued or reserved in connection
with the Merger to between 2.8 million and 3.3 million (from between 2.7
million and 3.0 million). Although this increase represents additional
dilution to DPRC's shareholders, DPRC would be receiving higher earnings than
previously estimated from SPC based on its more recent increasing EBIT. Also,
this increase in the number of shares to be issued in the Merger would result
in approximately 17,400 more shares being deposited in the escrow for the
indemnification obligations. In addition, the DPRC Board also reviewed revised
financial analyses prepared by NMS, DPRC's financial advisor, regarding the
fairness of the proposed revised merger consideration and also received an
oral opinion from NMS (subsequently confirmed in writing) that the revised
merger consideration to be paid pursuant to the Merger Agreement was fair to
DPRC from a financial point of view as of October 21, 1998. Following these
discussions, the DPRC Board determined that DPRC should enter into an
amendment to the Merger Agreement to change the pricing of Merger
Consideration.
Each of the DPRC Board and the SPC Board determined that the revised merger
consideration is fair to their respective shareholders from a financial point
of view and recommended that the holders of such company's common stock
approve and adopt the Merger Agreement as amended.
SPC and DPRC then executed a letter agreement amending the Merger Agreement
to change the aggregate implied value from $87.5 million to $71.5 million and
to change the price per share of DPRC Common Stock to be used in calculating
the Exchange Ratio of the number of shares of DPRC Common Stock to be received
by SPC shareholders from $29.33 to $21.00.
DPRC'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE DPRC BOARD
The DPRC Board believes the terms of the Merger Agreement and the
transactions contemplated thereby are in the best interests of DPRC and its
shareholders. Accordingly, the DPRC Board has unanimously approved the Merger.
In the course of regularly scheduled DPRC Board meetings over the past two
years, the DPRC Board discussed the consolidation in the IT services industry
and DPRC's participation in such consolidation. Recently, these discussions
have centered around the possibility of DPRC making a significantly larger
acquisition than the ones it had previously completed. Though no actions were
taken with respect to any specific transaction, the DPRC Board charged
management with the ongoing responsibility of assessing a potential
acquisition of significant size which would allow DPRC to continue its
aggressive, yet disciplined, growth strategy and leverage its quality IT
services and corporate infrastructure.
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In connection with its consideration of the Merger and the Merger Agreement,
the DPRC Board consulted with DPRC management, as well as its financial and
legal advisors, and considered a number of factors. Many of these factors
relate to the ability of the combined company to take advantage of certain
synergies expected to be created by the Merger while continuing to grow
aggressively, in a disciplined manner, with respect to geographic presence,
customers and revenues. In particular, the Merger strengthens DPRC's position
in two existing markets and adds seven new markets to grow its domestic
presence. The following details some, but not all, of the factors considered
by the DPRC Board:
(i) that the Merger should provide DPRC with a greater market presence in
the Southeast region of the United States, a geographic region largely not
served previously by DPRC;
(ii) that the addition of SPC's offices would expand DPRC's regionally
based national network of offices and should improve the combined company's
ability to pursue strategic acquisitions and alliances in the future;
(iii) that the Merger should provide opportunities for DPRC and SPC to
cross-sell value-added services to the other's existing and potential
customers;
(iv) that the combination of DPRC and SPC should result in enhanced
purchasing efficiencies;
(v) that the addition of SPC's technical consultants will increase DPRC's
percentage of salaried versus hourly technical consultants and the skill
mix and competencies of its pool of technical consultants;
(vi) that SPC's national recruiting organization should complement DPRC's
national recruiting organization and will expand the number and skills of
DPRC's technical consultants;
(vii) the strong management team, sales and recruiting force in place at
SPC;
(viii) the terms of the noncompetition agreements entered into by certain
members of SPC management;
(ix) that after giving effect to the expected synergies, the Merger is
expected by DPRC to be accretive to its earnings in the fiscal year ending
July 31, 1999 and thereafter;
(x) the tax-free nature of the Merger;
(xi) the availability of pooling of interests accounting treatment for
the transaction and analysis of the information on the financial condition,
business, operations and prospects of both DPRC and SPC on a historical and
prospective basis, including the pro forma impact of the Merger on the
combined financial statements of SPC and DPRC;
(xii) the financial analysis provided by NMS and the NMS Opinion; and
(xiii) accretion analysis prepared by DPRC reflecting the impact of the
Merger on DPRC'S earnings per share assuming several different purchase
prices and pro forma reports which projected earnings and revenues of DPRC
and SPC on a combined basis.
The foregoing list of the information and factors considered by the DPRC
Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the Merger, the DPRC Board did
not find it practicable to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the DPRC Board may have given different
weights to different factors.
THE DPRC BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF DPRC VOTE
"FOR" THE APPROVAL OF THE MERGER AGREEMENT.
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SPC'S REASONS FOR THE MERGER; RECOMMENDATIONS OF THE SPC BOARD
The SPC Board believes that the IT staffing services industry currently is
undergoing significant change in response to competitive pressures from
corporate clients, service providers and technical consultants. The SPC Board
expects that the current growth and national expansion of many of its existing
and potential corporate clients will lead over time to a significant increase
in the percentage of such corporations who are willing to work only with IT
staffing service providers with a geographical presence wide enough to provide
for the needs of all of the corporations' branch locations. In response to
these competitive pressures, the SPC Board believes that substantial
consolidation is inevitable in the IT staffing services industry. The SPC
Board concluded that the inherent efficiencies of its regional presence in the
Southeast United States would improve DPRC's overall efficiency. On the other
hand, a merger with DPRC would provide SPC with a larger and more experienced
management group. Moreover, SPC perceived a need to expand nationally in order
to serve the needs of NationsBank and other of its existing clients. The SPC
Board believes that the Merger represents a unique opportunity to create an IT
staffing services company with broad geographic diversification, including
international offices, strong growth potential and the ability to compete
effectively in the new environment. For the foregoing reasons, the SPC Board
unanimously believes that the Merger and the Merger Agreement are fair to and
in the best interests of SPC and its shareholders.
Arthur Andersen and SPC officials conducted a market comparison of DPRC
Common Stock to other information technology staffing companies. SPC observed
that DPRC Common Stock was thinly traded and that this posed some short-term
risk but concluded that the DPRC Common Stock should perform well in the
market in relative terms over the long-term. This conclusion was based, in
part, upon the strong earnings history of DPRC and SPC's assessment of DPRC's
long range potential. In addition, SPC assumed that the trading volume of the
DPRC Common Stock would increase as time goes by because most of the
outstanding DPRC Common Stock which is currently held by persons who are under
various trading limitations and restrictions ultimately will become freely
tradable.
SPC's fairness assessment of the Merger was an ongoing process which began
in April 1998 when it became apparent that a merger might be possible.
However, intense time and effort was not expended until the SPC Board was
satisfied that the potential merger consideration would be sufficient to
address SPC's concerns regarding the potential for market price fluctuation
for the DPRC Common Stock. This occurred during the two week period preceding
the execution of the Merger Agreement on June 16, 1998. The SPC Board
considered the possibility that the market price of the DPRC Common Stock
might fluctuate downward subsequent to the signing of the Merger Agreement and
considered negotiating a provision into the Merger Agreement which would allow
DPRC to terminate if the price dropped to a certain price and SPC to terminate
if the price rose to a certain point. SPC agreed to fix the number of shares
to be received because it believed that the long-term performance of DPRC
Common Stock would be acceptable in relative terms. Further, SPC was not
seeking immediate liquidity and viewed the Merger on a long-term strategic
basis. Accordingly and as a result of arms-length negotiations, the parties
agreed on a fixed merger consideration and a fixed number of DPRC shares. The
SPC Board realized that market price changes would effect the closing value of
the merger consideration but concluded that this was an acceptable risk if the
number of DPRC shares received were fixed.
The SPC Board has monitored the performance of the DPRC Common Stock since
June 16, 1998 and has determined that the Merger is still in the best interest
of SPC. The DPRC Common Stock has performed well in relative terms to the
overall market sector. Moreover, the other factors supporting and underlying
SPC's decision have not changed, e.g., DPRC's earnings trend, SPC's earnings
trend, DPRC's management strength and the prospect for an efficient, national
operation. However, the shareholders of SPC and the holders of SPC
Time-Vesting Options and SPC Performance-Vesting Options bear the risk of
declines in the price of DPRC Common Stock from June 16, 1998 to the closing
date of the Merger. The SPC Board considered the risk to SPC holders that the
Merger Agreement does not provide protection against a decline in the DPRC
share price. During final negotiations with DPRC, SPC sought and received a
fixed merger consideration which insures that SPC holders will receive a fixed
number of shares of DPRC Common Stock. The SPC Board concluded that the
relative performance between SPC and DPRC would remain unchanged between the
signing date and the closing
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date and therefore, that a fixed number of shares was the appropriate merger
consideration. Underlying this conclusion was the strongly held belief that
the DPRC Common Stock would perform well in the market in relative terms after
the Merger.
The SPC Board determined that it was critical to the continued success of
SPC and DPRC following the Merger that the four executive officers and Board
members of SPC be retained by and prevented from competing with DPRC. Each
executive officer is very experienced in and knowledgeable about the
information technology staffing business generally and the operations of SPC
specifically. Collectively these officers represent over sixty years of
experience with SPC. They have been instrumental in procuring and retaining
major customers of SPC and accordingly have well developed business contacts
with these customers. They have detailed knowledge of the operations of
customers of SPC in the southeast United States and the SPC Board believes
this knowledge gives SPC a competitive advantage over many other staffing
companies in the region. Furthermore, these executives are intimately familiar
with SPC expansion plans. Were any one of the executive officers of SPC
permitted to leave SPC without restrictions on his ability to compete with SPC
it is believed that he would be able to procure valuable business from
customers of SPC at the expense of SPC. For these reasons the SPC Board
believes that these agreements are in the best interest of and are fair and
reasonable to SPC.
In addition, it was the SPC board's intention from the outset of its
negotiations with DPRC to protect the rights of the SPC option holders by
ensuring that they retained the same rights and privileges after the
consummation of the Merger, which they had been entitled to immediately prior
to the consummation of the Merger. The SPC board treated the SPC Time-Vesting
Options the same as outstanding SPC stock and negotiated DPRC's agreement
to assume these options at the same Exchange Ratio without change. The
treatment of the SPC Performance-Vesting Options was dictated in part by the
desire of the SPC Board to ensure that the Merger qualified for pooling of
interests accounting treatment.
The following are the material factors considered by the SPC Board in
reaching its conclusion, certain of which factors contain both positive and
negative elements:
(i) the conditions in the IT staffing services industry, the strategic
options available to SPC, the likelihood of future consolidation in the
industry and the strategic, financial and operational benefits of the
Merger, which benefits include, among others, (a) the enhanced ability of
the combined company to compete nationally and internationally; (b) the
availability of the substantial financial resources of DPRC as compared to
the lack of financial resources of SPC, specifically, DPRC's substantial
working capital as compared with SPC's need to finance its accounts
receivable on a monthly basis to finance its operations. The lack of
operating capital was restricting SPC's ability to expand its operations
into additional geographic markets. Currently, SPC draws on its line of
credit every month. Recently, from the end of each calendar month until
approximately the tenth of the next month SPC's line of credit balance has
been as high as $2.5 million. Although SPC has substantial net worth, its
net worth is tied up in accounts receivable. Historically, increases in
working capital resulting from profits have not been adequate to insure
growth at a rate at which SPC otherwise would have been able to sustain and
at which SPC perceived as necessary to maintain its competitive position
with its current customer base; and (c) access to DPRC's financial and
administrative support staff which is larger and more diversified than
SPC's and therefore more capable of supporting the anticipated future
growth and expansion of SPC's operations.
(ii) the ability to provide IT services internationally through DPRC's
existing international offices;
(iii) information concerning the business, results of operations,
financial condition and prospects of each of SPC and DPRC, which
information includes, among other things, (a) the similar and compatible
nature of SPC's and DPRC's customer base and services offered, the similar
corporate cultures of SPC and DPRC; (b) the historical performances of SPC
and DPRC, since both companies have experienced substantial and sustained
growth in sales and profits for the last three years; (c) the substantial
financial resources of DPRC which presumably will enable SPC to expand its
operations in the Eastern United States and nationally at a more rapid pace
than would be possible with SPC's limited capital resources; (d) the
favorable business prospects for the IT industry generally and for SPC and
DPRC specifically, e.g., SPC's
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preferred vendor status with financial institutions such as NationsBank
which recently merged with Bank of America, a San Francisco based bank,
presents SPC with the ability to serve its existing customer base on a
national rather than regional basis thereby enhancing its ability to retain
these customers; (e) the relative lack of overlap or duplication of
geographic operations of SPC and DPRC which represents net sales growth for
both parties; and (f) the strong but different customer bases of SPC and
DPRC which represent reciprocal expansion opportunities for each of SPC and
DPRC;
(iv) the enhanced ability of the combined company to pursue strategic
acquisitions and alliances where there is an opportunity to enhance the
combined company's operations and to better respond to competitive
challenges that IT staffing services providers are expected to face as a
result of continued consolidation in the industry;
(v) the opportunity, as a result of the Merger, for cross-selling value-
added services currently offered by DPRC and its subsidiaries to SPC's
existing and potential customers;
(vi) the complementary national recruiting organization of DPRC to expand
the number and skills of its technical consultants;
(vii) information concerning the current and historical stock price
performance of DPRC, and the fact that the conversion of shares of SPC
Common Stock into the right to receive DPRC Common Stock will provide
additional liquidity for SPC shareholders as DPRC Common Stock is publicly
traded while SPC Common Stock is not. SPC's Board monitored the historical
and ongoing performance of DPRC stock as well as its publicly held
competitors, Metro Information Services, Inc., Computer Horizons
Corporation, SCB Computer Technology, Inc., Whittman-Hart and Computer
Management Sciences, Inc., and observed that, although the DPRC stock price
fluctuated after the execution of the Merger Agreement, it continued to
perform well on a comparative basis, i.e., when compared to the performance
of the stocks of similar companies. SPC's Board continued to view the
performance of DPRC's stock price as a market issue, not a company issue.
In addition, SPC and DPRC continued to perform better than either company
had projected in terms of the twelve-month trailing EBIT for the periods
ending June 30, 1998 and September 30, 1998. SPC's Board concluded that the
merged company would continue to perform well and, that on a long-term
basis, the Merger would be in the best interest of SPC and its
shareholders. In addition, the amended Merger Agreement results in a larger
number of DPRC shares for SPC shareholders (the estimated increased from
2.7 million to 3.0 million to 2.8 to 3.3 million). The SPC Board concluded
that this was a fair and adequate concession by DPRC to offset the impact
of the recent decline in DPRC's stock price and to reflect the continued
growth of SPC's sales, EBIT, net worth and working capital relative to
those of DPRC;
(viii) information with respect to the financial condition, business,
operations and prospects of both DPRC and SPC on a historical and
prospective basis, including pro forma reports prepared jointly by SPC and
DPRC which projected revenue and earnings on a combined basis. SPC's Board
also reviewed DPRC's financial statements, visited and investigated a
representative number of DPRC's branch operations, and reviewed and
evaluated DPRC's customer base. These reports indicated that the
acquisition of SPC by DPRC would complement and enhance DPRC's earnings
record, and that from a financial and operational perspective a merger with
DPRC would be in the best interests of SPC. The pro forma reports reflect
the inherent cost savings which the Merger would achieve for SPC by
eliminating the start-up cost of new branch offices and the elimination of
the "lag time" required for a new branch to become profitable and to
adequately support the new branch customer base. The pro forma reports
reflected the elimination of duplicative general and administrative
expenses, particularly the expense of upper management. Thus, the pro forma
reports indicated that the merged companies would be able to continue to
expand;
(ix) the treatment of the Merger as a pooling of interests for accounting
purposes;
(x) the tax-free nature of the Merger;
(xi) the ability to liquidate SPC Common Stock, alternatives to taking
SPC public and the valuation of SPC Common Stock; and
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(xii) the need for SPC to be part of a national operation in order to
maintain and continue to exploit its status with national customers.
Several of SPC's national customers have indicated that they expect SPC to
grow to meet their national needs. For example, NationsBank, as a result of
its merger with Bank of America, requested SPC to meet some of its
information technology requirements in San Francisco, California.
The foregoing list of the information and factors considered by the SPC
Board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the Merger, the SPC Board did
not find it practicable to and did not quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the SPC Board may have given different weights
to different factors.
Arthur Andersen did not provide SPC with an opinion or report regarding the
Merger. Arthur Andersen orally provided the SPC Board with comparative market
information to assist SPC in making an informed decision. Specifically, Arthur
Andersen provided information regarding other information technology staffing
companies including price-earnings ratios for publicly held companies and
merger and acquisition price information with regard to recent transactions
involving the merger or divestiture of private IT staffing companies. Arthur
Andersen has expertise regarding information technology staffing companies and
has handled several recent mergers and acquisitions between IT staffing
companies.
Arthur Andersen approached SPC in November of 1997 to determine its interest
in either going public or merging with a compatible information technology
staffing company. Although SPC did not engage Arthur Andersen to pursue either
possibility, it encouraged Arthur Andersen to present any prospects. On its
own Arthur Andersen evaluated several potential merger prospects for SPC and
facilitated a meeting between SPC and DPRC in December of 1997.
Prior to this development, SPC already had conducted its own internal
analysis of the information technology staffing industry. This analysis was
deemed necessary because the SPC Board had already determined that SPC would
have to resort at some time to either the public capital market or to an
investment bank to obtain capital adequate to finance and sustain its rapid
growth.
In addition to its own internal analysis SPC received a formal independent
valuation opinion from Hitchner Whitt & Company during the 1997 calendar year.
Although this opinion was obtained expressly for the SPC Stock Bonus Plan, it
provided comparative market data regarding other information technology
staffing firms and recent transactions between such firms.
During the negotiations between SPC and DPRC, Arthur Andersen facilitated
discussions between SPC and several leading market research analysts who
specialize in publicly held information technology staffing companies. These
analysts orally provided SPC with background information regarding the public
companies operating in that sector.
For the above reasons, the SPC Board concluded that an outside "fairness"
opinion was not necessary and it did not obtain one.
THE SPC BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF SPC VOTE "FOR"
THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF NMS, FINANCIAL ADVISOR TO DPRC
Pursuant to an engagement letter dated June 4, 1998, (the "Engagement
Letter") the DPRC Board retained NMS to render an opinion with respect to the
fairness from a financial point of view to DPRC in connection with the
acquisition of SPC. NMS is a nationally recognized investment banking firm
and, as part of its activities, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private
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placements and valuations for corporate and other purposes. DPRC selected NMS
as its financial advisor on the basis of NMS's experience and expertise in
transactions similar to the Merger and its reputation in the information
technology supplemental staffing industry and investment community and its
historical investment banking relationship with DPRC.
NMS delivered to the DPRC Board a written opinion dated as of June 15, 1998,
as supplemented by a letter dated June 16, 1998 (collectively, the "June
Opinion"), that the consideration to be paid by DPRC pursuant to the Merger
Agreement was fair from a financial point of view, as of June 15, 1998.
Subsequently, NMS delivered to the DPRC Board the NMS Opinion that the
consideration to be paid by DPRC pursuant to the Merger Agreement was fair
from a financial point of view, as of October 21, 1998. The amount of such
consideration was determined pursuant to negotiations between DPRC and SPC and
not pursuant to recommendations from NMS. No limitations were imposed by the
DPRC Board on NMS with respect to the investigations made or procedures
followed in rendering its opinion. NMS was not requested to, nor did it advise
DPRC with respect to alternatives to the Merger or DPRC's underlying decision
to proceed with or effect the Merger.
THE FULL TEXT OF THE NMS OPINION AND A COPY OF THE JUNE OPINION ARE EACH
ATTACHED HERETO AS ANNEX B AND ARE INCORPORATED HEREIN BY REFERENCE AND SHOULD
BE READ CAREFULLY AND IN ITS ENTIRETY IN CONNECTION WITH THIS PROXY
STATEMENT/PROSPECTUS. THE FOLLOWING SUMMARY OF THE NMS OPINION IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE NMS OPINION. THE NMS OPINION
IS DIRECTED TO THE DPRC BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER.
THE NMS OPINION ADDRESSES ONLY THE FINANCIAL FAIRNESS OF THE CONSIDERATION TO
BE PAID BY DPRC PURSUANT TO THE MERGER AGREEMENT AND DOES NOT ADDRESS THE
RELATIVE MERITS OF THE MERGER OR ANY ALTERNATIVES TO THE MERGER, THE
UNDERLYING DECISION OF THE DPRC BOARD TO PROCEED WITH OR EFFECT THE MERGER OR
ANY OTHER ASPECT OF THE MERGER. IN FURNISHING THE NMS OPINION, NMS DID NOT
ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN
THE SECURITIES ACT, NOR DID IT ADMIT THAT THE NMS OPINION CONSTITUTES A REPORT
OR VALUATION WITHIN THE MEANING OF THE SECURITIES ACT, AND STATEMENTS TO SUCH
EFFECT ARE INCLUDED IN THE NMS OPINION.
DPRC is paying NMS a fee of $200,000 plus expenses in connection with the
rendering of the June Opinion and a fee of $100,000 plus expenses in
connection with the rendering of the NMS Opinion. DPRC has also employed the
services of NMS in connection with other investing and financing transactions
in the past. The total amount of fees owed or paid to NMS by DPRC during 1998
(excluding the fee paid in connection with the NMS Opinion and the prior
written opinion), and for calendar years 1997 and 1996 for services rendered
were approximately $1,000,000, $957,000 and $1,771,000, respectively. In
addition, the parent corporation of NMS employs the services of SPC. The total
amount of fees earned by SPC in connection with these services for the eight
month period ended August 31, 1998, and for calendar years 1997 and 1996 were
approximately $9,682,000, $11,498,000 and $5,566,000, respectively.
In connection with the NMS Opinion, NMS, among other things: (i) reviewed
publicly available financial and other data with respect to DPRC, including
the consolidated financial statements for recent years and interim periods to
July 31, 1998, and certain other relevant financial and operating data
relating to SPC and DPRC made available to NMS from published sources and from
the internal records of SPC and DPRC; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, DPRC's
common stock; (iv) compared SPC and DPRC from a financial point of view with
certain other companies in the information technology supplemental staffing
industry which NMS deemed to be relevant; (v) considered the financial terms,
to the extent publicly available, of selected recent business combinations of
companies in the information technology supplemental staffing industry which
NMS deemed to be comparable, in whole or in part, to the Merger; (vi) reviewed
and discussed with representatives of the management of SPC certain
information of a business and financial nature regarding SPC, including
financial forecasts and related assumptions of SPC furnished to NMS by DPRC's
management on behalf of SPC's management with respect to SPC and reviewed
financial forecasts with respect to DPRC which were obtained by NMS from a NMS
research report ("DPRC Forecasts"); (vii) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related
thereto with DPRC's counsel; and (viii) performed such other analyses and
examinations as NMS deemed appropriate.
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In connection with its review, NMS did not assume any obligation
independently to verify the foregoing information and relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts of SPC provided to NMS by DPRC's management on behalf of SPC's
management and DPRC's Forecasts, upon their advice and with the consent of the
DPRC Board, NMS assumed for purposes of the NMS Opinion that the forecasts
were reasonably prepared on bases reflecting the best available estimates and
judgments of their respective managements at the time of preparation as to the
future financial performance of SPC and DPRC, and that they provide a
reasonable basis upon which NMS could form its opinion. NMS also assumed that
there have been no material changes in SPC's or DPRC's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to NMS. NMS relied on
advice of counsel to DPRC as to all legal matters with respect to DPRC, the
Merger and the Merger Agreement. NMS assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act, the Exchange Act and all other applicable
federal and state statutes, rules and regulations. In addition, NMS did not
assume responsibility for making an independent evaluation, appraisal or
physical inspection of the assets or liabilities (contingent or otherwise) of
SPC or DPRC, nor was NMS furnished with any such appraisals. Finally, the NMS
Opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to NMS as of, the date of the
NMS Opinion. NMS further assumed with the consent of the DPRC Board that the
Merger will be consummated in accordance with the terms described in the
Merger Agreement without further amendment thereto, and without waiver by DPRC
of any of the conditions to its obligations thereunder. NMS shall provide, if
practicable, an update of the NMS Opinion to the DPRC Board as of the
Effective Date; provided, however, that subsequent developments may affect
NMS's ability to provide such an opinion. Set forth below is a brief summary
of the analysis contained in the materials provided by NMS to the DPRC Board
for its October 21, 1998 meeting, which were also used in the preparation of
the NMS Opinion.
COMPARABLE COMPANY ANALYSIS. Based on public and other available
information, NMS calculated the multiples of (a) aggregate value (defined as
equity value plus debt less cash and cash equivalents) to last twelve months
("LTM") revenues and earnings before interest and taxes ("EBIT") and (b)
equity value to LTM net income, estimated calendar year 1998 net income and
estimated calendar year 1999 net income, for eight companies in the
information technology supplemental staffing industry: Alternative Resources,
Analysts International, Cotelligent, DPRC, Hall Kinion, Metamor Worldwide,
Metro Information Services and Technisource. Such analysis indicated the
following multiples: a range of 0.6x to 2.1x LTM revenues, with a mean of 1.0x
and a median of 0.8x; a range of 7.6x to 19.6x LTM EBIT, with a mean of 12.2x
and a median of 11.2x; a range of 9.4x to 25.5x LTM net income, with a mean of
19.6x and a median of 20.9x; a range of 13.6x to 25.5x estimated calendar year
1998 net income, with a mean of 18.9x and a median of 18.6x; and a range of
11.6x to 19.4x estimated calendar year 1999 net income, with a mean of 14.8x
and a median of 13.7x. NMS noted that the consideration to be paid by DPRC in
connection with the Merger implied aggregate value multiples of 1.2x LTM
revenues and 12.5x LTM EBIT and implied equity value multiples of 19.2x LTM
net income, 13.4x estimated calendar year 1998 net income and 11.1x estimated
calendar year 1999 net income for SPC.
COMPARABLE TRANSACTIONS ANALYSIS. Based on public and other available
information, NMS calculated the multiples of aggregate value to LTM revenues
and LTM EBIT and equity value to LTM net income for SPC implied in (a) nine
(9) acquisitions involving "pooling-of-interests" accounting treatment of
comparable information technology supplemental staffing companies that have
been consummated since May 24, 1996: (i) the June 1998 acquisition of InTime
Systems International, Inc. by ARIS Corporation; (ii) the April 1998
acquisition of Source Services by Romac International; (iii) the April 1998
acquisition of Triad Data, Inc. by Renaissance Worldwide, Inc.; (iv) the
January 1998 acquisition of Costello & Associates by Complete Business
Solutions; (v) the November 1996 acquisition of Shamrock Computer Resources
Inc. by The Registry; (vi) the November 1996 acquisition of Application
Resources, Inc. by The Registry; (vii) the August 1996 acquisition of American
Technical Resources by Norrell Corporation; (viii) the June 1996 acquisition
of McKinley Group Inc. by AccuStaff Inc.; and (ix) the May 1996 acquisition of
Brandon Systems Corp. by Interim Services, and (b) forty-eight (48)
acquisitions of information technology service companies that have been
consummated since February 20, 1996 or were still pending as of October 21,
1998. Such analysis yielded the following multiples
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with respect to comparable information technology supplemental staffing
company acquisitions: a range of 1.0x to 3.1x LTM revenues, with a mean of
1.7x and a median of 1.4x; a range of 12.0x to 28.6x LTM EBIT, with a mean of
18.4x and a median of 16.6x; and a range of 11.9x to 55.1x LTM net income,
with a mean of 29.7x and a median of 26.1x. Such analysis also yielded the
following multiples with respect to information technology services company
acquisitions: a range of 0.4x to 6.9x LTM revenues, with a mean of 2.2x and a
median of 1.6x; a range of 9.6x to 59.4x LTM EBIT, with a mean of 24.7x and a
median of 20.4x; and a range of 14.2x to 87.8x LTM net income, with a mean of
36.4x and a median of 30.9x. NMS noted that the consideration to be paid by
DPRC in connection with the Merger implied aggregate value multiples of 1.2x
LTM revenues and 12.5x LTM EBIT and an equity value multiple of 19.2x LTM net
income for SPC.
No other company or transaction used in the comparable company or comparable
transactions analysis as a comparison is identical to DPRC or SPC or the
Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which DPRC, SPC and the Merger are being compared.
DISCOUNTED CASH FLOW ANALYSIS. NMS applied a discounted cash flow analysis
to the financial cash flow forecasts for SPC for fiscal years 1999 through
2004, as estimated by SPC management. In conducting this analysis, NMS first
calculated the present values of the forecasted cash flows. Second, NMS
estimated the present value of the aggregate value of SPC at the end of 2004
by applying multiples to SPC's estimated calendar year 2004 EBITDA, which
multiples ranged from 7.5x to 8.5x. Such cash flows and aggregate values were
discounted to present values using discount rates ranging from 16.5% to 18.5%.
This analysis indicated a range of imputed aggregate values of SPC from $88.2
million to $106.3 million.
ACCRETION/DILUTION ANALYSIS. Using the financial forecasts of SPC provided
to NMS by DPRC's management on behalf of SPC's management and DPRC's
Forecasts, NMS compared estimated earnings per share ("EPS") on a stand-alone
basis for DPRC to the estimated EPS of the combined company for calendar years
1998 and 1999. NMS noted that, based on such forecasts, the Merger would be
accretive to EPS in calendar years 1998 and 1999.
While the foregoing summary describes all analyses and examinations that NMS
deems material to the NMS Opinion, it is not a comprehensive description of
all analyses and examinations actually conducted by NMS. The preparation of a
fairness opinion necessarily is not susceptible to partial analysis or summary
description. NMS believes that its analyses and the summary set forth above
must be considered as a whole and that selecting portions of its analyses and
of the factors considered, without considering all analyses and factors, would
create an incomplete view of the process underlying the analyses set forth in
its materials provided to the DPRC Board and used in the preparation of the
NMS Opinion. In addition, NMS may have given various analyses more or less
weight than other analyses, and may have deemed various assumptions more or
less probable than other assumptions. The fact that any specific analysis has
been referred to in the summary above is not meant to indicate that such
analysis was given greater weight than any other analysis. Accordingly, the
ranges of valuations resulting from any particular analysis described above
should not be taken to be NMS's view of the actual value of SPC.
In performing its analyses, NMS made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of DPRC and SPC. The analyses
performed by NMS are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than those
suggested by such analyses. Such analyses were prepared solely as part of
NMS's analysis of the financial fairness of the consideration to be paid by
DPRC pursuant to the Merger Agreement and were provided to the DPRC Board in
connection with the delivery of the NMS Opinion. The analyses do not purport
to be appraisals or to reflect the prices at which a company might actually be
sold or the prices at which any securities may trade at any time in the
future.
As described above, the NMS Opinion and the material provided by NMS to the
DPRC Board were among the many factors taken into consideration by the DPRC
Board in making its determination to approve, and to recommend that DPRC's
shareholders approve, the Merger.
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Upon execution of the Engagement Letter, DPRC agreed to pay NMS a fee of
$200,000 upon delivery of the June Opinion and a fee of $100,000 upon delivery
of the NMS Opinion. The DPRC Board was aware of this fee structure and took it
into account in considering the materials provided by NMS to the DPRC Board,
the NMS Opinion and in approving the Merger. The Engagement Letter also calls
for DPRC to reimburse NMS for its reasonable out-of-pocket expenses. Pursuant
to a separate letter agreement, DPRC has agreed to indemnify NMS, its
affiliates, and their respective partners, directors, officers, agents,
consultants, employees and controlling persons against certain liabilities,
including liabilities under the federal securities laws.
In the ordinary course of its business, NMS actively trades the equity
securities of DPRC for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
NMS also acted as underwriter in connection with offerings of DPRC's
securities and has performed various investment banking services for DPRC. The
parent corporation of NMS is a significant client of SPC.
THE MERGER AGREEMENT
The following is a brief description of certain terms and provisions set
forth in the Merger Agreement. This description does not purport to be
complete and is qualified by reference to the Merger Agreement, which is
attached hereto as Annex A and is incorporated herein by reference.
Capitalized terms used herein without definition shall have the respective
meanings ascribed thereto in the Merger Agreement. A description of certain
material differences between the rights of holders of DPRC Common Stock and
SPC Common Stock is set forth under "Comparative Rights of Shareholders."
At the Effective Date, (i) Acquisition Corp. will be merged with and into
SPC; (ii) each outstanding share of the common stock, no par value per share,
of Acquisition Corp. will be converted into one share of common stock, no par
value per share, of the surviving corporation (the "Surviving Corporation");
and (iii) the separate existence of Acquisition Corp. will cease and SPC will
succeed to all the rights and be responsible for all the obligations of
Acquisition Corp. in accordance with the NCBCA. SPC will remain as the
Surviving Corporation in the Merger and will continue to exist as a wholly
owned subsidiary of DPRC.
Also at the Effective Date, DPRC will assume SPC's existing stock option
plan. The SPC Time-Vesting Options outstanding under such plan, following the
Merger, will be exercisable for shares of DPRC Common Stock of equivalent
value, as determined by the Exchange Ratio. All of the SPC Time-Vesting
Options are currently fully vested and exercisable at an Exchange Ratio
adjusted price substantially below the market value of DPRC Common Stock. The
SPC Performance-Vesting Options outstanding under such plan will be canceled
in the Merger in exchange for shares of DPRC Common Stock with an aggregate
value equal to the appraised value of the SPC Performance Options. The number
of shares of DPRC Common Stock issued in connection with the Merger will be
reduced by the number of shares of DPRC Common Stock issued in consideration
of the cancellation of the SPC Performance-Vesting Options. The Merger
Consideration to be delivered in connection with the Merger will be paid
exclusively in shares of DPRC Common Stock having an implied value on the date
the amendment of October 20, 1998 to the Merger Agreement was signed of $71.5
million less deductions for certain costs and liabilities to be assumed by
DPRC. Notwithstanding the foregoing, all treasury shares held by SPC will be
cancelled pursuant to the Merger Agreement. No fractional shares of DPRC
Common Stock will be issued in the Merger. Rather, holders of SPC Common Stock
whose shares are converted in the Merger will be entitled to a cash payment in
lieu of fractional shares as described under "--Exchange of Certificates" and
"--Fractional Shares."
It is anticipated that each share of outstanding SPC Common Stock will be
converted in the Merger into the right to receive between approximately 5.50
and 6.40 shares of DPRC Common Stock. The Exchange Ratio is estimated for
purposes of this Proxy Statement/Prospectus since the amount of deductions of
certain costs and liabilities to be assumed by DPRC cannot be determined until
the consummation of the Merger. Since all other amounts used to calculate the
Exchange Ratio are fixed, the number of shares of DPRC Common Stock to be
issued in connection with the Merger will vary only depending upon the amount
of the deductions for costs and liabilities and not for any changes in the
market price of DPRC Common Stock. Although the exact amounts of
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the deductions for certain costs and liabilities to be assumed by DPRC in the
Merger will not be known until the date of the closing of the Merger, the
expected maximum, minimum and likely amounts of each of these costs and
liabilities have been estimated based upon the most recent information
available considering historical financial information of SPC and contractual
requirements. Since such amounts are estimates, the actual amounts determined
as of the closing of the Merger, may be more or less.
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED ESTIMATED
LIKELY MAXIMUM MINIMUM
TYPE OF DEDUCTION AMOUNT AMOUNT AMOUNT
----------------- ---------- ----------- ----------
<S> <C> <C> <C>
SPC's Tax Liabilities(a)..................... $ 600,000 $ 2,500,000 $ --
SPC's Bank Debt Liability(b)................. 2,500,000 5,500,000 --
SPC's Aged Receivables Over 90 Days(c)....... 350,000 400,000 --
Noncompetition Payments(d)................... 400,000 400,000 400,000
Merger Costs and Expenses(e)................. 2,000,000 3,000,000 1,500,000
One-half of the prepayment penalty on SPC's
Revolving Line of Credit(f)................. 6,250 6,250 6,250
---------- ----------- ----------
Subtotal.................................. 5,856,250 11,806,250 1,906,250
Appraised Value of SPC Performance-Vesting
Options(g).................................. 2,231,103 1,937,964 2,425,710
---------- ----------- ----------
Total Deductions........................... $8,087,353 $13,744,214 $4,331,960
========== =========== ==========
Assumed Exchange Ratio(h).................... 6.04 5.50 6.40
========== =========== ==========
</TABLE>
- --------
(a) The amount of tax liabilities at September 30, 1998 was $819,574.
(b) Amounts represent the maximum and minimum credit advances allowed under
SPC's Revolving Credit Facility with CIT Group/BBC, Inc. The principal
amount outstanding under SPC's Revolving Credit Facility at September 30,
1998 was $2.4 million.
(c) Amounts are estimated based on the historical aged receivables of SPC. The
amount of receivables which had aged more than 90 days at July 31, 1997
was $199,410 and at September 30, 1998 was $311,109.
(d) Amount is fixed by the terms of the Noncompetition Agreement. See Exhibit
I to the Merger Agreement.
(e) Estimated amounts are for the following costs and expenses expected to be
incurred by SPC in the Merger: broker's fees, legal fees, accounting fees,
travel and other expenses of management of SPC.
(f) Amount is fixed under the terms of SPC's Revolving Credit Facility with
CIT Group/BBC, Inc.
(g) Estimated value based upon preliminary appraisal taking into account
whether the performance thresholds for vesting of such options would be
met, and the payment of the exercise price. The appraisal will not be
completed until the consummation of the Merger since it is dependent upon
the actual Exchange Ratio.
(h) Calculated as follows: $71.5 million implied value, less total deductions,
divided by the fixed $21.00 DPRC Common Stock price, divided by 499,728
(outstanding shares of SPC Common Stock and SPC Time-Vesting Options).
EFFECTIVE DATE. The Merger shall become effective immediately upon the
filing of the Articles of Merger with the Secretary of State of the State of
North Carolina in accordance with Section 11-55-06 of the NCBCA, or at such
later time, which shall be as soon as reasonably practicable thereafter, as
DPRC and SPC shall agree and specify in the Articles of Merger.
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The Merger Agreement
provides that the directors and officers of Acquisition Corp. immediately
prior to the Effective Date will, after the Effective Date, be the initial
directors and officers of the Surviving Corporation. Each of these directors
and officers will hold office from the Effective Date until their respective
successors have been duly elected and qualified in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation.
EXCHANGE OF CERTIFICATES. SPC SHAREHOLDERS SHOULD NOT SUBMIT THEIR STOCK
CERTIFICATES EVIDENCING SHARES OF SPC COMMON STOCK FOR EXCHANGE UNLESS AND
UNTIL THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF TRANSMITTAL ARE
RECEIVED OR OBTAINED FROM DPRC.
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As soon as practicable after the Effective Date, DPRC shall send a notice
and transmittal form to each holder of record of SPC Common Stock immediately
prior to the Effective Date advising such holder of the effectiveness of the
Merger and the procedure for surrendering to DPRC the certificate or
certificates to be exchanged pursuant to the Merger. Holders of SPC Common
Stock will not be entitled to receive dividends, if any are paid, on such
shares from DPRC until such certificates are so surrendered. When such
certificates are surrendered, the holders of the DPRC certificates issued in
exchange therefor will be paid, without interest, any dividends which may have
become payable with respect to such shares of DPRC Common Stock between the
Effective Date and the time of such surrender.
FRACTIONAL SHARES. No certificates or scrip representing a fractional share
interest in DPRC Common Stock will be issued. In lieu of any such fractional
share interest, each holder of SPC Common Stock who otherwise would be
entitled to receive a fractional share interest in DPRC Common Stock in the
Merger will be paid cash upon surrender of the fractional share of DPRC Common
Stock in an amount equal to the product of such fraction multiplied by $21.00.
REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various
customary representations and warranties relating to, among other things: (a)
each of SPC's, DPRC's and Acquisition Corp.'s organization and similar
corporate matters; (b) SPC's capital structure and subsidiaries; (c) the
authorization, execution, delivery and enforceability of the Merger Agreement
and related matters; (d)(i) the absence of the need (except as specified) for
governmental or other filings, permits, authorizations, consents or approvals
with respect to the Merger Agreement and the transactions contemplated
thereby, (ii) the absence of conflicts under charter documents or bylaws,
(iii) required consents or approvals and (iv) the absence of violations of
laws; (e) documents filed by DPRC with the Commission and the accuracy of the
information contained therein; (f) subject to certain exceptions, the absence
of certain specified material changes or events with respect to SPC; (g) with
respect to certain shareholders of SPC, the beneficial ownership of their
shares, free of encumbrances and restrictions on transfer; and (h) with
respect to SPC, (i) litigation, (ii) labor matters; (iii) employee benefit
matters, including certain employment agreements, and matters relating to the
Employee Retirement Income Security Act of 1974, as amended, (iv) real
property, (v) intellectual property, (vi) undisclosed liabilities,
(vii) leases, (viii) receivables, (ix) contracts, (x) the filing of tax
returns and the payment of taxes, (xi) transactions with affiliated parties,
(xii) certain illegal or unrecorded payments, (xiii) banking facilities,
(xiv) permits, (xv) insurance, (xvi) the hiring of brokers or finders, and
(xvii) the fair presentation of financial statements.
BUSINESS OF SPC PENDING THE MERGER. SPC has agreed that, among other things,
prior to the Effective Date, except as otherwise contemplated by the Merger
Agreement, SPC will conduct its business in the ordinary course and consistent
with past practice and will not, without the consent of DPRC: (i) amend its
Certificate of Incorporation or Bylaws; (ii) issue any shares of its capital
stock or create any warrants or other obligations or commitments under which
such capital stock may be authorized, issued or transferred; (iii) declare,
set aside or pay any dividend or distribution in respect of its capital stock;
or (iv) make any redemption, retirement or purchase of its capital stock. In
addition, SPC will not: (a) increase compensation payable to, or declare or
pay any bonus to, any key person, or repay any loan from, or make any accrued
but unpaid payment to, any key person; (b) change any of its accounting
methods or practices, revalue any of its assets, liabilities, or reserves or
change any methods of calculating contingencies or reserves; (c) enter into
any agreement which is outside of the usual and ordinary course of business or
has a term of at least 12 months or an amount exceeding $20,000; (d) incur any
capital expenditure which is outside the usual and ordinary course of business
in excess of $20,000; (e) enter into any agreement to provide technical
contractors subject to a capped or limited fee arrangement; (f) pay any
obligation other than current liabilities; (g) waive any right or claim or
cancel any obligation without full payment; (h) fail to pay any obligation
except where such failure would not adversely affect SPC; (i) amend or
terminate any existing material contract; (j) sell, transfer, destroy, damage,
or lose any material assets or rights of SPC or allow any intellectual
property rights to lapse; (k) cause or create any other event or condition
which would reasonably be expected to adversely affect SPC; or (l) enter into
any agreement to do any of the foregoing.
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BUSINESS OF DPRC PENDING THE MERGER. DPRC has agreed that, among other
things, prior to the Effective Date, unless SPC otherwise agrees in writing or
unless otherwise contemplated by the Merger Agreement, the business of DPRC
will be conducted in the ordinary course and in all material respects
consistent with past practices, and DPRC will not: (i) amend its Articles of
Incorporation (except to increase the number of shares of capital stock
authorized) or bylaws; (ii) declare, set aside or pay any dividend or other
distribution; (iii) make any redemption, retirement or purchase of its capital
stock; (iv) split, combine or reclassify its outstanding shares of capital
stock; or (v) issue any shares of its capital stock, except as contemplated by
the Merger Agreement, upon exercise of existing options or convertible
securities, upon the exercise of options subsequently granted under existing
option plans and with respect to shares of DPRC Common Stock issued in
connection with the acquisition of related businesses unless such issuance
would preclude DPRC from accounting for the business combination contemplated
by the Merger Agreement as a pooling of interests, or would materially delay,
or materially reduce the likelihood of, the consummation of the Merger. In
addition, DPRC will use reasonable efforts to preserve intact its business
organization.
ACQUISITION PROPOSALS. SPC and certain of its shareholders have agreed that,
except in furtherance of the transactions contemplated by the Merger
Agreement, prior to the Effective Date: (i) none of them nor any of their
respective affiliates shall, and each of them shall direct and use best
efforts to cause its and his Representatives not to, initiate, solicit or
encourage any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its
shareholders), with respect to any merger, acquisition, consolidation, share
exchange, business combination or other transaction involving, or which would
result in, (A) the acquisition of a majority of the outstanding equity
securities of SPC, (B) the issuance by such party, in a single transaction or
a series of related transactions, of equity securities which would represent,
following issuance, a majority of the outstanding equity securities of SPC or
(C) the acquisition of a majority of the consolidated assets of such party (an
"Acquisition Proposal"), or engage in any negotiations concerning, or provide
any confidential information or data to, or have any discussions with, any
person or entity relating to an Acquisition Proposal, or otherwise facilitate
any effort or attempt to make or implement an Acquisition Proposal; (ii) they
shall immediately terminate any existing activities with any parties with
respect to any of the foregoing and inform such parties of their obligations
regarding the foregoing under the Merger Agreement; and (iii) they shall
notify DPRC immediately if any such inquiries or proposals are received by, or
any such discussions are sought to be initiated or continued with, them. The
SPC Board may not withdraw or modify its approval of the Merger Agreement or
approve any Acquisition Proposal or any agreement related thereto.
TREATMENT OF SPC TIME-VESTING STOCK OPTIONS. SPC (or, if appropriate, any
committee administering the SPC Stock Plan, as defined below) has undertaken
to adopt such resolutions or take other actions as may be required to effect
the following: (i) adjust the terms of all SPC Time-Vesting Options granted
under any plan or arrangement providing for the grant of options to purchase
shares of SPC Common Stock to current or former officers, directors, employees
or consultants of SPC as necessary to provide that, at the Effective Date,
each SPC Time-Vesting Option outstanding immediately prior to the Effective
Date shall be amended and converted into an option to acquire, on the same
terms and conditions as were applicable under the SPC Time-Vesting Option, the
number of shares of DPRC Common Stock determined by multiplying the number of
shares of SPC Common Stock subject to such SPC Time-Vesting Option by the
Exchange Ratio, at a price per share of DPRC Common Stock equal to the
exercise price per share of SPC Common Stock previously purchasable pursuant
to such SPC Time-Vesting Option divided by the Exchange Ratio; and (ii) make
such other changes to the SPC Stock Option Plan as DPRC and SPC may agree are
appropriate to give effect to the Merger. For example, assuming that the
Exchange Ratio is 6.04 shares of DPRC Common Stock issued in the Merger for
each share of SPC Common Stock, the holder of a SPC Time-Vesting Option to
purchase 100 shares of SPC Common Stock at an exercise price of $22.83 per
share immediately prior to the consummation of the Merger will, upon the
consummation of the Merger, hold an option to purchase 604 shares of DPRC
Common Stock at an exercise price of $3.78 per share.
At the Effective Date, by virtue of the Merger and without the need of any
further corporate action, SPC, as the surviving corporation, shall assign to
DPRC, and DPRC shall assume from SPC, all obligations of SPC under
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the SPC Stock Option Plan, including all obligations of SPC with respect to
the SPC Time-Vesting Options outstanding at the Effective Date. In addition,
DPRC has undertaken to prepare and file with the Commission a registration
statement on Form S-8 (or another appropriate form) registering a number of
shares of DPRC Common Stock equal to the number of shares into which the SPC
Time-Vesting Options are exercisable. Such registration statement shall be
kept effective by DPRC at least for so long as any SPC Time-Vesting Options
may remain outstanding. DPRC has committed to deliver to the holders of SPC
Time-Vesting Options appropriate notices setting forth such holders' rights
pursuant to the respective SPC Stock Plans and that such SPC Time-Vesting
Options will be assumed by DPRC on the same terms and conditions.
TREATMENT OF SPC PERFORMANCE-VESTING STOCK OPTIONS. On or before the
Effective Date, SPC shall cause each of the holders of outstanding unexercised
options to purchase shares of SPC Common Stock other than SPC Time-Vesting
Options (the "SPC Performance-Vesting Options") to execute an option
cancellation agreement to cancel such holder's rights under his or her SPC
Performance-Vesting Options in consideration of the right to receive that
number of shares of DPRC Common Stock having value as of the relevant
valuation date equal to the fair market value of the holder's SPC Performance-
Vesting Options, as determined by an independent appraiser. Hitchner, Whitt &
Co., P.A. ("HWC") was mutually chosen by DPRC and SPC as the independent
appraiser because of its reputation in the Charlotte, N.C. area and its
experience in performing similar types of appraisals for SPC in the past. HWC
is a public accounting firm and has been performing similar appraisals for
many years. During the past two years HWC has appraised the value of SPC's
stock on two separate occasions, once as of December 31, 1996 and once as of
December 31, 1997. The total compensation received for these past two
appraisals was approximately $21,000. HWC expects to receive approximately
$12,000 in connection with the appraisals of the SPC Performance-Vesting
Options.
The fair market value of the SPC Performance-Vesting Options will be
determined by the independent appraiser by multiplying the fair market value
of the underlying SPC Common Stock which the holder of such options is
entitled to receive upon the exercise of those options, by the probability
that the performance based thresholds for vesting of the options will be
achieved, and then subtracting the exercise price to be paid upon the exercise
of such options. The probability of vesting has already been determined by
HWC. This determination was made by comparing the vesting provisions (relating
to meeting profitability thresholds of the applicable branch office) of each
individual option grant to the monthly historical revenue and the budgeted
future monthly revenues for the corresponding branch offices. The budgeted
revenues were verified by comparing the accuracy of the budgeted revenues from
past months to the actual revenues for those months. Although the probability
of vesting was calculated separately for each individual option grant and
ranged from 60.0% to 96.0%, the average probability of vesting for all SPC
Performance Vesting Option was determined to be 89.8%.
Since the exercise price of each SPC Performance-Vesting Option is already
known (28,846 shares at $40.74 per share for an aggregate of $1,175,186) and
the probability of vesting has already been determined (89.8%), the only
remaining variable is the fair market value of the underlying SPC Common
Stock. The independent appraiser has determined that, because SPC is not a
publicly traded company, the best estimate of the fair market value of its
stock is what DPRC is willing to pay for it in the Merger. The formula used by
the independent appraiser does not give effect to changes in the market value
of DPRC Common Stock, but uses the same Exchange Ratio as will be used to
convert the SPC Common Stock and SPC Time-Vesting Options into shares of DPRC
Common Stock. The SPC Performance-Vesting Options will be cancelled for shares
of DPRC Common Stock at the same Exchange Ratio used in the Merger for all
other shares of SPC Common Stock, as adjusted for the 89.8% probability of
vesting and payment of the $1,175,186 exercise price. It is estimated that the
aggregate appraised value of the 28,846 SPC Performance-Vesting Options will
be between $1.9 million and $2.4 million, based upon the estimated range of
Exchange Ratios. See "--The Merger Agreement." Therefore, since the appraisal
of the SPC Performance-Vesting Options is dependent upon the exact Exchange
Ratio, and the Exchange Ratio cannot be calculated until the payments to be
made to cancel the SPC Performance-Vesting Options have been calculated, the
appraised value of the SPC Performance-Vesting Options will not be finalized
until the time the Merger is consummated after the Shareholders' Meetings.
Thus, these two calculations will be made simultaneously as of the closing
date of the Merger.
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Regardless of when the fair market value of the SPC Performance-Vesting
Options is determined, the number of shares of DPRC Common Stock paid to the
holders of these options will not vary as a result of fluctuations in the
market price of DPRC Common Stock because the Merger Agreement provides for
the same fixed value of $21.00 per share of DPRC Common Stock when calculating
the share consideration to be delivered to the SPC Performance-Vesting Option
holders as it does with regard to the Merger Consideration to be paid to the
holders of SPC Common Stock and holders of the SPC Time-Vesting Options. Also
because of this, a variance in the valuation of the SPC Performance-Vesting
Options will not shift any risk of DPRC stock price changes between the
holders of SPC Performance-Vesting Options, the holders of SPC Common Stock
and the holders of SPC Time-Vesting Options.
CERTAIN EMPLOYEE BENEFITS. DPRC has agreed to cause SPC to honor all of its
binding obligations under any and all severance agreements and employment
agreements to which SPC is a party.
EXPENSES AND FEES. If the Merger is consummated, all reasonable fees and
expenses incurred by SPC in connection with the Merger and the transactions
contemplated thereby will be paid by reducing the Merger Consideration payable
to the shareholders of SPC in the Merger. If the Merger Agreement is
terminated and the Merger is not consummated for any reason, each party shall
bear its own fees and expenses. However, if the Merger Agreement is so
terminated, the parties have agreed that one-half or $50,000, whichever is
less, of the following DPRC fees and expenses shall be paid by SPC: (i) the
filing fee paid to the Commission with respect to the Registration Statement;
and (ii) the printing and mailing expenses incurred with respect to the Proxy
Statement/Prospectus and the Registration Statement.
POOLING OF INTERESTS. DPRC and SPC have agreed not to, nor to permit their
respective affiliates to, take any actions which could have the effect of
precluding DPRC from accounting for the business combination contemplated by
the Merger Agreement as a pooling of interests.
FINANCIAL STATEMENTS. As soon as reasonably practicable, but in no event
later than 30 days after the end of the first full calendar month occurring
after the Effective Date, DPRC has agreed to publish financial statements
setting forth 30-day combined results of operations in such detail as may be
required under the Commission's Accounting Series Release No. 135.
CONDITIONS. The respective obligations of DPRC and SPC to effect the Merger
are subject to the satisfaction of the following conditions at or prior to the
Effective Date: (a) the effectiveness of the Registration Statement, of which
this Proxy Statement/Prospectus is a part, and the absence of a stop order or
proceedings seeking a stop order; (b) the approval and adoption of the Merger
Agreement and the transactions contemplated thereby by the requisite vote of
DPRC and SPC shareholders; (c) the authorization of the Share Issuance by the
requisite vote of the DPRC shareholders; (d) the absence of any statute or
regulation enacted by any Federal or state governmental authority or of a
preliminary or permanent injunction or other order by any Federal or state
court in the United States prohibiting consummation of the Merger; (e) the
authorization for listing of the shares of DPRC Common Stock issuable in the
Merger on the NNM upon official notice of issuance; (f) the absence of any
action or proceeding by or before any court or governmental authority or other
regulatory or administrative agency or commission which would require either
party to take any action which would result in a material adverse effect to
their respective businesses or materially impair DPRC's or the Surviving
Corporation's ownership or operation of all or a material portion of the
business or assets of SPC, or compel DPRC to dispose of all or a material
portion of the business or assets of DPRC and its subsidiaries, taken as a
whole; (g) the holders of no more than 10% of the shares of SPC Common Stock
shall have voted against the Merger Agreement; and (h) the aggregate amount of
cash consideration payable with respect to Dissenting Shares and fractional
shares shall not exceed 10% of the Merger Consideration.
In addition, the obligations of SPC to effect the Merger are subject to the
satisfaction at or prior to the Effective Date of the following additional
conditions: (a) each of DPRC and Acquisition Corp. shall have performed in all
material respects the obligations under the Merger Agreement required to be
performed by it on or prior to the Effective Date; (b) the representations and
warranties of DPRC and Acquisition Corp. contained
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in the Merger Agreement shall be true and correct in all material respects as
if such representations and warranties were made as of the Effective Date,
except as contemplated by the Merger Agreement; (c) SPC shall have received a
certificate of an officer of DPRC with respect to clauses (a) and (b); (d) all
necessary waivers and consents of third parties to the consummation of the
Merger shall have been obtained by DPRC and delivered to SPC; (e) SPC shall
have received an opinion from Riordan & McKinzie, counsel for DPRC, dated the
Effective Date, as to such matters as SPC may reasonably request; (f) certain
shareholders of SPC shall have obtained an executed noncompetition agreement
from DPRC; (g) SPC shall have received the executed Escrow Agreement from DPRC
and the Escrow Agent; and (h) certain shareholders of SPC shall have received
executed employment agreements from Acquisition Corp.
The obligations of DPRC and Acquisition Corp. to effect the Merger are
subject to the satisfaction at or prior to the Effective Date of the following
additional conditions: (a) SPC shall have performed in all material respects
its obligations under the Merger Agreement required to be performed by it on
or prior to the Effective Date; (b) the representations and warranties of SPC
contained in the Merger Agreement shall be true and correct in all material
respects as if such representations and warranties were made as of the
Effective Date, except as contemplated by the Merger Agreement; (c) there
shall not have been any material adverse change in the financial condition,
business or prospects of SPC; (d) DPRC and Acquisition Corp. shall have
received a certificate of the President of SPC, dated as of the Effective Date
with respect to clauses (a), (b) and (c); (e) all necessary waivers and
consents of third parties to the consummation of the Merger shall have been
obtained by SPC and delivered to DPRC; (f) DPRC shall have received from
Hamel, Hicks, Wray, Brown & Jernigan, P.A., counsel for SPC, an opinion, dated
the Effective Date, as to such matters as DPRC may reasonably request;
(g) DPRC shall have received at the closing of the Merger an opinion from its
independent accountant, dated as of the Effective Date, that the Merger will
properly be accounted for as a pooling of interests; (h) DPRC shall have
received an opinion of NMS, dated as of the Effective Date, that the Merger
Consideration is fair from a financial point of view to DPRC; (i) DPRC shall
have received an executed Option Cancellation Agreement from each holder of
outstanding SPC Performance-Vesting Options; (j) Acquisition Corp. shall have
obtained employment agreements from each of the branch managers, recruiters
and marketers of SPC (such employment agreements are terminable by DPRC upon
14 days notice without any severance provisions) and the officers of SPC (for
further discussion of officers' employment agreements see "--Interests of
Certain Persons in the Merger"); (k) DPRC shall have received the executed
Escrow Agreement from SPC; (l) DPRC shall have received an executed
noncompetition agreement from certain shareholders of SPC; (m) each affiliate
of SPC shall have executed and delivered an Affiliates Agreement and each
affiliate of DPRC shall have executed and delivered a DPRC Affiliates
Agreement; (n) DPRC shall receive evidence of the termination of certain
shareholders' agreements entered into by SPC shareholders; (o) SPC shall have
terminated certain shareholder agreements; (p) SPC shall have obtained and
delivered to DPRC lien release and pay-off letters related to certain
liabilities of SPC; (q) SPC shall have sold certain real property to certain
SPC shareholders; and (r) the Board of Directors of SPC shall have adopted
resolutions modifying all Employee Benefit Plans as may be reasonably
requested by DPRC.
INDEMNIFICATION. Richard K. Carlisle, Thomas G. Carlisle, Jeffery Carter and
Robert Gallagher, the controlling shareholders of SPC, will jointly and
severally indemnify DPRC and SPC and their successors for any damages
resulting from: (i) any breach of a warranty or representation made by them or
SPC in the Merger Agreement and the schedules and exhibits thereto; (ii)
certain disclosed legal actions currently pending against SPC; (iii) any
failure of SPC to pay taxes due for periods prior to the Merger; (iv) any
failure of SPC to properly account for certain items; (v) any violation of
environmental laws with respect to SPC's real property; and (vi) any failure
of SPC to have held any requisite permit. The aggregate amount of any such
indemnification paid to DPRC will be limited to 10% of the total number of
shares of DPRC Common Stock to be issued in exchange for the outstanding
shares of SPC Common Stock plus 10% of the total number of shares of DPRC
Common Stock to be issued in cancellation of the Outstanding SPC Performance
Options in connection with the Merger multiplied by $21.00.
Pursuant to an Escrow Agreement to be entered into in connection with the
Merger, the controlling shareholders of SPC will deposit in escrow $7.0
million of DPRC Common Stock, based on the $21.00 per-share
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value provided for in the Merger Agreement, to be received by them in the
Merger. However, the total number of shares deposited in the escrow will not
exceed 10% of the total number of shares of DPRC Common Stock issued in
exchange for the outstanding shares of SPC Common Stock plus 10% of the total
number of shares of DPRC Common Stock issued in cancellation of the SPC
Performance-Vesting Options in connection with the Merger. Thus, the aggregate
number of shares of DPRC Common Stock to be deposited in the escrow is
estimated to be between 190,271 and 222,218 assuming an Exchange Ratio of 5.50
and 6.40, respectively. The shares of DPRC Common Stock will be held in escrow
for a period of one year from consummation of the Merger as security for their
indemnification obligations described in the foregoing paragraph.
DPRC will indemnify those certain controlling shareholders and their
successors against any damages resulting from any breach of warranty or
representation made by DPRC or Acquisition Corp. in the Merger Agreement or
any schedule or exhibit thereto. There is no ceiling on the aggregate amount
of indemnification which could be paid by DPRC.
TERMINATION. The Merger Agreement may be terminated at any time prior to the
Effective Date, before or after the approval by the shareholders of DPRC or
SPC: (a) by mutual consent of DPRC and SPC; (b) by DPRC, if SPC or a
Controlling Shareholder shall have breached in any material respect any of its
or his representations or warranties contained in the Merger Agreement, or if
SPC or a Controlling Shareholder fails to comply in any material respect with
any of its or his covenants or agreements contained in the Merger Agreement
which are material in the context of the Merger; (c) by SPC, if DPRC or
Acquisition Corp. shall have breached in any material respect any of its
representations or warranties contained in the Merger Agreement, or if DPRC or
Acquisition Corp. fails to comply in any material respect with any of its
covenants or agreements contained in the Merger Agreement which are material
in the context of the Merger; (d) by either DPRC or SPC on written notice to
the other party, if the Merger shall not have been consummated on or before
December 31, 1998; provided, however, that neither party may terminate if such
failure to consummate the Merger is the result of a failure to satisfy any of
the conditions to such party's obligation to effect the Merger; (e) by SPC, if
upon a vote at the SPC Meeting, SPC's shareholders do not approve the Merger
Agreement; (f) by DPRC, if upon a vote at the DPRC Meeting, DPRC's
shareholders do not approve the Merger Agreement and the Share Issuance; and
(g) by DPRC on written notice to SPC, if, at any time prior to the Effective
Date, DPRC's independent accountant shall have indicated in writing to DPRC
that it is unable to render the letter required by the Merger Agreement.
AMENDMENT AND WAIVER. Subject to applicable law, the Merger Agreement may be
amended by DPRC and SPC solely through an express written instrument signed by
all parties to the original Merger Agreement or their respective successors
and permitted assigns. Any party to the Merger Agreement may expressly waive
in writing any portion of the Merger Agreement which would otherwise provide
benefit to the waiving party.
LISTING OF DPRC COMMON STOCK
At the time the Merger is consummated, the shares of DPRC Common Stock to be
issued pursuant to the Merger Agreement will be approved for listing on the
NNM under the trading symbol "DPRC".
RESALE OF SHARES OF DPRC COMMON STOCK ISSUED IN THE MERGER; AFFILIATES
The shares of DPRC Common Stock to be issued in the Merger will be freely
transferable, except that shares issued to any SPC stockholder who may be
deemed to be an "affiliate" (as defined under the Securities Act, and
generally including, without limitation, directors, certain executive officers
and beneficial owners of 10.0% or more of a class of capital stock) of SPC for
purposes of Rule 145 under the Securities Act may be resold by them only in
transactions permitted by the resale provisions of Rule 145 or as otherwise
permitted under the Securities Act. In addition, the Merger Agreement provides
that Richard K. Carlisle, Thomas G. Carlisle, Jeffery Carter and Robert
Gallagher, the affiliates of SPC who are a party to the Merger Agreement, will
only sell shares of DPRC Common Stock received in the Merger through one of
the market makers in DPRC Common Stock. The Merger Agreement also provides
that SPC shall use its reasonable efforts to cause each such affiliate to
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deliver to DPRC prior to the time this Proxy Statement/Prospectus is mailed to
SPC's shareholders, a letter agreement to the effect that such affiliate will
not offer or sell or otherwise dispose of any shares of DPRC Common Stock
issued to such affiliate in or pursuant to the Merger in violation of the
Securities Act or the rules and regulations promulgated thereunder. The letter
agreements will also prohibit the SPC affiliates from selling DPRC Common
Stock (except for certain de minimis sales) until certain post-merger reports
of the consolidated earnings of DPRC have been issued. Affiliates of DPRC have
also executed affiliates agreements containing this provision in connection
with the Merger. This Proxy Statement/Prospectus does not cover resales of
shares of DPRC Common Stock received by any person who may be deemed to be an
affiliate of SPC.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In reviewing the actions of the SPC Board with respect to the Merger
Agreement, SPC shareholders should be aware that certain directors and
officers of SPC may have interests in the Merger that are different from, or
in addition to, the interests of SPC shareholders generally. Such interests
include the receipt of cash payments in exchange for covenants not to compete
with SPC. Specifically, each of the four directors/executive officers of SPC
will receive $100,000 to agree that for a period of three years from the date
of execution of the noncompetition agreement or two years after the date of
termination of his employment with Acquisition Corp, whichever is the last to
occur, such director will not, without the prior written consent of DPRC,
directly or indirectly, in the United States, be connected in any manner with
any business which competes with the business of Acquisition Corp. The four
directors/executive officers of SPC will also each receive, effective upon
consummation of the Merger, an employment agreement with a term of one to
three years which provides for a base salary of $125,000 plus the right to
receive a bonus of up to 40% of that base salary if certain earnings
thresholds for the business of SPC are achieved. Also, the employment
agreements provide that if such person is terminated without cause, such
person must receive 90 days' advance written notice and be paid such person's
base salary plus the same health and life insurance benefits to which he was
entitled as an employee until the earlier to occur of: (i) six months after
termination, (ii) the expiration of the employment agreement or (iii) the
full-time employment of the person with another company. In addition, the
Merger Agreement provides that options to purchase 250,000 shares of DPRC
Common Stock are to be granted to certain SPC employees under DPRC's 1994
Stock Option Plan as of the Effective Date of the Merger at an exercise price
equal to the then current fair market value of DPRC Common Stock. Any number
of these options may, but not necessarily, be allocated to directors and
officers of SPC, including the four affiliates of SPC. See "Security Ownership
of Certain Beneficial Owners and Management of SPC."
BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER
Upon consummation of the Merger,Thomas G. Carlisle, a current member of the
Board of Directors of SPC and SPC's current president, will become a member of
the five-person DPRC Board. Management of DPRC will not change as a result of
the Merger. Following the Merger, the Board of Directors of SPC will consist
of David M. Connell and Michael A. Piraino, two of the current executive
officers of DPRC, and Thomas G. Carlisle. The existing executive officers of
SPC are expected to, pursuant to employment agreements executed concurrently
with the consummation of the Merger, remain at SPC following the Merger, with
different titles, as part of the new management of SPC which will also include
some of the current executive officers of DPRC.
The following table sets forth certain information concerning each person
who will be an executive officer or director of SPC after the consummation of
the Merger.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
David M. Connell................................ 53 Director
Michael A Piraino............................... 45 Director
Thomas G. Carlisle.............................. 49 Director and President
Richard K. Carlisle............................. 45 Vice President of Special Projects
Jeffery D. Carter............................... 40 Vice President and Branch Manager
Robert J. Gallagher............................. 37 Vice President and Chief Operating Officer
</TABLE>
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David M. Connell has served as President and Chief Operating Officer of DPRC
since September 1994 and as director since March 1995. From October 1993 to
September 1994, Mr. Connell provided consulting services to DPRC. Prior to his
service with DPRC, 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 DPRC as Senior Vice President and Chief Financial
Officer in January 1996 and has served as its Executive Vice President since
February 1998. Prior to joining DPRC, Mr. Piraino had served as Executive Vice
President, Director and Chief Development Officer of Imagyn Medical
Technologies, Inc. (formerly known as 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.
Thomas G. Carlisle has served as a director and the President of SPC since
he founded SPC with his brother Richard in January 1980. In addition to
serving as the President of SPC, Mr. Carlisle initially worked as a Systems
Consultant, doing design and development projects, and later worked as a
Project Manager at various clients of SPC. Prior to the formation of SPC, Mr.
Carlisle worked for Springs Industries, first as a Programmer/Analyst, then as
a Manager and a Consultant.
Richard K. Carlisle has served as a director and Executive Vice President of
SPC since he founded SPC with his brother Thomas. In addition to serving as
Vice President of SPC, Mr. Carlisle has served as a Consultant of SPC, both at
NationsBank, where he designed, developed and managed several of their
internal systems, and at Citizens & Southern Bank. Mr. Carlisle has also
managed the Solutions Division for SPC which developed a suite of products for
the publishing industry. In the last three years Mr. Carlisle has served as
Chief Information Officer and Chief Financial Officer of SPC. Prior to forming
SPC, Mr. Carlisle worked for the South Carolina Department of Education as a
Programmer, then spent two years with the South Carolina Department of Mental
Health as a Systems Programmer. He later worked for Policy Management Systems
as a CICS Developer.
Jeffery D. Carter currently serves as a director and Vice President of SPC.
He joined SPC as a Branch Manager in 1987 and later served as SPC's Operations
Manager prior to his election as a Director in 1992. Prior to joining SPC, he
spent two years as Vice President of Sterling Software in Dallas, Texas.
Before that, Mr. Carter worked with Decision Systems, Inc. as a Project
Manager and with First Union National Bank as a Programmer/Analyst.
Robert J. Gallagher is the Vice President of National Business Development
for SPC and has served as a director of SPC since 1996. Mr. Gallagher joined
SPC as a Branch Manager in 1988. Prior to joining SPC, he spent two years as a
Systems Engineer for Computer Task Group, an I.T. services firm. He had
previously worked for Consumers Power Company in their Management Information
Systems department.
Thomas G. Carlisle and Richard K. Carlisle are brothers. There are no other
family relationships among the persons who will be directors or executive
officers of SPC after the consummation of the Merger.
ACCOUNTING TREATMENT OF THE MERGER
The Merger is expected to qualify as a pooling of interests for financial
reporting purposes in accordance with GAAP, which means that DPRC will restate
its historical consolidated financial statements to include the
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assets, liabilities, shareholders' equity and results of operations of SPC.
Consummation of the Merger is conditioned upon receipt at the closing of the
Merger of the opinion of DPRC's independent accountants that the Merger will
qualify for pooling of interests accounting treatment.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO SPC SHAREHOLDERS
The following general discussion summarizes the material United States
federal income tax consequences of the Merger to SPC shareholders. Riordan &
McKinzie, a professional law corporation, counsel to DPRC, has rendered its
opinion to DPRC on the material tax consequences of the Merger to SPC
shareholders as set forth in this section. This discussion and any other
discussion herein of the federal income tax consequences of the Merger, is
based upon the Code, Treasury Regulations, Internal Revenue Service ("IRS")
rulings and judicial decisions now in effect, all of which are subject to
change at any time by legislative, judicial or administrative action. Any such
change may be applied retroactively. No information is provided herein with
respect to foreign, state or local tax laws or estate and gift tax
considerations. This information is directed to SPC shareholders who hold
their shares of SPC Common Stock and who will hold the DPRC Common Stock
received in exchange therefor as "capital assets" within the meaning of
Section 1221 of the Code.
Special tax consequences not described below may be applicable to particular
classes of taxpayers, including financial institutions, broker-dealers,
persons who are not citizens or residents of the United States or who are
foreign corporations, foreign partnerships or foreign estates or trusts as to
the United States, and SPC shareholders who acquired their SPC Common Stock
through the exercise of an SPC stock option or otherwise as compensation.
Neither DPRC nor SPC intends to request a ruling from the IRS with respect to
the tax consequences resulting from the Merger.
The Merger constitutes a tax-free reorganization under Sections 368(a)(1)(A)
and 368(a)(2)(E) of the Code with the following material federal income tax
consequences: (i) SPC shareholders will not recognize gain or loss with
respect to the DPRC Common Stock received by them in exchange for their shares
of SPC Common Stock; (ii) each SPC shareholder's tax basis in the DPRC Common
Stock received in exchange for SPC Common Stock will be the same as the tax
basis of such shareholder's SPC Common Stock exchanged therefor; and (iii) the
holding period of the DPRC Common Stock received by an SPC shareholder in
exchange for SPC Common Stock will include the holding period of such
shareholder's SPC Common Stock exchanged therefor. An SPC shareholder
receiving cash in the exchange in lieu of a fractional interest in DPRC Common
Stock will be treated as if such shareholder actually received such fractional
share interest, and then such fractional interest was subsequently redeemed by
DPRC.
If the Merger were not to constitute a reorganization under Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code, each SPC shareholder would
recognize gain or loss equal to the difference between the fair market value
of the DPRC Common Stock received determined at the consummation of the Merger
and such shareholder's tax basis in the shares of SPC Common Stock exchanged
therefor.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY. ACCORDINGLY, SPC SHAREHOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER AND THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF DPRC COMMON STOCK, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, AND OF CHANGES
IN APPLICABLE TAX LAWS.
FEDERAL INCOME TAX TREATMENT OF STOCK OPTIONS
The following discussion is a summary of the material United States federal
income tax consequences of the Merger to SPC option holders. This discussion
is based upon the Code, Treasury Regulations, IRS rulings and judicial
decisions now in effect, all of which is subject to change at any time by a
legislative, judicial or administrative action. Any such change may be applied
retroactively. No information is provided herein with
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respect to foreign, state or local tax laws or estate and gift tax
considerations. Special tax consequences not described below may be applicable
to particular classes of taxpayers, including financial institutions, broker-
dealers, persons who are not citizens or residents of the United States or who
are foreign corporations, foreign partnerships or foreign estates or trusts as
to the United States. Neither DPRC nor SPC intends to request a ruling from
the IRS with respect to the tax consequences resulting from the Merger to SPC
option holders.
As of the Effective Time outstanding SPC Time-Vesting Options will be
converted into the right to receive options to acquire DPRC Common Stock
("Substitute Options"). The Substitute Options will (a) reflect the
applications of the Exchange Ratio (except that any resulting fractional share
amounts less than one-half shall be rounded down to the nearest whole share
and shall be rounded up otherwise), (b) provide for exercisability over the
same period as set forth in the SPC Time-Vesting Options exchanged therefor,
and (c) contain such terms and conditions as SPC and DPRC will agree upon. The
SPC Performance-Vesting Options will be canceled in the Merger in exchange for
shares of DPRC Common Stock with an aggregate value equal to the appraised
value of the SPC Performance-Vesting Options.
For federal income tax purposes, the holders of SPC Time-Vesting Options
that received such options in connection with services rendered to SPC should
not recognize gain or loss as a result of the conversion of such options
provided that neither the SPC Time-Vesting Options nor the Substitute Options
had or have a readily ascertainable fair market value (within the meaning of
Treasury Regulations Section 1.83-7(b)) when issued or at the Effective Time.
For federal income tax purposes, each holder of SPC Performance-Vesting
Options that received such options in connection with services rendered to SPC
will recognize gain or loss as a result of the exchange of such options for
DPRC Common Stock in an amount equal to the difference between the fair market
value of the DPRC Common Stock received over the amount paid for the SPC
Performance-Vesting Options by the holder. Any gain recognized by such holder
will be treated as compensation income subject to withholding and taxed at
ordinary income rates. Additionally, because such holders of SPC Performance-
Vesting Options are receiving shares of DPRC Common Stock in exchange therefor
in connection with a "change in control" of SPC, the amount of compensation
income recognized by such holders in the exchange will be treated as a
"parachute payment" for federal income tax purposes. If the present value of
all of a holder's parachute payments exceeds three times the holder's average
annual compensation for the past five years, the holder will be subject to a
special excise tax of 20% on the amount of the "excess parachute payment,"
which is the amount by which the holder's parachute payments exceeds the
holder's average annual compensation. In addition, SPC will not be allowed a
deduction for such "excess parachute payments." These adverse tax consequences
do not apply to either the holders of the Performance-Vesting Options or to
SPC, if more than 75% of the shareholders of SPC who do not hold Performance-
Vesting Options approve the payments. Such approval is anticipated to be
obtained from the shareholders of SPC.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY. BECAUSE OF THE
INTRICACIES OF THE FEDERAL INCOME TAX LAWS REGARDING THE TREATMENT OF OPTIONS,
HOLDERS OF SPC TIME-VESTING OPTIONS AND OF SPC PERFORMANCE-VESTING OPTIONS
SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE POTENTIAL
CONSEQUENCES OF THE MERGER ON THE FEDERAL INCOME TAX TREATMENT OF THEIR
OPTIONS AND ANY SUBSTITUTE OPTIONS AND/OR DPRC COMMON STOCK THEY MAY RECEIVE
THEREFOR. HOLDERS OF SPC TIME-VESTING OPTIONS AND SPC PERFORMANCE-VESTING
OPTIONS ARE ALSO ADVISED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
APPLICABILITY AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS, NONE OF WHICH
ARE DISCUSSED HEREIN.
RIGHTS OF DPRC DISSENTING SHAREHOLDERS
Under the CGCL, shareholders of DPRC as of the DPRC Record Date who vote
against the Merger and follow the procedures specified in Chapter 13 of the
CGCL ("Chapter 13") (each such shareholder is referred to as a "DPRC
Dissenting Shareholder") will be entitled to demand and receive payment of the
fair value of all or
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any portion of such holder's shares of DPRC Common Stock. The fair value of
such shares is determined as of the day before the first announcement of the
terms of the Merger (excluding any appreciation or depreciation as a result of
the proposed action). However, because the DPRC Common Stock is traded on the
NNM, the CGCL provides that as to shares of DPRC Common Stock that are not
subject to restrictions on transfer imposed by DPRC or by any law or
regulation, the right to demand and receive payment of the fair value of
shares is only applicable if demands are made with respect to 5% or more of
the outstanding DPRC Common Stock. Any DPRC shareholder who elects to perfect
such holder's dissenters' rights and demands payment of the fair value of such
holder's shares of DPRC Common Stock must strictly comply with Chapter 13 of
the CGCL. Failure to follow any such procedures will result in a termination
or waiver of dissenters' rights under Chapter 13. DPRC shareholders who vote
in favor of or sign a consent approving the Merger will not have a right to
dissent from the Merger. Any holder of shares of DPRC Common Stock considering
demanding dissenters' rights is advised to consult legal counsel. Dissenters'
rights will not be available unless and until the Merger (or a similar
business combination) is consummated.
THE FOLLOWING SUMMARY OF THE PROVISIONS OF CHAPTER 13 IS NOT INTENDED TO BE
A COMPLETE STATEMENT OF ITS PROVISIONS AND IS QUALIFIED BY REFERENCE TO THE
COMPLETE TEXT OF CHAPTER 13, A COPY OF WHICH IS ATTACHED AS ANNEX C-1 HERETO.
Under Chapter 13, to perfect the right to dissent and receive the fair value
of such holder's shares, shareholders of DPRC must:
(i) vote against the Merger; and
(ii) make written demand upon DPRC for the purchase of such shares (the
"DPRC Written Notice"), and the DPRC Written Notice must be received by
DPRC before the vote on the Merger at the DPRC Special Meeting. The DPRC
Written Notice must be delivered to Data Processing Resources Corporation,
4400 MacArthur Boulevard, Suite 600, Newport Beach, California 92660.
The DPRC Written Notice must be made by the record holder of DPRC Common
Stock regardless of the beneficial ownership thereof. The DPRC Written Notice
must set forth the number of shares which the DPRC Dissenting Shareholder
demands that DPRC purchase, as well as a statement by the DPRC Dissenting
Shareholder as to what such holder claims the fair market value of shares of
DPRC Common Stock to have been as of the day prior to the announcement of the
Merger.
Neither a vote against the Merger nor the giving of a proxy directing a
negative vote will be sufficient to constitute the demand described in clause
(ii) above. A proxy that fails to include instructions with respect to the
Merger will be voted in favor of the Merger.
Within 10 days after the date of shareholder approval of the Merger, DPRC
will mail or deliver to each DPRC Dissenting Shareholder a notice of the
approval of the Merger ("Merger Approval Notice"), accompanied by a copy of
Sections 1300-1304 of the CGCL. The Merger Approval Notice shall also state
the price determined by DPRC to be the fair market value of the DPRC Common
Stock and briefly describe the procedure to be followed by each DPRC
Dissenting Shareholder.
Within 30 days after the mailing of the Merger Approval Notice, the DPRC
Dissenting Shareholder must submit to DPRC endorsed certificates for any
shares of DPRC Common Stock which the DPRC Dissenting Shareholder demands DPRC
purchase. If DPRC and the DPRC Dissenting Shareholder agree upon the price of
the DPRC Common Stock, the DPRC Dissenting Shareholder is entitled to the
agreed price with interest at the legal rate on judgments from the date of
such agreement. Payment must be made within 30 days of the later of the date
of the agreement between the DPRC Dissenting Shareholder and DPRC or the date
the contractual conditions to the Merger are satisfied.
If DPRC and the DPRC Dissenting Shareholder cannot agree as to the fair
market value or as to the fact that such shares are dissenting shares (within
the meaning of Section 1301 of the CGCL), such DPRC Dissenting Shareholder may
file within six months of the date of mailing of the Merger Approval Notice a
complaint with the California Superior Court for the County of Orange
demanding judicial determination of such matters.
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Dissenting shares lose their status as such if: (i) DPRC abandons the
Merger; (ii) the shares are transferred or are surrendered for conversion into
shares of another class; (iii) the DPRC Dissenting Shareholder and DPRC do not
agree as to the fair market value of such shares and a complaint is not filed
within six months of the date the Merger Approval Notice was mailed; or (iv)
the DPRC Dissenting Shareholder withdraws, with the consent of DPRC, his or
her demand for purchase of the DPRC Common Stock. A DPRC Dissenting
Shareholder may not withdraw his or her demand for purchase of such
shareholders' DPRC Common Stock without DPRC's consent.
The DPRC Dissenting Shareholder properly exercising and perfecting his or
her dissenters' rights will be entitled to receive payment of the fair value
of such holder's shares of DPRC Common Stock pursuant to Chapter 13 of the
CGCL.
RIGHTS OF SPC DISSENTING SHAREHOLDERS
Shareholders of SPC who vote against the Merger, and follow the procedures
specified in Article 13 of the NCBCA ("Article 13") (each such shareholder is
referred to as an "SPC Dissenting Shareholder") will be entitled to receive
payment of the "fair value" of their shares of SPC Common Stock, as estimated
by SPC, plus interest accrued from the Effective Time to the date of payment.
If an SPC Dissenting Shareholder is not satisfied with the payment made by SPC
and no agreement as to the "fair value" of his or her shares of SPC Common
Stock can be reached, the SPC Dissenting Shareholder may petition a North
Carolina court to determine the fair value of such shares. The procedures set
forth in Article 13 must be strictly complied with in order to preserve
applicable dissenters' rights. Failure to follow any such procedures will
result in a termination or waiver of dissenters' rights under Article 13.
THE FOLLOWING SUMMARY OF THE PROVISIONS OF ARTICLE 13 IS NOT INTENDED TO BE
A COMPLETE STATEMENT OF ITS PROVISIONS AND IS QUALIFIED BY REFERENCE TO THE
FULL TEXT OF THAT SECTION, A COPY OF WHICH IS ATTACHED AS APPENDIX C-2 HERETO.
Under Section 21 of Article 13, a shareholder of SPC electing to exercise
dissenter's rights must:
(1) not vote in favor of the proposal relating to the Merger; and
(2) give written notice to SPC of an intent to demand payment for his or
her shares if the proposal relating to the Merger is adopted (the "SPC
Written Notice"), and the SPC Written Notice must actually be received by
SPC before the vote on the Merger at the SPC Special Meeting. The SPC
Written Notice must be delivered to Systems & Programming Consultants,
Inc., 212 South Tryon Street, Charlotte, North Carolina 28281.
The SPC Written Notice must be made by or for the holder of record of SPC
Common Stock registered in his or her name. Accordingly, the SPC Written
Notice should be executed by or for such shareholder of record, fully and
correctly, as such shareholder's name appears on the stock transfer books of
SPC. If the stock is owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the SPC Written Notice should be
made in such capacity, and if the stock is owned of record by more than one
person, as in a joint tenancy or tenancy in common, such SPC Written Notice
should be executed by or for all joint owners. An authorized agent, including
one of two or more joint owners, may execute the SPC Written Notice for a
shareholder of record. However, the agent must identify the record owner or
owners and expressly disclose the fact that in executing the demand he or she
is acting as agent for the record owner. A beneficial owner of SPC Common
Stock may submit a SPC Written Notice exercising dissenter's rights as to
shares held in his or her behalf if he or she dissents with respect to all
shares of which he or she is the beneficial owner and he or she submits to SPC
the record shareholder's written consent to the dissent no later than the time
the beneficial owner submits his or her SPC Written Notice. Thus, a
participant in the Stock Bonus Plan who wishes to exercise his or her
dissenter's rights with respect to all (but not less than all) of the shares
held on his or her behalf under the plan (as the beneficial owner of those
shares) must obtain from the Trustees of the Stock Bonus Plan (as the record
owners of those shares) the Trustee's written consent to the dissent in a
timely fashion. The Trustees intend to consent to a request to exercise
dissenter's rights to the extent consistent with the Trustees' fiduciary
responsibilities under ERISA. For example, the Trustees would not consent if
they deemed the request to be frivolous, improper or in bad faith. See "The
Special Meetings--SPC Special Meeting--Proxies."
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Within ten days after the approval of the Merger, SPC must send, by
registered or certified mail, return receipt requested, a written dissenters'
notice (the "SPC Dissenters' Notice") to all holders of SPC Common Stock who
submit an SPC Written Notice and do not vote in favor of the Merger at the
Special Meeting. The SPC Dissenters' Notice will: (i) state to what extent
transfer of the shares will be restricted; (ii) state where a demand for
payment must be sent and where and when stock certificates must be deposited;
(iii) supply a form for demanding payment; (iv) set a date by which SPC must
receive the payment demand (which date may not be fewer than 30 nor more than
60 days after the date the SPC Dissenters' Notice is mailed); and (v) be
accompanied by a copy of Article 13 of the NCBCA.
Upon the approval of the Merger or within 30 days of receipt of a demand for
payment in compliance with the terms of the SPC Dissenter's Notice, SPC will
pay (the "Payment") to each SPC Dissenting Shareholder who complied with the
SPC Dissenters' Notice an amount estimated by SPC to be the fair value of the
shares held by such SPC Dissenting Shareholder, plus interest accrued from the
Effective Time to the date of payment. The Payment will be accompanied by: (i)
SPC's Balance Sheet as of December 31, 1997; (ii) Statements of Income and
Cash Flows for the fiscal year ended December 31, 1997 and the latest
available interim financial statements; (iii) an explanation of how the fair
value of the SPC Common Stock held by such SPC Dissenting Shareholder was
calculated; (iv) an explanation of how the amount of accrued interest was
calculated; a statement of the SPC Dissenting Shareholder's right to make a
Payment Demand (as defined and described below); and (vi) a copy of Article
13. SPC will pay such offered amount to any SPC Dissenting Shareholder who
agrees in writing to accept such payment in full satisfaction of his or her
demand.
An SPC Dissenting Shareholder who believes that the amount paid by SPC for
his or her shares of SPC Common Stock is less than the fair value of such
shares or that the interest is incorrectly calculated or an SPC Dissenting
Shareholder who accepted delivery of an SPC Dissenters' Notice but did not
receive payment from SPC within 30 days after demanding payment in accordance
with such SPC Dissenters' Notice may notify SPC in writing of his or her own
estimate of the fair value of his or her shares of SPC Common Stock plus the
interest due, and demand payment of the amount in excess of the Payment for
the fair value of his or her shares of SPC Common Stock plus the interest due
(a "Payment Demand"). An SPC Dissenting Shareholder must notify SPC of a
Payment Demand within 30 days after receipt of the Payment or such SPC
Dissenting Shareholder shall be deemed to have withdrawn the Payment Demand.
If an SPC Dissenting Shareholder notifies SPC of his or her Payment Demand
and SPC and the SPC Dissenting Shareholder are unable to agree on the fair
value of the SPC Common Stock, the SPC Dissenting Shareholder may petition a
court and commence a proceeding to determine the fair value of the SPC Common
Stock and accrued interest (a "Valuation Proceeding"). If the SPC Dissenting
Shareholder does not commence a Valuation Proceeding within 60 days after the
earlier of the date of the Payment or the date of the Payment Demand, such SPC
Dissenting Shareholder shall be deemed to have withdrawn the Payment Demand.
If a Valuation Proceeding is commenced, the court has the discretion to make
all SPC Dissenting Shareholders whose demands remain unsettled parties to the
Valuation Proceeding. The court may appoint one or more persons as appraisers
to receive evidence and recommend a decision on the question of fair value.
The court, in a Valuation Proceeding, shall determine all costs of the
proceeding, including reasonable compensation and expenses of appraisers
appointed by the court and shall assess the costs as it finds equitable. If
the court finds that services of counsel for an SPC Dissenting Shareholder
were of a substantial benefit to other similarly situated SPC Dissenting
Shareholders, the court may, in its discretion, order that all or a portion of
the attorneys' fees be paid out of the amounts awarded to the SPC Dissenting
Shareholders who were benefitted.
Although SPC believes that the consideration to be paid in the Merger is
fair, it cannot make any representation as to the outcome of the appraisal of
fair value as determined by a court of North Carolina, and shareholders should
recognize that such an appraisal could result in a determination of a lower,
higher or equivalent value.
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Any shareholder of SPC who has duly demanded an appraisal in compliance with
Article 13 will not, after the Effective Time, be entitled to vote his or her
shares for any purpose nor be entitled to the payment of any dividends or
other distributions on his shares (other than those payable to shareholders of
record as of a date prior to the Effective Time).
If a holder of shares of SPC Common Stock withdraws or is deemed to have
withdrawn the SPC Written Notice and Payment Demand or otherwise waives his
dissenter's rights, he is entitled to the consideration with respect to such
shares provided for in the Merger Agreement.
In the event that holders of more than 10% of the outstanding shares of SPC
Common Stock do not vote their shares in favor of the Merger, the Merger will
not be consummated (unless such condition is waived by DPRC) despite the fact
that the Merger may have been otherwise approved by the SPC shareholders. If
the Merger is not consummated, the shareholders of SPC (including all SPC
Dissenting Shareholders) will retain their shares of SPC Common Stock, and the
management of SPC will continue to manage and operate the business of SPC as
if the Merger had not been approved by the shareholders of SPC.
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COMPARATIVE MARKET DATA
The DPRC Common Stock has been traded on the NNM under the symbol "DPRC"
since March 1996.
The following table sets forth high and low trading prices per share of DPRC
Common Stock as reported on the NNM for the periods indicated.
<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.......................................... 22 5/8 15 1/2
Third Quarter........................................... 22 3/8 17 1/8
Fourth Quarter.......................................... 26 3/4 18
FISCAL YEAR 1998
First Quarter........................................... $28 1/4 $19
Second Quarter.......................................... 26 3/4 22 1/8
Third Quarter........................................... 33 3/4 23 3/8
Fourth Quarter ......................................... 33 3/4 26 5/8
FISCAL YEAR 1999
First Quarter........................................... $32 15/16 $17 1/16
Second Quarter (through November 5, 1998)............... $22 7/8 $19 1/2
</TABLE>
On November 5, 1998, the last reported sale price of the DPRC Common Stock
on the NNM was $20 11/16 per share. As of November 2, 1998, the DPRC Record
Date, there were approximately 77 holders of record of the Common Stock.
DPRC has never declared or paid cash dividends on DPRC Common Stock and does
not anticipate paying cash dividends on DPRC Common Stock in the foreseeable
future. DPRC 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 DPRC and will
depend upon, among other things, DPRC's earnings, financial condition, capital
requirements, level of indebtedness, contractual restrictions relating to its
existing credit facility (or any facility succeeding thereto) prohibiting the
payment of cash dividends and other factors that DPRC's Board of Directors
deems relevant. DPRC's existing credit facility prohibits, without the consent
of the lender, the payment of cash dividends.
The reported closing sale price of DPRC Common Stock on the NNM on June 15,
1998, the last full day of trading for DPRC Common Stock prior to the
announcement by DPRC and SPC of the execution of the Merger Agreement, was $30
7/8 per share. Because the stock price of DPRC Common Stock used to determine
the Exchange Ratio is fixed and because the market price of DPRC Common Stock
is subject to fluctuation, the market value of the shares of DPRC Common Stock
that holders of SPC Common Stock will receive in the Merger may increase or
decrease prior to and following the Merger. SHAREHOLDERS ARE URGED TO OBTAIN
CURRENT MARKET QUOTATIONS FOR DPRC COMMON STOCK. See "Risk Factors--Fixed
Exchange Ratio Despite Possible Changes in Stock Prices."
Following the Merger, DPRC Common Stock will continue to be traded on the
NNM. It is a condition to the consummation of the Merger that the shares of
DPRC Common Stock issuable to the shareholders of SPC pursuant to the terms of
the Merger Agreement be authorized for listing on the NNM upon official notice
of issuance.
SPC Common Stock is not publicly traded and is not listed on any securities
exchange. As of November 2, 1998, 329,168 shares of SPC Common Stock were
outstanding and owned of record by 11 holders. One of the shareholders of
record is SPC's Stock Bonus Plan, which has 298 participants, who are each
entitled to direct the trustees of the Stock Bonus Plan as to how to vote the
shares of SPC Common Stock held in each participant's account. The Stock
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Bonus Plan owns 69,895 shares of SPC Common Stock, representing approximately
21% of the outstanding shares of SPC Common Stock. As of such date, directors
and executive officers, as a group, were the beneficial owners of an aggregate
of 285,597 shares (approximately 87%) of the SPC Common Stock then outstanding
and owned SPC Time-Vested Options to purchase 162,613 shares of SPC Common
Stock which were fully-vested and exercisable for a price substantially below
the market value of SPC Common Stock. See "Merger--Interests of Certain
Persons in the Merger" and "Security Ownership of Certain Beneficial Owners
and Management of SPC." SPC has never declared or paid cash dividends on SPC
Common Stock and does not anticipate paying cash dividends on SPC Common Stock
in the foreseeable future.
DESCRIPTION OF CAPITAL STOCK OF DPRC
The following summary of certain provisions of the common stock and the
preferred stock of DPRC does not purport to be complete and is subject to, and
qualified in its entirety by, the Articles of Incorporation and Bylaws of DPRC
and the provisions of applicable law.
DPRC COMMON STOCK
DPRC has 20,000,000 authorized shares of Common Stock, of which 11,786,947
shares were outstanding as of the DPRC Record Date, November 2, 1998. The
holders of Common Stock are entitled to 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. In the event of a liquidation, dissolution or winding up
of DPRC, 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 DPRC may issue in the future. The Common Stock is
quoted on the NNM under the symbol "DPRC."
DPRC PREFERRED STOCK
DPRC has 2,000,000 authorized shares of Preferred Stock ("Preferred Stock").
No shares of Preferred Stock are outstanding. The Board has the authority
without any further action by DPRC's shareholders to issue 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 holders of Common Stock and could
have the effect of delaying, deferring or preventing a change in control of
DPRC. DPRC 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 DPRC is U.S. Stock
Transfer Corporation.
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COMPARATIVE RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, the shareholders of SPC will become
shareholders of DPRC, a California corporation, to the extent that they do not
elect to exercise dissenters' rights under the NCBCA, and their rights will be
governed by DPRC's Amended and Restated Articles of Incorporation (the "DPRC
Charter") and bylaws (the "DPRC Bylaws"), which differ in certain material
respects from SPC's Articles of Incorporation, as amended (the "SPC Charter"),
and bylaws, as amended (the "SPC Bylaws"). As shareholders of DPRC, the rights
of the former shareholders of SPC will be governed by the CGCL.
The following summary of the material differences between the rights of
holders of DPRC Common Stock and the rights of holders of SPC Common Stock, is
not intended to be complete and is qualified by reference to the DPRC Charter,
the DPRC Bylaws, the SPC Charter and the SPC Bylaws. Copies of the DPRC
Charter and the DPRC Bylaws are available for inspection at the offices of
DPRC, and copies will be sent to the holders of SPC Common Stock upon request.
Copies of the SPC Charter and the SPC Bylaws are available for inspection at
the principal executive offices of SPC, and copies will be sent to holders of
SPC Common Stock upon request.
AUTHORIZED STOCK. The authorized capital stock of DPRC consists of
20,000,000 shares of DPRC Common Stock and 2,000,000 shares of preferred
stock. Upon approval of the Charter Amendment by the shareholders of DPRC and
the appropriate filings in connection therewith, the authorized number of
shares of DPRC Common Stock will be 60,000,000.
The authorized capital stock of SPC consists of 1,000,000 shares of SPC
Common Stock, without par value and 800,000 shares of preferred stock, par
value $1.00.
CUMULATIVE VOTING. Under the CGCL, any shareholder may cumulate its votes at
any election of directors at which such shareholder is entitled to vote,
provided, however, that a "listed corporation" (as defined in the CGCL) may
eliminate cumulative voting by shareholders. DPRC is a "listed corporation"
and has eliminated cumulative voting under the DPRC Charter.
Under the NCBCA, a corporation is permitted to entitle its shareholders to
cumulate their votes in electing directors. Under the SPC Charter, all
shareholders are entitled to cumulate their votes for directors.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS. Under the
CGCL, the holders of at least 10% of the number of outstanding shares of any
class of stock may initiate a court action to remove any director for cause.
In addition, any or all of the directors of a California corporation may be
removed without cause by the affirmative vote of a majority of the outstanding
shares entitled to vote. However, no director may be removed (unless the
entire board is removed) when the votes cast against removal would be
sufficient to elect the director if voted cumulatively at an election at which
the same total number of votes were cast and the entire number of directors
authorized at the time of the director's most recent election were then being
elected.
Under the CGCL (unless otherwise provided in the charter or bylaws and
except for a vacancy created by the removal of a director), vacancies on the
board of directors may be filled by a majority of the remaining directors,
though less than a quorum, of the board or by a sole remaining director. The
DPRC Bylaws provide that any vacancies on the board resulting from the removal
of directors may only be filled by the vote of the majority of shares entitled
to vote and that the shareholders may elect a director or directors at any
time to fill a vacancy or vacancies not filled by the directors.
The NCBCA allows shareholders to remove one or more directors with or
without cause unless the articles of incorporation or bylaws provide that
removal should occur only with cause; provided, however, that the notice of
the meeting must state that the purpose, or one of the purposes, of the
meeting is removal of the director. If a director is elected by a voting group
of shareholders under the NCBCA, only the shareholders of that voting group
may participate in the vote to remove such director. Section 3 of SPC's Bylaws
provides that a director may be removed from office, with or without cause, by
the majority vote of shareholders (or a voting group of
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the shareholders if the director was elected by that voting group) at meeting
of the shareholders called pursuant to written notice. However, if cumulative
voting is authorized, no director may be removed (unless the entire board is
removed) if the number of votes sufficient to elect him under cumulative
voting is voted against his removal. The shareholders may elect a new director
at the same meeting at which a director is removed. The NCBCA further provides
for the judicial removal of directors in an action instituted by the
corporation or by shareholders holding at least 10% of the outstanding shares
of any class, if the court finds that the director engaged in fraudulent or
dishonest conduct or grossly abused his or her authority or discretion with
respect to the corporation and that removal would be in the best interests of
the corporation.
Under the NCBCA (unless otherwise provided in the articles of
incorporation), vacancies on the board of directors may be filled by the
shareholders or a majority of the remaining directors, though less than a
quorum, of the board or by a sole remaining director. However, a vacancy held
by a director elected by a voting group of shareholders may only be filled by
the remaining director or directors elected by that voting group or the
holders of shares of that voting group.
AMENDMENT OF CHARTER AND BYLAWS. The CGCL generally provides that amendments
to the charter of a corporation require approval by the vote of directors and
the holders of a majority of shares entitled to vote thereon and, where the
rights of shareholders are affected, by the holders of a majority of the
outstanding shares of a class, whether or not such class is entitled to vote
thereon by the provision of the charter.
Under the CGCL, bylaws may be adopted, amended or repealed either by the
vote of a majority of the outstanding shares or by the approval of the board
of directors, except (i) that when the number of directors is set forth in the
charter, such number may only be changed by an amendment to the charter, or
(ii) if the charter requires a larger percentage of shareholder or director
vote to approve a given action. The DPRC Charter does not require approval by
a supermajority of the shareholders to approve an amendment to the bylaws.
Under the NCBCA, any material amendment generally requires the
recommendation of the board (unless the board determines that due to a
conflict of interest or other special circumstance disclosed to shareholders
that it should make no recommendation) and unless the articles, bylaws or the
board of directors require a greater vote or a vote by voting groups, the
approval by, (i) a majority of the votes entitled to be cast on the amendment
by any voting group with respect to which the amendment would create
dissenters' rights, and (ii) a majority of shares representing a quorum
present at a meeting (or, if the proposed amendment would alter a quorum or
voting requirement, such amendment can not be approved by less than the quorum
or vote currently prescribed in the articles) held by every other voting group
entitled to vote on the amendment.
The SPC Bylaws state that, unless otherwise provided by its Articles of
Incorporation, Bylaws or the NCBCA, the Bylaws may be amended or repealed by
its board of directors. The SPC Charter does not address any aspect of its
Bylaws relating to their amendment or repeal.
The NCBCA also provides that a corporation's articles of incorporation or
bylaws adopted by the shareholders may provide for a greater quorum or voting
requirement for shareholders (or voting groups of shareholders) than otherwise
required by the NCBCA so long as any such bylaw is approved by a quorum and
vote sufficient to amend the articles of incorporation for that purpose. Any
provision in the articles of incorporation or bylaws prescribing the quorum or
vote required for the shareholders for any purpose may be amended only by
complying with such quorum or vote requirement. The NCBCA authorizes the board
of directors or shareholders of a corporation to adopt a bylaw fixing a
greater quorum or voting requirement for the board of directors than that
required under the NCBCA, subject to limitations on the ability of the board
of directors to readopt, amend or repeal a bylaw adopted, amended or appealed
by the shareholder. The NCBCA also allows the shareholders to reduce the
quorum requirement, so long as such requirement is not less than one-third of
the number of directors. The SPC Bylaws state that the board of directors has
no power to adopt a bylaw that: (i) requires a quorum for shareholders (other
than for voting groups of shareholders) different from that provided for by
the NCBCA; (ii) requires a vote of shareholders (or voting groups of
shareholders) different from that provided for by the NCBCA; or (iii)
authorizes a quorum of the board of directors consisting of less than the
number of directors provided for by the NCBCA.
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DIRECTOR'S LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS. Under the
CGCL a corporation may include a provision in its articles of incorporation
eliminating or limiting personal liability of directors to the corporation or
shareholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that a director will remain liable for: (i) acts or
omissions involving intentional misconduct or a knowing violation of the law;
(ii) engaging in a transaction from which a director gains an improper
personal benefit; (iii) acts or omissions a director believes to be contrary
to the best interests of the corporation or its shareholders or involving an
absence of good faith; (iv) transactions in which a director has a personal
interest if the director engages in such a transaction in violation of
California law; (v) authorizing transactions involving unlawful distributions,
loans or guarantees by the corporation; (vi) acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's duty to the corporation or shareholders and (vii) acts or omissions
that show a reckless disregard for the director's duty to the corporation.
The CGCL provides that a corporation has the power to indemnify, with
certain exceptions, any agent (i) who is a party to any action (other than an
action by or in the right of the corporation to procure a judgment in its
favor) against expenses, judgments, fines and settlements if that person acted
in good faith and in a manner reasonably believed to be in the best interests
of the corporation and, in the case of a criminal proceeding, had no
reasonable cause to believe their conduct was unlawful, and (ii) who is a
party to any action against expenses actually and reasonably incurred by that
person in connection with the defense or settlement of the action if that
person acted in good faith and in a manner that person believed to be in the
best interests of the corporation and its shareholders. An agent for the
purpose of the CGCL includes directors, officers and employees.
The DPRC Bylaws provide for such indemnification, for directors and
officers, to the maximum extent permitted under the CGCL. The DPRC Bylaws
state that the board of directors may, in their discretion, provide for
indemnification for expenses for other agents of DPRC, and may also, in their
discretion, refuse to provide for such indemnity.
Under the NCBCA, a corporation may indemnify a director against liability in
a proceeding if: (i) the director acted in good faith; (ii) reasonably
believed that the conduct was in the corporation's best interests, in the case
of conduct in the director's official capacity with the corporation, or at
least not opposed to it, in all other cases (or, if the conduct is in relation
to an employee benefit plan, that such conduct was in the best interests of
the participants in and beneficiaries of the plan); and (iii) in the case of a
criminal proceeding, such director had no reasonable cause to believe his or
her conduct was unlawful. A corporation may not indemnify a director in
connection with a proceeding in which the director is adjudged to be liable to
the corporation or in connection with any other proceeding by or in the right
of the corporation in which the director is adjudged liable on the basis that
such director received an improper benefit from his or her conduct. The NCBCA
further provides that, unless limited by its articles of incorporation, a
corporation must indemnify directors for reasonable expenses if such directors
succeed on the merits or otherwise in the defense of any proceeding to which
they are a party because they are directors.
The SPC Bylaws provide for indemnification for any person who serves as
director, officer, employee or agent of SPC, to the fullest extent permitted
by law, in the event that he or she is made, or threatened to be made, party
to any threatened, pending or completed action by reason of the fact he or she
was acting in such capacity.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN
CONSENT. Under the CGCL, special meetings of shareholders may be called at any
time by the board of directors, the chairman of the board, the president or by
shareholders entitled to cast not less than 10% of the votes at such meeting.
The DPRC Bylaws additionally permit special meetings to be called by any two
or more of the directors of the board. Under the NCBCA, special meetings of
shareholders may be called by the board or by the persons so authorized by the
articles of incorporation or bylaws. The SPC Bylaws provide that special
meetings of SPC shareholders may be called at any time by the president,
secretary, board of directors or any shareholder pursuant to the written
request of the holders of at least 10% of the votes entitled to be cast on any
issue to be considered at the special meeting. The written request must state
the purpose for the meeting and be delivered to the secretary.
65
<PAGE>
The CGCL and the DPRC Bylaws permit shareholder action without a meeting if
consents in writing, setting forth the action so taken, are signed by the
holders of the outstanding shares having not less than the minimum number of
votes necessary to authorize or take such action at a meeting at which all the
shares entitled to vote thereon were present and voted, except that directors
may be elected only by unanimous written consent.
The NCBCA and the SPC Bylaws permit shareholder action without a meeting if
consents, in writing, setting forth the action so taken, are signed by all the
shareholders entitled to vote on the action.
DIVIDENDS. The CGCL permits the payment of dividends out of retained
earnings. Dividends may also be paid if, immediately after giving effect
thereto, (i) the sum of the assets (excluding goodwill and certain charges) of
the corporation is at least equal to 1.25 times its liabilities (excluding
certain deferred credits), and (ii) the current assets of the corporation are
at least equal to its current liabilities or, if the average earnings of such
corporation before taxes and interest expense for the two preceding fiscal
years were less than the average of the interest expense of such corporation
for such fiscal years, the current assets of the corporation are at least
equal to 1.25 times its current liabilities. However, DPRC has never declared
or paid cash dividends on DPRC Common Stock and does not anticipate paying any
cash dividends on DPRC Common Stock in the foreseeable future. See
"Comparative Market Data."
Under the NCBCA, subject to restrictions contained in the corporation's
articles of incorporation, the board of directors of a corporation may
authorize distributions and a corporation may make distributions to its
shareholders unless after such a distribution the corporation would not be
able to pay its debts as they become due, or if the distribution is to one
class or series, its total assets after the distribution will be less than its
total liabilities, plus the amount that would be needed if the corporation
were to be dissolved at the time of the distribution to satisfy the
preferential rights upon dissolution of shareholders whose rights are superior
to those receiving the distribution.
RIGHTS OF INSPECTION. The CGCL permits a shareholder or shareholders holding
at least five percent of the outstanding voting shares of a corporation to
inspect and copy the shareholder list and/or obtain a shareholder list from
the transfer agent of the corporation.
The NCBCA permits any shareholder to inspect and copy the shareholder list
if (i) the shareholder's demand to inspect or copy is made in good faith and
for a proper purpose, spelled out with particularity, and (ii) the shareholder
list is directly related to such purpose.
DISSENTERS' RIGHTS. Holders of DPRC Common Stock who do not vote in favor of
the Merger, by complying with Chapter 13 of the CGCL, will, under certain
circumstances, have certain rights to dissent and to require DPRC to purchase
their DPRC Common Stock for cash at fair market value. See "The Merger--Rights
of DPRC Dissenting Shareholders".
Holders of SPC Common Stock who do not vote in favor of the Merger, by
complying with Article 13 of the NCBCA, have certain rights to dissent and to
require SPC to purchase their SPC Common Stock for cash at fair market value.
See "The Merger--"Rights of SPC Dissenting Shareholders".
66
<PAGE>
DPRC SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data set forth below as of and for the
fiscal years ended July 31, 1994, 1995, 1996, 1997 and 1998 have been derived
from the audited consolidated financial statements of DPRC. The following
information should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
---------------------------------------------
1994 1995 1996(1) 1997(2) 1998(3)
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Revenues........................ $34,165 $49,558 $58,145 $115,022 $210,568
Cost of professional services... 28,047 40,082 45,918 85,979 150,541
------- ------- ------- -------- --------
Gross margin.................... 6,118 9,476 12,227 29,043 60,027
Selling, general and
administrative expenses(4)..... 5,581 5,769 6,719 18,654 39,434
------- ------- ------- -------- --------
Operating income(4)............. 537 3,707 5,508 10,389 20,593
Interest income (expense), net.. (401) (764) (162) 869 (382)
------- ------- ------- -------- --------
Income before provision for
income taxes................... 136 2,943 5,346 11,258 20,211
Provision for income taxes...... 56 1,205 2,096 4,542 8,949
------- ------- ------- -------- --------
Net income(4)................... $ 80 $ 1,738 $ 3,250 $ 6,716 $ 11,262
======= ======= ======= ======== ========
Net income per share--basic(5).. $ 0.01 $ 0.43 $ 0.61 $ 0.74 $ 1.00
======= ======= ======= ======== ========
Net income per share--
diluted(5)..................... $ 0.01 $ 0.38 $ 0.54 $ 0.71 $ 0.96
======= ======= ======= ======== ========
Weighted average common shares
outstanding--basic(5).......... 6,323 4,000 5,314 9,090 11,242
======= ======= ======= ======== ========
Weighted average common shares
outstanding--diluted(5)........ 6,323 4,580 6,039 9,460 11,696
======= ======= ======= ======== ========
OTHER CONSOLIDATED FINANCIAL DA-
TA:
EBITDA(6)....................... $ 609 $ 3,790 $ 5,716 $ 12,036 $ 24,959
Cash flow provided by (used in)
operating activities........... $ (804) $ 2,130 $ 1,787 $ 2,857 $ 6,589
Cash flow provided by (used in)
investing activities........... $ (441) $ 108 $(9,397) $(46,275) $(97,105)
Cash flow provided by (used in)
financing activities........... $ 1,243 $(2,015) $29,217 $ 39,375 $113,285
<CAPTION>
AS OF JULY 31,
---------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....... $ 25 $ 248 $21,855 $ 17,812 $ 40,581
Working capital................. 267 1,833 26,901 30,180 114,074
Total assets.................... 5,638 7,623 44,029 110,287 264,843
Total debt(7)................... 8,555 5,146 -- -- 111,288
Series A Convertible Preferred
Stock(8)....................... -- 1,485 -- -- --
Shareholders' equity
(deficit)(8)(9)(10)(11)........ (4,524) (2,878) 40,036 99,659 121,673
</TABLE>
- --------
(1) The statement of income and balance sheet data include the results of
operations and acquired net assets of the Company and AD&D beginning July
1, 1996.
(2) The statement of income and balance sheet data include the results of
operations and acquired net assets of the Company and PSC beginning
November 27, 1996, Leardata beginning January 7, 1997, Computec beginning
April 30, 1997, and SelecTech beginning July 11, 1997.
(3) The statement of income and balance sheet data include the results of
operations and acquired net assets of the Company and S/3/G Inc. beginning
January 28, 1998, and EXi Corp. beginning May 21, 1998. See "Unaudited Pro
Forma Consolidated Statement of Income Data."
67
<PAGE>
(4) Selling, general and administrative expenses for fiscal 1994 include
management fees of $586,000, which were paid to a management company
controlled by one of the founders of DPRC. This management fee was
terminated in February 1994 upon the redemption of such founder's
ownership interest in DPRC. Selling, general and administrative expenses
for fiscal 1994 and 1995 also include compensation paid to Ms. Weaver of
$1.7 million and $921,000, respectively. Effective March 1995, Ms.
Weaver's annual compensation was significantly reduced.
(5) In the second quarter of 1998, DPRC adopted SFAS No. 128, "Earnings Per
Share." In accordance with SFAS No. 128, net income per share for all
years has been restated. Basic net income per share is computed using the
weighted average number of common shares outstanding during the reporting
period. Diluted net income per share is computed using the weighted
average number of common shares outstanding and the dilutive effect of
stock options and convertible preferred stock.
(6) EBITDA represents the sum of operating income and depreciation and
amortization. EBITDA is not intended to represent cash flows from
operations as defined by GAAP and should not be considered as an
alternative to net income as an indicator of DPRC's operating performance
or to cash flow as a measure of liquidity. EBITDA is included herein as it
is a basis upon which DPRC assesses its financial performance and its
ability to service indebtedness.
(7) On March 24, 1998, the Company completed the sale of $115.0 million of its
convertible subordinated Notes due 2005. The notes were recorded net of a
discount and issue costs of $3,950,000, which will be amortized over seven
years based on the effective interest method.
(8) The outstanding shares of Series A Convertible Preferred Stock were
subject to mandatory redemption by DPRC 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 DPRC Common Stock immediately prior to the consummation
of the initial public offering of DPRC's Common Stock in March 1996.
(9) DPRC recorded a charge to retained earnings of $4.8 million in February
1994 in connection with the redemption of all shares of DPRC Common Stock
not owned by Ms. Weaver.
(10) In January 1997, the Company completed a second public offering of
2,395,000 shares of its Common Stock at an offering price of $17.50 per
share for net proceeds of $38.9 million.
(11) In March 1996, the Company completed an initial public 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.
68
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
On June 16, 1998, DPRC entered into an agreement, which was amended on
October 13, 1998 and October 20, 1998, to acquire SPC by merger of a wholly
owned subsidiary of DPRC into SPC. The following unaudited pro forma
consolidated statements of income for each of the three years in the period
ended July 31, 1998 have been prepared as if the Merger had occurred at the
beginning of each period presented. The pro forma consolidated balance sheet
as of July 31, 1998 has been prepared as if the Merger had occurred on July
31, 1998. The pro forma consolidated data is based on the separate historical
consolidated financial statements of DPRC and SPC giving effect to the Merger
under the assumptions and adjustments outlined in the accompanying Notes to
Unaudited Pro Forma Consolidated Financial Statements. The unaudited pro forma
consolidated financial statements are provided for comparative purposes only
and are not necessarily indicative of the results that would have been
obtained had the Merger occurred on the dates indicated or that may be
achieved in the future.
All applicable periods in the unaudited pro forma consolidated statements of
income are being presented utilizing DPRC's estimate of the Exchange Ratio of
6.04 expected to be calculated as of the closing of the Merger. Additionally,
the notes to the unaudited pro forma consolidated statements of income also
illustrate the impact of a likely range of Exchange Ratios since the amount of
deductions for certain costs and liabilities assumed by DPRC cannot be
determined until the closing of the Merger. Consequently, it is anticipated
that each share of outstanding SPC Common Stock will be converted in the
Merger into the right to receive between approximately 5.50 and 6.40 shares of
DPRC Common Stock. For further explanation of the underlying assumptions
supporting the range of the Exchange Ratio see "The Merger--The Merger
Agreement."
The unaudited pro forma consolidated statement of income for the year ended
July 31, 1998 also reflects DPRC's acquisition of S3G, Inc., a purchase
effective January 27, 1998, as if this transaction had taken place August 1,
1997. The acquisition of EXi, Inc. by DPRC, a purchase transaction effective
May 21, 1998, is not included since the transaction was not a significant
acquisition.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the separate audited consolidated financial statements of
DPRC and SPC.
69
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JULY 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
DPRC SPC COMBINED ADJUSTMENTS COMBINED
-------- -------- -------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash
equivalents............. $ 40,581 $ 300 $ 40,881 $ -- $ 40,881
Investments, available
for sale................ 59,969 -- 59,969 -- 59,969
Accounts receivable, net. 39,310 8,793 48,103 -- 48,103
Prepaid expenses and
other current assets.... 4,601 135 4,736 -- 4,736
Deferred tax asset....... 711 -- 711 -- 711
-------- -------- -------- -------- --------
Total current assets.... 145,172 9,228 154,400 -- 154,400
Property, net............ 4,092 353 4,445 -- 4,445
Deferred taxes........... -- 827 827 -- 827
Other assets............. 757 163 920 -- 920
Intangible assets, net... 114,822 -- 114,822 -- 114,822
-------- -------- -------- -------- --------
$264,843 $ 10,571 $275,414 $ -- $275,414
======== ======== ======== ======== ========
<CAPTION>
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and
accrued liabilities..... $ 29,793 $ 2,340 $ 32,133 $ 2,000 (a) $ 34,133
Income taxes payable..... 1,305 -- 1,305 (800)(b) 505
Line of credit........... -- 2,522 2,522 -- 2,522
-------- -------- -------- -------- --------
Total current
liabilities............ 31,098 4,862 35,960 1,200 37,160
Deferred income taxes.... 784 -- 784 -- 784
Long-term debt........... 111,288 -- 111,288 -- 111,288
-------- -------- -------- -------- --------
143,170 4,862 148,032 1,200 149,232
Redeemable Common Stock
held by Stock Bonus
Plan.................... -- 11,891 11,891 (11,891)(c) --
SHAREHOLDERS' EQUITY:
Preferred stock.......... -- -- -- -- --
Common stock............. 99,672 5,976 105,648 1,025 106,673
Deferred compensation
associated with
performance-vesting
options................. -- (1,553) (1,553) -- (1,553)
Additional paid-in-
capital................. 3,748 -- 3,748 -- 3,748
Retained earnings
(deficit)............... 18,253 (10,605) 7,648 (2,000)(a) 17,314
800 (b) --
10,866 (c)
-------- -------- -------- -------- --------
Total shareholders'
equity (deficit)....... 121,673 (6,182) 115,491 10,691 126,182
-------- -------- -------- -------- --------
$264,843 $ 10,571 $275,414 $ -- $275,414
======== ======== ======== ======== ========
</TABLE>
- --------
(a) The adjustment represents the estimated costs to be incurred in
connection with the merger of DPRC and SPC.
(b) The adjustment represents the additional income tax effect associated
with the corresponding unaudited pro forma adjustments.
(c) The adjustment represents the lapsing of the redemption feature
associated with the common stock held by the SPC Stock Bonus Plan. This
redemption feature lapses upon the issuance of DPRC's common stock in
exchange for shares held by the plan upon consummation of the merger.
70
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA
FOR THE YEAR ENDED JULY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SPC PRO PRO S3G PRO PRO
FORMA FORMA S3G FORMA FORMA
DPRC SPC COMBINED ADJUSTMENTS SUBTOTAL (A) ADJUSTMENTS TOTAL
-------- ------- -------- ----------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $210,568 $52,379 $262,947 $ -- $262,947 $7,343 $ -- $270,290
Cost of professional
services............... 150,541 32,833 183,374 -- 183,374 3,020 -- 186,394
-------- ------- -------- ------- -------- ------ ------- --------
Gross margin............ 60,027 19,546 79,573 -- 79,573 4,323 -- 83,896
Selling, general and
administrative
expenses............... 39,434 17,113 56,547 (1,861)j 55,086 3,661 640 b 57,687
400 h (1,700)f
Compensation expense
associated with
performance-vesting
options................ -- 2,175 2,175 (2,175) -- -- -- --
-------- ------- -------- ------- -------- ------ ------- --------
Operating income........ 20,593 258 20,851 3,636 24,487 662 1,060 26,209
Interest expense, net... (382) (135) (517) -- (517) (2) (954)c (1,473)
-------- ------- -------- ------- -------- ------ ------- --------
Income before provision
for income taxes....... 20,211 123 20,334 3,636 23,970 660 106 24,736
Provision for income
taxes.................. 8,949 66 9,015 1,366 g 10,381 53 288 d 10,722
-------- ------- -------- ------- -------- ------ ------- --------
Net income.............. $ 11,262 $ 57 $ 11,319 $ 2,270 $ 13,589 $ 607 $ (182) $ 14,014
======== ======= ======== ======= ======== ====== ======= ========
Net income per share--
basic (i).............. $ 1.00 .86 $ 1.06
======== ======== ========
Net income per share--
diluted (i)............ $ 0.96 .78 $ 0.96
======== ======== ========
Weighted average common
shares--basic (e)...... 11,242 13,093 13,195
Weighted average common
shares--diluted (e).... 11,696 14,473 14,575
</TABLE>
- -------
(a) The unaudited pro forma condensed consolidated statement of income data
for the year ended July 31, 1998 includes the results of operations of
S3G for the period from August 1, 1997 through January 27, 1998, the date
of such acquisition.
(b) The adjustment represents the additional amortization related to goodwill
and non-compete covenants acquired with the purchase of S3G assuming such
acquisition had occurred as of August 1, 1997.
(c) The adjustment represents the reduction of interest income of $234,000
(based on an interest rate of 3.5%, which approximates the rate of
interest DPRC has historically received on its investment portfolio) and
additional interest expense of $720,000 (based on an interest rate of
6.625%, which is consistent with DPRC's borrowing rate on its line of
credit) associated with the purchase of S3G assuming such acquisition had
occurred as of August 1, 1997. A 1/8% change in the interest rates would
cause interest income to fluctuate by $8,000 and interest expense to
fluctuate by $18,000.
(d) The adjustment represents the additional income tax effect associated
with the acquisition of S3G and the corresponding unaudited pro forma
adjustments.
(e) The pro forma basic and diluted weighted average number of common shares
outstanding assuming the merger with SPC and the acquisition of S3G had
occurred as of August 1, 1997. Based on the weighted average common
shares of SPC as of July 31, 1998, and assuming the Exchange Ratio of
6.04, DPRC estimates that 2,094,000 shares of DPRC common stock would
have been issued as of July 31, 1998. In addition, the weighted average
effect of the proforma basic and diluted weighted average number of
common shares outstanding includes 102,000 shares of DPRC common stock
that were issued in the purchase of S3G in January 1998. The diluted
weighted average number of shares of common stock outstanding gives
effect to both the average number of shares of common stock outstanding
and the calculation, based on the treasury stock method, of the number of
common stock equivalent shares outstanding resulting from the issuance of
stock options.
(f) The adjustment represents the reduction of excess payroll costs above
amounts stipulated in employment agreements.
(g) The adjustment represents the additional income tax effect associated
with the corresponding unaudited pro forma adjustment.
(h) The adjustment represents the additional payments to be made in
connection with the covenant not-to-compete agreement.
(i) Basic and diluted net income per share have been presented utilizing
DPRC's estimate of the Exchange Ratio of 6.04. Assuming an Exchange Ratio
of 5.50, the basic and diluted pro forma net income per share for the
year ended July 31, 1998 would have been $1.08 and $0.98, respectively.
Assuming an Exchange Ratio of 6.40 the basic and diluted pro forma net
income per share for the year ended July 31, 1998 would have been $1.05
and $0.95, respectively. See "Summary--Comparative Per Share Data." A
$500,000 increase or decrease in the amount of deductions has less than a
1% effect on the exchange rate. Such change in deductions has an
insignificant impact on the pro forma equivalent amounts.
(j) The adjustment represents the reduction of payroll costs paid to four key
employees of SPC. Effective with the consummation of the Merger,
compensation to these individuals will be significantly reduced due to
individual employment agreements which contractually limit base salary to
$125,000 per annum and incentive bonus to a maximum of $50,000 per annum.
71
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA
FOR THE YEAR ENDED JULY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DPRC SPC TOTAL
-------- ------- ---------
<S> <C> <C> <C>
Revenues.......................................... $115,022 $32,811 $147,833
Cost of professional services..................... 85,979 23,206 109,185
-------- ------- --------
Gross margin...................................... 29,043 9,605 38,648
Selling, general and administrative expenses...... 18,654 9,125 c 27,779
-------- ------- --------
Operating income.................................. 10,389 480 10,869
Interest income (expense), net.................... 869 (87) 782
-------- ------- --------
Income before provision for income taxes.......... 11,258 393 11,651
Provision for income taxes........................ 4,542 219 4,761
-------- ------- --------
Net income........................................ 6,716 174 6,890
Less preferred stock dividends.................... -- (55) (55)
-------- ------- --------
Net income available to common shareholders....... $ 6,716 $ 119 $ 6,835
======== ======= ========
Net income per share--basic(a)(b)................. $ 0.74 $ 0.64
======== ========
Net income per share--diluted(a)(b)............... $ 0.71 $ 0.58
======== ========
Weighted average common shares--basic............. 9,090 10,762
Weighted average common shares--diluted........... 9,460 11,735
</TABLE>
- --------
(a) The pro forma basic and diluted weighted average number of common shares
outstanding assuming the merger with SPC had occurred as of August 1,
1996. Based on the weighted average common shares of SPC as of July 31,
1997, and assuming the Exchange Ratio of 6.04, DPRC estimates that
1,672,000 shares of DPRC common stock would have been issued as of July
31, 1997. The diluted weighted average number of shares of common stock
outstanding gives effect to both the average number of shares of common
stock outstanding and the calculation, based on the treasury stock method,
of the number of common stock equivalent shares outstanding resulting from
the issuance of stock options.
(b) Basic and diluted net income per share have been presented utilizing
DPRC's estimate of the Exchange Ratio of 6.04. Assuming an Exchange Ratio
of 5.50 the basic and diluted pro forma net income per share for the year
ended July 31, 1997 would have been $0.64 and $0.59, respectively.
Assuming an Exchange Ratio of 6.40 the basic and diluted pro forma net
income per share for the year ended July 31, 1997 would have been $0.63
and $0.58, respectively. See "Summary--Comparative Per Share Data". A
$500,000 increase or decrease in the amount of deductions has less than a
1% effect on the exchange rate. Such change in deductions has an
insignificant impact on the pro forma equivalent amounts.
(c) Selling, general and administrative expenses include compensation paid to
four key employees of SPC of $2,465,000. Effective with the consummation
of the Merger, compensation to these individuals will be significantly
reduced due to individual employment agreements which contractually limit
base salary to $125,000 per annum and incentive bonus to a maximum of
$50,000 per annum.
72
<PAGE>
DATA PROCESSING RESOURCES CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME DATA
FOR THE YEAR ENDED JULY 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
DPRC SPC COMBINED
------- ------- ---------
<S> <C> <C> <C>
Revenues........................................... $58,145 $22,955 $81,100
Cost of professional services...................... 45,918 14,425 60,343
------- ------- -------
Gross margin....................................... 12,227 8,530 20,757
Selling, general and administrative expenses....... 6,719 8,119 b 14,838
------- ------- -------
Operating income................................... 5,508 411 5,919
Interest income (expense), net..................... (162) (121) (283)
------- ------- -------
Income before provision for income taxes........... 5,346 290 5,636
Provision for income taxes......................... 2,096 176 2,272
------- ------- -------
Net income......................................... 3,250 114 3,364
Less preferred stock dividends..................... -- (49) (49)
------- ------- -------
Net income available for common shareholders....... $ 3,250 $ 65 $ 3,315
======= ======= =======
Net income per share--basic(c)..................... $ 0.61 $ 0.48
======= =======
Net income per share--diluted(c)................... $ 0.54 $ 0.44
======= =======
Weighted average common shares--basic(a)........... 5,314 6,861
Weighted average common shares--diluted(a)......... 6,039 7,586
</TABLE>
- --------
(a) The pro forma basic and diluted weighted average number of common shares
outstanding assuming the Merger occurred as of August 1, 1995. Based on
the weighted average common shares of SPC as of July 31, 1996, and
assuming the Exchange Ratio of 6.04, DPRC estimates that 1,547,000 shares
of DPRC common stock would have been issued as of July 31, 1996.
(b) Selling, general and administrative expenses include compensation paid to
four key employees of SPC of $1,161,000. Effective with the consummation
of the Merger, compensation to these individuals will be significantly
reduced due to individual employment agreements which contractually limit
base salary to $125,000 per annum and incentive bonus to a maximum of
$50,000 per annum.
(c) Basic and diluted net income per share have been presented utilizing
DPRC's estimate of the Exchange Ratio of 6.04. Assuming an Exchange Ratio
of 5.50, the basic and diluted pro forma net income per share for the
year ended July 31, 1996 would have been $0.49 and $0.45, respectively.
Assuming an Exchange Ratio of 6.40, the basic and diluted pro forma net
income per share for the year ended July 31, 1996 would have been $0.48
and $0.43, respectively. See "Summary--Comparative Per Share Data." A
$500,000 increase or decrease in the amount of deductions has less than a
1% effect on the exchange rate. Such change in deductions has an
insignificant impact on the pro forma equivalent amounts.
73
<PAGE>
BUSINESS OF SPC
SPC, founded in 1980, is headquartered in Charlotte, North Carolina and
provides IT services, including contract resources, custom solutions, software
services and systems integration, to Fortune 500 organizations as well as
regional companies throughout the Southeast. SPC has branch offices in
Atlanta, Georgia, Charlotte, North Carolina, Dallas, Texas, Nashville,
Tennessee, Raleigh, North Carolina, Richmond, Virginia, St. Louis, Missouri
and Tampa, Florida and has targeted locations in the Northeast, Southeast and
Southwest for the opening of additional branch offices. Only the Dallas, Texas
and St. Louis, Missouri offices of SPC are located in areas in which DPRC
currently has offices.
SPC's strategy to date has been to grow internally by providing services of
the highest quality and responding to its clients' changing technological
needs. SPC's rigorous recruiting process is designed to locate and retain top
candidates in the industry. These candidates are screened for their technical
skills and their ability to fit within the culture of SPC. SPC's national
recruiting organization supplements the local branch office recruiting efforts
by providing such branches with additional employee candidates and assisting
them in overall recruiting efforts. In this manner, a more uniform skill level
for technical consultants is distributed throughout SPC's geographical
markets. SPC's national recruiting organization is expected to complement
DPRC's national recruiting organization.
Once a consultant is hired, SPC continues to support its quality objectives
by providing quality plan reviews and feedback to the consultants. SPC has a
formal training plan that was developed and is updated by a professional
development committee. SPC has developed a training infrastructure that
provides dedicated resources such as a training coordinator and a state-of-
the-art training room with high-end PCs. SPC's top technical professionals are
employed to develop and teach courses. SPC currently has approximately 500
technical professionals comprised of project managers/business
analysts/consultants, database administrators/tech leads, senior
programmers/analysts, programmers/analysts and programmers in addition to its
administrative staff.
SPC has approximately 135 active clients across many industries with
concentrations in financial services, telecommunications, manufacturing and
information technology. SPC's five largest accounts comprised approximately
56.0% of total revenue for the eight month period ending August 31, 1998 and
its two largest customers, NationsBank and First Union National Bank,
accounted for 24.7% and 16.6%, respectively, of such revenue. See "Risk
Factors--Dependence on Certain Clients; Industry and Geographic
Concentration." SPC's expansive network of contacts throughout the technical
community alerts SPC to changes in the marketplace and opportunities for SPC's
clients and employees. Working closely with clients in the conceptual planning
and analysis phases of new opportunities allows SPC to timely respond to needs
for contract personnel. The combination of providing quality services in a
timely and responsive manner has led to the development of long-term
relationships between SPC and many of its clients.
In 1990, SPC established a "solutions" division to develop proprietary
software products for the financial institution and publishing markets. The
capital expenditures made to develop these products exhausted SPC's cash
resources before an adequate revenue stream could be achieved from the sale of
the software. On December 29, 1994, SPC filed a voluntary petition for
bankruptcy relief under Chapter 11 of the United States Bankruptcy Code. In
May 1995, SPC sold its major proprietary software product and discontinued its
solutions division. On the strength of SPC's core business of providing
information systems consulting and training, CIT Group/Business Credit, Inc.,
SPC's pre-petition lender, agreed to continue financing SPC's operations under
a post-petition financing agreement which provided for a $2.0 million secured
credit facility so long as SPC's plan of reorganization was approved by its
creditors and the court. On October 6, 1995, SPC's plan of reorganization was
confirmed and the case was closed by order of the court dated May 16, 1996.
See "SPC Management's Discussion and Analysis of Financial Condition and
Results of Operations."
SPC was incorporated as a South Carolina corporation in 1980 and became a
North Carolina corporation in 1992. Its principal executive offices are
located at 212 South Tryon, Suite 700, Charlotte, North Carolina 28281. SPC's
telephone number is (704) 348-9000.
74
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SPC
The number and percentage of shares of SPC Common Stock owned beneficially
by (a) any person who is known to SPC to be the beneficial owner of more than
5% of SPC Common Stock, (b) each SPC director, and (c) all SPC directors and
officers as a group, as well as the number and percentage of shares of DPRC
Common Stock to be owned beneficially by each such person and group following
the Merger pursuant to the terms of the Merger Agreement, is set forth below.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
OF SPC OF DPRC PERCENTAGE OF
COMMON STOCK PERCENTAGE OF COMMON STOCK OUTSTANDING
BENEFICIALLY OUTSTANDING SPC OWNED AFTER DPRC COMMON
NAME OWNED COMMON STOCK MERGER(1) STOCK(1)
---- ---------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C>
Richard Carlisle,
Director and
Officer(2)............. 180,189 46.5% 1,088,342 9.2%
Thomas Carlisle,
Director and
Officer(3)............. 180,203 46.6% 1,088,426 9.2%
Jeffery Carter, Director
and Officer(4)......... 44,259 12.6% 267,324 2.3%
Robert Gallagher,
Director and
Officer(5)............. 43,559 12.3% 263,096 2.2%
All Directors and
Officers as a Group
(4 persons)............ 448,210 91.1% 2,707,188 23.0%
</TABLE>
- --------
(1) Assumes that 6.04 shares of DPRC Common Stock will be issued in the Merger
for each share of SPC Common Stock.
(2) Includes 58,269 shares of SPC Common Stock under a presently exercisable
SPC Time-Vesting Option which, if not exercised prior to the Effective
Date, will become an option to purchase 351,945 shares of DPRC Common
Stock and 12,551 shares of SPC Common Stock held of record by SPC's Stock
Bonus Plan for the benefit of Richard Carlisle. Also includes 18,226
shares of SPC Common Stock held of record by RKC Investments Limited
partnership in which Mr. Carlisle is a general partner and may be deemed
to be a beneficial owner of the shares held by such entity.
(3) Includes 57,948 shares of SPC Common Stock under a presently exercisable
SPC Time-Vesting Option which, if not exercised prior to the Effective
Date, will become an option to purchase 350,006 shares of DPRC Common
Stock and 12,565 shares of SPC Common Stock held of record by SPC's Stock
Bonus Plan for the benefit of Thomas Carlisle. Also includes 18,278 shares
of SPC Common Stock held of record by TEC Investments Limited Partnership
in which Mr. Carlisle is a general partner and may be deemed to be a
beneficial owner of the shares held by such entity.
(4) Includes 20,735 shares of SPC Common Stock under a presently exercisable
Option which, if not exercised prior to the Effective Date, will become an
option to purchase 125,239 shares of DPRC Common Stock and 2,296 shares of
SPC Common Stock held of record by SPC's Stock Bonus Plan for the benefit
of Jeffery Carter.
(5) Includes 25,661 shares of SPC Common Stock under a presently exercisable
Option which, if not exercised prior to the Effective Date, will become an
option to purchase 154,992 shares of DPRC Common Stock and 1,596 shares of
SPC Common Stock held of record by SPC's Stock Bonus Plan for the benefit
of Robert Gallagher.
75
<PAGE>
SELECTED FINANCIAL DATA OF SPC
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data set forth below as of and for the
years ended December 31, 1994, 1995, 1996, and 1997 have been derived from the
audited consolidated financial statements of SPC. The selected consolidated
financial data as of July 31, 1998 and for the year ended December 31, 1993
and the seven months ended July 31, 1997 and 1998 have been derived from the
unaudited consolidated financial statements of SPC, which include all
adjustments (consisting only of normal recurring adjustments) which SPC
considers necessary for a fair presentation of the results of operations for
the period presented. The results of operations for the seven months ended
July 31, 1998 are not necessarily indicative of results that may be expected
for SPC's year ending December 31, 1998. The following information should be
read in conjunction with the financial statements and notes thereto included
elsewhere in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
SEVEN MONTHS
FISCAL YEAR ENDED DECEMBER 31, ENDED JULY 31,
------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $14,015 $16,981 $19,685 $26,385 $39,285 $20,814 $33,919
Cost of professional
services............... 10,021 12,856 13,618 17,906 27,546 14,809 24,100
------- ------- ------- ------- ------- ------- -------
Gross margin............ 3,994 4,125 6,067 8,479 11,739 6,005 9,819
Selling, general and
administrative
expenses(1)............ 3,856 4,957 5,518 7,534 11,378 5,891 7,632
Compensation expense
associated with
Performance-Vesting
Options(4)............. -- -- -- -- -- -- 2,175
------- ------- ------- ------- ------- ------- -------
Operating income........ 138 (832) 549 945 361 114 12
Interest expense, net... (125) (224) (216) (68) (126) (61) (78)
------- ------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes.................. 13 (1,056) 333 877 235 53 (66)
Provision for income
taxes.................. 1 (108) 2 300 162 14 (1)
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... 12 (948) 331 577 73 39 (65)
Less preferred stock
dividends.............. 0 0 (15) (68) (21) (21) 0
------- ------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
shareholders........... $ 12 $ (948) $ 316 $ 509 $ 52 $ 18 $ (65)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share--basic(3)........ $ 0.05 $ (4.09) $ 1.29 $ 1.99 $ 0.19 $ 0.07 $ (0.20)
======= ======= ======= ======= ======= ======= =======
Net income (loss) per
share--diluted(3)...... $ 0.05 $ (4.09) $ 1.29 $ 1.99 $ 0.17 $ 0.06 $ (0.20)
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares
outstanding--basic..... 222 232 245 256 277 277 328
Weighted average common
shares
outstanding--diluted... 222 232 245 256 311 299 328
OTHER FINANCIAL DATA:
EBITDA(2)............... $ 196 $ (694) $ 616 $ 1,018 $ 439 $ 159 $ 52
Cash flow provided by
(used in) operating
activities............. $ (298) $ 1,226 $ (105) $ 1,066 $(1,812) $(1,510) $(1,409)
Cash flow provided by
(used in) investing
activities............. $(1,142) $ (966) $ 648 $ (54) $ (38) $ (68) $ 237
Cash flow provided by
(used in) financing
activities............. $ 1,154 $ (97) $ (595) $ (275) $ 1,001 $ 733 $ 1,472
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997 AS OF JULY 31, 1998
------- ------- ------- ------- ------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ -- $ 163 $ 112 $ 849 $ -- $ 300
Working capital
(deficit).............. (277) 329 1,071 1,548 2,682 4,366
Total assets............ 4,087 4,273 3,361 4,736 7,126 10,571
Total debt.............. 2,023 1,927 719 542 1,016 2,522
Redeemable common stock
held by SPC Stock Bonus
Plan................... -- 896 1,082 1,549 2,699 11,891
Preferred stock......... -- -- 680 680 -- --
Shareholders' equity
(deficit).............. 1,122 (605) 303 515 751 (6,182)
</TABLE>
- -------
(1) Selling, general and administrative expenses for fiscal 1996 and 1997 and
the seven months ended July 31, 1998 include compensation paid to four
key employees of SPC of $1,686,000, $2,969,000 and $714,000,
respectively. Effective with the consummation of the Merger, compensation
to these individuals will be significantly reduced.
76
<PAGE>
(2) EBITDA represents the sum of operating income and depreciation and
amortization. EBITDA is not intended to represent cash flows from
operations as defined by GAAP and should not be considered as an
alternative to net income as an indicator of SPC's operating performance
or to cash flow as a measure of liquidity. EBITDA is included herein as
it is a basis upon which SPC assesses its financial performance and its
ability to service indebtedness.
(3) Net income (loss) per share is computed in accordance with SFAS No. 128,
"Earnings per Share." Basic net income (loss) per share is computed by
dividing net income available to common shareholders by the weighted
average number of common shares outstanding during the reporting period.
Diluted net income (loss) per share is computed by dividing net income
available to common shareholders by the weighted average number of common
shares outstanding and the dilutive effect of stock options.
(4) Amount represents the estimated value of Performance-Vesting Options
which vest upon achievement of certain performance goals. Such options
have been accounted for as variable stock options for which compensation
is recognized based on the value of the underlying stock to be received.
77
<PAGE>
SPC MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
After emerging from Chapter 11 reorganization under the federal bankruptcy
laws on December 29, 1994, SPC has experienced significant growth in the
results of operations and its financial position primarily through a
combination of opening new branch offices, redirecting resources from product
development to consulting services, and receiving preferred vendor status with
regard to several major clients. Since 1995, SPC has opened new branch offices
in Raleigh, North Carolina (1996), Dallas, Texas (1996), Richmond, Virginia
(1997), and St. Louis, Missouri (1997). SPC presently serves its clients out
of eight branch offices located in seven states.
As a result of emergence from its 1994 bankruptcy filing, SPC shut down its
proprietary software development department and reassigned most of the
software development department staff to billable consulting work.
Consequently, by the end of the second quarter of 1995, SPC's revenues, cash
flows, and profitability showed significant improvement. Subsequent quarterly
trends continued to provide stronger operational cash flows and a reduction of
the net borrowings under the SPC accounts receivable credit line with CIT
Group/Business Credit, Inc. (the "Credit Facility"). Furthermore, as of
December 31, 1995, SPC had reduced its borrowings to the minimum required
balance under the Credit Facility.
SPC recognizes all revenue at the hourly billing rates of its technical
consultants upon providing such service. Hourly billing rates are determined
according to the skill level of the technical consultant on assignment and are
individually negotiated with each client. SPC employs both salaried and hourly
consultants in providing IT staffing services to its clients. Whereas salaried
consultants receive benefits in conjunction with various plans sponsored by
SPC, SPC's hourly consultants are not entitled to receive such benefits.
SPC has approximately 135 active clients across many industries with
concentrations in financial services, telecommunications, manufacturing and
information technology. SPC's five largest accounts comprised approximately
56.0% of total revenue for the eight month period ending August 31, 1998 and
its two largest customers, NationsBank and First Union National Bank,
accounted for 24.7% and 16.6%, respectively, of such revenue. A significant
increase or decrease in demand of SPC's services by a large client could have
a substantial effect on SPC's revenues.
78
<PAGE>
RESULTS OF OPERATIONS
The following table presents certain selected financial information derived
from SPC's audited financial statements for the years ended December 31, 1995,
1996, and 1997 and certain unaudited selected interim financial information
for the seven months ended July 31, 1997 and 1998. In the opinion of SPC's
management, the unaudited selected interim financial information has been
prepared on the same basis as the selected financial information derived from
SPC's audited financial statements and includes all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the
unaudited results set forth herein. The unaudited selected interim financial
information is subject to fluctuations, and thus, the unaudited operating
results set forth herein are not necessarily indicative of results for any
future period.
SELECTED STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
SEVEN MONTHS SEVEN MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------- JULY 31, JULY 31,
1995 1996 1997 1997 1998
------- ------- ------- ------------ ------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................. $19,685 $26,385 $39,285 $20,814 $33,919
Cost of professional
services................ 13,618 17,906 27,546 14,809 24,100
------- ------- ------- ------- -------
Gross margin............. 6,067 8,479 11,739 6,005 9,819
Selling, general, and
administrative expenses. 5,518 7,534 11,378 5,891 7,632
Compensation expense
associated with
Performance-Vesting
Options................. 2,175
------- ------- ------- ------- -------
Operating income......... 549 945 361 114 12
Interest expense......... (216) (68) (126) (61) (78)
------- ------- ------- ------- -------
Income before provision
(benefit) for income
taxes................... 333 877 235 53 (66)
Provision (benefit) for
income taxes............ 2 300 162 14 (1)
------- ------- ------- ------- -------
Net income (loss)........ 331 577 73 39 (65)
Less preferred stock
dividends............... (15) (68) (21) (21) --
------- ------- ------- ------- -------
Net income (loss)
applicable to common
shareholders............ $ 316 $ 509 $ 52 $ 18 $ (65)
======= ======= ======= ======= =======
Net income (loss) per
common share:
Basic.................. $ 1.29 $ 1.99 $ 0.19 $ 0.07 $ (0.20)
======= ======= ======= ======= =======
Diluted................ $ 1.29 $ 1.99 $ 0.17 $ 0.06 $ (0.20)
======= ======= ======= ======= =======
Weighted Average Shares
used in the calculation
of net income (loss) per
common share:
Basic.................. 245 256 277 277 328
Diluted................ 245 256 311 299 328
</TABLE>
The following table sets forth the percentage of revenues by certain items
in SPC's statement of income for the indicated periods:
SELECTED STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
YEAR ENDED SEVEN MONTHS SEVEN MONTHS
DECEMBER 31, ENDED ENDED
--------------------- JULY 31, JULY 31,
1995 1996 1997 1997 1998
----- ----- ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues..................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of professional
services.................... 69.2% 67.9% 70.1% 71.1% 71.1%
----- ----- ----- ----- -----
Gross margin................. 30.8% 32.1% 29.9% 28.9% 28.9%
Selling, general, and
administrative expenses..... 28.0% 28.5% 29.0% 28.3% 22.5%
Compensation expense
associated with Performance-
Vesting Options............. 6.4%
----- ----- ----- ----- -----
Operating income............. 2.8% 3.6% 0.9% 0.6% 0.0%
Interest expense............. (1.1%) (0.3%) (0.3%) (0.3%) (0.2%)
----- ----- ----- ----- -----
Income before provision
(benefit) for income taxes.. 1.7% 3.3% 0.6% 0.3% (0.2%)
Provision (benefit) for
income taxes................ -- 1.1% 0.4% 0.1% 0.0%
----- ----- ----- ----- -----
Net income (loss)............ 1.7% 2.2% 0.2% 0.2% (0.2%)
===== ===== ===== ===== =====
</TABLE>
79
<PAGE>
SEVEN MONTHS ENDED JULY 31, 1998 COMPARED TO SEVEN MONTHS ENDED JULY 31, 1997
REVENUES. Revenues increased $13.1 million, or 63%, to $33.9 million for the
seven months ended July 31, 1998, as compared to $20.8 million for the same
prior year period. This increase resulted primarily from an increase in total
billable hours charged to clients which coincided with an increase in the
number of employees in the respective 1997 and 1998 periods and in an
increased demand for SPC's IT staffing services. In addition, SPC had attained
and was acting in the capacity of a preferred vendor for certain key clients
during the seven-month period ended July 31, 1998.
GROSS MARGIN. Gross margin increased $3.8 million, or 63.5%, to $9.8
million, for the seven months ended July 31, 1998, as compared to $6.0 million
for the seven months ended July 31, 1997. The increase in gross margin is due
primarily to the growth in revenue as discussed above. As a percentage of
revenues, gross margin remained steady during the comparative periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense increased approximately $1.7 million, or 29.6%, to $7.6
million for the seven months ended July 31, 1998, as compared to $5.9 million
for the same prior year period in 1997. Selling, general and administrative
expense decreased as a percentage of revenues to 22.5% for the seven months
ended July 31, 1998, as compared to 28.3% for the same prior year period.
Expenses were lower as compared to the prior year due to the higher revenue
growth leveraging fixed expenses as well as lower initial start-up costs on
new branches in 1997, ($313,000) and lower bonus expense incurred in 1998,
($558,000).
COMPENSATION EXPENSE ASSOCIATED WITH PERFORMANCE-VESTING OPTIONS.
Compensation expense related to performance-vesting options for the seven
months ended July 31, 1998 was $2.2 million as compared to zero in the prior
year. The compensation expense reflects the expected vesting of the SPC
Performance-Vesting Options, issued in December 1997, as of July 31, 1998.
Compensation expense related to performance based options is zero in the prior
period as this type of option was not in use in the prior year.
OPERATING INCOME. Operating income decreased approximately $102,000, or 89%
to $12,000 for the seven months ended July 31, 1998 from $114,000 for the same
period in 1997. As a percentage of revenues, operating income decreased to
0.0% for the seven months ended July 31, 1998, as compared to 0.6% for the
prior year period. The decrease in operating income is primarily due to the
compensation expense associated with performance stock options. Operating
income was consistent with the prior year due to the compensation expense
associated with performance-vesting stock options offsetting a $2.1 million
improvement in operating income.
NET INTEREST EXPENSE. SPC had net interest expense of $78,000 for the seven
months ended July 31, 1998, as compared to $61,000 for the same prior year
period. This was a result of the increased borrowings under the accounts
receivable credit line with CIT Group, to provide cash for operations during
the collection period as accounts receivable increased proportionately with
the revenue increase.
INCOME TAXES. Provision for income taxes decreased approximately $15,000, or
107% to reflect an income tax benefit of ($1,000) for the seven months ended
1998, as compared to $14,000 for the same prior year period 1997. This
decrease is directly related to the decrease in operating income principally
caused by the charge of $2.2 million for compensation expense associated with
Performance-Vesting Options. SPC has established a deferred tax asset
associated with the future deduction of this charge for tax return purposes.
SPC has not established a valuation allowance related to this deferred tax
asset because of the profitability of SPC excluding compensation of owners and
the charge for performance vesting options, which are either highly
discretionary or should not occur to the same extent in the future. The
effective income tax rate is lower in the most current period as compared to
the prior period as a result of lower non-deductible expenses.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues increased $12.9 million, or 48.9%, to $39.3 million for
fiscal 1997, as compared to $26.4 million for fiscal 1996. This increase
resulted primarily from an increase in the total billable hours charged
80
<PAGE>
to clients which coincided with an increase in the number of employees from
1996 to 1997, the opening of new offices in mid 1996 and early 1997 and
increased demand for SPC's IT staffing services. SPC opened branch offices in
Raleigh and Dallas in May and June of 1996 whereas the Richmond and St. Louis
branch offices opened in 1997. These new branches contributed $4.8 million of
the total revenue growth.
GROSS MARGIN. Gross margin increased $3.3 million, or 38.4%, to $11.7
million, for fiscal 1997 compared to $8.5 million for fiscal 1996. As a
percentage of revenues, gross margin decreased from 32.1% to 29.9% for fiscal
years 1996 and 1997, respectively. The change in gross margin is attributable
primarily to a modification in the structure of SPC's bonus plan for
professional consultants.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $3.8 million, or 51.0%, to
$11.4 million for fiscal 1997, as compared to $7.5 million for fiscal 1996.
Selling, general and administrative expenses also increased as a percentage of
revenues to 29.0% for fiscal 1997, as compared to 28.5% for fiscal 1996. This
increase is due primarily to the growth in revenue, as well as the increase in
cost related to the start up of new offices ($416,000) and related to the
support for the computer systems ($180,000).
OPERATING INCOME. Operating income decreased approximately $584,000, or
61.8%, to $361,000 for fiscal 1997 from $945,000 for fiscal 1996. As a
percentage of revenues, operating income decreased to 0.9% for fiscal 1997, as
compared to 3.6% for fiscal 1996 reflecting both comparative decreases in
gross margin and increases in selling, general and administrative expenses
offset by operating income contributed by new branch offices.
NET INTEREST EXPENSE. SPC recorded net interest expense of $126,000 and
$68,000 for fiscal 1997 and 1996, respectively. Net interest expense increased
proportionately with borrowings under the Credit Facility which provided the
necessary cash financing to support increased operating levels. Additionally,
the Credit Facility was utilized to supplement 1997 operating cash flows as
SPC's existing cash balances were used to redeem all of its outstanding
preferred stock and fund the start-up costs of new branch offices.
INCOME TAXES. The effective tax rate for fiscal 1997 was 68.5% compared to
34.2% for fiscal 1996. Differences between SPC's effective income tax rate and
the statutory rate relate to certain deductions that result in a permanent
difference between taxable and financial reporting net income or loss.
Additionally, in fiscal 1996 SPC reversed a valuation allowance related to a
deferred tax asset recorded in conjunction with SPC's net operating loss
carryover incurred in fiscal 1994.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased $6.7 million, or 34%, to $26.4 million for
calendar year 1996, as compared to $19.7 million for calendar year 1995. This
increase primarily resulted from an increase in total billable hours charged
to clients which coincided with an increase in the number of employees from
1995 and 1996 and the opening of new offices in mid 1996. The Raleigh branch
office was opened in May 1996 and the Dallas branch office was opened in June
1996. These new branches accounted for approximately $1.3 million of the
increase in revenue. The increases were also due to increased demand in the IT
staffing services market.
GROSS MARGIN. Gross margin increased $2.4 million, or 39.7%, to $8.5
million, for calendar year 1996, as compared to $6.1 million for calendar year
1995. As a percentage of revenues, gross margin increased for calendar year
1996 to 32.1%, as compared to 30.8% for the prior year period. The gross
margin remained steady during this period with a slight increase due to a
concentrated effort in obtaining increased billing rates from clients.
Furthermore, the dissolution of the proprietary software development division
and the reassignment of certain employees with high billing rates to IT
staffing services positively impacted gross margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expense increased approximately $2 million, or 36.5%, to $7.5
million for calendar year 1996, as compared to $5.5 million for calendar year
1995. Selling, general and administrative expenses increased as a percentage
of revenues to 28.5%
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for the calendar year 1996, as compared to 28.0% for the prior year period.
The overall increase is due to the higher revenue as well as an increase in
start up costs related to new branches ($146,000).
OPERATING INCOME. Operating income increased approximately $396,000, or 72%
to $945,000 for the calendar year ended December 31, 1996 from $549,000 for
calendar year 1995. As a percentage of revenues, operating income increased to
3.6% for the calendar year ended December 31, 1996, as compared to 2.8% for
the prior year period. This increase as a percentage of revenues reflects the
improvement in gross margin as a percentage of revenues, and the decrease in
the selling, general and administrative expenses as a percentage of revenues.
NET INTEREST EXPENSE. SPC had net interest expense of $68,000 for fiscal
1996, as compared to $216,000 for fiscal 1995 as a result of decreased
borrowings under the Credit Facility. Prior to the filing of Chapter 11
reorganization under federal bankruptcy laws in December 1994, SPC fully
utilized the Credit Facility for the support of the proprietary software
development division. This division was dissolved in May of 1995. Additional
cash flows generated from billing former proprietary software development
personnel as consultants in the latter half of 1995 reduced the balance under
the Credit Facility during the year. SPC maintained a relatively low
outstanding balance on the Credit Facility throughout 1996.
INCOME TAXES. The effective tax rate for fiscal 1996 was 34.2% as compared
to 0.8% for fiscal 1995. Differences between SPC's effective income tax rate
and the statutory rate relate to certain deductions that result in a permanent
difference between taxable and financial reporting net income or loss.
Additionally, in fiscal 1995 SPC reversed a valuation allowance related to a
deferred tax asset recorded in conjunction with SPC's net operating loss
carryover incurred in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents and working capital totaled $300,000 and $4.4
million respectively as of July 31, 1998. Working capital increased primarily
due to the increase in accounts receivable for the first seven months in 1998.
Accounts receivable increased approximately $3.1 million from the calendar
year end 1997 to $8.8 million for the seven months ended July 31, 1998. The
increase is due primarily to the increase in the number of employees and their
billable hours which resulted from the increased demand for consulting
services in the market.
Total liabilities increased overall approximately $1.2 million or 25%, to
$4.9 million for the seven months ended July 31, 1998 from $3.7 million for
the calendar year ended December 31, 1997. This overall increase resulted
primarily from the net effect of: (i) an increase in the outstanding balance
of the Credit Facility as a result of the increased borrowings to provide cash
for operations during the revenue collection period as accounts receivable
increased proportionately with the revenue increase; (ii) a decrease in
payroll taxes payable from year end 1997 that applied to bonuses paid to
management for services due to the payment of the taxes; (iii) the decrease of
the profit sharing match liability as a result of accrual for a seven month
period versus a 12 month period; (iv) a decrease in unearned billings due to
the recognition of revenue of these billings accrued at year end 1997 during
the first seven months of 1998; and (v) an increase in the federal and state
tax liability due to the fact that an overpayment of the actual tax liability
in 1997 through larger than necessary quarterly estimated tax payments
resulted in no tax liability at year end 1997.
Redeemable common stock held by SPC Stock Bonus Plan represents the maximum
possible cash obligation to Stock Bonus Plan participants who have the right
under the Stock Bonus Plan to require the Company to purchase their stock.
Such amount is accreted as a charge to retained earnings to reflect the change
in value of the underlying stock. The increase in this amount in each of the
periods is principally due to additional contributions and accretion
reflecting the increasing value of SPC's stock. Repurchases under the SPC
Stock Bonus Plan have been insignificant.
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Shareholders' equity (deficit) decreased overall approximately $6,933,000 to
$(6.2) million as of July 31, 1998 from ($398,000) as of December 31, 1997.
This overall decrease was due to accretion of $9.0 million of the redeemable
preferred stock held by the SPC Stock Bonus Plan offset by an increase in the
number of common stock shares outstanding and deferred compensation related to
performance stock options granted in 1997.
SPC's Credit Facility was amended and restated on December 30, 1994 in
connection with the Chapter 11 reorganization with a borrowing limit of $2.0
million. The Credit Facility borrowing limits increased twice in 1997, to $3.0
million on April 1, 1997 and to $5.5 million on July 1, 1997. This increase in
the Credit Facility was a result of continually increasing revenues and
accounts receivable balances. DPRC will assume the Credit Facility on the
effective date of the Merger and the total Merger Consideration will be
reduced by the outstanding balance of the Credit Facility at the date of the
Merger. DPRC intends to, but is not obligated to, terminate the Credit
Facility subsequent to the consummation of the Merger and the Merger Agreement
provides that the Merger Consideration shall be reduced by one-half of the
prepayment penalty associated with terminating the Credit Facility.
Cash and cash equivalents and working capital totaled $0 and $2.7 million,
respectively, as of December 31, 1997. SPC used cash flow from 1997 operations
of approximately $719,000 to redeem stock from the preferred stockholders.
Additional cash was used to open new offices in Richmond and St. Louis and to
increase the aggregate number of consultants.
Accounts receivable increased approximately $2.7 million from calendar 1996
to calendar 1997. The increase is due primarily to the increase in the number
of employees and their billable hours which resulted from the increased demand
for consulting services in the market.
Total liabilities increased overall approximately $1.0 million or 37.6%, to
$3.7 million for the calendar year ended December 31, 1997 from $2.7 million
for the same period in 1996. This overall increase resulted primarily from:
(i) the increase of the profit sharing match liability as a result of an
increase in the number of participants in the 401(k) plan; (ii) an increase in
unearned billings based on the request of clients to bill future year
consultant fees as compared to the same period in 1996; (iii) an increase in
payroll taxes payable for bonuses paid to management for services; and (iv) an
increase in the terminal funding liability for salaried employee insurance.
Shareholders' equity (deficit) increased overall approximately $236,000 to
$751,000 as of December 31, 1997 from $515,000 as of December 31, 1996. This
overall increase was due to the additional paid-in capital resulting from an
increase in the number of common stock shares outstanding offset by the
decrease in capital related to preferred stock due to the redemption of those
shares and accretion related to the redeemable common stock held by the Stock
Bonus Plan. Retained earnings increased due to the net income realized in
calendar year 1997 as no dividends were paid to shareholders.
Although SPC's existing financial computer applications are not currently
Year 2000 compliant, SPC and DPRC anticipate that SPC will use the new
financial system, which DPRC is in the process of selecting, after the
consummation of the Merger. DPRC management believes, and the software vendor
has represented, that the new financial system will be Year 2000 compliant.
Management of DPRC and SPC do not anticipate significant problems or unplanned
costs in applying the new financial system to SPC's operations.
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PROPOSED DPRC SHARE ISSUANCE
At the DPRC Special Meeting, DPRC shareholders will be asked to consider and
vote upon a proposal to approve the Merger Agreement, pursuant to which, among
other things, Acquisition Corp. will be merged with and into SPC, with SPC
surviving as a wholly owned subsidiary of DPRC. Upon consummation of the
Merger, the outstanding shares of SPC common stock and SPC Performance-Vesting
Options to purchase shares of SPC Common Stock outstanding immediately prior
to the effective time of the Merger will be converted into the right to
receive, on a pro rata basis, shares of DPRC Common Stock. In addition,
pursuant to the Merger Agreement, DPRC will be assuming the remaining SPC
Time-Vesting Options. The aggregate consideration to be delivered in
connection with the Merger will be paid exclusively in shares of DPRC Common
Stock having an implied value on the date the amendment of October 20, 1998 to
the Merger Agreement was signed of $71.5 million less deductions for certain
costs and liabilities to be assumed by DPRC. The total number of shares of
DPRC Common Stock anticipated to be issued in connection with the Merger is
estimated to be between 2.8 million and 3.3 million. Of such number of shares,
approximately two-thirds are expected to be issued upon consummation of the
Merger in exchange for the outstanding shares of SPC Common Stock and for the
cancellation of the SPC Performance-Vesting Options and the remaining number
of shares, approximately one-third, will be issued from time to time
thereafter upon exercise of the remaining SPC Time-Vesting Options under the
stock option plan being assumed by DPRC.
The exact number of shares of DPRC Common Stock to be issued in connection
with the Merger will not be determined until the closing of the Merger since
the amount of the deductions for certain costs and liabilities to be assumed
by DPRC cannot be determined until such time. Although the amount of these
deductions will not be fixed until the closing, the other amounts used to
calculate the Exchange Ratio are fixed. The implied consideration of $71.5
million and the price of $21.00 for each share of DPRC Common Stock used to
calculate the Exchange Ratio were determined and fixed at the time the
amendment of October 20, 1998 to the Merger Agreement was signed and will not
be changed regardless of whether the market price of DPRC Common Stock is
higher or lower. Therefore, although the actual number of shares of DPRC
Common Stock to be issued in connection with the Merger will not change due to
any change in the market price of such stock, the market value of such shares
and the aggregate value of the transaction will depend on the current market
price of DPRC Common Stock at the time the Merger is consummated and,
consequently, will not be known at the time of the Special Meeting. The same
Exchange Ratio will be used to determine the number of shares of DPRC Common
Stock to be received by the holders of SPC Common Stock, SPC Time-Vesting
Options and SPC Performance-Vesting Options. As a result, the risk of any
decline or benefit of any increase in the market price of DPRC Common Stock
from such date will similarly affect the holders of SPC Common Stock, SPC
Time-Vesting Options and SPC Performance-Vesting Options.
Assuming a minimum and maximum Exchange Ratio of 5.50 and 6.40,
approximately 2.8 million and 3.3 million shares, respectively, of DPRC Common
Stock would be issued or reserved in connection with the Merger (including
938,080 and 1,091,584 shares, respectively, of DPRC Common Stock to be issued
from time to time after the consummation of the Merger upon the exercise of
the SPC Time-Vesting Options), which represent approximately 24% and 28%,
respectively, of the 11,786,947 shares of DPRC Common Stock outstanding on the
DPRC Record Date. Also, although the Merger will dilute the percentage
holdings of DPRC's current shareholders since the percentage of DPRC owned by
each current shareholder will be reduced by the shares issued in the Merger,
the shareholders will own a portion of the larger combined companies, with the
consolidation of DPRC with SPC's revenues and assets. See "Summary--
Comparative Per Share Data" and "Unaudited Pro Forma Consolidated Financial
Statements."
REASON FOR AUTHORIZATION
The rules of the NNM require shareholder approval in connection with the
acquisition of the stock or assets of another company if the number of shares
of DPRC Common Stock to be issued in the transaction would equal or exceed
20.0% of the number of shares of DPRC Common Stock outstanding immediately
prior to such issuance.
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VOTE REQUIRED
The rules of the NNM require the affirmative vote of a majority of the votes
cast in person or by proxy at the Special Meeting to approve the Share
Issuance; provided that the total number of votes cast on the Share Issuance
represents more than 50% of the outstanding shares of DPRC Common Stock
entitled to vote thereon at the DPRC Special Meeting. The DPRC Board has
unanimously determined that the Merger and the Share Issuance are in the best
interests of DPRC and the shareholders of DPRC and has approved the Merger
Agreement and the Share Issuance. Even if the Merger Agreement is approved by
the shareholders of DPRC, the Merger cannot be consummated unless the Share
Issuance is also approved. Approval of the Merger Agreement, the Charter
Amendment and the Share Issuance is required for the Merger to be consummated.
If any one of the foregoing three proposals is not approved, even if the other
two proposals are approved, the Merger cannot be consummated. Approval of the
Option Plan Amendment is not required to consummate the Merger, and if
approved, will independently be effected even if any of the other proposals
are not approved. THE DPRC BOARD UNANIMOUSLY RECOMMENDS THAT THE DPRC
SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE SHARE ISSUANCE.
PROPOSED DPRC CHARTER AMENDMENT
The DPRC Board has approved and adopted, subject to stockholder approval,
the Charter Amendment which provides for the amendment to DPRC's Articles of
Incorporation to increase the number of authorized shares of DPRC Common Stock
from 20,000,000 to 60,000,000.
REASONS FOR AMENDMENT
At the close of business on November 2, 1998, the DPRC Record Date, there
were 11,786,947 shares of DPRC Common Stock outstanding and entitled to vote.
If the Merger is consummated assuming an Exchange Ratio of 6.04 shares of DPRC
Common Stock for each share of SPC Common Stock, it is expected that there
will be approximately 13,881,364 shares of DPRC Common Stock outstanding
(assuming no options with respect to SPC Common Stock or DPRC Common Stock are
exercised after the relevant record date). Based on such assumptions, and if
the Charter Amendment and the Option Plan Amendment are approved, following
the Merger, DPRC would have available for future issuance approximately
46,118,636 authorized shares of DPRC Common Stock. Of such authorized but
unissued shares, 3,940,076 shares of DPRC Common Stock (as of the close of
business on the DPRC Record Date) would be reserved for issuance under DPRC's
stock option plan, stock purchase plan and the SPC Time-Vesting Options being
assumed by DPRC in the Merger. An additional 3,239,436 shares of DPRC Common
Stock are reserved for issuance upon conversion of the $115.0 million
aggregate principal amount of 5 1/4% Convertible Subordinated Notes due 2005.
Also, additional shares of DPRC Common Stock are issuable in connection with
the earnout arrangements entered into in connection with the Computec
Acquisition and the S3G Acquisition. DPRC is required to pay 40.0% and 15.0%,
respectively, of such earnout arrangements in DPRC Common Stock. Such
authorized but unissued shares would be available for issuance without further
action by shareholders except as required by law or applicable stock exchange
requirements.
DPRC currently has an insufficient number of authorized but unissued and
unreserved shares of DPRC Common Stock to effect the Share Issuance to the
shareholders of SPC pursuant to the Merger Agreement. As a result, the DPRC
Board believes it is desirable to authorize additional shares of DPRC Common
Stock so that there will be sufficient shares available for the Share Issuance
in the Merger, as well as for issuance after the Merger for purposes that the
DPRC Board may hereafter determine to be in the best interests of DPRC and its
shareholders. Such purposes could include the offer of shares for cash,
acquisitions, employee benefit programs and other general corporate purposes.
In many situations, prompt action may be required which would not permit
seeking stockholder approval to authorize additional shares for a specific
transaction on a timely basis. The DPRC Board believes it is important that
the Board have the flexibility to act promptly in the best interests of its
shareholders. The terms of any future issuance of shares of DPRC Common Stock
will depend largely on market and financial conditions and other factors
existing at the time of issuance. Other than opportunistic acquisitions of IT
services providers, DPRC does not have any immediate plans, agreements,
arrangements, commitments or
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understandings with respect to the issuance of any of the additional shares of
DPRC Common Stock that would be authorized by the Charter Amendment.
PRINCIPAL EFFECTS
The additional shares of DPRC Common Stock to be authorized by the Charter
Amendment would have rights identical to those of the currently outstanding
DPRC Common Stock. Adoption of the Charter Amendment would not affect the
rights of the holders of currently outstanding DPRC Common Stock, except for
effects incidental to increasing the number of shares of DPRC Common Stock
outstanding upon the issuance of newly authorized shares of DPRC Common Stock.
If the Charter Amendment is approved by the DPRC shareholders, it will become
effective upon the filing of a Certificate of Amendment to DPRC's Amended and
Restated Articles of Incorporation with the Secretary of State of the State of
California, which is expected to be filed promptly after the Special Meeting.
VOTE REQUIRED
Approval of the Charter Amendment requires the affirmative vote of a
majority of the shares of DPRC Common Stock outstanding as of the DPRC Record
Date. Approval of the Merger Agreement, the Charter Amendment and the Share
Issuance is required for the Merger to be consummated. If any one of the
foregoing three proposals is not approved, even if the other two proposals are
approved, the Merger cannot be consummated. Approval of the Option Plan
Amendment is not required to consummate the Merger, and if approved, will
independently be effected even if any of the other proposals are not approved.
The DPRC Board has unanimously determined that the Charter Amendment is
advisable and in the best interests of DPRC and the shareholders of DPRC. THE
DPRC BOARD UNANIMOUSLY RECOMMENDS THAT DPRC SHAREHOLDERS VOTE "FOR" APPROVAL
OF THE CHARTER AMENDMENT.
PROPOSED AMENDMENT OF DPRC 1994 STOCK OPTION PLAN
At the DPRC Special Meeting, DPRC shareholders will be asked to consider and
vote upon a proposal to approve amendments to DPRC's 1994 Stock Option Plan,
as amended (the "1994 Plan"). Such approval will require the affirmative vote
of a majority of the voting power of all outstanding shares of DPRC's Common
Stock present or represented and entitled to vote at the DPRC Special Meeting.
Effective as of July 21, 1998, the DPRC Board of Directors adopted the
amendment, subject to shareholder approval as described herein, increasing the
number of shares of DPRC Common Stock available for issuance upon the exercise
of options granted under the 1994 Plan from 2,000,000 to 3,000,000. The
increase in the number of shares under the 1994 Plan from 2,000,000 to
3,000,000 is collectively referred to as the "Amendment." The 1994 Plan, as
amended by the Amendment, and information regarding options granted thereunder
is summarized below, but these descriptions are subject to and are qualified
in their entirety by the full text of the 1994 Plan, as amended by the
proposed Amendment, which is attached as Annex D to this Proxy
Statement/Prospectus.
REASON FOR AMENDMENT
The purpose of the Amendment is to increase the number of shares of DPRC
Common Stock available for option grants which can serve as an incentive and
to encourage stock ownership by officers and key employees of DPRC and its
subsidiaries and which may be used in connection with any future acquisitions
by DPRC. At November 2, 1998, options to purchase 1,729,714 shares of DPRC
Common Stock were outstanding under the 1994 Plan, options to purchase 262,560
shares of DPRC Common Stock had been exercised, and options to purchase
250,000 shares of DPRC Common Stock will be issued in the Merger, leaving a
balance of 757,726 additional shares of DPRC Common Stock which could be
subject to options granted under the 1994 Plan if the number of shares of DPRC
Common Stock available for option grants under the 1994 Plan is increased to
3,000,000. The DPRC Board believes that increasing the number of stock options
available for grant under the 1994 Plan is advisable because such awards
promote interest in the welfare of DPRC by allowing such persons to share in
the success of DPRC and encouraging them to remain in the service of DPRC. It
also gives DPRC a means to attract qualified new employees.
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SUMMARY OF THE 1994 PLAN
The 1994 Plan was initially adopted by the sole director and the sole
shareholder of DPRC by written consent effective January 1, 1994, and amended
as of January 15, 1996, as of June 2, 1997, as of November 1, 1997 and as of
July 21, 1998. Under the 1994 Plan, employees, directors, officers and
consultants (collectively referred to as "Employees") providing services to
DPRC or its subsidiaries may be granted options to purchase shares of DPRC
Common Stock. The 1994 Plan permits the granting of both options that qualify
for treatment as incentive stock options ("Incentive Stock Options") under
Section 422 of the Code, and/or options that do not qualify as Incentive Stock
Options ("Nonqualified Stock Options"). Incentive Stock Options may only be
granted to employees of DPRC.
The purpose of the 1994 Plan and of granting options to specified persons is
to promote the interests of DPRC and its shareholders, by providing stock-
based incentives to certain Employees. Under the 1994 Plan, Employees can
receive Incentive Stock Options or Nonqualified Stock Options (collectively,
"Stock Options") to purchase DPRC's Common Stock, thus, strengthening the
mutuality of interests between Employees and DPRC because the Employees have a
proprietary interest in pursuing DPRC's long-term growth and financial
success. In addition, by allowing Employees to participate in DPRC's success,
DPRC is able to better attract, retain, and reward quality employees,
directors, officers and consultants.
Persons eligible to participate in the 1994 Plan are Employees providing
services to DPRC and/or its subsidiaries who are in positions which enable
them to make significant and extraordinary contributions to DPRC's long-term
performance and growth. In selecting Employees to whom Stock Options may be
granted, consideration is given to factors such as employment position, duties
and responsibilities, ability, productivity, length of service, morale,
interest in DPRC and recommendations of supervisors. The maximum number of
shares that may be issued to a single Employee is 3,000,000.
The 1994 Plan is administered by the Compensation Committee. The members of
the Compensation Committee must qualify both as: (i) "outside directors" under
Section 162(m) of the Code; and (ii) "disinterested directors" under Rule 16b-
3 of the Exchange Act.
The Committee has full and complete authority, in its discretion, but
subject to the express provisions of the 1994 Plan: (i) to approve the
Employees nominated by the management of DPRC to be granted Stock Options;
(ii) to determine the number of Stock Options to be granted to an Employee;
(iii) to determine the time or times at which Stock Options shall be granted;
(iv) to establish the terms and conditions upon which Stock Options may be
exercised; (v) to establish the terms and conditions upon which Stock Options
may vest; (vi) to remove or adjust any restrictions and conditions upon Stock
Options; (vii) to specify, at the time of grant, provisions relating to
exercisability of Stock Options; (viii) to accelerate, extend or otherwise
modify the exercisability of any Stock Options; and (ix) to adopt such rules
and regulations and to make all other determinations deemed necessary or
desirable for the administration of the 1994 Plan. All interpretations of the
1994 Plan by the Committee, and all of its action under the 1994 Plan, are
binding and conclusive on all persons for all purposes.
The number of shares of DPRC Common Stock in respect of which options may be
granted under the 1994 Plan shall not exceed 3,000,000. In the event of
certain changes in DPRC's capitalization or structure, an appropriate
adjustment shall be made by the Compensation Committee in the number, kind or
exercise price of shares as to which options may thereafter be granted and as
to shares covered by unexercised outstanding options.
Each option granted under the 1994 Plan shall be evidenced by a written
agreement ("Option Agreement") in a form approved by the Compensation
Committee and executed by DPRC and the Employee to whom the Stock Option is
granted ("Optionee"). Stock Options are exercisable at such time(s) and are
subject to such terms and conditions as may be set forth in the Option
Agreement between the Employee and DPRC.
The purchase price of shares of DPRC Common Stock subject to each Stock
Option which is intended to qualify as Incentive Stock Options shall be equal
to the fair market value of such shares (110% of fair market
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value in the case of a holder of more than 10% of DPRC's Common Stock) on the
date of grant of such Stock Option. The purchase price of any Stock Option
which shall not qualify as an incentive stock option shall be determined by
the Compensation Committee, but shall not be less than the fair market value
of the DPRC Common Stock in the case of a Stock Option granted to an
individual who is a "covered employee" under 162(m) of the Code. The fair
market value of such shares is the closing price of the DPRC Common Stock on
the last preceding day prior to the date of grant on which the DPRC Common
Stock was traded.
Stock Options granted under the 1994 Plan may be exercised, to the extent
vested, by the Optionee by payment of the full purchase price therefor in
cash, by cashier's or certified check or by surrender of outstanding shares of
DPRC Common Stock. Options granted to an Employee are not transferable during
the individual's lifetime, and may be transferred in the event of death only
by will or the laws of descent and distribution.
Each option granted under the 1994 Plan shall set forth a termination date
thereof, which shall be not later than 10 years (5 years in the case of a
holder of more than 10% of DPRC's Common Stock) from the date such option is
granted subject to earlier termination or forfeiture as set forth below, or as
otherwise set forth in each particular Option Agreement.
Unless earlier terminated by the DPRC Board, the 1994 Plan shall terminate
on December 31, 2004. The DPRC Board may at any time amend the 1994 Plan
provided, however, that no amendment or modification may be adopted without
approval of the shareholders which would: (i) materially increase the benefits
accruing to Employees under the 1994 Plan; (ii) materially increase the number
of securities which may be issued under the 1994 Plan (except for adjustments
due to a change in capitalization); or (iii) materially modify the
requirements as to eligibility for participation in the 1994 Plan.
Future participants in the 1994 Plan and the amounts of their allotments are
to be determined by the Compensation Committee subject to any restrictions
outlined above. Since no such determinations have yet been made, it is not
possible to state the terms of any individual awards which may be issued under
the 1994 Plan or the names or positions of or respective amounts of the
allotment to any individual who may participate.
FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO THE 1994 PLAN
Based on current provisions of the Code, and the existing regulations
thereunder, the anticipated federal income tax consequences with respect to
options granted under the 1994 Plan are as described below. The following
summary of the effects of federal income taxation upon Optionees and DPRC with
respect to shares of DPRC Common Stock issued under the 1994 Plan does not
purport to be complete and reference is made to the applicable provisions of
the Code.
INCENTIVE STOCK OPTIONS. No taxable income is recognized by a person upon
the grant or exercise of the Incentive Stock Option. Correspondingly, DPRC is
not entitled to an income tax deduction as the result of the grant or exercise
of an Incentive Stock Option.
Any gain or loss resulting from the subsequent sale of shares of DPRC Common
Stock acquired upon exercise of an Incentive Stock Option will be long-term
capital gain or loss if the sale is made after the later of:
1. Two years from the date of the grant of the Incentive Stock Option; or
2. One year from the date of the exercise ("Exercise Date") of the
Incentive Stock Option.
If the subsequent sale of DPRC Common Stock is made prior to the expiration
of the holding periods ("Disqualifying Disposition"), the Optionee will
generally recognize ordinary income in the year of the sale of the DPRC Common
Stock in an amount equal to the difference between the exercise price of the
Incentive Stock Option (the "Option Price") and the lesser of the fair market
value of the shares of DPRC Common Stock on the Exercise Date or on the date
of the Disqualifying Disposition. DPRC will be entitled to an income tax
deduction equal to the amount taxable to the Optionee. Any excess gain
recognized by the Optionee upon the Disqualifying Disposition would be taxable
as a capital gain, either as long-term or short-term depending upon
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whether the shares of DPRC Common Stock have been held for more than one year
prior to the Disqualifying Disposition.
The amount by which the Fair Market Value (determined on the Exercise Date)
of the shares of DPRC Common Stock purchased upon exercise of an Incentive
Stock Option exceeds the Option Price constitutes an item of tax preference
that may be subject to alternative minimum tax in the year in which the
Incentive Stock Option is exercised, depending on the facts and circumstances
involved.
NONQUALIFIED STOCK OPTIONS. Generally, no taxable income will be recognized
by the Optionee and DPRC will not be entitled to a deduction at the time of
the grant of a Nonqualified Stock Option. Upon the exercise of a Nonqualified
Stock Option, the Optionee generally will recognize ordinary income, and DPRC
will be entitled to an income tax deduction, in the amount by which the fair
market value of the shares of DPRC Common Stock issued to the Optionee at the
time of the exercise exceeds the Option Price. This income constitutes "wages"
with respect to which DPRC is required to deduct and withhold federal income
tax.
Upon the subsequent disposition of shares of DPRC Common Stock acquired upon
the exercise of a Nonqualified Stock Option, the Optionee will recognize
capital gain or loss in an amount equal to the difference between the proceeds
received upon disposition and the fair market value of the shares on the
Exercise Date. If the shares have been held for more than one year at the time
of the disposition, the capital gain or loss will be long-term.
VOTE REQUIRED
Approval of the Amendment to the Stock Option Plan requires the affirmative
vote of a majority of the shares of DPRC Common Stock outstanding as of the
DPRC Record Date. Approval of the Amendment to the Stock Option Plan is not
conditioned on approval of the Merger Agreement, the Share Issuance or the
Charter Amendment. The DPRC Board has unanimously determined that the
Amendment to the Stock Option Plan is advisable and in the best interests of
DPRC and the shareholders of DPRC. THE DPRC BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT THE DPRC SHAREHOLDERS VOTE "FOR" THE AMENDMENT TO THE 1994
STOCK OPTION PLAN.
OTHER BUSINESS
Neither DPRC nor SPC is aware of any other business to be presented at the
DPRC Special Meeting or the SPC Special Meeting. All shares represented by
Company proxies will be voted in favor of the proposals of the Company
described herein unless otherwise indicated on the form of proxy. If any other
matters properly come before the meeting, Company proxy holders will vote
thereon according to their best judgment.
SUBMISSION OF DPRC SHAREHOLDER PROPOSALS
Any shareholder who wishes to present a proposal for action at the 1998
Annual Meeting of DPRC and who wishes to have it set forth in the
corresponding proxy statement and identified in the corresponding form of
proxy prepared by management in accordance with Rule 14a-8 under the Exchange
Act must notify DPRC no later than July 22, 1998 in such form as required
under the rules and regulations promulgated by the Commission. A shareholder
proposal that is not submitted by the July 22, 1998 deadline required by Rule
14a-8 is not required to be included in DPRC's form of proxy for its 1998
Annual Meeting. However, even if a shareholder proposal is not included in the
form of proxy for the Annual Meeting, the proposal may be brought as business
at the 1998 Annual Meeting if a shareholder gives DPRC appropriate notice in
accordance with the requirements under the Exchange Act on or prior to October
5, 1998. In such a case, the DPRC representatives may vote the proxies they
hold on such matters in their discretion only if (i) DPRC includes, in its
proxy statement, advice on the nature of the matter and how DPRC management
intends to exercise its discretion to vote on such matter and (ii) the
shareholder submitting the proposal does not give notice to DPRC by October 5,
1998 of its intent to make, and then conduct, its own proxy solicitation under
Rule 14a-6 with regard to at least the percentage of shareholders required
under applicable law to approve the proposal. With respect to any shareholder
proposal submitted after October 5, 1998, DPRC's representatives may vote all
proxies held by them in their sole discretion on such matter.
89
<PAGE>
LEGAL MATTERS
The validity of the issuance of the DPRC Common Stock being offered hereby
will be passed upon for DPRC by Riordan & McKinzie, a Professional Law
Corporation, Orange County, California. Certain attorneys of Riordan &
McKinzie, a Professional Law Corporation, hold shares of DPRC Common Stock.
EXPERTS
The financial statements of Data Processing Resources Corporation as of July
31, 1997 and 1998 and for each of the three years in the period ended July 31,
1998 incorporated in this Proxy Statement/Prospectus by reference from the
Annual Report on Form 10-K for the year ended July 31, 1998 of Data Processing
Resources Corporation have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
The financial statements of S3G, Inc. as of December 31, 1996 and 1997 and
for the years then ended incorporated in this Proxy Statement/Prospectus by
reference from the Current Report on Form 8-K, as amended, of Data Processing
Resources Corporation dated January 27, 1998 have been audited by Deloitte &
Touche LLP, independent auditors, as stated in their report which is
incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
The financial statements of Computec International Strategic Resources, Inc.
as of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 appearing in the 424(b)(3) Prospectus dated June 11,
1998 relating to Registration Statement No. 333-53371 of Data Processing
Resources Corporation on Form S-3 and incorporated in this Proxy
Statement/Prospectus by reference have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
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 appearing in the 424(b)(3) Prospectus dated June 11, 1998 relating to
Registration Statement No. 333-53371 of Data Processing Resources Corporation
on Form S-3 and incorporated in this Proxy/Statement Prospectus by reference
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of ADD Consulting, Inc. as of December 31, 1994 and
1995 and for the years then ended incorporated in this Proxy
Statement/Prospectus by reference from the Current Report on Form 8-K, as
amended, of Data Processing Resources Corporation dated July 1, 1996 have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their report with respect thereto which is incorporated herein by
reference, and has been so incorporated in reliance upon the authority of said
firm as experts in accounting and auditing.
The financial statements of AD&D Acquisition, Inc. as of December 31, 1993
and for the year then ended incorporated in this Proxy Statement/Prospectus by
reference from the Current Report on Form 8-K, as amended, of Data Processing
Resources Corporation dated July 1, 1996 have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto which is incorporated herein by reference, and has been so
incorporated in reliance upon the authority of said firm as experts in
accounting and auditing.
The financial statements of SPC as of December 31, 1996 and 1997 and for
each of the three years in the period ended December 31, 1997 included in this
Proxy Statement/Prospectus have been audited by Jack Anthony, CPA, independent
auditor, as stated in his report appearing herein and elsewhere in the
Registration Statement, and have been so included in reliance upon his report
given upon his authority as an expert in accounting and auditing.
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
Independent Auditor's Report.............................................. F-2
Balance Sheets as of December 31, 1997 and 1996, and the Seven Months
Ended July 31, 1998 (unaudited).......................................... F-3
Statements of Income for the Years Ended December 31, 1997, 1996 and 1995,
and the Seven Months Ended July 31, 1997 and 1998 (unaudited)............ F-4
Statements of Shareholders' Equity for the Years Ended December 31, 1997,
1996 and 1995, and the Seven Months Ended July 31, 1998 (unaudited)...... F-5
Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and
1995, and the Seven Months Ended July 31, 1997 and 1998 (unaudited)...... F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Systems and Programming Consultants, Inc.
Charlotte, North Carolina
I have audited the accompanying balance sheets of Systems and Programming
Consultants, Inc. (the Company) as of December 31, 1997 and 1996, and the
related statements of income, shareholders' equity, and cash flows for each of
the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audits 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. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Systems and Programming
Consultants, Inc. as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ Jack Anthony, CPA
Charlotte, North Carolina
March 10, 1998 (except for Note 7 paragraph 2
as to which the date is October
20, 1998)
F-2
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------- JULY 31,
1997 1996 1998
----------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash................................... $ -- $ 848,680 $ 299,523
Accounts receivable--Trade, (net of
allowance for doubtful accounts of
$90,000 and $100,000 as of December
31, 1997 and 1996, respectively)...... 5,743,359 3,076,505 8,793,413
Prepaid expenses and other current
assets................................ 91,528 47,381 --
Income taxes receivable................ 523,701 -- 135,035
----------- ---------- ------------
Total current assets................. 6,358,588 3,972,566 9,227,971
Property and equipment:
Land.................................. 151,000 151,000 2,000
Buildings............................. 164,517 161,491 67,791
Furniture and equipment............... 687,048 651,904 630,200
----------- ---------- ------------
1,002,565 964,395 699,991
Less accumulated depreciation......... (371,931) (293,646) (346,749)
----------- ---------- ------------
Property and equipment, net.......... 630,634 670,749 353,242
Deferred taxes......................... 826,514
Other assets........................... 137,184 92,933 163,118
----------- ---------- ------------
$ 7,126,406 $4,736,248 $ 10,570,845
=========== ========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
------------------------------------
CURRENT LIABILITIES:
Line of credit......................... $ 770,223 $ 259,260 $ 2,522,047
Current portion of notes payable....... 246,070 35,112 --
Accounts payable and accrued expenses.. 1,150,163 1,609,133 1,893,265
Bank overdraft......................... 59,385 -- --
Profit sharing contribution payable.... 511,339 328,037 309,204
Unearned revenue....................... 441,310 193,168 111,248
Payroll taxes payable.................. 480,298 -- 8,567
Other liabilities...................... 17,612 -- 17,612
----------- ---------- ------------
Total current liabilities............ 3,676,400 2,424,710 4,861,943
Notes payable, less current portion.... -- 247,133 --
COMMITMENTS AND CONTINGENCIES
REDEEMABLE COMMON STOCK HELD BY STOCK
BONUS PLAN: 69,895, 66,252 and 67,860
shares outstanding at July 31, 1998,
December 31, 1997 and December 31,
1996, respectively.................... 2,699,106 1,549,244 11,891,236
SHAREHOLDERS' EQUITY (DEFICIT):
Redeemable preferred stock (800,000
shares authorized at $1.00 par;
680,000 shares issued effective
October 15, 1995, 10% cumulative)..... -- 680,000 --
Common stock (1,000,000 no par shares
authorized; 259,273, 259,273 and
189,963 shares outstanding at July 31,
1998, December 31, 1997 and December
31, 1996, respectively)............... 2,247,937 259,105 5,976,571
Deferred compensation associated with
Performance-Vesting Options........... (1,553,598)
Deficit................................ (1,497,037) (362,527) (10,605,307)
Less treasury stock at cost (0, 0 and
3,464 shares at July 31, 1998,
December 31, 1997 and December 31,
1996, respectively)................... -- (61,417) --
----------- ---------- ------------
Total shareholders' equity (deficit). 750,900 515,161 (6,182,334)
----------- ---------- ------------
$ 7,126,406 $4,736,248 $ 10,570,845
=========== ========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
<TABLE>
<CAPTION>
SEVEN MONTHS
ENDED JULY 31,
------------------------
1997 1996 1995 1998 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................ $39,284,909 $26,384,699 $19,685,069 $33,919,453 $20,813,688
Cost of professional
services............... 27,545,869 17,906,450 13,618,054 24,100,254 14,808,789
----------- ----------- ----------- ----------- -----------
Gross margin.......... 11,739,040 8,478,249 6,067,015 9,819,199 6,004,899
Selling, general, and
administrative
expenses............... 11,378,401 7,533,941 5,348,833 7,631,915 5,890,742
Loss on sale of
proprietary software
(Note 1)............... -- -- 169,000 -- --
Compensation expense
associated with
Performance-Vesting
Options................ -- -- -- 2,175,036 --
----------- ----------- ----------- ----------- -----------
Operating income........ 360,639 944,308 549,182 12,248 114,157
Interest expense, net... (125,978) (67,429) (216,094) (77,746) (60,881)
----------- ----------- ----------- ----------- -----------
Income (loss) before
provision (benefit) for
income taxes........... 234,661 876,879 333,088 (65,498) 53,276
Provision (benefit) for
income taxes........... 161,365 299,762 2,549 (935) 13,891
----------- ----------- ----------- ----------- -----------
Net income (loss)....... 73,296 577,117 330,539 (64,563) 39,385
Less preferred stock
dividends.............. (21,238) (68,000) (14,911) 0 (21,238)
----------- ----------- ----------- ----------- -----------
Net income (loss) appli-
cable to
common shareholders.... $ 52,058 $ 509,117 $ 315,628 $ (64,563) $ 18,147
=========== =========== =========== =========== ===========
Net income (loss) per
common share:
Basic................. $ 0.19 $ 1.99 $ 1.29 $ (0.20) $ 0.07
=========== =========== =========== =========== ===========
Diluted............... $ 0.17 $ 1.99 $ 1.29 $ (0.20) $ 0.06
=========== =========== =========== =========== ===========
Weighted Average shares
used in the calculation
of net income per
common share:
Basic................. 276,863 255,983 244,934 328,441 277,553
Diluted............... 311,111 255,983 244,934 328,441 298,845
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1998)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------- ------------------- ---------------- DEFERRED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT TOTAL
-------- --------- ------- ---------- ------ -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1,
1995................ -- $ -- 184,767 $ 167,661 -- $ -- $ -- $ (772,433) $ (604,772)
Net income........... -- -- -- -- -- -- -- 330,539 330,539
Issuance of preferred
stock............... 680,000 680,000 -- -- -- -- -- -- 680,000
Preferred stock
dividends........... -- -- -- -- -- -- -- (14,911) (14,911)
Issuance of common
stock............... -- -- 909 15,000 -- -- -- -- 15,000
Accretion of
redeemable common
stock held by Stock
Bonus Plan.......... -- -- -- -- -- -- -- (102,682) (102,682)
Repurchase of common
stock............... -- -- 1,001 16,517 (1,001) (16,517) -- -- --
-------- --------- ------- ---------- ------ -------- ----------- ------------ -----------
BALANCE, December 31,
1995................ 680,000 680,000 186,677 199,178 (1,001) (16,517) -- (559,487) 303,174
Net income........... -- -- -- -- -- -- -- 577,117 577,117
Preferred stock
dividends........... -- -- -- -- -- -- -- (68,000) (68,000)
Issuance of common
stock............... -- -- 823 15,027 -- -- -- -- 15,027
Accretion of
redeemable common
stock held by Stock
Bonus Plan.......... -- -- -- -- -- -- -- (312,157) (312,157)
Repurchase of common
stock............... -- -- 2,463 44,900 (2,463) (44,900) -- -- --
-------- --------- ------- ---------- ------ -------- ----------- ------------ -----------
BALANCE, December 31,
1996................ 680,000 680,000 189,963 259,105 (3,464) (61,417) -- (362,527) 515,161
Net income........... -- -- -- -- -- -- -- 73,296 73,296
Preferred stock
dividends........... -- -- -- -- -- -- -- (21,238) (21,238)
Issuance of common
stock............... -- -- 17,606 401,945 -- -- -- -- 401,945
Redemption of
preferred stock..... (680,000) (680,000) -- -- -- -- -- -- (680,000)
Exercise of stock
options and related
tax benefit......... -- -- 55,168 1,648,304 -- -- -- -- 1,648,304
Accretion of
redeemable common
stock held by Stock
Bonus Plan.......... -- -- -- -- -- -- -- (1,186,568) (1,186,568)
Repurchase and
retirement of common
stock............... -- -- (3,464) (61,417) 3,464 61,417 -- -- --
-------- --------- ------- ---------- ------ -------- ----------- ------------ -----------
BALANCE, December 31,
1997................ -- -- 259,273 2,247,937 -- -- -- (1,497,037) 750,900
Net loss (unaudited). -- -- -- -- -- -- -- (64,563) (64,563)
Accretion of
redeemable common
stock held by Stock
Bonus Plan.......... -- -- -- -- -- -- -- (9,043,707) (9,043,707)
Deferred compensation
expense associated
with Performance-
Vesting Options
(unaudited)......... -- -- -- 3,728,634 -- -- (1,553,598) -- 2,175,036
-------- --------- ------- ---------- ------ -------- ----------- ------------ -----------
BALANCE, July 31,
1998 (unaudited).... -- $ -- 259,273 $5,976,571 -- $ -- $(1,553,598) $(10,605,307) $(6,182,334)
======== ========= ======= ========== ====== ======== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 (AND THE UNAUDITED
SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
JULY 31,
------------------------
1997 1996 1995 1998 1997
----------- ---------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income.............. $ 73,296 $ 577,117 $ 330,539 $ (64,563) $ 39,385
Adjustments to reconcile
net income to net cash
(used in) provided by
operating activities:
Depreciation and
amortization.......... 78,285 54,453 67,187 40,398 44,566
Contribution of common
stock to profit
sharing plan.......... -- 200,000 99,443 200,000 --
Loss on sale of
proprietary software.. -- -- 169,000 -- --
Compensation expense
associated with
Performance-Vesting
Options............... -- -- -- 2,175,036 --
Changes in operating
assets and
liabilities:
Accounts receivable... (2,666,854) (623,007) (264,161) (3,050,054) (1,998,885)
Prepaid expenses...... (44,147) 47,310 242,276 91,528 47,381
Other assets.......... (44,251) (63,099) (1,618) (25,934) (77,658)
Income taxes
receivable........... (135,035) -- -- 388,666 --
Deferred income taxes. -- 14,930 1,792 (826,514) --
Accounts payable and
accrued expenses..... (61,718) 987,864 88,122 725,364 556,640
Bank overdraft........ 59,385 -- -- (59,385) --
Profit sharing
contribution payable. 183,302 (15,359) 206,771 (202,135) 80,211
Unearned revenue...... 248,142 (95,809) (270,094) (330,062) 46,596
Accrued payroll taxes. 480,298 (18,163) (773,916) (471,731) --
Income tax payable.... -- -- -- -- (247,895)
Other liabilities..... 17,612 -- -- -- --
----------- ---------- --------- ----------- -----------
Net cash provided by
(used in) operating
activities.......... (1,811,685) 1,066,237 (104,659) (1,409,386) (1,509,659)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of property and
equipment.............. (38,170) (54,160) (69,609) (15,869) (73,766)
Proceeds from disposal
of property and
equipment.............. -- -- 42,788 252,863 5,928
Proceeds from sale of
proprietary software... -- -- 675,000 -- --
----------- ---------- --------- ----------- -----------
Net cash provided by
(used in) investing
activities.......... (38,170) (54,160) 648,179 236,994 (67,838)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from borrowings
under line of credit,
net.................... 510,963 (54,695) (507,004) 1,751,824 1,760,091
Repayment of term loan
payable to bank........ (14,038) (11,742) (12,702) (246,070) (13,225)
Repayment of note due to
shareholder............ (86,198) (55,154) -- --
Repayment of note due to
unsecured creditor..... (22,137) (24,694) (3,748) -- (282,245)
Exercise of stock
options................ 1,259,638 -- -- -- --
Purchase of common stock
from profit sharing
plan................... (32,013) (44,900) (16,517) (33,839) (30,089)
Issuance of common stock
to profit sharing plan. -- -- -- -- --
Issuance of common
stock.................. -- 15,027 15,000 -- --
Redemption of preferred
stock.................. (680,000) -- -- -- (680,000)
Preferred stock
dividend............... (21,238) (68,000) (14,911) -- (21,238)
----------- ---------- --------- ----------- -----------
Net cash provided by
(used in) financing
activities.......... 1,001,175 (275,202) (595,036) 1,471,915 733,294
----------- ---------- --------- ----------- -----------
(DECREASE) INCREASE IN
CASH................... (848,680) 736,875 (51,516) 299,523 (844,203)
CASH, beginning of year. 848,680 111,805 163,321 -- 848,680
----------- ---------- --------- ----------- -----------
CASH, end of year....... $ -- $ 848,680 $ 111,805 $ 299,523 $ 4,477
=========== ========== ========= =========== ===========
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW
INFORMATION--
Cash paid during the
year for:
Interest.............. $ 144,636 $ 102,205 $ 175,373 $ 89,456 $ 79,713
=========== ========== ========= =========== ===========
Income taxes.......... $ 296,400 $ -- $ 21,099 $ 360,262 $ 4,547
=========== ========== ========= =========== ===========
</TABLE>
NONCASH TRANSACTION DISCLOSURES--In conjunction with the Company's October
1995 Plan of Reorganization resulting from the Company's voluntary filing
under Chapter 11 of the United States Bankruptcy Code, accounts payable due
general unsecured creditors of $50,579 were converted into notes payable
(Note 3).
In October 1995, the Company, through its Plan of Reorganization, issued
680,000 shares of redeemable preferred stock in exchange for the retirement
of $680,000 in general unsecured claims from individuals related to principal
shareholders of the Company.
In December 1996, SPC accrued year-end bonuses of $401,945 for certain of its
officers to be paid in the form of common stock. Such stock was issued in
1997.
During 1997, stock options were exercised, which resulted in an income tax
benefit to the Company of $388,666.
In conjunction with the Company's repurchase and retirement of common stock
from the Stock Bonus Plan, $17,738 and $4,693 were payable as of July 31,
1998 and December 31, 1997, respectively.
In conjunction with the Company's Stock Bonus Plan, the Company recorded
accretion to the amount of redeemable common stock held in the plan of
$1,186,568, $312,157, $102,682, $9,043,707 and $0 for the years ended
December 31, 1997, 1996 and 1995, and the seven months ended July 31, 1998
and 1997, respectively.
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General--Systems and Programming Consultants, Inc. (the Company, SPC, or the
Original Corporation) was incorporated in the State of South Carolina in
January 1980, and since that time has been in the business of servicing the
computer systems needs of its clients primarily in North Carolina, South
Carolina, Georgia, Florida, Tennessee, Missouri, Texas, and Virginia. In April
1992, the Company was incorporated in North Carolina and subsequently the
Original Corporation was merged into the new corporation.
Unaudited Interim Periods--In the opinion of the Company's management, the
unaudited financial statements as of July 31, 1998 and for the seven month
interim periods ended July 31, 1998 and 1997 have been prepared and include
all adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position, results of operations, and cash flows
of the Company.
Cash and Cash Equivalents--The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
Revenue Recognition--The Company recognizes revenue as services are
performed.
Unearned Revenue--Certain clients of the Company make payment for
contractual services before billable time is applied to the contracts. Such
payments are treated as liabilities until the related revenue is recognized.
Accounts Receivable--The Company provided for allowance for doubtful
accounts in the amount of 2.0% of the outstanding accounts receivable in 1997
and 4.0% in 1996.
Property and Equipment--The cost of buildings, furniture and equipment is
depreciated using straight-line and accelerated methods based on the estimated
useful life of the related assets. Prior to fiscal 1992, the Company provided
for both financial and tax reporting purposes depreciation expense using both
the straight-line and accelerated methods. Beginning in fiscal 1992, the
Company began recording depreciation expense for financial reporting purposes
in conjunction with the acquisition of property and equipment using the SL
method over a 10 year period. Leasehold improvements are amortized over the
lesser of 15 years or the term of the lease.
Bankruptcy Filing and Plan of Reorganization--In December 1994, the Company
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code. Effective October 1995, the Company emerged from Bankruptcy
based on a plan of reorganization approved by the court (the Plan of
Reorganization). The Plan of Reorganization resulted, among other things, in
the repayment of amounts due to certain creditors, the conversion of amounts
payable to unsecured creditors into notes payable and the conversion of
certain notes payable to related parties into preferred stock. AICPA Statement
of Position (SOP) 90-7, Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code, requires the use of "fresh-start reporting" if the
Plan of Reorganization meets certain criteria. Management believes that the
criteria identified in SOP 90-7 requiring "fresh-start reporting" has not been
met and that the historical reporting basis utilized in the preparation of the
Company's financial statements is therefore appropriate.
In December 1994, as stated in the Company's Plan of Reorganization, SPC
agreed to sell certain proprietary software products it had developed for the
financial institution and publishing markets (the Proprietary Software) to a
third party. Final terms of the sale of the Proprietary Software and closing
of the transaction occurred in fiscal 1995. The resulting transaction
generated proceeds to the Company of approximately $675,000 and a
corresponding loss on the sale of the Proprietary Software of $169,000.
Proceeds from the sale of the Proprietary Software were used primarily in the
settlement of a 1994 payroll tax obligation to the Internal Revenue Service.
F-7
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Preferred Stock--In October 1995, the Company, through its Plan of
Reorganization, issued 680,000 shares of redeemable preferred stock, par value
$1.00 per share, in exchange for the retirement of $680,000 in general
unsecured claims from individuals related to principal shareholders of the
Company. Terms of the preferred stock provide for amongst other items, a
cumulative 10% per annum dividend payable quarterly, certain voting rights
upon the occurrence of an event of default, equity participation rights upon
the sale or liquidation of the Company and a redemption premium ranging from
101% to 105% of par value based on the year the preferred stock is redeemed.
In February 1997, the Company redeemed all of the outstanding preferred stock
in accordance with the Plan of Reorganization for $693,600, which included a
premium of $13,600.
Accounts Payable and Accrued Expenses--Accounts payable and accrued expenses
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 31,
--------------------- 1998
1997 1996 (UNAUDITED)
---------- ---------- -----------
<S> <C> <C> <C>
Accounts payable.............................. $ 332,410 $ 256,321 $ 239,554
Accrued bonuses............................... -- 401,945 --
Commissions payable........................... 274,714 294,894 362,106
Accrued vacation.............................. 95,802 81,188 234,507
Deferred income taxes payable................. 68,138 68,138 --
Income taxes payable.......................... -- 258,233 465,316
Medical claims payable........................ 379,099 248,414 591,782
---------- ---------- ----------
$1,150,163 $1,609,133 $1,893,265
========== ========== ==========
</TABLE>
Medical Claims Payable--The Company sponsors a medical plan for its
employees (the Medical Plan) which is administered by an independent insurance
company. Subject to certain limitations, the Medical Plan provides for the
Company to make claim payments on behalf of its employees. The Company has
obtained a stop-loss policy which limits the exposure of the Company to
$25,000 per participant per year and $825,000 per year in the aggregate.
Management believes that the Company has adequately recorded both known claims
and incurred but not reported claims based on actuarial data obtained from the
Medical Plan administrator, its assessment of past claim history and other
relevant supporting data. Claims payable are included in accounts payable and
accrued expenses in the accompanying balance sheets.
Income Taxes--The Company provides for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes. 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 (loss) per Share--The Company computes net income (loss) per
share in accordance with SFAS No. 128, Earnings per Share, which requires the
disclosure of basic and diluted net income per share. Basic net income per
share is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding during each period.
Diluted net income per share reflects the maximum dilution, based on the
average price of the Company's common stock each period, and is computed
similar to basic net income per share except that the denominator is increased
to include the number of additional shares that would have been outstanding if
potentially dilutive stock options had been exercised.
F-8
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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.
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 report amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
Reclassifications--Certain items in the prior period financial statements
have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements--In June 1997, the Financial Accounting
Standards Board (FASB) issued SFAS No. 130, Reporting Comprehensive Income,
and SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. SFAS No. 131 establishes standards of reporting by
publicly-held business enterprises and disclosure of information about
operating segments in annual financial statements and, to a lesser extent, in
interim financial reports issued to shareholders. The Company has adopted SFAS
No. 130. For each of the four month periods ending April 30, 1998 and 1997,
there was no difference between net income, as reported, and comprehensive
income. SFAS No. 131 is effective for the Company beginning in 1998. As SFAS
No. 131 deals with financial disclosure, the Company does not anticipate the
adoption of this new standard will have a material impact on its financial
position or results of operations.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures About
Pensions and Other Postretirement Benefits. SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits and is
effective for the Company beginning in 1998. As SFAS No. 132 deals with
financial disclosure, the Company does not believe that the adoption of this
new standard will have a material impact on its financial position or results
of operations.
Although SPC serves a large number of clients in a broad range of industry
groups, approximately 44.6% and 37.8% of the Company's revenues for the years
ended December 31, 1997 and 1996, respectively, were derived from SPC's three
largest clients (two large regional banks located in North Carolina and one
large telecommunications company located in Florida.) For the years ended
December 31, 1997 and 1996, approximately 63.7% and 60.7% of SPC's revenues
were derived from its 10 largest clients. A significant increase or decrease
in demand of SPC's services by a large client could have a substantial effect
on SPC's revenues.
2. RELATED-PARTY TRANSACTIONS
Two shareholders of the Company held unsecured notes payable in the amount
of $86,198 with interest stated at 6.5% until June 1996, at which time the
notes were paid.
F-9
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
3. LINE OF CREDIT AND NOTES PAYABLE
The Company has an accounts receivable financing agreement (the Line of
Credit or the Agreement) that provides for borrowings of 85% of eligible
accounts receivable through December 30, 1999. In certain circumstances,
borrowings may exceed 85% of eligible receivables; however, outstanding
borrowings may not exceed $5,500,000 at any one time. The Line of Credit bears
interest at the prime rate (8.5% at December 31, 1997) plus .95%, but in no
event less than 8% per annum, and is computed based on the greater of $250,000
outstanding principal or the average actual outstanding daily loan balance
each month. The Line of Credit is collateralized by the accounts receivable,
contracts, contract rights, general intangibles of the Company, and an
assignment of life insurance coverage in the amount of $200,000, in aggregate,
on the two principal shareholders of the Company. The Line of Credit is also
personally guaranteed by these two principal shareholders.
Notes payable as of December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Term loan payable to a bank, interest at 7.375%,
payable in monthly installments of principal and
interest of $2,721, collateralized by a first trust
deed on real estate with a final payment made in
April 1998........................................... $ 246,070 $260,108
Note payable to an unsecured creditor in connection
with the Chapter 11 bankruptcy filing, interest at
8%, payable in 24 equal monthly installments......... -- 22,137
--------- --------
246,070 282,245
Less current portion.................................. (246,070) (35,112)
--------- --------
$ -- $247,133
========= ========
</TABLE>
4. PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31 includes the
following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Current:
Federal.......................................... $135,767 $261,346 $ 757
State............................................ 25,598 23,486 --
-------- -------- ------
161,365 284,832 757
Deferred:
Federal.......................................... -- 12,515 1,502
State............................................ -- 2,415 290
-------- -------- ------
$161,365 $299,762 $2,549
======== ======== ======
</TABLE>
F-10
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
4. PROVISION FOR INCOME TAXES--(CONTINUED)
A reconciliation of income tax expense to the amount of income tax expense
that would result from applying the federal statutory rate to income before
income taxes is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Provision for income taxes at
statutory rate...................... 34.0% 34.0% 34.0%
State income taxes, net of federal
income tax benefit.................. 4.6 4.6 4.6
Reversal of valuation allowance...... -- (6.3) (66.6)
Meals and entertainment.............. 13.6 3.5 5.8
Other................................ 16.6 (1.6) 23.0
---- ---- -----
Total................................ 68.8% 34.2% 0.8%
==== ==== =====
</TABLE>
Deferred income taxes reflect the net effect of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................ $ 36,000 $ 40,000
Accrued vacation....................................... 38,000 32,000
-------- --------
Total deferred tax assets............................ 74,000 72,000
Deferred tax liabilities:
Other.................................................. (74,000) (57,000)
-------- --------
Total deferred tax asset................................. $ -- $ 15,000
======== ========
</TABLE>
In fiscal 1996 and 1995, the Company utilized approximately $139,000 and
$556,000 of net operating loss carryovers for income tax purposes,
respectively. The Company had previously established a valuation allowance in
conjunction with these net operating loss carryovers, as it was more likely
than not that the tax benefits from such net operating losses would not be
realized. During fiscal 1995 and 1996, the Company reversed valuation
allowances of approximately $222,000 and $55,600, respectively. The Company
reversed its valuation allowance relating to the deferred tax assets as
sufficient taxable income was generated from the normal course of operations
to utilize the net operating loss carryovers. No unused net operating loss
carryovers remain as of December 31, 1997.
5. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Stock Option Plan--In June 1996, the Company's two principal shareholder's
agreed to pursue a strategic plan whereby certain key management individuals
would be granted, as a motivational incentive, a beneficial ownership interest
in the Company, without diluting each of the ownership interests of the
existing two principal shareholder's below 33%. To facilitate this process,
the Board of Directors adopted a stock option plan (the Stock Plan) under
which stock options to acquire shares of the Company's common stock may be
granted to officers, directors and employees of the Company. As such, the
Company began to regularly grant stock options as an incentive to its key
employees and, concurrently granted options to the existing principal
shareholders to avoid
F-11
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
5. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS--(CONTINUED)
dilution of their beneficial ownership below the targeted 33%. The Stock Plan
is administered by a committee appointed by the Board of Directors, and
permits the issuance of options for the purchase of up to 300,000 shares of
the Company's common stock. Stock options must be issued at an exercise price
equal to fair market value of the underlying shares on the date of grant.
Options granted under the Stock Plan vest immediately or upon achievement of
certain operating performance targets. The options expire in ten years and are
subject to other terms and conditions specified in each individual employee
option agreement. A summary of employee stock options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
OF SHARES EXERCISE
(IN THOUSANDS) PRICE
-------------- --------
<S> <C> <C>
Outstanding, January 1, 1996....................... -- $ --
Granted............................................ 195 22.83
--- ------
Outstanding, December 31, 1996..................... 195 22.83
Granted............................................ 59 40.74
Exercised.......................................... (55) 22.83
--- ------
Outstanding, December 31, 1997..................... 199 $28.10
=== ======
</TABLE>
In 1997, the Company granted 28,846 options at an exercise price of $40.74
to certain managers. These options will vest upon the achievement of certain
operating performance goals, primarily branch profitability. Such options have
been accounted for as variable stock options, in which compensation is
measured at the point in time the achievement of such performance goals become
probable. During the period ended July 31, 1998, the Company determined that
it was probable such goals would be reached by all such managers and recorded
$2,175,036 (unaudited) in compensation expense associated with such options.
The following table summarizes information concerning currently outstanding
and exercisable stock options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
NUMBER OF REMAINING AVERAGE AVERAGE
RANGE OF OPTIONS CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$22.83-$40.74....... 199,406 9.29 $28.10 170,560 $25.97
</TABLE>
The Company continues to account for its stock-based awards using the
intrinsic value method in accordance with Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and its related
interpretations. No compensation expense has been recognized in the financial
statements for employee stock arrangements.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net income, had the Company adopted the fair value
method as of the beginning of 1995. Under SFAS No. 123, the fair value of
stock-based awards to employees is calculated through the use of option-
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option
awards. These models also require subjective assumptions, including future
stock price volatility and expected time to exercise, which greatly affect the
calculated values. The Company's calculations were made using the Black-
Scholes option-pricing model, with the following weighted average assumptions:
expected life, 3 years; stock volatility,
F-12
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
5. STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS--(CONTINUED)
1%; risk-free interest rates, 5.95% and 5.87% in 1997 and 1996, respectively;
and no dividends during the expected term. The Company's calculations are
based on a single-option valuation approach and forfeitures are recognized as
they occur. If the computed fair values of the 1997 and 1996 awards had been
amortized to expense over the vesting period of the awards, pro forma net
(loss) income would have been ($43,004) in 1997 and $145,246 in 1996.
Profit Sharing and Pension Plans--Effective January 1, 1990, the Company
amended its profit sharing plan (the Plan) to include a stock bonus feature.
Under this arrangement, the Company has the option of making its annual
matching contribution to the Plan in cash or equivalent fair market value in
shares of its common stock. In March 1996, the Company transferred 10,971 of
its shares to the profit sharing plan as part of its contribution to the plan
in the amount of $200,000.
Under the terms of the Plan, the Company repurchases its common stock to
provide the Plan with the necessary liquidity to pay benefits and other
withdrawals to the Plan participants. Additionally, in certain circumstances,
Plan participants have the right to require the Company to purchase their
stock. The Company has classified the maximum possible cash obligation under
this plan outside of permanent equity. Such amount is accreted as a charge to
retained earnings to reflect the change in value of the underlying stock.
The Plan is a defined contribution plan designed to cover all of the
Company's salaried employees. At December 31, 1997, there were 171 active
employees, 39 eligible but not active, and 134 employees not yet eligible. At
December 31, 1996, there were 142 active employees, 36 eligible but not
active, and 70 employees not yet eligible. In addition to the stock bonus
feature, a 401(k) provision is included and the Company contributes an amount
equal to 50.0% of the participants' salary reduction amount, which is limited
to 5.0% of the participant's annual salary each year.
Effective January 1, 1995, the Company added a 401(k) income deferred plan
for its hourly paid employees to which no matching contributions are paid. At
December 31, 1997, there were 54 active participants, 56 eligible but not
active, and 81 employees not yet eligible. At December 31, 1996, there were 36
active participants, 31 eligible but not active, and 44 employees not yet
eligible.
In February 1997, the Company initiated a cafeteria-type fringe benefits
plan designed to cover all salaried employees who elect to participate. The
plan qualifies as tax deferred under Section 125 of the Internal Revenue Code.
6. LONG-TERM LEASES
The Company leases office space in North Carolina, Georgia, Florida,
Missouri, Tennessee, Texas, and Virginia. It also leases various equipment and
vehicles. The various leases resulted in rent charges of $1,047,288 in 1997
and $782,822 in 1996. Minimum future payments at December 31 under these
noncancelable agreements are:
<TABLE>
<S> <C>
1998.......................................................... $ 876,395
1999.......................................................... 714,943
2000.......................................................... 528,471
2001.......................................................... 68,010
----------
$2,187,819
==========
</TABLE>
7. SUBSEQUENT EVENTS
In March 1998, the Company transferred 4,909 of its shares to the profit
sharing plan as part of its contribution to the plan, with an estimated fair
value of $200,000.
F-13
<PAGE>
SYSTEMS AND PROGRAMMING CONSULTANTS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(AND THE UNAUDITED SEVEN MONTHS ENDED JULY 31, 1997 AND 1998)
7. SUBSEQUENT EVENTS--(CONTINUED)
On June 16, 1998, the Company and Data Processing Resources Corporation
(DPRC) entered into an Agreement and Plan of Merger, which was amended on
October 13, 1998 and October 20, 1998, pursuant to which a wholly-owned
subsidiary of DPRC would be merged with and into the Company, with the Company
surviving the merger and becoming a wholly-owned subsidiary of DPRC. Pursuant
to the Agreement and Plan of Merger, the Company's stockholders will receive
DPRC common stock having an implied value on the date the amendment of October
20, 1998 to the Merger Agreement was signed of $71.5 million less deductions
for certain costs and liabilities to be assumed by DPRC. The total number of
shares of DPRC common stock anticipated to be issued in connection with the
Merger is estimated to be between 2.8 million and 3.3 million. Of such number
of shares, approximately two-thirds are expected to be issued upon
consummation of the Merger in exchange for the outstanding shares of SPC
common stock and for the cancellation of certain SPC stock options and the
remaining number of shares, approximately one-third, will be issued from time
to time thereafter upon exercise of the remaining SPC stock options under the
stock option plan being assumed by DPRC. The merger is anticipated to be tax-
free to Company stockholders and to be accounted for as a pooling of
interests. The consummation of the merger is subject to the approval of the
stockholders of each company and certain other conditions. The consolidated
financial statements as of December 31, 1997 do not reflect any adjustments
that may be necessary as a result of the completion of the proposed merger.
F-14
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
DATA PROCESSING RESOURCES CORPORATION,
DPRC ACQUISITION CORP.,
SYSTEMS & PROGRAMMING CONSULTANTS, INC.
RICHARD K. CARLISLE,
THOMAS G. CARLISLE,
JEFFERY CARTER
and
ROBERT GALLAGHER
Dated June 16, 1998
and
As Amended October 13, 1998 and October 20, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS.................................................... A-1
1.1 Defined Terms.................................................. A-1
1.2 Other Defined Terms............................................ A-4
ARTICLE 2 THE MERGER..................................................... A-5
2.1 The Merger..................................................... A-5
2.2 Consummation of the Merger..................................... A-5
2.3 Articles of Incorporation and Bylaws........................... A-5
2.4 Officers and Directors......................................... A-6
2.5 Effect of the Merger........................................... A-6
ARTICLE 3 CONVERSION OF AND SURRENDER AND PAYMENT FOR SPC COMMON STOCK... A-6
3.1 Conversion..................................................... A-6
3.2 Exchange Ratio................................................. A-8
3.3 Closing of Transfer Books...................................... A-8
3.4 Exchange of Certificates....................................... A-8
3.5 Dissenter's Rights............................................. A-9
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SPC.......................... A-10
4.1 Organization and Qualification of SPC ......................... A-10
4.2 Authorization.................................................. A-10
4.3 Due Execution and Delivery; Binding Obligations................ A-10
4.4 No Conflict or Violation....................................... A-10
4.5 Consents and Approvals......................................... A-11
4.6 Pending Litigation............................................. A-11
4.7 Capitalization of SPC.......................................... A-11
4.8 Financial Statements........................................... A-11
4.9 Undisclosed Liabilities........................................ A-11
4.10 Absence of Certain Changes or Events........................... A-11
4.11 Properties..................................................... A-12
4.12 Books and Records.............................................. A-13
4.13 Intellectual Property.......................................... A-13
4.14 Leases......................................................... A-13
4.15 Receivables.................................................... A-13
4.16 Contracts...................................................... A-13
4.17 Employment Matters............................................. A-14
4.18 Employee Benefits.............................................. A-15
4.19 Transactions with Affiliated Parties........................... A-16
4.20 Certain Payments............................................... A-16
4.21 Taxes.......................................................... A-16
4.22 Compliance with Laws........................................... A-18
4.23 Permits........................................................ A-18
4.24 Insurance...................................................... A-18
4.25 Brokers, Finders, etc. ........................................ A-18
4.26 Subsidiaries................................................... A-18
4.27 Banking Facilities............................................. A-19
4.28 Other Representations.......................................... A-19
4.29 Full Disclosure................................................ A-19
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF THE CONTROLLING
SHAREHOLDERS................................................. A-19
5.1 Authorization................................................ A-19
5.2 Due Execution and Delivery; Binding Obligations.............. A-19
5.3 No Conflict or Violation..................................... A-19
5.4 Consents and Approvals....................................... A-20
5.5 Title to SPC Common Stock.................................... A-20
5.6 SPC's Representations and Warranties......................... A-20
5.7 Other Representations........................................ A-20
5.8 Full Disclosure.............................................. A-20
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF DPRC AND ACQUISITION....... A-20
6.1 Organization................................................. A-20
6.2 Authorization................................................ A-21
6.3 Due Execution and Delivery; Binding Obligations.............. A-21
6.4 No Conflict or Violation..................................... A-21
6.5 Consents and Approvals....................................... A-21
6.6 Financial Statements and Reports ............................ A-21
6.7 Accounting Matters........................................... A-22
ARTICLE 7 SHAREHOLDER APPROVAL......................................... A-22
7.1 Shareholder Meetings......................................... A-22
7.2 Proxy Statement-Prospectus; Registration Statement........... A-22
7.3 Amendments or Supplements to the Proxy Statement-Prospectus;
Registration Statement....................................... A-22
ARTICLE 8 OTHER COVENANTS AND AGREEMENTS............................... A-23
8.1 Conduct Prior to the Effective Date.......................... A-23
8.2 Access to Properties and Records............................. A-23
8.3 Negotiations................................................. A-24
8.4 Affiliates Agreements........................................ A-24
8.5 Pooling of Interests......................................... A-24
8.6 Employee Benefits............................................ A-24
8.7 Commercially Reasonable Efforts.............................. A-24
8.8 Financial Statements......................................... A-25
8.9 Tax Treatment; Tax Opinion................................... A-25
8.10 Public Announcements......................................... A-25
ARTICLE 9 CONDITIONS TO THE MERGER..................................... A-25
9.1 Conditions to Each Party's Obligation to Effect the Merger... A-25
9.2 Conditions to the Obligation of SPC to Effect the Merger..... A-26
Conditions to Obligation of DPRC and Acquisition to Effect
9.3 the Merger................................................... A-26
ARTICLE 10 TERMINATION PRIOR TO CLOSING................................. A-28
10.1 Termination.................................................. A-28
10.2 Effect of Termination........................................ A-28
10.3 Effect of Obligations........................................ A-29
ARTICLE 11 POST CLOSING................................................. A-29
11.1 Survival of Representations and Warranties................... A-29
11.2 Indemnification Obligations.................................. A-29
11.3 Tax-Free Treatment........................................... A-31
11.4 Stock Options................................................ A-31
11.5 Board Representation......................................... A-31
11.6 Transfers To Be Effected By Market Maker..................... A-31
11.7 Expenses..................................................... A-31
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 12 MISCELLANEOUS PROVISIONS...................................... A-32
12.1 Entire Agreement.............................................. A-32
12.2 Governing Law and Choice of Forum............................. A-32
12.3 Interpretation................................................ A-32
12.4 Waiver and Amendment.......................................... A-32
12.5 Assignment.................................................... A-32
12.6 Successors and Assigns........................................ A-33
12.7 Notices....................................................... A-33
12.8 Severability.................................................. A-33
12.9 Specific Performance.......................................... A-33
12.10 Cumulative Remedies........................................... A-33
12.11 Warranty of Authority......................................... A-33
12.12 Counterparts.................................................. A-34
</TABLE>
iv
<PAGE>
LIST OF EXHIBITS
<TABLE>
<C> <S>
A Seller Adjusted Net Worth at the Balance Sheet Date
B Seller Adjusted Working Capital at the Balance Sheet Date
C Tax & Other Liabilities
D Option Cancellation Agreement
E Escrow Agreement
F Form of SPC Affiliates Agreement
G Form of DPRC Affiliates Agreement
H Form of Executive Employment Agreement
I Form of Noncompetition Agreement
J Form of Other Employment Agreements
</TABLE>
LIST OF SCHEDULES
<TABLE>
<C> <S>
1.1 List of Key Persons
4.1 Articles and Bylaws of SPC
4.4 Certain Conflicts or Violations
4.5 SPC's Consents and Approvals
4.6 SPC's Litigation
4.7 Capitalization of SPC
4.8 Financial Statements
4.9 Undisclosed Liabilities
4.10 Certain Changes or Events
4.11 Properties
4.13 Intellectual Property
4.14 Leases
4.15 Receivables
4.16 Contracts and Major Customers
4.17 Employment Matters
4.18 Employee Benefit Plans
4.19 Transactions With Affiliated Parties
4.21 Tax Matters
4.23 Permits
4.24 Insurance
4.27 Banking Facilities
6.5 DPRC's Consents and Approvals
11.4 Stock Options
</TABLE>
v
<PAGE>
AGREEMENT AND PLAN OF MERGER, AS AMENDED
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of this 16th day of June 1998, by and among Data Processing Resources
Corporation, a California corporation ("DPRC"), DPRC Acquisition Corp., a
North Carolina corporation and a wholly-owned subsidiary of DPRC
("Acquisition"), Systems & Programming Consultants, Inc., a North Carolina
corporation ("SPC"), Richard K. Carlisle, an individual ("R. Carlisle"),
Thomas G. Carlisle, an individual ("T. Carlisle"), Jeffery Carter, an
individual ("Carter"), Robert Gallagher, an individual ("Gallagher"). R.
Carlisle, T. Carlisle, Carter and Gallagher are collectively referred to
herein as the "Controlling Shareholders" and sometimes individually referred
to as a "Controlling Shareholder."
RECITALS
A. SPC is engaged in the business of providing information technology
consulting services to its corporate clients (the "Business").
B. The Controlling Shareholders collectively own, and are the record holders
of, at least a majority of all of the issued and outstanding shares of capital
stock of SPC.
C. The Boards of Directors of DPRC, Acquisition and SPC have each determined
that it is advisable and in the best interests of their respective
shareholders for each to enter into a business combination with SPC on the
terms and subject to the conditions of this Agreement.
D. In furtherance of such combination, the Boards of Directors of DPRC,
Acquisition and SPC have each approved the merger (the "Merger") of
Acquisition with and into SPC in accordance with the applicable provisions of
the North Carolina Business Corporation Act (the "North Carolina Law").
E. DPRC, Acquisition and SPC also intend, by approving resolutions
authorizing this Agreement, to adopt this Agreement as a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder.
F. DPRC, Acquisition and SPC also intend that the Merger will be accounted
for as a pooling-of-interests under generally accepted accounting principles.
AGREEMENT
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.
"Aged Receivables" shall mean the amount of the Receivables at the
Effective Date which have aged for more than 90 days after the date of the
initial invoice therefor.
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"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
consultants, 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 SPC 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.
"Contracts" shall mean all of the contracts, licenses, Leases,
arrangements, understandings or other agreements related in any way to the
Business, including, without limitation, all of the Contracts described on
Schedules 4.13, 4.14 and 4.16 hereto.
"Damages" shall mean 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.
"Employee Benefit Plan(s)" shall mean: (a) Any "employee welfare benefit
plan," as defined in Section 3(1) of ERISA, (i) which SPC sponsors or to
which SPC contributes or is required to contribute, or under which SPC may
incur any liability, and (ii) which covers an employee or former employee
of SPC including each multi-employer welfare benefit plan; (b) any "multi-
employer plan," as defined in Section 4001(a)(3) of ERISA, (i) to which SPC
(or any person which is a member of a "controlled group of corporations"
with or under "common control" with SPC 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 SPC may incur any liability, and (ii)
which covers an employee or former employee of SPC; (c) any "employee
pension benefit plan," as defined in Section 3(2) of ERISA, (i) which SPC
sponsors or to which SPC or any Common Control Entity contributes or is
required to contribute or under which SPC may incur any liability, and (ii)
which covers an employee or former employee of SPC; 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 SPC which covers an
employee or former employee of SPC.
"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.
"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.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Hazardous Materials" shall mean asbestos, petroleum products,
underground tanks of any type and all other materials now or hereafter
defined as "hazardous substances", "hazardous wastes", "toxic substances"
or "solid wastes", or otherwise now or hereafter listed or regulated
pursuant to the following Laws (collectively, "Environmental Laws"): The
Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. (S) 9601 et seq., and any amendments thereto; the Resource
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., and any
amendments thereto; the Hazardous Materials Transportation Act, 49 U.S.C.
(S) 1801 et seq.; and any other similar federal, state or local statute,
regulation, ordinance, order, decree, or any other Law, common law theory
or reported decision of any state or federal court, as now or at any time
hereafter in effect, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic or dangerous waste, substance or
material.
"Intellectual Property" shall mean all of SPC's intellectual property
rights including, without limitation, all of SPC's (a) common law, state,
federal and statutory rights in any trademarks, trademark
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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 SPC in connection with the conduct of the Business in which SPC has any
interest whatsoever, whether or not registered, including rights or
obligations under any license agreement with any other person.
"Key Person" shall mean any officer, director, branch manager, recruiter
or marketer of SPC, including, without limitation, those persons set forth
on Schedule 1.1 hereto.
"Laws" shall mean all foreign, federal, state or local statutes,
regulations, ordinances, orders, decrees, or any other laws, common law
theories or reported decisions of any foreign, federal or state court
including, without limitation, now or at any time hereafter in effect.
"Leases" shall mean all leases, subleases, licenses and other occupancy
or lease agreements, together with all amendments, supplements and
nondisturbance agreements pertaining thereto, under which SPC leases,
subleases, licenses, occupies or uses any real or personal property.
"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.
"Representatives" shall mean any officer, director, principal,
shareholder, partner, attorney, accountant, advisor, agent, trustee,
employee or other representative of a party.
"Securities Act" shall mean the Securities Exchange Act of 1933, as
amended, and the rules and regulations promulgated thereunder.
"SPC Adjusted Net Worth" shall mean the difference between (a) all of the
assets of SPC, and (b) all of the liabilities of SPC other than the SPC Tax
and Other Liabilities, as determined in accordance with generally accepted
accounting principles. The SPC Adjusted Net Worth at the Balance Sheet Date
is shown on Exhibit A attached hereto. The SPC Adjusted Net Worth at the
Effective Date shall be determined in the same manner used by the parties
to determine the SPC Adjusted Net Worth at the Balance Sheet Date.
"SPC Adjusted Working Capital" shall mean the difference between (a) all
of the current assets of SPC, and (b) all of the current liabilities of SPC
other than the current portion of the SPC Tax and Other Liabilities, as
determined in accordance with generally accepted accounting principles. The
SPC Adjusted Working Capital at the Balance Sheet Date is shown on Exhibit
B attached hereto. The SPC Adjusted Working Capital at the Effective Date
shall be determined in the same manner used by the parties to determine the
SPC Adjusted Working Capital at the Balance Sheet Date.
"SPC Tax and Other 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 SPC at the
Effective Date, whether such liabilities are current or deferred. The SPC
Tax and Other Liabilities at the Balance Sheet Date are shown on Exhibit C
attached hereto. To the extent applicable, the SPC Tax and Other
Liabilities at the Effective Date shall be determined in the same manner
used by the parties to determine the SPC Tax and Other Liabilities at the
Balance Sheet Date.
"Subsidiary" shall mean any corporation, partnership, limited liability
company or partnership, joint venture or other entity in which a party
either owns capital stock or is a partner or is in some other manner
directly or indirectly affiliated through a direct or indirect investment
or participation in the equity of such entity and "Subsidiaries" shall mean
all such entities in which a party has any interest.
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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>
Acquisition.................................................. Preamble
Acquisition Proposal......................................... 8.3(a)
Affiliate.................................................... 4.22
Adjusted Option.............................................. 3.1(d)(i)(A)
Affiliated Party(ies)........................................ 4.19
Aggregate Number of DPRC Shares.............................. 3.2
Agreement.................................................... Preamble
Ancillary Agreements......................................... 4.2
Appraised Value.............................................. 9.3(q)
Articles of Merger........................................... 2.2
Balance Sheet................................................ 4.8
Balance Sheet Date........................................... 4.8
Board........................................................ 11.5
Brunswick County Property.................................... 9.3(q)
Business..................................................... Recital A
Carter....................................................... Preamble
Code......................................................... Recital E
Controlling Shareholder(s)................................... Preamble
Controlling Shareholder Representatives...................... 11.2(b)
Dissenting Shares............................................ 3.5
Dissenting Shareholder....................................... 3.5
DPRC......................................................... Preamble
DPRC Affiliates Agreement.................................... 8.4
DPRC Applicable Share Value.................................. 3.2(c)
DPRC Common Stock............................................ 3.1(a)
DPRC Meeting................................................. 7.1
DPRC Representative.......................................... 11.2(a)
DPRC SEC Filings............................................. 6.6
DPRC 10-K.................................................... 6.6
Effective Date............................................... 2.2
Escrow Agent................................................. 3.4(b)
Escrow Agreement............................................. 3.4(b)
Exchange Ratio............................................... 3.1(a)
Executive Employment Agreement............................... 9.2(g)
Financial Statements......................................... 4.8
Gallagher.................................................... Preamble
Indemnitee................................................... 11.2(c)
Indemnitor................................................... 11.2(c)
Major Customers.............................................. 4.16(b)
Merger....................................................... Recital D
Merger Consideration......................................... 3.2(b)
Merger Costs and Expenses.................................... 11.7
Merger Documents............................................. 2.2
Noncompetition Agreements.................................... 9.3(l)
North Carolina Law........................................... Recital D
Option Cancellation Agreement................................ 3.1(d)(ii)
Other Employment Agreements.................................. 9.3(m)
Outside Date................................................. 10.1(d)
Outstanding SPC Common Stock................................. 3.1(a)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- ------------
<S> <C>
Outstanding SPC Performance Options.......................... 3.1(d)(ii)
Outstanding SPC Time Options................................. 3.1(d)(i)(A)
Performance Optionholders.................................... 3.1(d)(ii)
Performance Option Shares.................................... 3.1(d)(ii)
Plan......................................................... 11.4
Proxy Statement-Prospectus................................... 7.2
R. Carlisle.................................................. Preamble
Receivables.................................................. 4.15
Registration Statement....................................... 7.2
SEC.......................................................... 4.22
Shareholders................................................. 4.7
SPC.......................................................... Preamble
SPC Affiliates Agreement..................................... 8.4
SPC Common Stock............................................. 3.1(a)
SPC Meeting.................................................. 7.1
SPC Real Property............................................ 4.11
SPC Stock Plans.............................................. 3.1(d)(i)(A)
SPC Taxes.................................................... 4.21(a)
Staff........................................................ 7.2
Survival Date................................................ 11.1
Surviving Corporation........................................ 2.1
T. Carlisle.................................................. Preamble
Tax Returns.................................................. 4.21(c)
Transfer..................................................... 11.6
Time Optionholders........................................... 3.1(d)(i)(D)
Unbilled Receivables......................................... 4.15
</TABLE>
ARTICLE 2
THE MERGER
2.1 The Merger. On the terms and subject to the conditions of this
Agreement, on the Effective Date, in accordance with the North Carolina Law,
Acquisition shall be merged with and into SPC, and the separate existence of
Acquisition shall cease and SPC shall continue as the surviving corporation
(the "Surviving Corporation") under the Laws of the State of North Carolina
under the name "Systems & Programming Consultants, Inc."
2.2 Consummation of the Merger. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
9, below, the parties shall cause the Merger to be consummated by filing
articles of merger (the "Articles of Merger") with the Secretary of State of
the State of North Carolina, in such form as may be required by, and executed
and acknowledged in accordance with, the relevant provisions of the North
Carolina Law, and the parties shall make all other filings and recordings
required by the North Carolina Law in connection with the Merger (such
documents being referred to collectively as the "Merger Documents"). The
Merger shall become effective at the time of filing of the appropriate Merger
Documents with the Secretary of State of the State of North Carolina, or at
such later time, which shall be as soon as reasonably practicable thereafter,
specified as the effective time in the Merger Documents (the "Effective
Date").
2.3 Articles of Incorporation and Bylaws. The Articles of Incorporation of
SPC, as in effect immediately prior to the Effective Date, shall be amended
and restated as of the Effective Date so that the articles thereof read in
their entirety as the articles set forth in the Articles of Incorporation of
Acquisition, as in effect immediately prior to the Effective Date. As so
amended, such Articles of Incorporation shall be the Articles of
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<PAGE>
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable Law. The Bylaws of SPC, as in effect
immediately prior to the Effective Date, shall be amended and restated as of
the Effective Date so that the provisions thereof read in their entirety as
the provisions set forth in the Bylaws of Acquisition, as in effect
immediately prior to the Effective Date. As so amended, such Bylaws shall be
the Bylaws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable Law.
2.4 Officers and Directors. The directors of Acquisition immediately prior
to the Effective Date shall be the initial directors of the Surviving
Corporation, and the officers of Acquisition immediately prior to the
Effective Date shall be the initial officers of the Surviving Corporation, in
each case, until their respective successors are duly elected or appointed and
qualified. The directors of SPC immediately prior to the Effective Date shall
resign from their positions as directors of SPC, effective as of the Effective
Date.
2.5 Effect of the Merger. The Merger shall have the effects set forth in
Section 55-11-06 of the North Carolina Law.
ARTICLE 3
CONVERSION OF AND SURRENDER AND
PAYMENT FOR SPC COMMON STOCK
3.1 Conversion. On the terms and subject to the conditions of this
Agreement, at the Effective Date, by virtue of the Merger, and without any
further action on the part of DPRC, Acquisition, SPC or any of their
respective shareholders:
(a) Outstanding SPC Common Stock. Each share of common stock, no par
value per share, of SPC (the "SPC Common Stock") issued and outstanding
immediately prior to the Effective Date (the "Outstanding SPC Common
Stock"), other than shares of the SPC Common Stock, if any, held in the
treasury of SPC, shall be converted into, and certificates formerly
representing such shares of SPC Common Stock shall represent, the right to
receive consideration consisting of the number of shares of common stock,
no par value per share, of DPRC ("DPRC Common Stock") determined by the
product obtained by multiplying each share of DPRC Common Stock by a
certain ratio (the "Exchange Ratio"), as determined in accordance with the
applicable provisions of Section 3.2, below. The shares of DPRC Common
Stock issuable in connection with the Merger and cash payable in lieu of
fractional shares in connection with the Merger are generally referred to
as the "Share Consideration."
(b) Treasury Shares Held by SPC. All shares of SPC Common Stock which are
held by SPC, if any, shall be canceled and retired and shall cease to exist
and no stock of DPRC or other consideration shall be delivered in exchange
therefor.
(c) Capital Stock of Acquisition. Each issued and outstanding share of
common stock, no par value per share, of Acquisition shall be converted
into one share of common stock, no par value, of the Surviving Corporation.
(d) Outstanding SPC Stock Options.
(i) Time Vesting Options.
(A) As soon as practicable following the date of this Agreement,
the Board of Directors of SPC (or, if appropriate, any committee
administering the SPC Stock Plans shall adopt such resolutions or
take such other actions as may be required to effect the following:
(A) adjust the terms of all outstanding, fully vested options to
purchase shares of SPC Common Stock ("Outstanding SPC Time
Options"), granted under any plan or arrangement providing for the
grant of options to purchase shares of SPC Common Stock to current
or former officers, directors, employees or consultants of SPC (the
"SPC Stock Plans"), as necessary to provide that, at the
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Effective Date, each Outstanding SPC Stock Option shall be amended
and converted into an option to acquire, on similar terms and
conditions as were applicable under the Outstanding SPC Time Option,
the number of shares of DPRC Common Stock (rounded down to the
nearest whole share) determined by multiplying the number of shares
of SPC Common Stock subject to such Outstanding SPC Time Option by
the Exchange Ratio, at a price per share of DPRC Common Stock equal
to the exercise price per share of SPC Common Stock previously
purchasable pursuant to such Outstanding SPC Stock Option divided by
the Exchange Ratio (each, as so adjusted, an "Adjusted Option");
provided that, such exercise price shall be rounded up to the
nearest whole cent; and (B) make such other changes to the
Outstanding SPC Stock Plans as DPRC and SPC may agree are
appropriate to give effect to the Merger.
(B) On the Effective Date by virtue of the Merger and without the
need of any further corporate action, the Surviving Corporation
shall assign to DPRC, and DPRC shall assume from the Surviving
Corporation, all obligations of SPC under the SPC Stock Plans,
including with respect to the Outstanding SPC Time Options.
(C) Promptly after the Effective Date, DPRC shall prepare and file
with the SEC a registration statement on Form S-8 (or another
appropriate form) registering a number of shares of DPRC Common
Stock equal to the number of shares subject to the Adjusted Options.
Such registration statement shall be kept effective (and the current
status of the initial offering prospectus or prospectuses required
thereby shall be maintained) at least for so long as any Adjusted
Options may remain outstanding.
(D) As soon as practicable after the Effective Date, DPRC shall
deliver to the holders of Outstanding SPC Time Options (the "Time
Optionholders") appropriate notices setting forth such Time
Optionholders' rights pursuant to the respective SPC Stock Plans and
the agreements evidencing the grants of such Outstanding SPC Time
Options and that such Outstanding SPC Time Options and agreements
shall be assumed by DPRC and shall continue in effect on the same
terms and conditions (subject to the adjustments required by this
Section 3.1(d) after giving effect to the Merger).
(E) Except as otherwise contemplated by this Section 3.1(d) and
except to the extent required under the respective terms of the
Outstanding SPC Time Options or other applicable agreements, all
restrictions or limitations on transfer and vesting with respect to
Outstanding SPC Time Options awarded under the SPC Stock Plans or
any other plan, program or arrangement of SPC, to the extent that
such restrictions or limitations shall not have already lapsed,
shall remain in full force and effect with respect to such options
after giving effect to the Merger and the assumption by DPRC as set
forth above.
(ii) Performance Vesting Options. On or before the Effective Date,
SPC shall cause each of the holders (the "Performance Optionholders")
of outstanding options to purchase shares of SPC Common Stock other
than Outstanding SPC Time Options (the "Outstanding SPC Performance
Options") who has not exercised his or her Outstanding SPC Performance
Options prior to the Effective Date, to execute an option cancellation
agreement (the "Option Cancellation Agreement") in the form of Exhibit
D hereto, to cancel such Performance Optionholders' rights under his or
her Outstanding SPC Performance Option in consideration of his or her
right to receive that number of shares of DPRC Common Stock
(collectively, the "Performance Option Shares") having a value as of
the relevant valuation date equal to the fair market value of his or
her Outstanding SPC Performance Option.
(e) Fractional Shares. No fraction of a share of DPRC Common Stock will
be issued in the Merger, but, in lieu thereof, each holder of SPC Common
Stock who would otherwise be entitled to a fraction of a share of DPRC
Common Stock (after aggregating all fractional shares of DPRC Common Stock
to be received by such holder) will be entitled to receive from DPRC an
amount of cash (rounded to the nearest whole cent) equal to the product of
such fraction multiplied by the DPRC Applicable Share Value.
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<PAGE>
3.2 Exchange Ratio. The Exchange Ratio shall be equal to the aggregate
number of shares of DPRC Common Stock to be issued or reserved for issuance in
connection with the closing of the Merger (as determined pursuant to Section
3.2(a), below) (the "Aggregate Number of DPRC Shares") divided by (a) the
aggregate number of shares of Outstanding SPC Common Stock, plus (b) the
aggregate number of shares of SPC Common Stock subject to exercise under all
Outstanding SPC Time Options, and computed as follows (where "A" is the
Aggregate Number of DPRC Shares, "X" is the aggregate number of shares of
Outstanding SPC Common Stock, and "Y" is the aggregate number of shares of SPC
Common Stock subject to exercise under all Outstanding SPC Time Options:
Exchange Ratio = A / (X + Y)
For example, assuming that the Aggregate Number of DPRC Shares is 2,812,241
(as determined under the example set forth in Section 3.2(a), below), the
aggregate number of shares of Outstanding SPC Common Stock is 332,936, and the
aggregate number of shares of SPC Common Stock subject to exercise under all
Outstanding SPC Time Options is 170,560, then the Exchange Ratio would be
approximately 5.59 (i.e., 2,812,241 / [332,936 + 170,560] = 5.5854286).
(a) Determination of the Aggregate Number of DPRC Shares. The Aggregate
Number of DPRC Shares will be a function of (i) the Merger Consideration
(as determined pursuant to Section 3.2(b), below), (ii) the aggregate
number of Performance Option Shares, and (iii) the DPRC Applicable Share
Value (as determined pursuant to Section 3.2(c), below), and computed as
follows (where "A" is the Aggregate Number of DPRC Shares, "M" is the
Merger Consideration, "O" is the aggregate number of Performance Option
Shares, and "P" is the DPRC Applicable Share Value):
A = ($M / P) - O
For example, assuming that the Merger Consideration is $84,255,000 million,
the aggregate number of Performance Option Shares is 93,103, and the DPRC
Applicable Share Value is $29, then the Aggregate Number of DPRC Shares
would be 2,812,241 (i.e., [$84,255,000/ $29] - 93,103 = 2,812,241.8).
(b) Determination of the Merger Consideration. The "Merger Consideration"
shall be the amount equal to Seventy-One Million Five Hundred One Thousand
Dollars ($71,501,000), less the SPC Tax and Other Liabilities at the
Effective Date, less the amount of the Aged Receivables at the Effective
Date, less the Merger Cost and Expenses, less the aggregate amount of the
payments made to the Controlling Shareholders pursuant to Section 5 of the
Noncompetition Agreement, less one-half of the prepayment penalty disclosed
on Schedule 4.27(b) hereto.
(c) Determination of DPRC Applicable Share Value. The "DPRC Applicable
Share Value" shall be $21.00.
3.3 Closing of Transfer Books. At the Effective Date, the stock transfer
books of SPC shall be closed, and no transfer of shares of SPC Common Stock
shall thereafter be made. If, after the Effective Date, certificates
previously representing shares of SPC Common Stock are presented to the
Surviving Corporation, they shall be canceled and exchanged for the Merger
Consideration as provided in Section 3.1(a), above.
3.4 Exchange of Certificates.
(a) Exchange Procedures. As soon as practicable after the Effective Date,
DPRC shall send a notice and transmittal form to each holder of record of
Outstanding SPC Common Stock advising such holder of the effectiveness of
the Merger and the procedure for surrendering to DPRC the certificate or
certificates to be exchanged pursuant to the Merger. Upon the surrender for
exchange of such a certificate, together with such letter of transmittal
duly completed and properly executed in accordance with instructions
thereto and
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such other documents as may be required pursuant to such instructions,
subject to Section 3.4(b), below, the holder of such certificate shall be
paid promptly, without interest thereon, the number of shares of DPRC
Common Stock and any cash in lieu of fractional shares to which such holder
is entitled hereunder, and such certificate shall forthwith be canceled.
Until so surrendered and exchanged, each certificate which immediately
prior to the Effective Date represented Outstanding SPC Common Stock (other
than treasury shares) shall (i) be deemed not outstanding, and (ii) shall
represent solely the right to receive the DPRC Common Stock into which the
SPC Common Stock it theretofore represented shall have been converted into
the right to receive pursuant to Section 3.1(a), above, and cash in lieu of
fractional shares pursuant to Section 3.1(e), above. Until such time as a
certificate representing DPRC Common Stock is issued to, or at the
direction of, the holder of a surrendered certificate, such DPRC Common
Stock shall be deemed not outstanding and shall not be entitled to vote on
any matter. No dividends or other distributions with respect to DPRC Common
Stock with a record date after the Effective Date shall be paid to the
holder of any certificate formerly representing SPC Common Stock with
respect to shares of DPRC Common Stock issuable upon surrender thereof, and
no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to Section 3.1(e), above, until the surrender of such
certificate in accordance with this Section 3.4(a). Subject to applicable
Law, following surrender of any such certificate, there shall be paid to
the holder of the certificate representing whole shares of DPRC Common
Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional
share of DPRC Common Stock to which such holder is entitled pursuant to
Section 3.1(e), above, and the amount of dividends or other distributions
with a record date after the Effective Date theretofore payable with
respect to such whole shares of DPRC Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Date but prior to such surrender and
a payment date subsequent to such surrender payable with respect to such
whole shares of DPRC Common Stock. If the DPRC Common Stock issued with
respect to any SPC Common Stock is to be delivered to a person other than
the person in whose name the certificates for such SPC Common Stock are
registered, it shall be a condition of such delivery that the person
requesting such delivery shall pay to DPRC any transfer or other taxes
required by reason of the delivery of such certificates to a person other
than the registered holder of the certificates surrendered or shall
establish to the satisfaction of DPRC that such tax has been paid or is not
applicable.
(b) Escrowed Shares. Notwithstanding anything in this Agreement to the
contrary, that number of shares of DPRC Common Stock which, when multiplied
by the DPRC Applicable Share Value, equals Seven Million Dollars
($7,000,000), shall be withheld from the Controlling Shareholders (pro rata
in accordance with their respective ownership interests of SPC Common
Stock, as determined on a fully-exercised basis of all Outstanding SPC Time
Options) and shall be deposited in escrow and held by an escrow agent (the
"Escrow Agent") pursuant to an escrow agreement in substantially the form
attached hereto as Exhibit E (the "Escrow Agreement"), to secure claims by
DPRC for the indemnification obligations of the Controlling Shareholders
pursuant to Section 11.2(a) , below. All costs and expenses of the Escrow
Agent in connection with the Escrow Agreement shall be paid by DPRC.
Notwithstanding the foregoing, no more than 10% of the total number of
shares of DPRC Common Stock issued in exchange for the outstanding shares
of SPC Common Stock plus 10% of the total number of shares of DPRC Common
Stock issued in cancellation of the Outstanding SPC Performance Options in
connection with the Merger shall be deposited in escrow and held by the
Escrow Agent pursuant to the Escrow Agreement.
3.5 Dissenter's Rights. Any shares of Outstanding SPC Common Stock as to
which the holder has perfected rights of dissent in accordance with Article 13
of the North Carolina Law ("Dissenting Shares") shall not be converted into
the Share Consideration but shall be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to Article 13 of the North Carolina Law. SPC shall give DPRC
prompt written notice of any demand received by SPC for appraisal of
Outstanding SPC Common Stock, and DPRC shall have the right to participate in
all negotiations and proceedings with respect to such demand. SPC agrees that,
except with the prior written consent of DPRC, or as
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required under the North Carolina Law, it will not voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
appraisal. Each record holder of Dissenting Shares (a "Dissenting
Shareholder") who, pursuant to the North Carolina Law becomes entitled to
payment of the value of shares of Outstanding SPC Common Stock shall receive
payment therefor from SPC, except as provided herein (but only after the value
therefor shall have been agreed upon or finally determined pursuant to such
provisions). In the event of the legal obligation, after the Effective Date,
to deliver cash to any Dissenting Shareholder who shall have failed to make an
effective demand for appraisal or shall have lost his status as a Dissenting
Shareholder, DPRC shall pay, upon surrender by such Dissenting Shareholder of
his certificate or certificates representing shares of Outstanding SPC Common
Stock, the cash to which such Dissenting Shareholder is then entitled under
the North Carolina Law.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SPC
SPC hereby represents and warrants to DPRC that the following statements are
true and complete and not misleading as of the date of this Agreement:
4.1 Organization and Qualification of SPC. SPC is a corporation duly
organized, validly existing and in good standing under the Laws of the State
of North Carolina. SPC has the requisite corporate power and authority to own
and operate the Business and to carry on the Business as presently conducted.
SPC 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. Copies of SPC's Articles of Incorporation,
certified by the Secretary of State of the State of North Carolina, and
Bylaws, certified by SPC's Secretary, each of which is attached hereto as
Schedule 4.1, is complete and correct and, since the respective dates of
certification thereof, there have not been any amendments to such Articles of
Incorporation or Bylaws.
4.2 Authorization. SPC has the requisite power, authority and legal right
and capacity to enter into this Agreement and the agreements attached as
Exhibits hereto (the "Ancillary Agreements"), to the extent that SPC is a
party thereto, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by SPC of this Agreement and the Ancillary Agreements
have been duly authorized by all necessary corporate action on the part of SPC
to make this Agreement and the Ancillary Agreements to which SPC is a party
valid and binding upon SPC in accordance with their respective terms.
4.3 Due Execution and Delivery; Binding Obligations. This Agreement has been
and, on the Effective Date, each of the Ancillary Agreements (to the extent
SPC is a party thereto) shall be, duly executed and delivered by SPC. This
Agreement constitutes and, on the Effective Date, each of the Ancillary
Agreements (to the extent SPC is a party thereto) shall constitute, the legal,
valid and binding agreement and obligation of SPC, enforceable against SPC in
accordance with their 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.
4.4 No Conflict or Violation. Except as set forth on Schedule 4.4 hereto,
neither the execution and delivery of this Agreement and the Ancillary
Agreements by SPC nor the consummation of the transactions contemplated hereby
and thereby, will result in (a) a violation of, or a conflict with, SPC's
charter documents or any subscription, shareholders' or similar types of
agreements or understandings to which SPC 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, Encumbrance or Permit to which SPC is a party or by which
the Business is bound or affected, unless breach, default, acceleration or
termination can be avoided by giving timely notice of
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the execution and delivery of this Agreement and the Ancillary Agreements in
advance of the consummation of the transactions contemplated hereby or
thereby; (c) a violation by SPC of any applicable Law; (d) a violation by SPC
of any order, judgment, writ, injunction decree or award to which SPC is a
party or by which the Business is affected; or (e) an imposition of any
Encumbrance.
4.5 Consents and Approvals. Except as set forth on Schedule 4.5 hereto, no
consent, notice, 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
SPC 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 any Contract, or the
creation of Encumbrances on any of the assets or properties of SPC pursuant to
the terms of any Law, or to enable DPRC to continue the lawful and efficient
operation of the Business following the Closing as presently conducted and as
presently proposed to be conducted, except for the approval of the Merger by
the shareholders of SPC and applicable requirements, if any, of the Securities
Act, the Exchange Act, state securities Laws, and the filing and recordation
of the Merger Documents as required by the North Carolina Law.
4.6 Pending Litigation. Except as disclosed on Schedule 4.6 hereto, there is
no pending or, to SPC's knowledge, threatened Action, whether private or
public, affecting SPC 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, SPC's assets or properties, or SPC's ability to consummate the
transactions contemplated by or perform its obligations under this Agreement
or any of the Ancillary Agreements.
4.7 Capitalization of SPC. The authorized capital stock of SPC consists of
1,000,000 shares of common stock, of which 332,936 shares are issued and
outstanding, and 800,000 shares of preferred stock, $1.00 par value per share,
of which no shares are issued and outstanding. The issued and outstanding
shares of capital stock of SPC consist solely of the SPC Common Stock, which
is more specifically described on Schedule 4.7 hereto, and are held entirely
by the persons set forth on Schedule 4.7 hereto (collectively, the
"Shareholders"). SPC does not hold any shares of SPC Common Stock. Except as
set forth on Schedule 4.7 hereto, there is not outstanding any subscription,
option, warrant, call, right or other agreement or commitment obligating SPC
to issue, sell, deliver or transfer (including any right of conversion or
exchange under any outstanding security or other instrument) any shares of the
SPC Common Stock or any other shares of the capital stock of SPC. All of the
shares of the SPC Common Stock are duly and validly authorized, issued and
outstanding, fully paid and non-assessable.
4.8 Financial Statements. SPC has furnished to DPRC copies of: (a) the
audited balance sheets of SPC at December 31, 1997, 1996 and 1995, and the
related statements of income, shareholders' equity and cash flows for the
periods ended, together with the related notes thereto and the auditors'
report thereon, and (b) SPC's internally prepared balance sheet (the "Balance
Sheet") at April 30, 1998 (the "Balance Sheet Date"), and the related
statements of income for the period then ended. All financial statements
referred to in this Section 4.8 (the "Financial Statements") are complete and
correct, except as set forth on Schedule 4.8 hereto, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the respective periods, and fairly present the
financial condition of SPC as at the respective dates thereof and the results
of operations of SPC for the respective periods covered by the statements of
income contained therein. The Financial Statements are attached hereto as
Schedule 4.8. All reserves and accruals made by SPC in the Financial
Statements are appropriate and adequate for all known or anticipated
liabilities. At the Effective Date, SPC Adjusted Working Capital shall be at
least $3.2 million and SPC Adjusted Net Worth shall be at least $3.7 million.
4.9 Undisclosed Liabilities. Except as set forth on Schedule 4.9 hereto, SPC
does not have any liabilities or obligations (absolute, accrued, contingent or
otherwise) related to the 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.
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4.10 Absence of Certain Changes or Events. Since December 31, 1997, except
as set forth on Schedule 4.10 hereto, there has not been any:
(a) Amendment to SPC's Articles of Incorporation or Bylaws; issuance of
any shares of the capital stock of SPC; 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
SPC 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 SPC;
distribution in respect of the capital stock of SPC; or purchase or
redemption, directly or indirectly, of any shares of the capital stock of
SPC;
(c) Increase in the salary or other compensation payable or to become
payable by SPC to any of its Key Persons; the declaration, payment, or
commitment or obligation of any kind for the payment, by SPC, of a bonus or
other additional salary or compensation to any such Key Person; the
repayment by SPC of any loan from any such Key Person; or the payment by
SPC of any accrued but unpaid salaries, distributions or any other
payments, whether in cash or property, to any such Key Person;
(d) Change in accounting methods or practices by SPC (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 $20,000; or capital expenditure, or the incurring of any
obligation to make any capital expenditure, by SPC in excess of $20,000;
(f) Agreement entered into to provide technical contractors at other than
a "time and materials" basis or at a fixed bid, discounted or decelerating
rate, or pursuant to or subject to a capped or limited fee arrangement;
(g) Payment by or on behalf of SPC of any obligation or liability,
whether fixed or contingent, other than current liabilities; waiver or
compromise by SPC of any right or claim; or cancellation by SPC, without
full payment, of any note, loan or other obligation owed to SPC;
(h) Failure to pay or satisfy when due any obligation of SPC except where
such failure would not adversely affect SPC, the Business, its assets or
its liabilities;
(i) Amendment, rescission, expiration or termination of any of SPC's
existing material Contracts or agreements, including, without limitation,
the lapse, expiration or termination of any insurance coverage;
(j) Sale, transfer, disposal of or agreements to sell, transfer or
otherwise dispose of, any of the material assets, properties or rights of
SPC; destruction, damage to, or loss of any of SPC'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, adversely affect SPC, its
assets or the Business or SPC's ability to perform its obligations
hereunder; or
(m) Agreement by SPC to do or cause any of the things described in
clauses (a) through (l), above.
4.11 Properties. Schedule 4.11 hereto sets forth a complete and correct list
of all assets owned by SPC as of the Balance Sheet Date which have been
treated as capital assets on the Balance Sheet Date. Except as set forth on
Schedule 4.11 hereto, SPC does not own, and within the last three years has
not owned, any real property
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(the "SPC Real Property"). Except as set forth on Schedule 4.11 hereto, SPC
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 SPC 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.
4.12 Books and Records. SPC has made and kept (and given DPRC's
Representatives access to) the Books and Records, which, in reasonable detail,
accurately and fairly reflect the activities and transactions of SPC related
to the Business, the dispositions of assets related to the Business, and the
financial condition of SPC and the Business, including, without limitation,
the existence of any and all liabilities, whether actual or contingent,
including, without limitation, the SPC Tax and Other Liabilities.
4.13 Intellectual Property.
(a) Schedule 4.13 hereto is a complete and correct list of all of the
material Intellectual Property other than "off-the-shelf" software. Except
as set forth on Schedule 4.13 hereto, (a) the Intellectual Property is
owned by SPC or SPC has a valid license to use the same, (b) SPC has not
received any notice or claim disputing SPC's right to own or use any such
Intellectual Property, and (c) to SPC's knowledge, SPC's right to own or
use the Intellectual Property is not disputed by any third party. Except as
set forth on Schedule 4.13 hereto, the Intellectual Property is owned by
SPC free and clear of all Encumbrances. The Intellectual Property
constitutes all of the proprietary rights necessary and sufficient for the
lawful and efficient operation of the Business as presently conducted. To
SPC's knowledge, SPC 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 SPC, nor is there any Action
by any person pending or, to SPC's knowledge, threatened with respect
thereto.
(b) Schedule 4.13 hereto accurately discloses all licenses, sublicenses
or agreements by which SPC holds or has given to others the right to use
the Intellectual Property. SPC is not in default and, to SPC's knowledge,
no third party is in default, under any such license, sublicense or
agreement.
4.14 Leases. Schedule 4.14 hereto sets forth a true, correct and complete
list and description of all 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 SPC
or event or condition which after notice or lapse of time or both would
constitute a default, violation or breach. SPC has provided DPRC with true and
correct copies of all such Leases.
4.15 Receivables. Attached hereto as Schedule 4.15 are the most recent
available print-outs of SPC's accounts receivable (the "Receivables") and
unbilled accounts receivable (the "Unbilled Receivables"), including all of
the foregoing with respect to Affiliated Parties. Except to the extent
collected since the date of each such print-out, all Receivables are reflected
on Schedule 4.15, 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 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. SPC has no
reason to believe that any of the Receivables and Unbilled Receivables are not
collectible in accordance with their terms.
4.16 Contracts.
(a) Schedule 4.16 hereto contains a complete and correct list of all
Contracts, whether written or oral, (i) to which SPC 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, SPC;
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(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, including any strategic
partnering relationship with foreign affiliates;
(vi) Contracts or commitments to acquire, 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 SPC to compete
in any line of business or in any geographic area or with any person;
and
(viii) Other agreements, contracts and commitments (other than
employment Contracts with employees other than Key Persons) which in
any case are not terminable on at least 30 days' prior written notice
or involve payments or receipts of more than $20,000 per annum.
(b) Schedule 4.16 hereto sets forth a correct and complete list of the 20
largest customers (by sales volume) (the "Major Customers") of the Business
during (i) the 12-month period ended at December 31, 1997, and (ii) the
four-month period ended at the Balance Sheet Date, in each case, indicating
the sales to such Major Customers within such period and listing the
existing contractual arrangements with each such Major Customer. As of the
Balance Sheet Date, SPC had no outstanding Contracts with customers
requiring payments or credits to customers in excess of $2,500, except for
those listed on Schedule 4.16 hereto. There are no outstanding disputes
with any Major Customer, and no Major Customer has refused to do business
with SPC or has stated its intention not to continue to do business with or
increase or reduce its purchases from SPC or DPRC upon consummation of the
transactions contemplated hereby. SPC has no reason to believe that any
customer account is not collectible in accordance with its terms, except to
the extent it has provided an allowance for the uncollectability of such
account on the Financial Statements. No existing contractual arrangement
with a customer contains any terms other than at a "time and materials"
basis, at a fixed bid, discounted or decelerating rate, or pursuant to or
subject to a capped or limited fee arrangement.
(c) As of the Balance Sheet Date, SPC had no outstanding Contract with
suppliers or vendors requiring payments in excess of $20,000 on an
annualized basis except those listed on Schedule 4.16 hereto.
(d) SPC has delivered to DPRC or its Representatives complete and correct
copies of all material written Contracts, together with all amendments
thereto, and accurate descriptions of all material oral Contracts, listed
on Schedules 4.13, 4.14 and 4.16 hereto or required to be listed thereon.
All of the Contracts are valid and in full force and effect and SPC has
duly performed all of its obligations under each Contract to the extent
those obligations have accrued and no default, violation or breach by SPC
under any Contract has occurred which affects the enforceability of such
Contract or any parties' rights thereunder.
4.17 Employment Matters.
(a) Schedule 4.17 hereto sets forth a complete and correct list of (i)
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 Key Persons, and (ii) all the names of SPC's technical
consultants on billing as of May 31, 1998. None of the Key Persons has
received or will receive an increase in salary or other compensation from
SPC prior to the Effective Date. Except as set forth on Schedule 4.17
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 pertaining to or covering the Key
Persons which constitute contractual obligations of SPC not terminable on
10 days' notice. There are no collective bargaining agreements with any
union or other bargaining group for any of SPC's employees, nor is SPC
aware of any efforts by its employees or contractors to organize or
participate in any of the foregoing. To SPC'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 Person has left SPC since the
Balance Sheet Date and, except
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for R. Carlisle, no Key Person has indicated any present or future
intention to terminate his or her employment with SPC. SPC has made
available to DPRC true and correct copies of all performance reviews
conducted of the persons set forth on Schedule 4.17.
(b) SPC has complied with all provision of Law pertaining to the
employment and terminating of employees, the hiring and terminating of
contractors, and the immigration of foreign nationals, 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, worker's
compensation or other similar employment or hiring practices or acts, and
SPC is not engaged in any unfair labor practices and is not a party to any
Action involving a violation or alleged violation of any of the foregoing
Laws. Without limiting the generality of the foregoing, SPC 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 SPC, and
maintaining all such Form I-9(s) and related information in accordance with
such acts. Except as set forth on Schedule 4.6 hereto, no employee,
contractor or governmental agency or authority has brought or threatened an
Action against SPC with respect to any matter arising out of, relating to
or in connection with such employee's or contractor's employment by SPC.
4.18 Employee Benefits.
(a) Schedule 4.18 hereto contains a complete and accurate list of all
Employee Benefit Plans maintained, or contributed to, by SPC. Complete and
accurate copies of (i) all Employee Benefit Plans which have been reduced
to writing, (ii) written summaries of all unwritten Employee Benefit Plans,
(iii) all related trust agreements, insurance contracts and summary plan
descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or
5500R for the 1995 and 1996 plan years for each Employee Benefit Plan, have
been delivered to DPRC. Each Employee Benefit Plan has been administered in
all material respects in accordance with its terms and SPC has in all
material respects met its obligations with respect to such Employee Benefit
Plan and has made all required contributions thereto. SPC and all Employee
Benefit Plans are in operation in compliance in all material respects with
the currently applicable provisions of ERISA and the Code and the
regulations thereunder.
(b) There are no investigations by any governmental entity, termination
proceedings or other claims (except claims for benefits payable in the
normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any
material liability.
(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from
the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and revocation has not
been threatened, and, except as set forth on Schedule 4.18 hereto, no such
Employee Benefit Plan has been amended since the date of its most recent
determination letter or application therefor in any respect, and no act or
omission has occurred, that would adversely affect its qualification or
materially increase its cost.
(d) Except as set forth on Schedule 4.18 hereto, SPC has never maintained
an Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(e) At no time has SPC been obligated to contribute to any "multi-
employer plan" (as defined in Section 4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of SPC
(or to any beneficiary of any such employee), including
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but not limited to retiree health coverage and deferred compensation, but
excluding continuation of health coverage required to be continued under
Section 4980B of the Code and insurance conversion privileges under state
Law.
(g) No act or omission has occurred and no condition exists with respect
to any Employee Benefit Plan maintained by SPC that would subject SPC to
any material fine, penalty, tax or liability of any kind imposed under
ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or related to
a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating
any such Employee Benefit Plan.
(j) Schedule 4.18 hereto discloses each: (i) agreement with any director,
executive officer or other key employee of SPC (A) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving SPC of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee, or (C) providing severance benefits
or other benefits after the termination of employment of such director,
executive officer or key employee; (ii) agreement, plan or arrangement
under which any person may receive payments from SPC that may be subject to
the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of
the Code; and (iii) agreement or plan binding SPC, including without
limitation any stock option plan, stock appreciation right plan, restricted
stock plan, stock purchase plan, severance benefit plan, or any Employee
Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any
of the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
4.19 Transactions with Affiliated Parties. Attached hereto as Schedule 4.19
is a true and complete list and description of all transactions engaged in
between SPC and any director, officer, employee, shareholder or agent of SPC
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 SPC.
4.20 Certain Payments. Neither the Controlling Shareholders nor SPC, nor to
SPC's knowledge, any other entity has, directly or indirectly, on behalf of or
with respect to SPC: (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.
4.21 Taxes.
(a) SPC has paid, or accrued on the Balance Sheet, all federal, state,
local and foreign income, alternative, add-on, gross receipts, franchise,
payroll, F.I.C.A., unemployment withholding, real property, personal
property, admissions, gains, replacement, sales, use, excise, payroll,
disability and other taxes imposed on SPC or with respect to any of its
properties, or otherwise payable by it, including interest, penalties and
other additions, if any, in respect thereof (collectively, "SPC Taxes"),
for all taxable periods ended on or prior to the Balance Sheet Date for
which SPC, or any predecessor entity, was in existence. After the Balance
Sheet Date, SPC has paid, or accrued on its financial books, only SPC Taxes
incurred in the ordinary course of business determined in the same manner
as in the applicable preceding taxable period
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ending on or before the Balance Sheet Date. Reserves adequate for the
payment of all SPC Taxes with respect to any period or portion thereof
ending on or prior to the date hereof for which the Tax Returns have not
yet been filed have been established in accordance with generally accepted
accounting principles, and such reserves will continue to be established
with respect to any period or portion thereof ending on or prior to the
Effective Date.
(b) Without limiting the foregoing representations in any way, (i) SPC
has collected all sales, use and value added taxes required to be
collected, and has remitted, or will remit on a timely basis, such amounts
to the appropriate governmental authorities and has furnished properly
completed exemption certificates for all exempt transactions, and (ii) with
respect to all persons properly characterized as employees for federal,
state or local tax purposes, SPC has (A) properly and timely withheld,
collected, deposited and paid income and social security and other similar
taxes, and (B) properly and timely paid social security and other payroll
taxes.
(c) SPC has timely filed all returns (including estimated returns),
reports and other filings related to SPC Taxes (the "Tax Returns") which
SPC is required to file and has paid all the amounts shown to be due
thereon. All the Tax Returns are true and correct and complete. SPC has
delivered to DPRC complete copies of all the Tax Returns for the last three
taxable periods for which the Tax Returns have been filed. SPC is not
required to file Tax Returns in any foreign, state or local jurisdiction
for any tax period except in those foreign, state and local jurisdictions
set forth on Schedule 4.21 hereto, in which it has filed. SPC is not
subject to any Tax imposed on net income in any jurisdiction or by any
taxing authority except in those foreign, state or local jurisdictions in
which it has filed Tax Returns or timely extensions therefor.
(d) Except as set forth on Schedule 4.21 hereto, no United States
federal, state or local income Tax Returns of SPC have been audited by the
Internal Revenue Service or other tax authority and there are no
proceedings or claims relating thereto or any facts that could give rise to
such an audit.
(e) No audit, examination, proceeding or other Action is pending or
threatened by any governmental authority with respect to the possible
assessment or collection from SPC of any SPC Taxes, no unresolved claim for
assessment or collection of any SPC Taxes has been asserted against SPC,
and all resolved assessments of SPC Taxes have been paid. SPC has delivered
to DPRC complete copies of all audit reports and other governmental claims
asserting SPC Taxes in addition to those SPC Taxes set forth on the Tax
Returns of SPC.
(f) Prior to 1981, SPC was at all times an "S corporation" within the
meaning of Section 1361(a) of the Code, and a valid election under Section
1362 of the Code has been in effect with respect to SPC at all times for
such period. A valid S corporation or similar election has been in effect
with respect to SPC during such period in all relevant state and local
jurisdictions in which SPC is subject to Tax. For such periods, each
Shareholder has filed in a timely fashion with each of the Internal Revenue
Service and the appropriate tax authority for all relevant state and local
tax jurisdictions a consent to such S corporation or similar elections with
respect to SPC. SPC has not been, and will not be, subject to tax under
Section 1374 or Section 1375 of the Code for any taxable year ending on or
prior to the Effective Date.
(g) There are no liens for SPC Taxes (other than for current SPC Taxes
not yet due and payable) upon the assets of SPC.
(h) SPC is not a party to or bound by any tax sharing, tax indemnity or
tax allocation agreement or other similar arrangement.
(i) SPC has not taken any action that would require an adjustment
pursuant to Section 481 of the Code, by reason of a change in accounting
method or otherwise.
(j) SPC has not filed a consent under Section 341(f)(1) of the Code or
agreed to have the provisions of Section 341(f)(2) of the Code apply to any
disposition of "subsection (f) assets" as such term is defined in Section
341(f)(4) of the Code.
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(k) SPC has not made any payments, is obligated to make any payments or
is a party to any agreement that under certain circumstances could obligate
it to make any payments that would not be deductible under Section 280G of
the Code.
(l) SPC has not executed or entered into any closing agreement pursuant
to Section 7121 of the Code, or any predecessor provisions thereof or any
similar provision of state or other Law.
(m) Neither SPC nor any Shareholder has made any agreement, waiver or
other arrangement providing for an extension of time with respect to the
assessment or collection of any SPC Tax.
(n) No asset of SPC (i) is property subject to the so called safe harbor
lease provisions of former Section 168(f)(8) of the Code, or is otherwise
treated as owned by another person for tax purposes, (ii) directly or
indirectly secures any debt the interest on which is tax exempt under
Section 103(a) of the Code, or (iii) is tax exempt use property within the
meaning of Section 168(b) of the Code.
4.22 Compliance with Laws. SPC's operation of the Business is in material
compliance with all Laws for which a more specific representation or warranty
is not otherwise provided in this Article 4. SPC 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. Neither SPC nor
any Controlling Shareholder has received any communication from any
governmental authority or agency (federal, state or local) or any private
entity or individual (including, but not limited to, any prior or subsequent
owners of the SPC Real Property or any other facility used by SPC) relating in
any way to (a) the presence, release, threat of release, placement of any
Hazardous Material on, under or about the SPC Real Property or any such other
facility, (b) the use, manufacture, handling, generation, storage, treatment,
discharge, burial or disposal of any Hazardous Material on, under or about the
SPC Real Property or any such other facility, or (c) the transportation to or
from the SPC Real Property of any such other facility of any Hazardous
Material. To SPC's and the Controlling Shareholders' knowledge, (i) neither
the SPC Real Property nor any other facility currently used by SPC contains,
or did contain at any time, any underground or other storage tanks containing
Hazardous Materials, and (ii) there are no facts or circumstances which could
form the basis for the assertion of any claim against SPC or a Controlling
Shareholder relating to environmental matters including, but not limited to,
any claim arising from past or present environmental practices asserted under
any environmental Law.
4.23 Permits. SPC holds, or prior to the Effective Date will hold, free from
all Encumbrances and burdensome restrictions, all Permits. Each of the Permits
is, or will be, sufficient for the lawful and efficient operation of the
Business as presently conducted and as presently proposed to be conducted.
Attached hereto as Schedule 4.23 is a list of all Permits obtained by SPC,
true and complete copies of which have been furnished to DPRC. All Permits
required for the lawful and efficient operation of the Business as presently
conducted and as presently proposed to be conducted will be in full force and
effect on the Effective Date.
4.24 Insurance. SPC maintains, with financially sound insurers of nationally
recognized stature and responsibility, insurance with respect to its
properties and the Business of such a nature, with such terms and in such
amounts as a prudent person would maintain with respect to similar properties
and a similar business. Attached as Schedule 4.24 hereto is a true and
complete list and summary of all insurance maintained by SPC with respect to
the Business during the past three years. SPC has provided DPRC with true and
correct copies of all such insurance policies. SPC has not agreed to modify or
cancel any of such insurance, nor has SPC received notice of any actual or
threatened modification or cancellation of such insurance.
4.25 Brokers, Finders, etc. All negotiations relating to this Agreement and
the transaction contemplated hereby have been carried on without the
intervention of any person other than Arthur Andersen-Corporate Finance acting
on behalf of SPC in such manner as to give rise to any claim against DPRC, SPC
or any of their respective Representatives for any brokerage or finders'
commission, fee or similar compensation.
4.26 Subsidiaries. SPC does not have any Subsidiaries, and, at no time
during the two-year period immediately preceding the date of this Agreement,
has SPC been a Subsidiary of any person other than one or
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more of the Controlling Shareholders. No Controlling Shareholder owns 50% or
more of the outstanding capital stock, ownership interest or voting power of
any other person engaged in a business similar to the Business.
4.27 Banking Facilities.
(a) Schedule 4.27 hereto sets forth a true, correct and complete list of:
(i) each bank, savings and loan or similar financial institution at which
SPC has an account, safety deposit box, line of credit or credit facility
and the numbers of the accounts or safety deposit boxes maintained by SPC
thereat and details, including terms, of any line of credit or credit
facility; and (ii) the names of all persons authorized to draw on each such
account or to have access to any such safety deposit box facility, together
with a description of the authority (and conditions thereof, if any) of
each such person with respect thereto.
(b) Except as set forth on Schedule 4.27 hereto, all of the outstanding
indebtedness (secured or unsecured) for borrowed money of SPC may be
prepaid without the consent or approval of, or prior notice to, any other
person, and without payment of any premium or penalty.
4.28 Other Representations. All of the representations, warranties and other
statements of SPC now or hereafter made in writing to Deloitte & Touche LLP
shall be deemed to have been made herein as if set forth in full herein.
4.29 Full Disclosure. No representation, warranty or other statement of SPC
contained in this Agreement, any of the Ancillary Agreements or any other
document, certificate or written statement furnished to DPRC in connection
with the transactions contemplated by this Agreement or any of the Ancillary
Agreements 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
materially misleading. There is no fact known to SPC 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 DPRC for use in connection with the
transactions contemplated hereby.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE CONTROLLING SHAREHOLDERS
Each of the Controlling Shareholders, jointly and severally, represents and
warrants to DPRC that the following statements are true and complete and not
misleading as of the date of this Agreement:
5.1 Authorization. Such Controlling Shareholder has the requisite power,
authority and legal right and capacity to enter into this Agreement and the
Ancillary Agreements to which he is a party, to perform such Controlling
Shareholder's obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby.
5.2 Due Execution and Delivery; Binding Obligations. This Agreement has been
and, at the Effective Date, each of the Ancillary Agreements to which he is a
party shall be, duly executed and delivered by such Controlling Shareholder.
This Agreement constitutes and, at the Effective Date, each of the Ancillary
Agreements to which he is a party shall constitute, the legal, valid and
binding agreement and obligation of such Controlling Shareholder, enforceable
against such Controlling 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.
5.3 No Conflict or Violation. Except as set forth on Schedule 4.4 hereto,
neither the execution and delivery of this Agreement and the Ancillary
Agreements by such Controlling Shareholder, to the extent he is a party,
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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
Controlling 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, Encumbrance
or Permit to which such Controlling Shareholder is a party; (c) a violation by
such Controlling Shareholder of any applicable Law; or (d) a violation by such
Controlling Shareholder of any order, judgment, writ, injunction decree or
award to which such Controlling Shareholder is a party.
5.4 Consents and Approvals. Except as set forth on Schedule 4.5 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
such Controlling Shareholder by virtue of such Controlling Shareholders'
execution, delivery and performance of this Agreement or any of the Ancillary
Agreements, except for the approval of the Merger by the shareholders of SPC
and applicable requirements, if any, of the Securities Act, the Exchange Act,
state securities Laws, and the filing and recordation of the Merger Documents
as required by the North Carolina Law.
5.5 Title to SPC Common Stock. Such Controlling Shareholder owns
beneficially and of record the number and type of securities of SPC set forth
opposite such Controlling Shareholder's name as set forth on Schedule 4.7
hereto, free and clear of all Encumbrances affecting his ability to transfer
such shares to DPRC. Except as set forth on Schedule 4.7 hereto, there is not
outstanding any subscription, option, warrant, call, right or other agreement
or commitment obligating such Controlling Shareholder or SPC to issue, sell,
deliver or transfer (including any right of conversion or exchange under any
outstanding security or other instrument) any shares of the SPC Common Stock
or any other shares of the capital stock of SPC.
5.6 SPC's Representations and Warranties. All of the representations and
warranties of SPC contained herein and in each of the Ancillary Agreements to
which it is a party are true and correct and not materially misleading as of
the date hereof.
5.7 Other Representations. All of the representations, warranties and other
statements of a Controlling Shareholder now or hereafter made in writing to
Deloitte & Touche LLP shall be deemed to have been made herein as if set forth
in full herein.
5.8 Full Disclosure. No representation, warranty or other statement of such
Controlling Shareholder contained in this Agreement, any of the Ancillary
Agreements or any other document, certificate or written statement furnished
to DPRC in connection with the transactions contemplated by this Agreement or
any of the Ancillary Agreements 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 materially misleading. There is no fact known to such
Controlling 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 DPRC for use in connection with the transactions contemplated
hereby.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF DPRC AND ACQUISITION
DPRC and Acquisition hereby represents and warrants to SPC that the
following statements are true and complete and not misleading as of the date
of this Agreement:
6.1 Organization. Each of DPRC and Acquisition is a corporation duly
incorporated, validly existing and in good standing under the Laws of the
state of its state of incorporation, and has all requisite corporate power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby.
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6.2 Authorization. Each of DPRC and Acquisition has the requisite corporate
power, authority and legal right and capacity to enter into this Agreement and
the Ancillary Agreements to which it is a party, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby.
6.3 Due Execution and Delivery; Binding Obligations. The execution, delivery
and performance by each of DPRC and Acquisition of this Agreement and the
Ancillary Agreements to which it is a party, have been duly authorized by the
Board of Directors of DPRC and Acquisition, respectively. Except for the
consent of the shareholders of DPRC, no further corporate action is necessary
on the part of DPRC or Acquisition to make this Agreement and the Ancillary
Agreements to which it is a party valid and binding upon DPRC and Acquisition
in accordance with their respective terms. This Agreement has been and, at the
Effective Date, the Ancillary Agreements (to the extent DPRC or Acquisition is
a party thereto) shall be, duly executed and delivered by DPRC and Acquisition
and constitute the valid and binding obligations of DPRC and Acquisition,
enforceable against DPRC and Acquisition 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.
6.4 No Conflict or Violation. Neither the execution and delivery of this
Agreement and the Ancillary Agreements by DPRC and Acquisition, to the extent
each is a party thereto, nor the consummation of the transactions contemplated
hereby and thereby, will result in (a) a violation of, or a conflict with,
DPRC's or Acquisition's charter documents or any subscription, shareholders'
or similar types of agreements or understandings to which DPRC or Acquisition
is a party; (b) to DPRC's and Acquisition's knowledge, a violation by DPRC or
Acquisition of any Law; or (c) to DPRC's and Acquisition's knowledge, a
violation by DPRC or Acquisition of any order, judgment, writ, injunction
decree or award to which DPRC or Acquisition is a party.
6.5 Consents and Approvals. Except as set forth on Schedule 6.5 hereto, no
consent, permit, approval or authorization of, or declaration, filing,
application, transfer or registration with, any governmental or regulatory
authority, or to DPRC's and Acquisition's knowledge, any other person or
entity is required to be made or obtained by DPRC or Acquisition by virtue of
its execution, delivery and performance of this Agreement, any of the
Ancillary Agreements or DPRC's and Acquisition's consummation of the
transactions contemplated hereby or thereby, except for the approval of the
Merger by the shareholders of DPRC and Acquisition and applicable
requirements, if any, of the Securities Act, the Exchange Act, the state
securities Laws, and the filing and recordation of the Merger Documents as
required by the North Carolina Law.
6.6 Financial Statements and Reports. DPRC has made available to SPC true
and complete copies of (i) DPRC's Annual Report on Form 10-K for the fiscal
year ended July 31, 1997 (the "DPRC 10-K") as filed with the SEC, (ii) DPRC's
Quarterly Reports on Form 10-Q for the quarters ended October 31, 1997,
January 31, 1998 and April 30, 1998, (iii) DPRC's proxy statement relating to
the annual meeting of its shareholders held on December 17, 1997, and (iv) all
other reports, statements and registration statements (including Current
Reports on Form 8-K, but excluding any preliminary proxy material), if any,
filed by DPRC with the SEC pursuant to the Exchange Act subsequent to the
filing of the DPRC 10-K. The reports, statements and registration statements
referred to in the immediately preceding sentence (including, without
limitation, any financial statements or schedules or other information
incorporated by reference therein) are referred to in this Agreement as the
"DPRC SEC Filings." As of the respective times such documents were filed or,
as applicable, became effective, the DPRC SEC Filings complied as to form and
content, in all material respects, with the requirements of the Securities Act
and the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, except such noncompliance which, in the aggregate,
would not have a material adverse effect on the financial condition and
results of operations of DPRC and its Subsidiaries, taken as a whole, and,
taken as a whole, the DPRC SEC Filings do not contain any untrue statement of
a 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. The financial
statements of DPRC included in the DPRC SEC Filings
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were prepared in accordance with generally accepted accounting principles (as
in effect from time to time) applied on a consistent basis and (except as may
be indicated therein or in the notes thereto) present fairly the consolidated
financial position, results of operations and cash flows of DPRC and its
consolidated subsidiaries as of the dates and for the periods indicated
therein, subject, in the case of unaudited interim consolidated financial
statements, to normal recurring year-end adjustments and any other adjustments
described therein.
6.7 Accounting Matters. To DPRC's best knowledge, neither DPRC nor any of
its Affiliates has taken or agreed to take any action that would prevent the
accounting for the transactions contemplated by this Agreement as a pooling of
interests in accordance with generally accepted accounting principles and
applicable SEC regulations.
ARTICLE 7
SHAREHOLDER APPROVAL
7.1 Shareholder Meetings. This Agreement shall be submitted for approval to
the shareholders of DPRC (the "DPRC Meeting") and the shareholders of SPC,
including any person with "pass-through" voting rights under any Employee
Benefit Plan of SPC (the "SPC Meeting"), at meetings to be duly held for such
purpose, which meetings shall be held in accordance with the respective
charters and bylaws of DPRC and SPC as soon as practicable after the
Registration Statement has been declared effective by the SEC.
7.2 Proxy Statement-Prospectus; Registration Statement. DPRC shall as soon
as reasonably practicable prepare and file with the SEC under the Securities
Act, a registration statement on Form S-4 (the "Registration Statement") for
the purpose of registering the sale of the shares of DPRC Common Stock to be
issued in the Merger. The Registration Statement shall include as a part
thereof a prospectus relating to the shares of DPRC Common Stock to be issued
in the Merger which shall also constitute a proxy statement of DPRC (such
prospectus and proxy statement are referred to herein as the "Proxy Statement-
Prospectus") to be used in connection with the solicitation of proxies in
accordance with the requirements of the Exchange Act, for the voting of shares
of DPRC Common Stock at the meeting of the shareholders of DPRC to be called
to approve this Agreement. DPRC shall use its reasonable efforts to respond as
soon as reasonably practicable to the comments, if any, of the staff of the
SEC (the "Staff") and have the Registration Statement declared effective under
the Securities Act and the Proxy Statement-Prospectus cleared under the
Exchange Act. DPRC shall also take any action required to be taken under state
securities or "blue sky" laws in connection with the issuance of DPRC Common
Stock in the Merger. SPC shall cooperate with DPRC in the prompt preparation
and filing of the Registration Statement. Each of SPC and DPRC covenants and
agrees that the information provided and to be provided by SPC or DPRC, as the
case may be, specifically for use in the Proxy Statement-Prospectus and the
Registration Statement shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not materially misleading. DPRC
shall notify SPC promptly of the receipt of any comments from the Staff and of
any request by the Staff for amendments or supplements to the Registration
Statement or for additional information, and shall supply SPC with copies of
all correspondence between DPRC or its representatives, on the one hand, and
the SEC or members of the Staff, on the other hand, with respect to the
Registration Statement or the transactions contemplated hereby. Promptly after
the Registration Statement has been declared effective and the Proxy
Statement-Prospectus has been cleared, DPRC shall mail to its shareholders
proxy solicitation materials, including the Proxy Statement-Prospectus of DPRC
and related form of proxy. SPC shall furnish copies of the Proxy Statement-
Prospectus to each shareholder of SPC promptly to solicit votes to approve
this Agreement at the SPC Meeting.
7.3 Amendments or Supplements to the Proxy Statement-Prospectus;
Registration Statement. If at any time prior to the Effective Date any event
with respect to DPRC, its officers and directors or any of its Subsidiaries
shall occur which is required to be described in the Proxy Statement-
Prospectus or Registration Statement, such event shall be so described, and an
amendment or supplement shall be promptly filed with the
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SEC and, as required by Law, distributed to the shareholders of DPRC and SPC.
The Registration Statement will comply (with respect to DPRC and Acquisition)
as to form in all material respects with the provisions of the Securities Act.
If at any time prior to the Effective Date any event with respect to SPC or
its officers and directors shall occur which is required to be described in
the Proxy Statement-Prospectus or the Registration Statement, SPC shall notify
DPRC in writing and shall assist DPRC in preparing an amendment or supplement
which shall be promptly filed with the SEC and furnished to the shareholders
of DPRC and SPC.
ARTICLE 8
OTHER COVENANTS AND AGREEMENTS
8.1 Conduct Prior to the Effective Date.
(a) Ordinary Course of Business. From and after the date of this
Agreement through the Effective Date, SPC shall conduct the Business in the
ordinary course and consistent with past practice. Without limiting the
generality of the foregoing, SPC shall not, without the prior written
consent of DPRC, take or undertake or incur or permit to exist any of the
acts, transactions, events or occurrences specified in (i) Sections 4.10(a)
through (e) and (g) through (m), above, and (ii) Section 4.10 (f), above,
except, and then only to the extent, in the ordinary course and consistent
with past practice.
(b) Certain Actions Relating to Capital Stock. From and after the date of
this Agreement through the Effective Date, neither SPC nor DPRC shall,
without the prior written consent of the other, (i) amend its
organizational documents (except that DPRC may amend its Articles of
Incorporation to increase the number of shares of capital stock authorized
thereunder) or Bylaws, (ii) declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of shares of
its capital stock, (iii) make any direct or indirect redemption,
retirement, purchase or other acquisition of any of its capital stock, (iv)
split, combine or reclassify its outstanding shares of capital stock, or
(v) issue or agree to issue, any shares of, or rights of any kind to
acquire any shares of its capital stock except (A) as contemplated by this
Agreement, (B) shares issued upon the exercise or conversion of securities
(including, but not limited to, stock options) outstanding on the date
hereof, (C) with respect to options granted by DPRC under existing option
plans, and (D) shares of DPRC Common Stock issued or to be issued by DPRC,
in connection with acquisitions of related businesses; provided, however,
that in no event shall DPRC or SPC effect any issuance or agree to effect
any issuance pursuant to this clause (D) if such issuance or agreement
would preclude DPRC from accounting for the business combination
contemplated by this Agreement as a pooling of interests or would
materially delay, or materially reduce the likelihood of, the consummation
of the Merger.
(c) Preserve Business. From and after the date of this Agreement and
through the Effective Date, SPC shall use reasonable efforts to preserve
intact its business organizations, to keep available the services of its
operating personnel and to preserve the goodwill of those having business
relationships with it, including, without limitation, suppliers and
customers.
8.2 Access to Properties and Records. DPRC and its Representatives shall
have reasonable access during normal business hours throughout the period
prior to the Effective Date to all of SPC's properties, and Books and Records,
and shall make reasonably available their respective officers and employees to
answer fully and promptly questions put to them (so long as such questions are
not outside of the scope of purpose of this Section 8.2); provided that no
investigation pursuant to this Section 8.2 shall alter any representations or
warranties of any party or conditions to the obligation of the parties. Any
such investigations shall be specifically related to this Agreement and to the
transactions contemplated hereby. DPRC shall provide SPC with reasonable
notice prior to visiting any such property for the purpose of any such
investigation, including notice of the purpose and reason for such
investigation.
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8.3 Negotiations
(a) Acquisition Proposals. Except in the furtherance of the transactions
contemplated hereby, prior to the Effective Date, each of SPC and the
Controlling Shareholders agrees that (i) neither SPC, the Controlling
Shareholders nor any of their respective affiliates shall, and each of SPC
and the Controlling Shareholders shall direct and use its and his best
efforts to cause its and his Representatives (including, without
limitation, any investment banker, attorney or accountant retained by it
and him or any of its and his Affiliates) not to, directly or indirectly,
initiate, solicit or encourage any inquiries or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its shareholders), with respect to any merger,
acquisition, consolidation, share exchange, business combination or other
transaction involving, or which would result in, (A) the acquisition of a
majority of the outstanding equity securities of SPC, (B) the issuance by
such party, in a single transaction or a series of related transactions, of
equity securities which would represent, following issuance, a majority of
the outstanding equity securities of SPC, or (C) the acquisition of a
majority of the consolidated assets of such party (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal"), or
engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person or entity
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (ii) it shall
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing, and it shall take the necessary steps to
inform any such parties of the obligations undertaken in this Section 8.3;
and (iii) it shall notify DPRC immediately if any such inquiries or
proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued
with, it or him.
(b) Maintenance of Board Support. Neither the Board of Directors of SPC
nor any committee of such Board, shall (i) withdraw or modify, or propose
to withdraw or modify, the approval or recommendation by such Board or any
such committee of the adoption of this Agreement, (ii) approve any letter
of intent, agreement in principle, acquisition agreement or similar
agreement relating to any Acquisition Proposal, or (iii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal.
8.4 Affiliates Agreements. Prior to the Effective Date, SPC shall deliver to
DPRC a list of all persons who SPC deems to be "affiliates" for purposes of
Rule 145 under the Securities Act and within the meaning of the rules and
regulations pertaining to pooling of interests transactions. SPC shall use
reasonable efforts to obtain from each such person an agreement in
substantially the form attached hereto as Exhibit F (an ASPC "Affiliates
Agreement") prior to the time the Proxy Statement-Prospectus is mailed to
DPRC's shareholders. DPRC shall use reasonable efforts to obtain from each of
its "affiliates" an agreement in substantially the form attached hereto as
Exhibit G (a "DPRC Affiliates Agreement") prior to the time the Proxy
Statement-Prospectus is mailed to DPRC's shareholders.
8.5 Pooling of Interests. Neither SPC nor DPRC shall, nor shall they permit
any of their respective Affiliates to, take any actions which could have the
effect of precluding DPRC from accounting for the business combination
contemplated by this Agreement as a pooling of interests.
8.6 Employee Benefits. On the Effective Date, SPC shall, and DPRC shall
cause SPC to, pay in full all amounts owing to certain officers of SPC under
employment agreements, severance agreements, any restricted shareholders
agreement, non-competition agreements and minority stockholder buyout
agreements specified in the Schedules hereto and shall perform all other
obligations described therein which are required to be performed on or prior
to the Effective Date. The parties agree that any such payments shall not
constitute a violation of any other provision of this Agreement, including,
without limitation, Section 8.1, above. Following the Effective Date, DPRC
shall cause SPC to honor all of its binding obligations under any and all
severance agreements and employment agreements to which SPC is a party.
8.7 Commercially Reasonable Efforts. Subject to the terms and conditions
hereof, each of the parties agrees to use their commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to
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be done, all things necessary to satisfy the conditions set forth herein as
soon as practicable. No party will take any action for the purpose of
delaying, impairing or impeding the receipt of any required consent,
authorization, order or approval or the making of any required filing or
registration.
8.8 Financial Statements. As soon as reasonably practicable, but in no event
later than 30 days after the end of the first full calendar month occurring
after the Effective Date, DPRC shall publish (including, without limitation,
by means of a press release) financial statements setting forth 30-day
combined results of operations in such detail as may be required under the
SEC's Accounting Series Release No. 135.
8.9 Tax Treatment; Tax Opinion. Each of DPRC and SPC shall use best efforts
to cause the Merger to qualify as a reorganization under the provisions of
Section 368(a)(2)(E) of the Code.
8.10 Public Announcements. DPRC and SPC shall consult with each other before
issuing any press releases or other public announcements concerning or
referring to the Merger, this Agreement or the transactions contemplated by
this Agreement and shall not issue any such press releases or other public
announcement without the consent of the other unless required by law or by
obligations pursuant to the regulations of the National Association of
Securities Dealers, and then only after a reasonable attempt to comply with
the consultation provisions hereof.
ARTICLE 9
CONDITIONS TO THE MERGER
9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Date of the following conditions:
(a) The Registration Statement. The Registration Statement shall have
been declared effective, and no stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC or shall be
continuing to be in effect, and no proceedings for that purpose shall have
been initiated or threatened by the SEC.
(b) Shareholder Approval. The Shareholders shall have adopted this
Agreement by the requisite vote, and SPC shall have delivered to DPRC a
certificate of SPC's Secretary setting forth the number of shares of SPC
Common Stock voted in favor of the adoption of this Agreement and
certifying that this Agreement was adopted by at least a majority of the
outstanding shares of SPC Common Stock. The DPRC shareholders shall have
approved the principle terms of the Merger and the issuance of the Share
Consideration by the requisite vote, and DPRC shall have delivered to SPC a
certificate of DPRC's Secretary setting forth the number of shares of DPRC
Common Stock voted in favor of the principle terms of the Merger and the
issuance of the Share Consideration and certifying that the principle terms
of the Merger and the issuance of the Share Consideration was approved by a
majority of the outstanding shares of DPRC Common Stock.
(c) No Injunctions. No United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and has the effect
of making illegal or otherwise prohibiting consummation of the transactions
contemplated by this Agreement.
(d) Nasdaq Listing. The shares of DPRC Common Stock issuable in the
Merger or thereafter as contemplated by this Agreement shall have been
authorized for listing on the Nasdaq National Market, upon official notice
of issuance.
(e) No Proceedings. There shall not have been instituted or pending any
action or proceeding by or before any court or governmental authority or
other regulatory or administrative agency or commission,
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domestic or foreign, by any government or governmental authority, nor shall
there have been or be any determination by any government, governmental
authority, regulatory or administrative agency or commission which, in
either case, would require either party to take any action or do anything
in connection with the foregoing which would result in a material adverse
effect to their respective businesses or materially impair DPRC's or the
Surviving Corporation's ownership or operation of all or a material portion
of the business or assets of SPC, or compel DPRC to dispose of all or a
material portion of the business or assets of DPRC and the DPRC
Subsidiaries, taken as a whole.
(f) Votes Against the Merger. The holders of no more than 10% of the
shares of SPC Common Stock shall have been voted against this Agreement,
the Merger, and the other transactions contemplated hereby.
(g) Additional Consideration. The aggregate amount of cash consideration
payable with respect to Dissenting Shares and fractional shares shall not
exceed 10% of the Merger Consideration.
9.2 Conditions to the Obligation of SPC to Effect the Merger. The obligation
of SPC to effect the Merger shall be subject to the fulfillment on or prior to
the Effective Date of the following additional conditions:
(a) Performance. All covenants, agreements and obligations required by
the terms of this Agreement to be performed, satisfied or complied with by
DPRC or Acquisition at or before the Effective Date shall have been duly
and properly performed in all material respects.
(b) Representations and Warranties. Except as otherwise permitted by this
Agreement, all representations and warranties by DPRC and Acquisition
contained in this Agreement shall be true, correct and not materially
misleading on and as of the Effective Date as though made at that time
except to the extent that such representations and warranties by their
terms speak as of an earlier date, in which case such representations and
warranties shall have been true and correct as of such earlier date.
(c) Officers Certificate. SPC shall have received a certificate dated the
Effective Date, signed and verified by an officer of DPRC and Acquisition
certifying, that the conditions specified in Sections 9.2(a) and (b),
above, have been fulfilled.
(d) Consents and Approvals. All necessary agreements, waivers, approvals,
authorizations, assurances and consents of third parties to the
consummation of the transactions contemplated by this Agreement, including,
without limitation, those set forth on Schedule 4.5 hereto, shall have been
obtained by DPRC and delivered to SPC.
(e) Opinion of Counsel. SPC shall have received from Riordan & McKinzie,
counsel for DPRC, an opinion, dated the Effective Date, as to such matters
as SPC may reasonably request.
(f) Escrow Agreement. The Controlling Shareholders shall have obtained an
executed Escrow Agreement from DPRC and the Escrow Agent.
(g) Employment Agreements. R. Carlisle, T. Carlisle, Carter and Gallagher
shall have each obtained from Acquisition executed copies of the employment
agreement in the form of Exhibit H hereto (the "Executive Employment
Agreements").
9.3 Conditions to Obligation of DPRC and Acquisition to Effect the
Merger. The obligation of DPRC and Acquisition to effect the Merger shall be
subject to the fulfillment on or prior to the Effective Date of the following
additional conditions:
(a) Performance. All covenants, agreements and obligations required by
the terms of this Agreement to be performed, satisfied or complied with by
SPC at or before the Effective Date shall have been duly and properly
performed in all material respects.
(b) Representations and Warranties. Except as otherwise permitted by this
Agreement, all representations and warranties made by SPC in this Agreement
shall be true, correct and not materially misleading on and as of the
Effective Date as though made at that time except to the extent that such
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representations and warranties by their terms speak as of an earlier date,
in which case such representations and warranties shall have been true and
correct as of such earlier date.
(c) No Material Adverse Change. There shall have been no material adverse
change in the financial condition, business or prospects of SPC.
(d) Officers Certificate. DPRC shall have received a certificate, dated
the Effective Date, signed and verified by the President of SPC certifying,
that the conditions specified in Sections 9.3(a), (b) and (c), above, have
each been fulfilled.
(e) Consents and Approvals. All necessary agreements, waivers, approvals,
authorizations, assurances and consents of third parties to the
consummation of the transactions contemplated by this Agreement, including,
without limitation, those set forth on Schedule 4.5 hereto, shall have been
obtained by SPC and delivered to DPRC.
(f) Opinion of Counsel. DPRC shall have received from Hamel, Hicks, Wray,
Brown & Jernigan, P.A., counsel for SPC, an opinion, dated the Effective
Date, as to such matters as DPRC may reasonably request.
(g) Opinion of Accountants. DPRC shall have received an opinion from
Deloitte & Touche LLP, dated as of the Effective Date to the effect that
the business combination contemplated by this Agreement would properly be
accounted for as a pooling of interests in accordance with GAAP and the
published rules, regulations and policies of the SEC.
(h) Opinion of Financial Advisor. DPRC shall have received the opinion of
NationsBanc Montgomery Securities LLC, dated as of the Effective Date, to
the effect that, as of such date, the consideration being delivered in the
Merger is fair from a financial point of view to DPRC.
(i) Option Cancellation Agreement. DPRC shall have received an executed
Option Cancellation Agreement from each Performance Optionholder.
(j) Escrow Agreement. DPRC shall have received an executed Escrow
Agreement from the Controlling Shareholders and the Escrow Agent.
(k) Executive Employment Agreement. Acquisition shall have obtained
executed Executive Employment Agreements from each of R. Carlisle, T.
Carlisle, Carter and Gallagher.
(l) Noncompetition Agreement. DPRC shall have obtained from R. Carlisle,
T. Carlisle, Carter and Gallagher an executed noncompetition agreement in
the form attached hereto as Exhibit I (the ANoncompetition Agreement).
(m) Other Employment Agreements. Acquisition shall have obtained the
employment agreements in substantially the form attached hereto as Exhibit
J (the "Other Employment Agreements"), duly executed by SPC and each of the
Key Persons (other than the Controlling Shareholders).
(n) Affiliates Agreements. Each affiliate of SPC identified as such by
SPC pursuant to Section 8.5, above, shall have executed and delivered an
SPC Affiliates Agreement. Each affiliate of DPRC shall have executed and
delivered a DPRC Affiliates Agreement.
(o) Termination of Certain Agreements. Evidence of the termination,
effective as of the Effective Date, of (i) the Stock Redemption Agreement
dated March 29, 1990, by and among Carter, the Trustees of the Systems &
Programming Consultants, Inc. Money Purchase Pension Plan, the Trustees of
the Systems & Programming Consultants, Inc. Profit Sharing Plan and Systems
& Programming Consultants, Inc., a South Carolina corporation; (ii) the
Shareholders' Agreement dated May 25, 1994, by and among SPC, Carter,
Gallagher and Brenda Templin, as amended on December 28, 1995 and December
31, 1997; (iii) the Cross Purchase Agreement dated June 12, 1997, by and
among SPC, T. Carlisle and R. Carlisle; and (iv) each of the Split Dollar
Agreements set forth on Schedule 4.17 hereto.
(p) Termination Statements. SPC shall have obtained and delivered to DPRC
lien release or termination statements and pay-off letters, each in form
and substance to the reasonable satisfaction of DPRC, from each of the
persons (other than governmental agencies) set forth on Exhibit C hereto.
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(q) Transfer of Real Property. SPC shall have sold, conveyed and
transferred to one or more of the Controlling Shareholders, and such
Controlling Shareholder(s) shall have acquired and received from SPC, that
certain real property located in Town Creek Township, Brunswick County,
North Carolina, which is more specifically described on Schedule 4.11
hereto (the "Brunswick County Property"). The value of the Brunswick County
Property shall be appraised by a certified independent real estate
appraiser in the State of North Carolina (the "Appraised Value"), and sold,
conveyed and transferred to such Controlling Shareholder(s) in
consideration of a cash payment made by such Controlling Shareholder(s) to
SPC in an amount equal to the Appraised Value.
(r) Modifications to Employee Benefit Plans. The Board of Directors of
SPC shall have adopted resolutions changing, amending or otherwise
modifying any and all Employee Benefit Plans as may be reasonably requested
by DPRC.
ARTICLE 10
TERMINATION PRIOR TO CLOSING
10.1 Termination. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Date:
(a) By the mutual written consent of DPRC and SPC;
(b) By DPRC, if SPC or a Controlling Shareholder shall have breached in
any material respect any of its or his representations or warranties
contained herein, or if SPC or a Controlling Shareholder fails to comply in
any material respect with any of its or his covenants or agreements
contained herein, which breaches or failures, as the case may be, are, in
the aggregate, material in the context of the transactions contemplated by
this Agreement;
(c) By SPC, if DPRC or Acquisition shall have breached in any material
respect any of its representations or warranties contained herein, or if
DPRC or Acquisition fails to comply in any material respect with any of its
covenants or agreements contained herein, which breaches or failures, as
the case may be, are, in the aggregate, material in the context of the
transactions contemplated by this Agreement;
(d) By either DPRC or SPC on written notice to the other party, if the
Merger shall not have been consummated on or before December 31, 1998 (the
"Outside Date"); provided, however, that (i) DPRC may not terminate this
Agreement pursuant to this Section 10.1(d) if such failure to consummate
the Merger is the result of a failure to satisfy any of the conditions to
SPC's obligation to effect the Merger set forth in Section 9.2, above, and
(ii) SPC may not terminate this Agreement pursuant to this Section 10.1(d)
if such failure to consummate the Merger is the result of a failure to
satisfy any of the conditions to DPRC's obligation to effect the Merger set
forth in Section 9.3, above;
(e) By DPRC, if upon a vote at the DPRC Meeting, DPRC's shareholders do
not approve the principle terms of the Merger and the issuance of the Share
Consideration;
(f) By SPC, if upon a vote at the SPC Meeting, the Shareholders do not
approve the principle terms of the Merger; and
(g) By DPRC on written notice to SPC, if, at any time prior to the
Effective Date, Deloitte & Touche LLP shall have indicated in writing to
DPRC that such firm is unable to render the opinion required by Section
9.3(g), above, and that it cannot reasonably be anticipated that such firm
will be able to render such opinion within sixty (60) days of the date of
such writing; provided, however, that, in the event such firm is unable to
render such opinion as a result of a breach by DPRC of any representation,
warranty or covenant in this Agreement, DPRC may not terminate this
Agreement pursuant to this clause (g).
10.2 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 10.1(a), (d), (e), (f), (h) or (i) above, no
party (or any of its directors or officers) shall have any liability or
further
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obligation to any other party to this Agreement, except that the parties shall
each pay one-half of certain expenses as provided in Section 11.7, below. In
the event of any termination of this Agreement pursuant to Section 10.1(b) or
(c), above, such termination shall not limit or affect in any way the ability
of the non-breaching party to seek damages from the breaching party for any
breach of this Agreement (including the right to seek recovery of the portion
of the expenses paid by the non-breaching party pursuant to Section 11.6,
below).
10.3 Effect of Obligations. Termination of this Agreement pursuant to
Section 10.1, above, 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 Section 8.4, above;
provided, however, that termination pursuant to Section 10.1 (b) or (c),
above, shall not relieve the defaulting or breaching party from any liability
to the other party.
ARTICLE 11
POST CLOSING
11.1 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 Effective Date for a period
ending with the completion of the first audit of financial statements that
contain the combined results of the parties, but in no event later than one
year after the Effective Date (the "Survival Date").
11.2 Indemnification Obligations.
(a) Indemnification by the Controlling Shareholders. The Controlling
Shareholders, jointly and severally, shall indemnify, defend and hold
harmless DPRC, the Surviving Corporation and any of their affiliates and
their respective Representatives and their respective heirs, executors,
administrators, successors and assigns (collectively, the "DPRC
Representatives"), and shall reimburse DPRC, the Surviving Corporation and
any of their affiliates and the DPRC Representatives, on demand, for any
Damages resulting from any of the following: (i) any breach of warranty or
inaccurate or erroneous representation made by the Controlling Shareholders
or SPC 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 Controlling
Shareholders or SPC pursuant hereto or thereto; (ii) any Action set forth
on Schedule 4.7 hereto; (iii) any failure to file Tax Returns or to pay
Taxes in any jurisdiction; (iv) any failure to properly account for
vacation accruals in the Financial Statements; (v) any failure to properly
account for health insurance premium accruals in the Financial Statements;
(vi) any violation of an Environmental Law with respect to the SPC Real
Property; and (vii) any failure of SPC to have held any requisite Permit
prior to the Effective Time.
(b) Indemnification by DPRC. DPRC shall indemnify, defend and hold
harmless the Controlling Shareholders, and any of their respective
Representatives, and their respective heirs, executors, administrators,
successors and assigns (collectively, the "Controlling Shareholder
Representatives"), and shall reimburse the Controlling Shareholders and the
Controlling Shareholder Representatives, on demand, for any Damages
resulting from any breach of warranty or inaccurate or erroneous
representation made by DPRC or Acquisition 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 DPRC or Acquisition pursuant hereto or thereto.
(c) Notice of 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 as soon as practicable following 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.
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(d) Claims Between the Parties. Upon receipt of any request for
indemnification with respect to a claim by Indemnitee directly against
Indemnitor (rather than to a claim for indemnification with respect to a
claim brought against Indemnitee by a third party), Indemnitor shall,
within 30 days of the mailing of Indemnitee's notice setting forth such
request for indemnification, either (a) agree in writing to such
indemnification request, or (b) if Indemnitor believes in good faith that
it is not obligated to indemnify Indemnitee with respect to such claim,
provide Indemnitee with written notice setting forth the basis for such
objection in reasonable detail. If Indemnitor fails to respond to
Indemnitee's written request within such 30-day period, Indemnitee's right
to indemnification, as set forth in Indemnitee's notice to Indemnitor,
shall be deemed agreed to by Indemnitor. If Indemnitor timely objects to
Indemnitee's request for indemnification, Indemnitor and Indemnitee shall
meet and confer and attempt to resolve such dispute through good faith
negotiations. If they are unable to resolve such dispute within 20 days (or
such longer period as Indemnitor and Indemnitee may agree) of delivery of
Indemnitor's written objection, such dispute shall be settled by binding
arbitration before a single arbitrator in (i) the County of Mecklenburg,
State of North Carolina, if DPRC (or a DPRC Representative) is Indemnitee,
and (ii) Orange County, California, if a Controlling Shareholder (or a
Controlling Shareholder Representative) is Indemnitee. Such proceedings
shall be conducted by the American Arbitration Association 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.
(e) Indemnification With Respect to Third Party Claims. Upon receipt by
Indemnitor of a notice from Indemnitee with respect to any claim of a third
party against Indemnitee with respect to which Indemnitee requests to be
indemnified by Indemnitor, Indemnitor shall, within 20 days of the mailing
of Indemnitee's notice setting forth such request for indemnification,
either (a) agree in writing to assume the defense of such third party
claim, or (b) if Indemnitor believes in good faith that it is not obligated
to indemnify Indemnitee with respect to such third party claim, provide
Indemnitee with written notice setting forth the basis for such objection
in reasonable detail. If Indemnitor fails to respond to Indemnitee's
written request within such 20 day period, Indemnitee's right to
indemnification, as set forth in Indemnitee's notice to Indemnitor, shall
be deemed agreed to by Indemnitor. In the event Indemnitor timely objects
to Indemnitee's request for indemnification, Indemnitor and Indemnitee
shall meet and confer and attempt to resolve such dispute through good
faith negotiations. If they are unable to resolve such dispute within 20
days (or such longer period as Indemnitor and Indemnitee may agree) of
delivery of Indemnitor's written objection, such dispute shall be settled
by binding arbitration before a single arbitrator in (i) the County of
Mecklenburg, State of North Carolina, if DPRC (or a DPRC Representative) is
Indemnitee, and (ii) Orange County, California, if a Controlling
Shareholder (or a Controlling Shareholder Representative) is Indemnitee.
Such proceedings shall be conducted by the American Arbitration Association
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. In the event it is determined that Indemnitor is required to
indemnify Indemnitee, Indemnitor shall assume the defense of such third
party 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 has agreed to indemnify
Indemnitee and has assumed the defense of any such third party claim, (A)
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, and (B) Indemnitor shall have the right to settle any claim for
which indemnification has been sought and is available hereunder; provided,
however, 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 any third party claim for which it is obligated to provide
indemnification hereunder, Indemnitee may assume control of the defense of
such claim through counsel of its choice at Indemnitor's expense and shall
have control over the litigation and authority to resolve such claim. If
action is required to be taken with respect to any third party claim prior
to the
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determination of Indemnitor's obligations hereunder, Indemnitee may assume
control of the defense of such claim through counsel of its choice until
such time as Indemnitor's obligations hereunder are determined; provided,
however, that Indemnitor shall not be liable hereunder for any settlement
of such claim without Indemnitor's prior written consent unless and until
it is determined that Indemnitor is obligated hereunder to provide
indemnification with respect thereto and refuses or fails to assume the
defense of such claim.
(f) Limitations on Claims. Notwithstanding anything to the contrary in
Section 11.2(a), above, the maximum, aggregate amount of claims for Damages
for which DPRC shall be entitled to indemnification under Section 11.2(a),
above, shall be limited to the product obtained by multiplying (i) 10% of
the total number of shares of DPRC Common Stock issued in exchange for the
outstanding shares of SPC Common Stock plus 10% of the total number of
shares of DPRC Common Stock issued in cancellation of the Outstanding SPC
Performance Options in connection with the Merger, by (ii) the DPRC Average
Closing Price at the Signing Date.
11.3 Tax-Free Treatment. None of the parties shall take any action, directly
or indirectly, that would prevent the Merger from qualifying as a tax-free
reorganization under Section 368(a)(2)(E) of the Code.
11.4 Stock Options. At the next meeting of the Compensation Committee of
DPRC after the Effective Date, each of the persons set forth on Schedule 11.4
attached hereto shall be granted, under DPRC's 1994 Stock Option Plan, as
amended (the "Plan"), options to purchase the number of shares of DPRC Common
Stock set forth opposite such person's name on Schedule 11.4 attached hereto.
The exercise price of each such option shall be the fair market value of the
DPRC Common Stock at the date of grant, as determined by the Plan (i.e., the
closing price of the DPRC Common Stock for the last preceding day on which
DPRC 's shares were traded).
11.5 Board Representation. At the next meeting of the Board of Directors of
DPRC (the "Board") after the Effective Date, DPRC will increase the authorized
number of members of the Board from five to seven and will cause T. Carlisle
to be elected to the Board. DPRC shall nominate T. Carlisle as a director to
stand for election at DPRC's next annual meeting of stockholders. During the
term of T. Carlisle's Executive Employment Agreement, DPRC shall also nominate
and elect T. Carlisle as a director of the Surviving Corporation.
11.6 Transfers To Be Effected By Market Maker. Upon consummation of the
Merger, none of the Controlling Shareholders shall, directly or indirectly,
sell or engage in any transaction which may result in a change in the legal,
beneficial or record ownership of the Controlling Shareholders' shares of DPRC
Common Stock, or any interest therein, including, without limitation, a
voluntary or involuntary sale, assignment, transfer, option, pledge,
hypothecation, encumbrance, disposal, loan, gift, attachment or levy (a
"Transfer"), unless such Transfer is effected through a "market maker" in the
DPRC Common Stock. Each of the Controlling Shareholders acknowledges that the
certificates and instruments evidencing his shares of DPRC Common Stock will
bear the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, AS MORE SPECIFICALLY SET FORTH IN AN AGREEMENT
AND PLAN OF MERGER DATED JUNE 16, 1998, AMONG DATA PROCESSING RESOURCES
CORPORATION, DPRC ACQUISITION CORP., SYSTEMS & PROGRAMMING CONSULTANTS,
INC. AND CERTAIN OF THE SHAREHOLDERS OF SYSTEMS & PROGRAMMING CONSULTANTS,
INC.
11.7 Expenses. The Controlling Shareholders will be solely responsible for
and bear all of their 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. DPRC 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. If the Merger is
consummated, all reasonable fees and expenses incurred by SPC in connection
with the Merger and the transactions contemplated hereby will be paid by the
Surviving Corporation (the "Merger Costs and Expenses"). If this Agreement is
terminated and the Merger is not consummated for any reason, SPC shall bear
A-31
<PAGE>
its own fees and expenses; provided, however, that one-half or $50,000,
whichever is less, of the following DPRC fees and expenses shall be paid by
SPC: (i) the filing fee paid by DPRC to the SEC with respect to the
Registration Statement; and (ii) the printing and mailing expenses incurred by
DPRC with respect to the Proxy Statement-Prospectus and the Registration
Statement. In the event of any termination of this Agreement pursuant to
clause (b) or clause (c) of Section 10.1, above, the non-breaching party may
assert a claim for payment of the portion of such fees paid by the non-
breaching party as one element of the damages suffered by such non-breaching
party.
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 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, that certain letter dated
March 7, 1998 from DPRC to Arthur Andersen--Corporate Finance, 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.
12.2 Governing Law and Choice of Forum. 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. Any Action arising out of or relating hereto or thereto,
or the interpretation, performance or breach hereof or thereof, shall be
instituted in the United States District Court for the Central District of
California or any court of the State of California located in Orange County,
and each party irrevocably submits to the jurisdiction of those courts and
waives any and all objections to jurisdiction or venue that it may have under
the Laws of the State of California or otherwise in those courts in any such
Action. Each party agrees to accept service of process in any such Action in
the manner provided for in Section 12.7, below.
12.3 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.
12.4 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.
12.5 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
A-32
<PAGE>
foregoing, DPRC or Acquisition may, without the consent of the Controlling
Shareholders or SPC, assign all of their rights and obligations under this
Agreement (other than the issuance of the Controlling Shareholders' Shares) to
any affiliate of DPRC.
12.6 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.
12.7 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 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 12.7 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.
12.8 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.
12.9 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.
12.10 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.
12.11 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.
[rest of page intentionally left blank]
A-33
<PAGE>
12.12 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.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first set forth above.
"DPRC": "SPC":
DATA PROCESSING SYSTEMS & PROGRAMMING
RESOURCES CORPORATION, CONSULTANTS, INC.
a California corporation a North Carolina corporation
By: /s/ Michael A. Piraino By: /s/ Thomas G. Carlisle
--------------------------------- ----------------------------------
Michael A. Piraino Its: President
Executive Vice President -------------------------------
Address: Address:
4400 MacArthur Boulevard 212 S. Tryon
Suite 600 Suite 700
Newport Beach, CA 92660-2037 Charlotte, NC 28281
Phone No.: (714) 553-1102 Phone No.: (704) 348-9000
FAX No.: (714) 752-5850 FAX No.: (704) 348-9050
"ACQUISITION": THE "CONTROLLING SHAREHOLDERS":
DPRC ACQUISITION CORP.,
a North Carolina corporation
By: /s/ Michael A. Piraino /s/ Richard K. Carlisle
--------------------------------- -------------------------------------
Michael A. Piraino RICHARD K. CARLISLE
Executive Vice President
Address: Address:
4400 MacArthur Boulevard c/o Systems & Programming
Suite 600 Consultants, Inc.
Newport Beach, CA 92660-2037 212 S. Tryon, Suite 700
Phone No.: (714) 553-1102 Charlotte, NC 28281
FAX No.: (714) 752-5850 Phone No.: (704) 348-9000
FAX No.: (704) 348-9050
A-34
<PAGE>
/s/ Thomas G. Carlisle
-------------------------------------
THOMAS G. CARLISLE
Address:
c/o Systems & Programming
Consultants, Inc.
212 S. Tryon, Suite 700
Charlotte, NC 28281
Phone No.: (704) 348-9000
FAX No.: (704) 348-9050
/s/ Jeffery Carter
-------------------------------------
JEFFERY CARTER
Address:
c/o Systems & Programming
Consultants, Inc.
212 S. Tryon, Suite 700
Charlotte, NC 28281
Phone No.: (704) 348-9000
FAX No.: (704) 348-9050
/s/ Robert Gallagher
-------------------------------------
ROBERT GALLAGHER
Address:
c/o Systems & Programming
Consultants, Inc.
212 S. Tryon, Suite 700
Charlotte, NC 28281
Phone No.: (704) 348-9000
FAX No.: (704) 348-9050
A-35
<PAGE>
EXHIBIT A
SELLER ADJUSTED NET WORTH AT THE BALANCE SHEET DATE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF APRIL 30,
1998
----------------
<S> <C> <C>
Total Assets.................................................. $ 6,195
Less: Prepaid Income Taxes.................................. ($135)
-------
Adjusted Total Assets......................................... $6,060
Total Liabilities............................................. $ 2,357
Less: Lease Payoff.......................................... ($41)
Less: Deferred & Income Tax Payable......................... ($348)
-------
Adjusted Total Liabilities.................................... $1,968
-------
Adjusted Net Worth............................................ $4,092
Minimum Threshold............................................. $3,700
-------
Net Worth Overage............................................. $ 392
=======
</TABLE>
[The foregoing numbers were estimated for purposes of, and at the time of,
signing the Merger Agreement. Therefore, the numbers may be different from
those contained in the historical financial statements of SPC set forth
elsewhere in this Proxy Statement/Prospectus.]
Exhibit A
Page 1 of 1
<PAGE>
EXHIBIT B
SELLER ADJUSTED WORKING CAPITAL AT THE BALANCE SHEET DATE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF APRIL 30,
1998
----------------
<S> <C> <C>
Current Assets................................................ $ 5,685
Less: Prepaid Income Taxes.................................. ($135)
-------
Adjusted Current Assets....................................... $ 5,550
Current Liabilities........................................... $2,357
Less: Lease Payoff.......................................... ($41)
Less: Deferred & Income Tax Payable......................... ($348)
-------
Adjusted Current Liabilities.................................. $1,968
-------
Adjusted Working Capital...................................... $3,582
Minimum Threshold............................................. $3,200
-------
Working Capital Overage....................................... $ 382
=======
</TABLE>
[The foregoing numbers were estimated for purposes of, and at the time of,
signing the Merger Agreement. Therefore, the numbers may be different from
those contained in the historical financial statements of SPC set forth
elsewhere in this Proxy Statement/Prospectus.]
Exhibit B
Page 1 of 1
<PAGE>
EXHIBIT C
TAX & OTHER LIABILITIES
<TABLE>
<S> <C> <C>
Prepaid Income Taxes....................................... $(135,035)
Federal Income Taxes Payable & Deferred.................... $ 283,832
State Income Taxes Payable................................. $ 46,995
Accrued Franchise Taxes.................................... $ 17,612
--------- --------
Total Taxes............................................ $213,404
--------
Notes Payable.............................................. $691,332
--------
Total...................................................... $904,736
========
</TABLE>
[The foregoing numbers were estimated for purposes of, and at the time of,
signing the Merger Agreement. Therefore, the numbers may be different from
those contained in the historical financial statements of SPC set forth
elsewhere in this Proxy Statement/Prospectus.]
Exhibit C
Page 1 of 1
<PAGE>
EXHIBIT D
OPTION CANCELLATION AGREEMENT
This OPTION CANCELLATION AGREEMENT (this "Agreement") is made and entered to
as of this day of 1998, by and among Data Processing Resources
Corporation, a California corporation ("DPRC"), Systems & Programming
Consultants, Inc., a North Carolina corporation ("SPC"), and , a
holder ("Holder") of options to purchase shares of common stock, no par value,
of SPC.
RECITALS
A. DPRC, DPRC Acquisition Corp., a North Carolina corporation and a wholly-
owned subsidiary of DPRC ("Acquisition"), SPC, and certain shareholders of SPC
have entered into an Agreement and Plan of Merger dated as of June 16, 1998
(the "Merger Agreement"), pursuant to which Acquisition is merging with and
into SPC.
B. All capitalized terms used herein but which are not otherwise defined
shall have the meanings given to them in the Merger Agreement.
C. Holder is the owner of Outstanding SPC Performance Options and in lieu of
exercising such Outstanding SPC Performance Options, and in consideration of
the cancellation and termination thereof, Holder desires to acquire the right
to receive shares of DPRC Common Stock (the "DPRC Common Shares") on the terms
and subject to the conditions of this Agreement.
AGREEMENT
In consideration of the foregoing recitals and the mutual covenants and
conditions contained herein, the parties, intending to be legally bound, agree
as follows:
1. Cancellation of Outstanding SPC Performance Options. By the execution of
this Agreement, effective as of the Effective Date, Holder hereby relinquishes
all of his or her rights and interest in and to the Outstanding SPC
Performance Options, and his or her right to now or hereafter purchase shares
of SPC Common Stock pursuant to each of Applicable Stock Option Agreements (as
defined in Section 3.2, below), whether accruing or arising before or after
the Effective Date, and the Outstanding SPC Performance Options and each of
the Applicable Stock Option Agreements, shall each be automatically canceled
as of the Effective Date.
2. Option Cancellation Amount. Promptly after the Effective Date, DPRC shall
deliver to Holder, or his or her designee, the number of shares of DPRC Common
Stock which when multiplied by the DPRC Applicable Share Value, equals the
Fair Market Value (as defined herein) of Holder's Outstanding SPC Performance
Options. The fair market value of the Outstanding SPC Performance Options (the
"Fair Market Value") shall be determined by an appraisal to be conducted prior
to the Effective Date by Hitchner . Whitt & Co., P.A. (the "Appraiser"). In
determining the Fair Market Value of Holder's Outstanding Performance Options,
the Appraiser shall consider all factors which he deems relevant, including,
without limitation, the value of the SPC Common Stock and the probability of
the satisfaction of all performance levels to which the vesting of Holder's
Outstanding SPC Performance Options are subject. Holder acknowledges and
agrees that the Appraiser's determination of the Fair Market Value of Holder's
Outstanding SPC Performance Options shall be conclusive and binding.
3. Representations, Warranties and Covenants of Holder. Holder represents,
warrants and covenants as follows:
3.1 Authority. Holder has full power and authority to enter into,
executive, deliver and perform Holder's obligations under this Agreement,
to make the representations, warranties and covenants herein contained and
to perform Holder's obligations hereunder.
Exhibit D
Page 1 of 4
<PAGE>
3.2 Outstanding SPC Performance Options Owned. Attachment 1 hereto sets
forth all Outstanding SPC Performance Options owned by Holder and the stock
option agreements (collectively, the "Applicable Stock Option Agreements")
by which Holder has been granted such Outstanding SPC Performance Options.
At the date hereof, all of the Outstanding SPC Performance Options owned by
Holder are, and at all times until and through the Effective Date (as
hereinafter defined) will be, free and clear of any rights of first
refusal, co-sale rights, security interests, liens, pledges, claims,
options, charges or other encumbrances.
3.3 Further Assurances. Holder agrees to execute and deliver any
additional documents reasonably necessary or desirable, in the opinion of
DPRC or SPC, to carry out the purposes and intent of this Agreement and the
Merger Agreement.
4. Effective Date of Agreement. The parties acknowledge and agree that this
Agreement is expressly made and conditioned upon the consummation of the
Merger and in the event that the Merger is not consummated, all of the
obligations of the parties hereunder shall be null and void.
5. Miscellaneous Provisions.
5.1 Governing Law. The validity, construction and performance of this
Agreement, and any Action arising out of or relating to this Agreement
shall be governed by the Laws, without regard to the Laws as to choice or
conflict of Laws, of the State of California.
5.2 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.
5.3 Assignment. 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 a party without the prior
written consent of the other.
5.4 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 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 4.4 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.
5.5 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.
[rest of page intentionally left blank]
Exhibit D
Page 2 of 4
<PAGE>
5.6 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.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as
of the date first above written.
"DPRC": "SPC":
DATA PROCESSING SYSTEMS & PROGRAMMING
RESOURCES CORPORATION, CONSULTANTS, INC.
a California corporation a North Carolina corporation
By: By:
--------------------------------- ----------------------------------
Michael A. Piraino Its:
Executive Vice President -------------------------------
Address: Address:
4400 MacArthur Boulevard 212 S. Tryon
Suite 600 Suite 700
Newport Beach, CA 92660-2037 Charlotte, NC 28281
Phone No.: (714) 553-1102 Phone No.: (704) 348-9000
FAX No.: (714) 752-5850 FAX No.: (704) 348-9050
"HOLDER":
-------------------------------------
[NAME OF HOLDER]
Address:
-------------------------------------
-------------------------------------
-------------------------------------
Phone No.: ( ) -
Fax No.: ( ) -
Exhibit D
Page 3 of 4
<PAGE>
ATTACHMENT "1"
Outstanding SPC Performance Options
[Name of Holder]
APPLICABLE STOCK NUMBER OF OUTSTANDING
OPTION AGREEMENTS SPC PERFORMANCE OPTIONS
Exhibit D
Page 4 of 4
<PAGE>
EXHIBIT E
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Agreement") is made and entered into as of this
day of 1998, by and among Data Processing Resources
Corporation, a California corporation ("DPRC"), Richard K. Carlisle, an
individual ("R. Carlisle"), Thomas G. Carlisle, an individual ("T. Carlisle"),
Jeffery Carter, an individual ("Carter"), Robert Gallagher, an individual
("Gallagher"), and U.S. Trust Company of California, N.A., as escrow agent
(the "Escrow Agent"). R. Carlisle, T. Carlisle, Carter and Gallagher are
collectively referred to herein as the "Shareholders" and sometimes
individually referred to as a "Shareholder."
RECITALS
A. DPRC, DPRC Acquisition Corp., a North Carolina corporation and a wholly-
owned subsidiary of DPRC ("Acquisition"), Systems & Programming Consultants,
Inc., a North Carolina corporation ("SPC"), and the Shareholders have entered
into an Agreement and Plan of Merger dated as of June 16, 1998 (the "Merger
Agreement"), pursuant to which Acquisition is merging with and into SPC.
B. All capitalized terms used herein but which are not otherwise defined
shall have the meanings given to them in the Merger Agreement.
C. Pursuant to Section 3.1 of the Merger Agreement, shares of DPRC Common
Stock (the "DPRC Common Shares") are to be issued to the Shareholders.
D. Section 3.4 of the Merger Agreement provides for certain of the Initial
DPRC Shares to be placed in an escrow account to secure certain
indemnification obligations of SPC and Shareholders to DPRC under Section 11.2
of the Merger Agreement, on the terms and subject to the conditions set forth
herein (the "Escrow").
AGREEMENT
In consideration of the foregoing recitals and the mutual covenants and
conditions contained herein, the parties, intending to be legally bound, agree
as follows:
1. Establishment of Escrow; Account
1.1 Deposit in Escrow. As soon as practicable after the execution of this
Agreement, pursuant to Section 3.4 of the Merger Agreement, DPRC and the
Shareholders shall deposit with the Escrow Agent, that number of the DPRC
Common Shares, which when multiplied by the DPRC Applicable Share Value
shall be equal to Seven Million Dollars ($7,000,000), but in no event shall
such amount exceed 10% of the total number of shares of DPRC Common Shares
issued in exchange for the outstanding shares of SPC Common Stock plus 10%
of the total number of shares of DPRC Common Shares issued in cancellation
of the Outstanding SPC Performance Options in connection with the Merger,
and shall promptly deliver to the Escrow Agent duly authorized stock
certificates for such DPRC Common Shares registered in the names of the
Shareholders. The DPRC Common Shares so deposited are referred to herein as
the "Initial Escrowed Shares." Any shares of DPRC capital stock that
results from any stock dividend, reclassification, stock split, subdivision
or combination of shares, recapitalization, merger or other events
generally made with respect to the DPRC Common Shares ("Additional Shares")
shall be delivered to the Escrow Agent and shall be held in the Escrow
Account (and, as required under this Agreement, shall be released from the
Escrow Account). Unless otherwise indicated, as used in this Agreement, the
term "Escrowed Shares" includes the Initial Escrowed Shares and any
Additional Shares. The Escrow Agent agrees to accept delivery of the
Escrowed Shares, to hold such Escrowed Shares in Escrow in accordance with
this Agreement and to release the Escrowed Shares out of Escrow only as
provided in this Agreement.
1.2 Escrow Account. The Escrow Agent shall maintain the Escrowed Shares
in a separate account (the "Escrow Account").
Exhibit E
Page 1 of 10
<PAGE>
1.3 Dividends; Voting and Rights of Ownership. Any cash dividends,
dividends payable in property or other distributions of any kind (except
for Additional Shares) made in respect of the Escrowed Shares shall be
distributed currently by DPRC to the Shareholders. The Shareholders shall
have the right to vote the Escrowed Shares deposited in the Escrow Account
to the account of the Shareholders during such time that the Escrowed
Shares are held in Escrow, and DPRC shall take all steps necessary to allow
the exercise of such rights. While the Escrowed Shares remain in the Escrow
Agent's possession pursuant to this Agreement, the Shareholders will retain
and shall be able to exercise all other incidents of ownership of the
Escrowed Shares that are not inconsistent with the terms and conditions
hereof or the Merger Agreement.
2. Release from Escrow.
2.1 Release of Escrowed Shares to the Shareholders. As soon as possible
after the first anniversary of the Effective Date, but in no event later
than five business days after all of the applicable conditions for release
are satisfied (the "Final Release Date"), the Escrow Agent shall release to
the Shareholders from the Escrow Account all of the Escrowed Shares
remaining in the Escrow Account, less any Escrowed Shares subject to
delivery to DPRC in accordance with Section 3, below, with respect to any
then pending, but unresolved Claims by DPRC. Upon the resolution of any
Claim referred to in this Section 2.1 the Escrowed Shares that were subject
to the Claim shall be promptly released by the Escrow Agent to DPRC or to
the Shareholders as determined pursuant to the resolution of the Claim and
in accordance with this Agreement.
2.2 Distribution to the Shareholders. The Escrowed Shares shall be held
by the Escrow Agent until required to be released to either the
Shareholders or DPRC as provided for in Sections 2.1 and 2.3. Within 10
business days after the first anniversary of the Effective Date, DPRC and
the Shareholders shall deliver to the Escrow Agent a written notice (a
"Release Notice") setting forth the number of Escrowed Shares to be
released (the "Released Escrowed Shares") and stating the number of
Released Escrowed Shares to be released to the Shareholders. The Released
Escrowed Shares are to be released to the Shareholders, and the payment to
be made to the Shareholders in lieu of fractional shares, if any (as
indicated below in this Section 2.2) shall be sent to the address to which
the Released Escrowed Shares are to be delivered. Within five business days
after receipt of the Release Notice, the Escrow Agent shall deliver (by
registered mail or overnight carrier) to the Shareholders the number of
Escrowed Shares specified in the Release Notice and shall pay by check to
the Shareholders the amount payable in lieu of fractional shares, if any.
Within five business days after the conditions for the release of any
Released Escrowed Shares have been satisfied, DPRC shall (a) take such
action as may be necessary to cause a stock certificate to be issued in the
name of the Shareholders bearing any legends required by the Merger
Agreement and shall provide such certificate to the Escrow Agent, and (b)
deposit with the Escrow Agent sufficient funds to pay the cash amount for
fractional shares. Cash shall be paid in lieu of fractions of Released
Escrowed Shares in an amount equal to the product determined by multiplying
such fraction by the DPRC Applicable Share Value (the "Share Price"). The
Escrow Agent shall not be required to deliver the Released Escrowed Shares
to the Shareholders following the satisfaction of all release conditions
until it has received the Release Notice from DPRC and the Shareholders.
The Escrow Agent shall not be required to invest the funds deposited with
it for payment in lieu of fractional shares, but will make such investment
arrangements as are expressly requested in writing by DPRC to the extent
reasonable.
2.3 Release of Escrowed Shares to DPRC. Within five business days after
resolution of any Claim in accordance with Section 3, below, DPRC and the
Shareholders shall deliver to the Escrow Agent a Release Notice setting
forth the number of Escrowed Shares equal to the amount, if any, deemed to
be owing to DPRC pursuant to the resolution of the Claim divided by the
Share Price. In lieu of any fractional shares, any fraction of a share that
would otherwise be released shall be rounded to the nearest whole share.
Within five business days after receipt of such Release Notice, or if no
such Release Notice is received, then within 20 calendar days after receipt
of any DPRC Demand provided for in Section 3.4(a), below, or a DPRC
Distribution Notice as provided for in Section 3.4(b), below (unless the
Shareholders give the Escrow Agent written notice within such 20-day period
that the Shareholders object to the DPRC Demand or Distribution
Exhibit E
Page 2 of 10
<PAGE>
Notice as provided in Section 3.4(a) or 3.4(b), below, as the case may be),
the Escrow Agent and DPRC shall cause the transfer agent for DPRC Common
Shares (the "Transfer Agent") to cancel the number of Escrowed Shares to be
released pursuant to this Section 2.3 and reissue certificates for Escrowed
Shares that are to be either distributed to the Shareholders pursuant to
Section 2.2, above, or retained by the Escrow Agent in Escrow as Escrowed
Shares. Any Escrowed Shares released from Escrow to DPRC shall be subject
to cancellation by DPRC, without requiring DPRC to pay any consideration
whatsoever in receipt thereof to the Shareholders.
2.4 No Encumbrance. Except for sales of Escrowed Shares in which the
proceeds of such Sale are deposited in the Escrow Account on the terms and
subject to the conditions of Section 2.6 of this Agreement (a "Sale") as if
such proceeds were Escrowed Shares, no Escrowed Shares or any beneficial
interest therein may be pledged, sold, assigned or transferred, including
by operation of Law, by a Shareholder or may be taken or reached by any
legal or equitable process in satisfaction of any debt or other liability
of such Shareholder, prior to the delivery of the Escrowed Shares by the
Escrow Agent to such Shareholders pursuant to Sections 2.1 and 2.2, above.
2.5 Power to Transfer Escrowed Shares. The Escrow Agent is hereby granted
the power to effect any transfer of the Escrowed Shares provided for in
this Agreement. DPRC will cooperate with the Escrow Agent in causing the
Transfer Agent to promptly issue stock certificates to effect such
transfers.
2.6 Cash in Lieu of Escrowed Shares.
(a) In General. Subject to the terms and conditions of the Merger
Agreement or any of the Ancillary Agreements, each Shareholder shall
have the right to require the Escrow Agent to release any or all of his
Escrowed Shares to such Shareholder upon such time that such
Shareholder has deposited in immediately available funds with the
Escrow Agent an amount equal to the greater of (i) the proceeds from a
Sale, or (ii) the Share Price of all of the Escrowed Shares to be
released to such Shareholder (the "Cash Deposit"). As soon as possible
after such Shareholder has made the Cash Deposit, the Escrow Agent
shall hold the Cash Deposit in the Escrow Account and release the
Escrowed Shares so paid for. The Cash Deposit, together with any and
all remaining Escrowed Shares, shall thereafter secure, or continue to
secure, the indemnification obligations of the Shareholders to DPRC
under Section 11.2 of the Merger Agreement on the terms and subject to
the conditions of this Agreement. DPRC shall have the same recourse
against the Cash Deposit as it would have had against the Escrowed
Shares so paid for, and such Shareholder shall have the same rights in
and to the Cash Deposit as it otherwise would have had with respect to
the Escrowed Shares so paid for.
(b) Investments. The Escrow Agent shall invest and reinvest the Cash
Deposit and any interest received thereon at the joint written
direction of DPRC and such Shareholder in (i) marketable securities
issued or guaranteed by the United States of America or any of its
agencies, (ii) commercial paper issued by a United States corporation
having the highest rating obtainable from either Standard & Poor's
Corporation or Moody's Investors Service, Inc. or their respective
successors (or comparable ratings if such rating systems are changed or
similar rating services substituted therefor), (iii) certificates of
deposit of banks or trust companies incorporated and doing business
under the Laws of the United States of America or one of the states
thereof, each having a combined capital and surplus of at least
$14,000,000, or (iv) bankers' acceptances and other bills of exchange
of the kind and maturities made eligible, pursuant to Law, for purchase
in the open market by Federal Reserve Banks, provided the accepting
bank is a member of the Federal Reserve System and has a combined
capital and surplus of at least $50,000,000 (all such marketable
securities, commercial paper, certificates of deposit, time deposits,
bankers' acceptances and bills of exchange being herein collectively
called "Investments"); provided, however, that all such investments
shall have maturities no later than 30 days after the date of purchase
thereof; the Escrow Agent may register any securities held in its own
name or in the name of a nominee or in bearer form and may deposit any
securities or other property in a depository or a clearing corporation.
Exhibit E
Page 3 of 10
<PAGE>
3. Resolution of Claims.
3.1 Indemnification Obligations. The Escrowed Shares shall serve as
security only for the indemnity obligations of SPC and the Shareholders
under Section 11.2 of the Merger Agreement. Payment for any Damages shall
be made by releasing to DPRC Escrowed Shares as provided in this Agreement.
To the extent the Escrowed Shares are insufficient to fully compensate DPRC
for the Damages, DPRC shall be entitled to all of its other rights pursuant
to the Merger Agreement.
3.2 Notice of Claims. Promptly after receipt by DPRC of notice or
discovery of any claim, damage or legal action or proceeding giving rise to
indemnification rights under the Merger Agreement (a "Claim"), DPRC shall
give the Shareholders written notice of such Claim pursuant to Section 11.2
of the Merger Agreement and shall provide a copy of such notice to the
Escrow Agent. Each notice of a Claim by DPRC (the "Notice of Claim") shall
be in writing and shall be delivered on or before the Final Release Date.
3.3 No Release to DPRC Until Resolution. DPRC shall not request the
Escrow Agent to release to DPRC any of the Escrowed Shares held in the
Escrow Account pursuant to a Notice of Claim until such Claim has been
resolved in accordance with Section 3.4, below.
3.4 Resolution of Claims. Any Notice of Claim received by the
Shareholders and the Escrow Agent pursuant to Section 3.2, above, shall be
resolved as follows:
(a) Uncontested Claims. If the Shareholders do not contest a Notice
of Claim in writing in accordance with Section 11.2 of the Merger
Agreement, DPRC may deliver to the Escrow Agent, with a copy to the
Shareholders, a written demand by DPRC (a "DPRC Demand") stating that a
Notice of Claim had been given as required in the Merger Agreement and
that no Notice of Contest has been received from the Shareholders
during the period specified in the Merger Agreement and further stating
the number of Escrowed Shares to be withheld from release to the
Shareholders or to be released to DPRC in accordance with this Section
3.4(a). The Escrow Agent shall within 20 calendar days after receipt of
such DPRC Demand, release to DPRC for cancellation that number of
Escrowed Shares having a value (determined pursuant to Section 2.2,
above, treating the 30th calendar day after the date of the Notice of
Claim as the Final Release Date) equal to the amount of Damages
specified in the Notice of Claim and shall notify the Shareholders of
such transfer. It is provided, however, that within 20 calendar days
after receipt of the DPRC Demand, the Shareholders may object to DPRC's
calculation of the number of Escrowed Shares to be released to DPRC
(but may not object to the validity or amount of the Claim noticed in
the Notice of Claim), whereupon, the Escrow Agent shall not release the
Escrowed Shares to DPRC until either (i) DPRC and the Shareholders
shall have given the Escrow Agent written notice as to the number of
Escrowed Shares to be released, or (ii) the matter is resolved as
provided in Sections 3.4(b) and 3.4(c), below.
(b) Contested Claims. If the Shareholders give written notice
contesting all or a portion of a Notice of Claim to DPRC and the Escrow
Agent (a "Contested Claim") within the applicable period set forth in
Section 11.2 of the Merger Agreement, matters that are subject to third
party Claims brought against DPRC or the Shareholders in a litigation
or arbitration shall await the final decision, award or settlement of
such litigation or arbitration, while matters that arise between DPRC
on the one hand and the Shareholders on the other hand, including any
disputes regarding performance or non-performance of a party's
obligations under this Agreement ("Arbitrable Claims") shall be settled
in accordance with Section 3.4(c), below. Any portion of the Notice of
Claim that is not contested shall be resolved as set forth above in
Section 3.4(a), above. If notice is received by the Escrow Agent that a
Notice of Claim is contested by the Shareholders, then the Escrow Agent
shall hold in the Escrow Account, after what would otherwise be the
Final Release Date, Escrowed Shares having a value (determined pursuant
to Section 2.2, above, as of the Final Release Date) sufficient to
cover Damages alleged in such Claim and to the earlier of (i) receipt
of a settlement agreement executed by DPRC and the Shareholders setting
forth the resolution of the Notice of Claim and setting forth the
number of Escrowed Shares, if any, to be released to DPRC, or (ii)
receipt of a written notice from DPRC (a
Exhibit E
Page 4 of 10
<PAGE>
"DPRC Distribution Notice") attaching a copy of the final award or
decision of the Arbitrator and setting forth the number of Escrowed
Shares, if any, to be released to DPRC as a result of such award (DPRC
shall provide a copy of the DPRC Distribution Notice to the
Shareholders; if the award does not specify the number of Escrowed
Shares to be released, the Shareholders shall have 20 calendar days to
object to the calculation of the number of Escrowed Shares to be
released, but not to the award itself; in the event that the Escrow
Agent receives any such objection within such 20-day period, the Escrow
Agent shall be entitled to require that the matter be resolved by a
notice from both DPRC and the Shareholders or by a clarification of the
award). If the Escrow Agent institutes an action for interpleader in
accordance with Section 4.6 of this Agreement as a result of a dispute
between the parties, the parties agree to jointly seek to stay such
interpleader action pending the resolution of any arbitration commenced
by the parties or, if the parties are unable to agree, pursuant to this
Section 3.4(b) and 3.4(c), below.
(c) Arbitration.
(i) AAA Rules. Any Arbitrable Claim, in any dispute between the
Shareholders and DPRC under this Agreement, shall be submitted to final
and binding arbitration in (a) the County of Mecklenburg, State of
North Carolina, if DPRC is the claimant, or (b) the County of Orange,
State of California, if a Shareholder is the claimant, which
arbitration shall, except as herein specifically stated, be conducted
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA") then in effect; provided, however,
that the parties agree first to try in good faith to resolve any
Arbitrable Claim that does not exceed $100,000 by mediation under the
Commercial Mediation Rules of the American Arbitration Association,
before resorting to arbitration; provided, further, that in the event
of an arbitration, the arbitration provisions of this Agreement shall
govern over any conflicting rules which may now or hereafter be
contained in the AAA rules.
(ii) Binding Affect. The final decision of the arbitrator shall be
furnished in writing to the Escrow Agent, the Shareholders and DPRC and
will constitute a conclusive determination of the issue in question,
binding upon the Shareholders and DPRC. The arbitrator shall have the
authority to grant any equitable and legal remedies that would be
available in any judicial proceeding, institute or resolve any
Arbitrable Claim. Any judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction over the
subject matter thereof.
(iii) Compensation of Arbitrator. Any such arbitration shall be
conducted before a single arbitrator who will be compensated for his or
her services at a rate to be determined by the parties and by the AAA,
but based upon reasonable hourly or daily consulting rates for the
arbitrator in the event the parties are not able to agree upon his or
her rate of compensation.
(iv) Selection of Arbitrator. The AAA shall have the authority to
select an arbitrator from a list of arbitrators who are partners in a
nationally recognized firm of independent certified public accountants
from the management advisory services department (or comparable
department or group) of such firm or who are partners in a major law
firm; provided, however, that neither the accounting firm, law firm nor
the individual arbitrator shall be a firm or individual that has within
the last three years rendered, or is then rendering, services to any
party or, also in the case of a law firm, a firm or an individual
lawyer, who has appeared, or is then appearing, as counsel of record in
opposition to any party; provided, further, that the individual
arbitrator cannot have any other prior relationship or affiliation to
DPRC, the Shareholders or any of their officers, directors or employees
which is likely to affect or compromise the arbitrator's independence.
(v) Limited Discovery. The parties shall be permitted reasonable
discovery under the rules set by the arbitrator. The arbitrator shall
have power to impose such sanctions as the arbitrator deems appropriate
for failure of a party or counsel for a party to comply in good faith
with the discovery rules established by the arbitrator.
Exhibit E
Page 5 of 10
<PAGE>
(vi) Payment of Costs. The parties will share responsibility for the
attorneys' fees and costs and all costs of arbitration, including those
provided for above, based on the degree to which the arbitrator accepts
the respective positions of the parties, as conclusively determined by
the arbitrator.
(vii) Terms of Arbitration. The arbitrator chosen in accordance with
these provisions shall not have the power to alter, amend or otherwise
affect the terms of these arbitration provisions or the provisions of
the Merger Agreement or any other documents that are executed in
connection therewith.
(viii) Exclusive Remedy. Arbitration or mediation under this Section
3.4(c) shall be the sole and exclusive remedy of the parties for any
Arbitrable Claim arising out of this Agreement.
4. Escrow Agent.
4.1 Duties. The duties of the Escrow Agent hereunder shall be entirely
administrative and not discretionary. The Escrow Agent shall be obligated
to act only in accordance with written instructions received by it as
provided in this Agreement and as authorized herewith to comply with any
orders, judgments or decrees of any court with or without jurisdiction and
shall not be liable as a result of its compliance with the same.
4.2 Legal Opinions. As to any legal questions arising in connection with
the administration of this Agreement, the Escrow Agent may rely absolutely
upon the joint instruction of DPRC and the Shareholders or the opinions
given to the Escrow Agent by its outside independent counsel and shall be
free of liability for acting and relying on such opinions.
4.3 Signatures. The Escrow Agent may rely absolutely upon the genuineness
and authorization of the signature and purported signature of any party
upon any instruction, notice, release, receipt or other document delivered
to it pursuant to this Agreement.
4.4 Receipts and Releases. The Escrow Agent may, as a condition to the
disbursement of monies or disposition of securities as provided herein,
require from the payee or recipient a receipt therefor and, upon final
payment or disposition, a release of the Escrow Agent from any liability
arising out of its execution or performance of this Agreement. Such release
to be in a form reasonably satisfactory to the Escrow Agent.
4.5 Refrain from Action. The Escrow Agent shall be entitled to refrain
from taking any action contemplated by this Agreement in the event it
becomes aware of any dispute between the Shareholders and DPRC as to any
material facts or as to the happening of any event, precedent to such
action.
4.6 Interpleader. If any controversy arises between the parties or with
any third party, the Escrow Agent shall not be required to determine the
same or to take any action, but the Escrow Agent in its discretion may
institute such interpleader or other proceedings in connection therewith as
the Escrow Agent may deem proper, and in following such other course, the
Escrow Agent shall not be liable.
4.7 Tax Forms. All persons or entities entitled to receive interest from
the Escrow Account will provide the Escrow Agent with W-9 tax forms prior
to disbursement of interest. Interest earned in the Escrow Account will be
reported as income to the party receiving such interest.
5. Indemnity.
5.1 Waiver Indemnification. DPRC and the Shareholders agree to and hereby
do waive any suit, claim, demand or cause of action of any kind which they
may have or may assert against the Escrow Agent arising out of or relating
to the execution or performance by the Escrow Agent of this Agreement, in
accordance with the terms and conditions hereof, unless such suit, claim,
demand or cause of action is based upon the willful neglect or gross
negligence or bad faith of the Escrow Agent. They further agree to
indemnify the Escrow Agent against and from any and all claims, demands,
costs, liabilities and expenses, including reasonable counsel fees, which
may be asserted against it or to which it may be exposed or to which it may
Exhibit E
Page 6 of 10
<PAGE>
incur by reason of its execution or performance of this Agreement, except
to the extent attributable to its willful neglect, gross negligence or bad
faith. Such agreement to indemnify shall survive the termination of this
Agreement or breach of this Agreement until extinguished by any applicable
statute of limitations.
5.2 Conditions to Indemnification. In case any litigation is brought
against the Escrow Agent in respect of which indemnity may be sought
hereunder, the Escrow Agent shall give prompt notice of that litigation to
the parties, and the parties, upon receipt of that notice, shall have the
obligation and the right to assume the defense of such litigation, provided
that failure of the Escrow Agent to give the notice shall not relieve the
parties from any of their obligations under this Section 5 unless that
failure prejudices the defense of any of such litigation by said parties.
The cost of defense of any such litigation shall be borne by DPRC unless
the litigation is brought by the Escrow Agent by or on behalf of the
Shareholders, in which case the cost of defense of any such litigation
shall be borne by the Shareholders. At its own expense, the Escrow Agent
may employ separate counsel and participate in the defense. Parties shall
not be liable for any settlement agreed to by the Escrow Agent without the
respective consents.
6. Acknowledgment by the Escrow Agent. By execution and delivery of this
Agreement, the Escrow Agent acknowledges that the terms and provisions of this
Agreement are acceptable and agrees to carry out the provisions of this
Agreement on its part.
7. Resignation or Removal of Escrow Agent; Successor.
7.1 Resignation and Removal.
(a) The Escrow Agent may resign as such following the giving of 30
days' prior written notice to the other parties. Similarly, the Escrow
Agent may be removed and replaced following the giving of 30 calendar
days' prior written notice to be given to the Escrow Agent jointly by
the Shareholders and DPRC. In either event, the duties of the Escrow
Agent shall terminate 30 calendar days after the date of such notice
(or as of such earlier date as may be mutually agreeable); and the
Escrow Agent shall then deliver the balance of the Escrowed Shares then
in its possession to a successor Escrow Agent as shall be appointed by
the other parties as evidenced by a written notice filed with the
Escrow Agent.
(b) If the parties are unable to agree upon a successor, or shall
have failed to appoint a successor prior to the expiration of 30
calendar days following the date of the notice of resignation or
removal, then the acting Escrow Agent may petition any court of
competent jurisdiction for the appointment of a successor Escrow Agent
or other appropriate relief and any such resulting appointment shall be
binding upon all of the parties.
7.2 Successors. Every successor appointed hereunder shall execute,
acknowledge and deliver to its predecessor and also to the Shareholders and
DPRC, an instrument in writing accepting such appointment hereunder, and
thereupon such successor, without any further act, shall become fully
vested with all the duties, responsibilities and obligations of its
predecessor; that such predecessor, nevertheless, on the written request of
its successor or any of the parties, execute and deliver an instrument or
instruments transferring to such successor all the rights of such
predecessor hereunder, and shall duly assign, transfer and deliver all
property, securities and monies held by it pursuant to this Agreement to a
successor (a "Successor Transfer"). Should any instrument be required by
any successor for more fully vesting in such successor, the duties,
responsibilities and obligations hereby vested or intended to be vested in
the predecessor, any and all such instruments in writing shall, on the
request of any of the other parties, be executed, acknowledged and
delivered by the predecessor.
7.3 New Custodian. In the event of an appointment of a successor, upon
the consummation of the Successor Transfer, the predecessor shall cease to
be custodian of any funds, securities or other assets and records
previously held by it pursuant to this Agreement, and the successor shall
become such custodian.
7.4 Release. Upon acknowledgment by any successor Escrow Agent of the
receipt of the then remaining balance of the Escrowed Shares, the then
acting Escrow Agent shall be fully released and relieved of all duties,
responsibilities and obligations under this Agreement that may arise and
accrue thereafter.
Exhibit E
Page 7 of 10
<PAGE>
8. Fee. The Escrow Agent shall be paid for service hereunder in accordance
with the fee schedule attached hereto as Exhibit A. DPRC shall be responsible
for paying all such fees to the Escrow Agent. In the event that the Escrow
Agent is required to render any service not provided for in this Agreement and
fee schedule, or there is any assignment of the interest of this Escrow or any
modification hereof, the Escrow Agent shall be entitled to receive from the
party requesting the service, assignment or amendment reasonable compensation
for such extraordinary services and reimbursement for all fees, costs,
liability and expenses, including attorneys' fee.
9. Termination. This Agreement and the Escrow created hereby shall terminate
following the Escrow Agent's delivery of all remaining Escrowed Shares to the
Shareholders and/or DPRC pursuant to Section 2, above. In the event any fees
or charges owed to the Escrow Agent remain unpaid in excess of 60 days
following DPRC's receipt of an invoice therefor, the Escrow Agent may
terminate this Agreement.
10. Miscellaneous Provisions.
10.1 Governing Law. The validity, construction and performance of this
Agreement, and any Action arising out of or relating to this Agreement
shall be governed by the Laws, without regard to the Laws as to choice or
conflict of Laws, of the State of California.
10.2 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.
10.3 Assignment. 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 DPRC or the Shareholders without
the prior written consent of the other.
10.4 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 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 10.4 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.
10.5 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.
[rest of page intentionally left blank]
Exhibit E
Page 8 of 10
<PAGE>
10.6 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.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of the
Effective Date.
"DPRC": THE "SHAREHOLDERS":
DATA PROCESSING -------------------------------------
RESOURCES CORPORATION, RICHARD K. CARLISLE
a California corporation
Address:
By: c/o Systems & Programming
--------------------------------- Consultants, Inc.
Michael A. Piraino 212 S. Tryon, Suite 700
Executive Vice President Charlotte, NC 28281
Phone No.: (704) 348-9000
Address: FAX No.: (704) 348-9050
4400 MacArthur Boulevard
Suite 600 -------------------------------------
Newport Beach, CA 92660-2037 THOMAS G. CARLISLE
Phone No.: (714) 553-1102
FAX No.: (714) 752-5850 Address:
c/o Systems & Programming
"ESCROW AGENT": Consultants, Inc.
212 S. Tryon, Suite 700
U.S. TRUST COMPANY OF Charlotte, NC 28281
CALIFORNIA, N.A. Phone No.: (704) 348-9000
FAX No.: (704) 348-9050
By:
---------------------------------- -------------------------------------
JEFFERY CARTER
Its:
------------------------------- Address:
c/o Systems & Programming
Address: Consultants, Inc.
515 South Flower Street, Suite 2700 212 S. Tryon, Suite 700
Los Angeles, CA 90071-2291 Charlotte, NC 28281
Attn: Patricia Glazier Phone No.: (704) 348-9000
Phone No.: (213) 861-5038 FAX No.: (704) 348-9050
FAX No.: (213) 488-1370
-------------------------------------
ROBERT GALLAGHER
Address:
c/o Systems & Programming
Consultants, Inc.
212 S. Tryon, Suite 700
Charlotte, NC 28281
Phone No.: (704) 348-9000
FAX No.: (704) 348-9050
Exhibit E
Page 9 of 10
<PAGE>
SCHEDULE A
FEE SCHEDULE
PROPOSAL FOR ESCROW AGENT SERVICES
FROM
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
ANNUAL ADMINISTRATION FEE............................... $2,500
For review and complete analysis of the escrow agreement, meetings and
conferences with all parties, execution of documents and opening of required
accounts. Attendance at the closing by the accountant officer and the
authentication and delivery of securities. For normal administrative functions
as specified in the escrow agreement, including maintenance of administrative
records and custody of funds. Any extraordinary services will be charged based
on our appraisal of the services rendered.
OTHER CHARGES...............................$35 Per transaction
Purchase, sale, receipt, delivery maturity or redemption of
securities (investment transactions.)
Wire transfers............................$25 Per wire transfer
Out-of-pocket expenses and disbursements................AT COST
Includes expenses incurred on the issuers behalf such as postage, telephone,
insurance, express mail and messenger charges, travel expenses to attend the
closing or other meetings, etc.
Charges for any services not specifically covered in this schedule will be
billed commensurate with the services rendered. Review of reinvestment
agreements and repurchase agreements not included. This schedule reflects
charges which are now in effect for our normal and regular services and are
minimal only, subject to modification where unusual conditions or requirements
prevail.
Exhibit E
Page 10 of 10
<PAGE>
EXHIBIT F
FORM OF SPC AFFILIATES AGREEMENT
Data Processing Resources Corporation
4400 MacArthur Boulevard, Suite 600
Newport Beach, CA 92660
Re: Agreement and Plan of Merger
Ladies and Gentlemen:
The undersigned refers to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of June 16, 1998, by and among Data Processing Resources
Corporation, a California corporation ("DPRC"), DPRC Acquisition Corp., a
North Carolina corporation, and Systems & Programming Consultants, Inc., a
North Carolina corporation ("SPC"). Capitalized terms used but not defined in
this letter have the meanings given to such terms in the Merger Agreement.
The undersigned, as a holder of shares of SPC Common Stock, will be entitled
to receive shares of DPRC Common Stock pursuant to the Merger. The undersigned
acknowledges that the undersigned may be deemed an "affiliate" of SPC within
the meaning of Rule 145 ("Rule 145") promulgated under the Securities Act of
1933, as amended (the "Securities Act") or Accounting Series Releases 130 and
135, as amended (the "Releases"), of the Securities and Exchange Commission
(the "SEC"), although nothing contained herein should be construed as an
admission of such fact.
If, in fact, the undersigned were to be deemed to be an affiliate under the
Securities Act, the undersigned=s ability to sell, assign or transfer the
shares of DPRC Common Stock to be received by the undersigned pursuant to the
Merger would be restricted unless such transaction is registered under the
Securities Act or an exemption from such registration is available. The
undersigned (i) understands that such exemptions are limited and that DPRC is
not under any obligation to effect such registration, and (ii) has obtained
advice of counsel as to the nature and conditions of such exemptions,
including information with respect to the applicability to the sale of such
securities of Rules 144 and 145(d) promulgated under the Securities Act.
The undersigned hereby covenants with DPRC that the undersigned will not
sell, assign or transfer any shares of DPRC Common Stock to be received by the
undersigned pursuant to the Merger except (i) pursuant to an effective
registration statement under the Securities Act; or (ii) in a transaction
that, in the opinion of counsel reasonably satisfactory to DPRC or as
described in a "no-action" or interpretive letter from the Staff of the SEC,
is not required to be registered under the Securities Act.
In the event of a sale or other disposition by the undersigned pursuant to
Rule 145 of DPRC Common Stock received pursuant to the Merger, the undersigned
will provide DPRC with evidence of compliance with Rule 145 by means of a
letter in the form of Annex I hereto and the opinion of counsel or no-action
letter referred to above. The undersigned understands that DPRC may instruct
its transfer agent to withhold the transfer of any DPRC Common Stock disposed
of by the undersigned, but that upon receipt of such evidence of compliance
the transfer agent shall effectuate the transfer of the DPRC Common Stock sold
as indicated in the letter.
The undersigned acknowledges that the Merger is to be accounted for as a
pooling of interests and that such accounting treatment is material to DPRC.
In compliance with the requirements for such accounting treatment, the
undersigned covenants and agrees with DPRC that the undersigned will not (i)
between the date hereof and the Effective Date, sell, transfer or otherwise
dispose of, or reduce the undersigned's risk (within the meaning of the
Releases) with respect to, any shares of SPC Common Stock held by the
undersigned, or (ii) sell, transfer or otherwise dispose of, or reduce the
undersigned's risk (within the meaning of the Releases) with respect to, any
DPRC Common Stock received pursuant to the Merger until after such time as a
report including
Exhibit F
Page 1 of 3
<PAGE>
results covering at least 30 days of combined operations of the SPC and DPRC
has been published by DPRC. Without limiting the generality of the foregoing,
DPRC and the undersigned acknowledge and agree that de minimis sales by the
undersigned of SPC Common Stock or DPRC Common Stock during the periods
referred to in the immediately preceding sentence are permitted under the
SEC's interpretations of the Releases and the undersigned shall be free to
effect any such de minimis sales during such periods; provided, however, that
no sale of SPC Common Stock or DPRC Common Stock may be made by the
undersigned in reliance on such de minimis exception except in reliance upon a
written statement from DPRC's independent accountants that such sale is
permitted under such exception.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing the shares of DPRC Common Stock to be
received by the undersigned pursuant to the Merger or held by a transferee
thereof, which legends will be removed by delivery of substitute certificates
upon receipt of an opinion in form and substance reasonably satisfactory to
DPRC from counsel reasonably satisfactory to DPRC to the effect that such
legends are no longer required for purposes of the Securities Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of DPRC
Common Stock to be received by the undersigned pursuant to the Merger, and
(ii) the receipt by DPRC of this letter as an inducement and a condition to
DPRC's obligation to consummate the Merger.
Very truly yours,
Dated: -------------------------------------
------------------------------ Signature
-------------------------------------
Print or Type Name
Exhibit F
Page 2 of 3
<PAGE>
ANNEX I
TO EXHIBIT F
Data Processing Resources Corporation
4400 MacArthur Boulevard, Suite 600
Newport Beach, CA 92660
To whom it may concern:
On , the undersigned sold shares (the
"Shares") of the Common Stock of Data Processing Resources Corporation
("DPRC"). The Shares were received by the undersigned in connection with the
merger of DPRC Acquisition Corp, a subsidiary of DPRC, with and into Systems &
Programming Consultants, Inc., a North Carolina corporation.
Based upon the most recent report or statement filed by DPRC with the
Securities and Exchange Commission, the Shares sold by the undersigned were
within the prescribed limitations set forth in Rule 144(e) promulgated under
the Securities Act of 1933, as amended (the "Securities Act").
The undersigned hereby represents that the Shares were sold in one or more
"brokers' transactions," within the meaning of such term as defined in Section
4(4) of the Securities Act, or in one or more transactions directly with a
"market maker," as that term is defined in Section 3(a)(38) of the Securities
Exchange Act of 1934, as amended. The undersigned further represents that the
undersigned has not solicited or arranged for the solicitation of orders to
buy the Shares, and that the undersigned has not made any payment in
connection with the offer of sale of the Shares to any person other than to
the broker who executed the order in respect of such sale.
Very truly yours,
Dated: -------------------------------------
------------------------------ Signature
-------------------------------------
Print or Type Name
Exhibit F
Page 3 of 3
<PAGE>
EXHIBIT G
FORM OF DPRC AFFILIATES AGREEMENT
Data Processing Resources Corporation
4400 MacArthur Boulevard, Suite 600
Newport Beach, CA 92660
Re: Agreement and Plan of Merger
Ladies and Gentlemen:
The undersigned refers to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of June 16, 1998, by and among Data Processing Resources
Corporation, a California corporation ("DPRC"), DPRC Acquisition Corp., a
North Carolina corporation, and Systems & Programming Consultants, Inc., a
North Carolina corporation ("SPC"). Capitalized terms used but not defined in
this letter have the meanings given to such terms in the Merger Agreement.
The undersigned, as a holder of shares of DPRC Common Stock, acknowledges
that the undersigned may be deemed an "affiliate" of DPRC within the meaning
of Rule 145 ("Rule 145") promulgated under the Securities Act of 1933, as
amended (the "Securities Act") or Accounting Series Releases 130 and 135, as
amended (the "Releases"), of the Securities and Exchange Commission (the
"SEC"), although nothing contained herein should be construed as an admission
of such fact.
The undersigned acknowledges that the Merger is to be accounted for as a
pooling of interests and that such accounting treatment is material to DPRC.
In compliance with the requirements for such accounting treatment, the
undersigned covenants and agrees with DPRC that the undersigned will not sell,
transfer or otherwise dispose of, or reduce the undersigned's risk (within the
meaning of the Releases) with respect to, any DPRC Common Stock between the
date hereof and until after such time as a report including results covering
at least 30 days of combined operations of SPC and DPRC has been published by
DPRC. Without limiting the generality of the foregoing, DPRC and the
undersigned acknowledge and agree that de minimis sales by the undersigned of
DPRC Common Stock during the period referred to in the immediately preceding
sentence are permitted under the SEC's interpretations of the Releases and the
undersigned shall be free to effect any such de minimis sales during such
periods; provided, however, that no sale of DPRC Common Stock may be made by
the undersigned in reliance on such de minimis exception except in reliance
upon a written statement from DPRC's independent accountants that such sale is
permitted under such exception.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations
imposed upon the distribution, sale, transfer or other disposition of DPRC
Common Stock, and (ii) the receipt by DPRC of this letter as an inducement and
a condition to DPRC's obligation to consummate the Merger.
Very truly yours,
Dated:
------------------------------ -------------------------------------
Signature
-------------------------------------
Print or Type Name
Exhibit G
Page 1 of 1
<PAGE>
EXHIBIT H
FORM OF EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is made and entered into as of
, 1998, by and between DPRC Acquisition Corp., a North Carolina
corporation (the "Company") and a wholly-owned subsidiary of Data Processing
Resources Corporation, a California corporation ("DPRC"), and ,
an individual ("Employee"), with reference to the following:
A. Pursuant to that certain Agreement and Plan of Merger dated June 16,
1998, by and among DPRC, the Company, Systems & Programming Consultants, Inc.,
a North Carolina corporation ("SPC"), Employee and the other shareholders of
SPC, the Company is merging with and into SPC (the "Merger"), pursuant to
which SPC, as the surviving corporation, shall become a wholly-owned
subsidiary of DPRC.
B. Upon the consummation of the merger, the Company wishes to employ
Employee, and Employee wishes to be employed by the Company, as an employee of
the Company, including the position of of the Company.
C. The Company and Employee now wish to memorialize their agreement
regarding the employment and compensation of Employee.
NOW, THEREFORE, in consideration for the promises and obligations set forth
below, the Company and Employee agree as follows:
1. EMPLOYMENT AND TERM.
1.1 The Company agrees to employ, and Employee agrees to be employed by the
Company, on the terms and conditions described below (the "Employment"). The
Company and Employee acknowledge and agree that this Agreement is expressly
made and conditioned upon the consummation of the Merger and in the event that
the Merger is not consummated, all of the obligations of the parties hereunder
shall be null and void.
1.2 The term of this Agreement (the "Initial Term") shall commence on the
effective date of the Merger and continue until , unless sooner
terminated pursuant to the terms hereof.
2. DUTIES.
Employee agrees that during the Employment, Employee shall serve as an
employee of the Company and as of the Company at the Company's offices
located at . Whereas Employee shall ultimately be
responsible to the Board of Directors of the Company, Employee shall report
directly to and be directed in his duties by the of
.
3. COMPENSATION.
3.1 As consideration for said performance of duties and adherence to the
covenants in this Agreement, Employee shall be entitled to the compensation
set forth on Exhibit "A" attached hereto and incorporated herein by this
reference (the "Compensation").
3.2 Employee understands and acknowledges that the Compensation will
constitute the full and exclusive consideration to be received by Employee for
all services performed by Employee in connection with the Company's employment
of Employee, and for the performance of all his promises and obligations under
this Agreement.
3.3 Aside from the Compensation, the Company may adopt, or continue in
force, benefit plans for the benefit of its employees or certain of its
employees, which may include, but not be limited to, group life insurance,
medical insurance, etc. The Company may terminate any or all such plans at any
time and may choose not to adopt any additional or replacement plans.
Employee's rights under any benefits plans now in force or later adopted by
the Company shall be governed solely by the terms of such plans.
Exhibit H
Page 1 of 6
<PAGE>
4. DUTY TO DEVOTE TIME AND AVOID CONFLICT OF INTEREST.
Employee agrees that during the Employment he shall devote his full-time
efforts to his duties as of the Company. During the Employment,
Employee shall not, directly or indirectly, engage or participate in any
activities which are in conflict with the best interests of the Company.
5. COMPLIANCE WITH RULES AND REGULATIONS.
Employee agrees to comply with the Company's current rules, regulations and
practices, including but not limited to those rules concerning vacation and
sick leave, as they may from time to time be adopted or modified, so long as
they are uniformly applied to all employees.
6. NON-COMPETITION AND NON-SOLICITATION BY EMPLOYEE.
6.1 Employee agrees that, during the Employment, Employee will not engage in
any activity competitive with or adverse to the Company's businesses or
welfare, whether alone, as a partner, or as an officer, director, employee or
shareholder of any other corporation and shall not otherwise undertake
planning for or the organization of any business activity competitive with the
Company's business or combine or conspire with other employees or
representatives of the Company for the purpose of organizing any such
competitive business activity. This prohibition shall not include ownership of
less than five percent of the outstanding stock by Employee in a publicly
traded corporation. As used in Sections 6 through 10 of this Agreement, the
term the "Company" shall mean the Company, DPRC and all of their respective
affiliates.
6.2 It is understood that Employee will gain knowledge and make contacts
with the Company's customers and clients (sometimes collectively referred to
in this Agreement as the "Clients") and prospective clients of the Company in
the course of his employment that would provide Employee with an unfair
competitive advantage for Employee over the Company, as compared to a normally
competitive situation, in the event Employee should seek to solicit business
from the Clients and said prospective clients. In recognition of this
understanding, Employee agrees that, upon termination of the Employment, he
will not engage in unfair competition, as defined below, against the Company.
For the purposes of this Agreement, the term "unfair competition" shall be
construed to include without limitation the following specific prohibitions:
(a) For a period of one (1) year following the termination of the
Employment, Employee shall not interfere or attempt to interfere in any way
with any existing relationships of the Company with the Clients with whom
the Company has participated in at least one project or placement within
two (2) years prior to the termination of Employment, and shall not
solicit, divert or take away or attempt to solicit, divert or take away any
business of the Company that is either under contract or in negotiation at
the time of the termination of the Employment.
(b) For a period of one (1) year following the termination of the
Employment, Employee shall not interfere or compete in any way with any
proposal efforts of the Company already in progress (that is, a proposal
sent to or being then currently developed for a specific Client or
potential client of the Company) at the time of the termination of
Employment.
(c) For a period of one (1) year following the termination of the
Employment, Employee shall not make use, in a manner competitive with the
business of the Company, of any of his personal relationships or business
contacts developed during the Employment or prior to the Employment.
(d) For a period of one (1) year following the termination of the
Employment, Employee shall not induce, solicit or influence or attempt to
induce, solicit or influence any person, who is engaged as an employee or
otherwise by the Company, to terminate his employment or other engagement
with the Company.
Exhibit H
Page 2 of 6
<PAGE>
7. TRADE SECRETS OF THE COMPANY.
7.1 Employee acknowledges and understands that during the Employment,
Employee will have access to and will utilize and review information which
constitutes valuable, important and confidential trade secrets, as that term
is interpreted under the Uniform Trade Secrets Act (California Civil Code
Section 3426 et seq.) and/or confidential and proprietary material and
information of or relating to the business of the Company necessary for the
successful conduct of the Company's business. This information includes, but
is not limited to: (a) The Company's listings of and data regarding the
Company's customer and clients (sometimes collectively referred to in this
Agreement as the "Clients") (past and current); (b) the Company's information
regarding potential customers and clients; (c) data relating to the personnel,
supervisory structure and procedures of the Clients; (d) specific computer
technician staffing needs of the Clients; (e) the identity, whereabouts,
capabilities and availability of contractors in the Company's database; (f)
the Company's bidding, billing and pricing practices; (g) the nature and type
of services rendered by the Company to the Clients; and (h) other
methodologies, computer programs, employee and contractor resumes, employee
databases, processes, compilations of information, results of proposals, job
notes, reports, and records (all of which information is sometimes referred to
in this Agreement as the "Secrets"). Employee understands further that the
Secrets have been and will be accumulated by Employee and other personnel at
the Company at a considerable expense to the Company (including but not
limited to compensation paid to the Company personnel dealing with the Secrets
and the Clients), and that the Company has and will continue to expend its
resources in order to maintain actively and vigorously the confidentiality of
the Secrets, as such information is extremely valuable to the Company, and
well worth the expense of enforcement and preservation of such
confidentiality. Accordingly, Employee agrees as follows:
(a) All of the Secrets shall be safeguarded and treated as confidential
by Employee.
(b) Any and all data, notes, letters, computer programs and data,
reports, telephone records and all other written documentation relating to
the business of the Company (including but not limited to the Secrets) that
may be collected, compiled, written, reviewed or conceived by Employee from
or by reason of services performed by Employee for the Company shall become
the absolute property of the Company, and Employee shall not assert or
establish a claim for any statutory or common law right or any other
possessory or proprietary right with respect to any of the above.
(c) Employee shall hold the Secrets in strictest confidence, and shall
not (i) disclose any Secrets to any person, corporation, firm, or other
entity, either during the Employment or afterward, or (ii) use any or all
of the Secrets in Employee's subsequent business or employment, without the
prior express written authorization of the Company.
(d) Employee shall not otherwise commit any act which shall compromise
the confidentiality of the Secrets, including but not limited to making a
copy of such property (whether electronic, paper or otherwise) without the
prior express written authorization of the Company.
8. CONFIDENTIAL INFORMATION OF CLIENTS.
All ideas, concepts, information and written material disclosed to Employee
by the Company, or acquired from any of the Clients, and all financial,
accounting, statistical personnel, and business data and plans of the Clients,
are and shall remain the sole and exclusive property and proprietary
information of the Company, or said Client, and are disclosed in confidence by
the Company or permitted to be acquired from the Clients in reliance on
Employee's agreement to maintain them in confidence and not to use or disclose
them to any other person except in furtherance of the Company's business.
Employee agrees to execute the Company's standard confidentiality agreement
requested from each of its employees, at such time as he shall be requested by
the Company to do so.
Exhibit H
Page 3 of 6
<PAGE>
9. RETURN OF INFORMATION.
At the time of the termination of the Employment, Employee agrees to deliver
promptly to the Company all notes, books, electronic data (regardless of
storage media), correspondence and other written or graphical records
(including all copies thereof) in Employee's possession or under Employee's
control relating to any business, work, the Clients or any other aspect of the
Company, including not limited to each original and all copies of all or any
part thereof.
10. COOPERATION.
Employee agrees that, both during the Employment and afterward, he will give
evidence and testimony at the Company's expense, and perform all acts which
are necessary to carry out and fulfill the purposes and intents of this
Agreement.
11. REMEDIES: INJUNCTIVE RELIEF.
In the event of a breach or threatened breach by Employee of any of the
provisions of this Agreement, Employee agrees that the Company, in addition to
and not in limitation of any other rights, remedies, or damages available to
the Company at law or in equity, shall be entitled to a preliminary and a
permanent injunction in order to prevent or restrain any such breach by
Employee or by Employee's partners, agents, representatives, servants,
employers, employees, and/or any and all persons directly or indirectly acting
for or with Employee.
12. TERMINATION OF EMPLOYMENT.
12.1 The Company and Employee each acknowledge and understand that the
Employment is terminable by the Company with cause (as defined below) without
advance notice. For the purposes of this Agreement, termination "with cause"
shall mean termination because of death, disability or any actions taken by
Employee during the Employment (including but not limited to inactions) which
constitute either (a) gross insubordination, gross negligence, unethical or
criminal behavior, or a breach of fiduciary duty of Employee as an officer
and/or director of the Company, or (b) a violation of any of Sections 4
through 10, inclusive. Except as otherwise agreed in writing or as otherwise
provided by this Agreement, upon termination of the Employment by the Company
for cause, the Company shall have no further obligation to Employee under this
Agreement by way of compensation or otherwise, but Employee's duties under
Sections 6 through 10, inclusive, shall continue after said termination of
Employment. For the purposes of this Agreement, Employee shall be deemed
disabled in the event that, by reason of sickness, physical or mental
impairment or injury, Employee's ability to perform his duties under this
Agreement is impaired more than twenty-five percent (25%) for a period of six
(6) consecutive months or for nine (9) months in any twelve (12) month period,
such disability to be determined independently by a physician of Employee's
choosing and by a physician of the Company's choosing. If such two (2) chosen
physicians are unable to agree upon whether Employee shall be disabled, as
defined above, they shall agree upon a third physician, whose conclusion on
such matter shall be final.
12.2 The Company and Employee each acknowledge and understand that the
Employment is terminable by the Company without cause (as defined below) by
giving Employee ninety (90) days' advance written notice. In the event that
the Company terminates the Employment without cause prior to the termination
of the Term, except as provided in Section 1.2, the Company shall (i) pay to
Employee the base salary of the Compensation, and (ii) provide the same health
and life insurance benefits to which Employee was entitled during the
Employment, in each case (i.e., base salary and benefits), until the earlier
to occur of (a) six months after the date of Employee's termination, (b) the
expiration of the remaining portion of the Term, (c) the date upon which
Employee becomes employed on a full-time basis (including but not limited to
self-employment, but only if Employee holds himself out to the public as being
a self-employed consultant or other businessman), or (d) the date upon which
Employee violates any of Sections 6 through 10, inclusive. The Company may
make such payments in accordance with its regular payroll schedule. For the
purposes of this Agreement, the term "without cause" shall mean any
circumstances by which this Agreement is terminated other than (i) voluntary
termination by Employee or (ii) termination by the Company "with cause", as
defined in Section 12.1.
Exhibit H
Page 4 of 6
<PAGE>
12.3 The payments contemplated by this Section 12 shall constitute the
exclusive and sole remedy for any termination of Employee's employment by the
Company (whether pursuant to, or in violation of, the terms of this
Agreement), and Employee covenants not to assert or pursue any remedies, other
than an action to enforce the payments due to Employee under this Agreement,
at law or in equity, with respect to any termination of employment.
12.4 The Company and Employee each acknowledge and understand that the
Employment is terminable by Employee by giving the Company ninety (90) days'
advance written notice. Upon Employee's voluntary termination of the
Employment, the Company shall have no further obligation to Employee under
this Agreement by way of compensation or otherwise (except for the obligation
to pay any of the Compensation to which Employee may be entitled at the time
of such termination), but Employee's duties under Sections 6 through 10,
inclusive, shall continue after said termination of the Employment.
12.5 No policies or procedures the Company or benefits provided by the
Company, whether oral or written express or implied, formal or informal, are
intended, nor shall they be construed to limit the right or ability of the
Company or Employee to terminate the Employment as set forth above. Except as
otherwise agreed in writing or as otherwise provided by this Agreement, upon
termination of Employment neither the Company nor Employee shall have any
further obligation to each other way by way of compensation or otherwise.
13. MISCELLANEOUS PROVISIONS.
13.1 In the event that any of the provisions of this Agreement shall be held
to be invalid or unenforceable, then all other provisions shall nevertheless
continue to be valid and enforceable as though the invalid or unenforceable
parts had not been included in this Agreement.
13.2 This Agreement shall be binding upon the heirs, executors,
administrators, and successors-in-interest of the parties hereto.
13.3 This Agreement shall be construed and enforced according to the laws of
the State of North Carolina, exclusive of its choice of law rules.
13.4 This Agreement supersedes all previous correspondence, promises,
representations, and agreements, if any, either written or oral. No provision
of this Agreement may be modified except by a writing signed by both the
Company and Employee.
14. ACKNOWLEDGMENT BY EMPLOYEE.
Employee has carefully read and considered the provisions of this Agreement
and agrees that all of the above-stated restrictions, obligations and promises
are fair and reasonable and reasonably required for the protection of the
interests of the Company. Employee further acknowledges that the goodwill and
value of the Company is enhanced by these provisions and that said enhancement
is desired by Employee. Finally, Employee indicates his acceptance of this
Agreement by signing and returning the enclosed copy of this Agreement where
indicated below.
THE "COMPANY" "EMPLOYEE":
DRPC ACQUISITION CORP.,
a North Carolina corporation
By:
--------------------------------- -------------------------------------
Michael A. Piraino [Name of Employee]
Executive Vice President
Dated: , 1998 Dated: , 1998
------------ ------------
Exhibit H
Page 5 of 6
<PAGE>
EXHIBIT A
Compensation of
The following summarizes the compensation to which Employee shall be
entitled under the foregoing terms of this Employment Agreement.
1. BASE SALARY: Employee's base annual salary during the Term shall be
$ per year, paid in at least bi-weekly installments. Employer will
review annually and may, in the sole discretion of its Board of Directors,
increase Employee's annual salary in light of Employee's performance,
inflation, cost of living or other factors that the Board deems reasonable.
2. VACATION: During the Employment, Employee shall be entitled to take
( ) weeks of paid vacation time per calendar year of the Company
(plus such other time as may be permitted by the Board). The maximum number of
vacation days that Employee may accrue shall be ( ) weeks. If
Employee's earned but unused vacation days reaches such maximum, Employee will
not accrue any further vacation days. If Employee thereafter uses sufficient
vacation days to fall below the maximum, he will resume accruing vacation days
(again, subject to the maximum).
3. OTHER BENEFITS: Employee shall be entitled to participate in and receive
benefits under all profit-sharing plans, pension plans, group medical plans
and other benefit plans for the payment of additional compensation or benefits
to employees of the Company which the Company at any time maintains for
executive employees.
4. BUSINESS EXPENDITURES: Employee is authorized to incur reasonable
expenses for promoting and conducting the business of the Company, including
but not limited to expenditures for entertainment and travel. The Company
shall reimburse Employee monthly for all such business expenses upon
presentation of reasonable documentation establishing the amount, date, place
and essential character of the expenditures.
5. INCENTIVE BONUS: Employee shall be entitled to an incentive bonus (the
"Bonus") for DPRC's 1999 fiscal year (i.e., August 1, 1998 through July 31,
1999), payable not later than three (3) business days following the review and
approval, by the Compensation Committee of DPRC, of the final financial
statement results of the audit for said fiscal year by DPRC's independent
auditors. The Bonus shall be based upon the table set forth on Schedule 1
attached hereto. After the 1999 fiscal year, Employee shall be entitled to an
incentive bonus for each additional year during the Term, provided, however,
that such additional, annual bonuses shall be adopted by the Compensation
Committee of DPRC, in its sole and absolute discretion, to meet the tactical
and strategic objectives of the Company.
Exhibit H
Page 6 of 6
<PAGE>
EXHIBIT I
FORM OF NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (this "Agreement") is made and entered into as
of this day of 1998, by and between Data Processing Resources
Corporation, a California corporation ("DPRC"), Richard K. Carlisle, an
individual ("R. Carlisle"), Thomas G. Carlisle, an individual ("T. Carlisle"),
Jeffery Carter, an individual ("Carter"), and Robert Gallagher, an individual
("Gallagher"). R. Carlisle, T. Carlisle, Carter and Gallagher are collectively
referred to herein as the "Shareholders" and sometimes individually referred
to as a "Shareholder."
RECITALS
A. DPRC, DPRC Acquisition Corp., a North Carolina corporation and a wholly-
owned subsidiary of DPRC ("Acquisition"), Systems & Programming Consultants,
Inc., a North Carolina corporation ("SPC"), and the Shareholders, have entered
into an Agreement and Plan of Merger dated as of June 16, 1998 (the "Merger
Agreement"), pursuant to which Acquisition is merging with and into SPC.
Capitalized terms used herein but which are not otherwise defined shall have
the meanings given to such terms in the Merger Agreement.
B. The Shareholders have intimate knowledge of the Business, which, if
exploited by either of them in contravention of this Agreement, would
seriously, adversely and irreparably affect the ability of DPRC and its
affiliates to continue the Business acquired pursuant to the Merger Agreement.
C. To induce DPRC to enter into the Merger Agreement, the Shareholders have
agreed to execute this Agreement.
AGREEMENT
In consideration of the foregoing recitals and the mutual covenants and
conditions contained herein and in the Merger Agreement, the parties,
intending to be legally bound, agree as follows:
1. Non-Compete Covenant. Each of the Shareholders covenants and agrees that
for the period ending (a) three years from the date of this Agreement, or (b)
two years after the date of the termination of his employment with
Acquisition, whichever is the last to occur (the "Restrictive Period"), such
Shareholder will not, without the prior written consent of DPRC, directly or
indirectly, in the United States of America (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. Notwithstanding the
foregoing, with respect to Carter and Gallagher, the Restrictive Period shall
be for the period ending (a) two years from the date of this Agreement, or (b)
two years after the date of the termination of his employment with
Acquisition.
2. Definition of Compete. For purposes of this Agreement, 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 SPC or Acquisition or was a client or customer of SPC or
Acquisition during the 36 calendar month period immediately preceding any such
act for the purpose of competing with Acquisition; (b) hiring, soliciting,
taking away or attempting to hire, solicit or take away any employee of SPC or
Acquisition either on behalf of itself or any other person or entity; 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.
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,
Exhibit I
Page 1 of 4
<PAGE>
independent contractor or employee of any entity or enterprise, which is
competing (as defined in Section 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 (except as a shareholder holding less than a
two percent interest in a corporation whose shares are actively traded on a
regional or a national securities exchange or in the over-the-counter market);
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 SPC or Acquisition.
4. Confidential Data. For purposes of this Agreement, "Trade Secrets" shall
mean any scientific or technical information, design, process, procedure,
formula or improvement, or any portion or phase thereof, whether or not
patentable, that is owned by, or that has, at the time of determination of its
status, been used by SPC or Acquisition and that is not generally known to
competitors of SPC or Acquisition, and information concerning proposed new
products, software and marketing processes, market feasibility studies, and
proposed or existing marketing techniques or plans relating to the Business
that is not generally known to competitors of SPC or Acquisition. The term
"Confidential Information" shall mean any data or information, other than
Trade Secrets, that is owned by, or that has, at the time of termination of
its status, been used by SPC or Acquisition relating to the Business and is
not generally known to competitors of SPC or Acquisition, including, but not
limited to, Proprietary Customer Information (as defined below), information
relating to the Business, the identity of suppliers, customers, subscribers,
advertisers, sales methodology, software and information about the personnel
of SPC or Acquisition. The term "Proprietary Customer Information" shall mean
all information concerning the identity and purchasing habits of customers of
SPC or Acquisition with respect to the Business to the extent that such
information is a valuable component of the Business and is not generally
ascertainable by parties unaffiliated with SPC or Acquisition. The terms Trade
Secrets, Confidential Information and Proprietary Customer Information are
hereinafter sometimes collectively referred to as "Confidential Data."
Each of the Shareholders agrees that, during the period set forth in Section
1, above, and thereafter for so long as such information remains Confidential
Data, he will keep confidential and not directly or indirectly divulge,
furnish, make accessible to anyone, or appropriate for his own use any
Confidential Data, and that at no time will he divulge, furnish or make
accessible to anyone or appropriate for his own use any Trade Secrets. Each of
the Shareholders further acknowledges and agrees that DPRC has a legitimate
interest in protecting Proprietary Customer Information from misappropriation
or diversion by such Shareholder or any competitor. Each of the Shareholders
hereby acknowledges and agrees that the prohibitions against disclosure of
Confidential Data recited herein are in addition to, and not in lieu of, any
rights or remedies which DPRC 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 DPRC 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.
5. Consideration. In consideration of the covenants and agreements provided
for herein, at the Effective Time, DPRC shall pay the Shareholders $400,000,
which amount shall be allocated among the Shareholders as follows:
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER PAYMENT
------------------- --------
<S> <C>
Richard K. Carlisle.............................................. $100,000
Thomas G. Carlisle............................................... 100,000
Jeffery Carter................................................... 100,000
Robert Gallagher................................................. 100,000
--------
Total........................................................ $400,000
========
</TABLE>
Exhibit I
Page 2 of 4
<PAGE>
6. Reasonableness of Restrictions. Each of the Shareholders recognizes that
the territorial and time limitations set forth in Section 1, above, are
reasonable, not burdensome and are properly required by Law for the adequate
protection of DPRC, and in the event that such territorial or time limitations
are deemed to be unreasonable by a court of competent jurisdiction, then the
Shareholders and DPRC 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.
7. Injunctive Relief. Each of the Shareholders acknowledges that his
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 him of all 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 DPRC irreparable injury and damage. Each of the
Shareholders further acknowledges that he possesses unique skills, knowledge
and ability that competition in violation of this Agreement would be extremely
detrimental to DPRC. By reason thereof, each of the Shareholders agrees that
DPRC shall be entitled, in addition to any other remedies it 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
DPRC 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.
8. Effective Date of Agreement. Each of the parties acknowledge and agree
that this Agreement is expressly made and conditioned upon the consummation of
the Merger and in the event that the Merger is not consummated, all of the
obligations of the parties hereunder shall be null and void.
9. Miscellaneous Provisions.
(a) Entire Agreement. This Agreement, together with the agreements
referred to herein, set forth the entire agreement between the parties with
regard to the subject matter of this Agreement. This is an integrated
agreement.
(b) Governing Law. This Agreement shall be governed by and interpreted in
accordance with the Laws of the State of North Carolina, without giving
effect to principles of conflict of laws.
(c) 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.
(d) 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]
Exhibit I
Page 3 of 4
<PAGE>
(e) Third Party Beneficiaries. Each of the Shareholders acknowledges and
agrees that each of the Subsidiaries of DPRC (including Acquisition) is a
third party beneficiary of all of the Shareholders' liabilities, obligations
and commitments under this Agreement and each such beneficiary may enforce
such liability, obligation and commitment on its own behalf.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first set forth above.
"DPRC": THE "SHAREHOLDERS":
DATA PROCESSING -------------------------------------
RESOURCES CORPORATION, RICHARD K. CARLISLE
a California corporation
-------------------------------------
By: THOMAS G. CARLISLE
---------------------------------
Michael A. Piraino -------------------------------------
Executive Vice President JEFFERY CARTER
-------------------------------------
ROBERT GALLAGHER
Exhibit I
Page 4 of 4
<PAGE>
EXHIBIT J
FORM OF OTHER EMPLOYMENT AGREEMENTS
This Employment Agreement (this "Agreement") is made and entered into as of
, 1998, by and between DPRC Acquisition Corp., a North Carolina
corporation (the "Company"), and ("Employee"), with reference to the
following:
A. The Company is in the business of providing information technology
staffing services to corporate clients.
B. The Company wishes to employ Employee, and Employee desires to be so
employed, in the capacity of at .
C. The Company and Employee now wish to formalize the terms of the
Employment, as hereinafter provided.
NOW, THEREFORE, in consideration for the promises and obligations set forth
below, the Company and Employee agree as follows:
1. EMPLOYMENT.
The Company agrees to employ, and Employee agrees to be so employed by the
Company on the terms and conditions described below. Employee agrees that
during his/her employment by the Company (sometimes referred to in this
Agreement as the "Employment Period"), Employee shall devote his/her full-time
efforts to his/her duties as an Employee of the Company.
2. DUTIES AND COMPENSATION.
2.1 Employee agrees to perform any and all duties now or in the future
assigned to Employee by the Company, in his/her capacity as or otherwise.
2.2 As consideration for said performance of duties and adherence to the
covenants in this Agreement, Employee shall be entitled to the compensation
set forth on Exhibit "A," attached hereto and incorporated herein by this
reference (the "Compensation").
2.3 Employee understands and acknowledges that the Compensation will
constitute the full and exclusive consideration to be received by Employee for
all services performed by Employee in connection with the Company's employment
of Employee, and for the performance of all his/her promises and obligations
under this Agreement.
2.4 The Company or its affiliates (collectively, the "Company") may adopt,
or continue in force, benefit plans for the benefit of its or their employees
or certain of its or their employees, which may include, but not be limited
to, group life insurance, medical insurance, etc. The Company may terminate
any or all such plans at any time and may choose not to adopt any additional
or replacement plans. Employee's rights under any benefits plans now in force
or later adopted by the Company shall be governed solely by the terms of such
plans.
3. COVENANTS OF EMPLOYEE.
3.1 Employee agrees that during the Employment Period, Employee will not
engage in any activity competitive with or adverse to the Company's business
or welfare, whether alone, as a partner, or as an officer, director, employee
or shareholder of any other corporation and shall not otherwise undertake
planning for or the organization of any business activity competitive with the
Company's business or combine or conspire with other employees or
representatives of the Company for the purpose of organizing any such
competitive business activity.
Exhibit J
Page 1 of 5
<PAGE>
3.2 It is understood that Employee will gain knowledge and make contacts
with customers, clients and prospective clients of the Company (sometimes
collectively referred to in this Agreement as the "Clients") in the course of
his/her employment that would provide Employee with an unfair competitive
advantage for Employee over the Company, as compared to a normally competitive
situation, in the event Employee should seek to solicit business from the
Clients. In recognition of this understanding, Employee agrees that, upon
termination of the Employment Period, he/she will not engage in unfair
competition, as defined below, against the Company. For the purposes of this
Agreement, the term "unfair competition" shall be construed to include without
limitation the following specific prohibitions which shall be in effect for a
period of two (2) years following the termination of the Employment Period:
(a) Employee shall not interfere or attempt to interfere in any way with
any existing relationships of the Company with the Clients with whom
Employee had contact during the Employment Period.
(b) Employee shall not solicit, divert or take away or attempt to
solicit, divert or take away any business of the Company that is either
under contract or in negotiation and that Employee was involved with at the
time of termination of the Employment Period.
(c) Employee shall not interfere or compete in any way with any proposal
efforts of the Company already in progress (that is, a proposal sent to or
being then currently developed for a specific Client of the Company) with
which Employee may have been involved at the time of termination of the
Employment Period.
(d) Employee shall not make use of any of his/her personal relationships
or business contacts developed during the Employment Period and utilized
for business purposes, for the benefit of him/herself, or another, in a
competitive manner with respect to the business of the Company.
(e) Employee shall not induce, solicit or influence or attempt to induce,
solicit or influence any person, who is engaged as an employee or otherwise
by the Company, to terminate his/her employment or other engagement with
the Company.
3.3 Employee acknowledges and understands that during the Employment Period,
Employee will have access to and will utilize and review information which
constitutes valuable, important and confidential trade secrets and/or
confidential and proprietary material and information of or relating to the
business of the Company necessary for the successful conduct of the Company's
business. This information includes, but is not limited to: (a) the Company's
listings of and data regarding the Clients; (b) data relating to the
personnel, supervisory structure and procedures of the Clients; (c) specific
computer technician staffing needs of the Clients; (d) the identity,
whereabouts, capabilities and availability of contractors in the Company's
database; (e) the Company's bidding, billing and pricing practices; (f) the
nature and type of services rendered by the Company to the Clients; and (g)
other methodologies, computer programs, employee and contractor resumes,
employee databases, processes, compilations of information, results of
proposals, job notes, reports, and records (all of which information is
sometimes referred to in this Agreement as the "Secrets"). Employee
understands further that the Secrets have been and will be accumulated, by
Employee and other personnel at the Company, at a considerable expense to the
Company (including but not limited to compensation paid to the Company
personnel dealing with the Secrets and the Clients), and that the Company has
and will continue to expend its resources in order to maintain actively and
vigorously the confidentiality of the Secrets, as such information is
extremely valuable to the Company, and well worth the expense of enforcement
and preservation of such confidentiality. Accordingly, Employee agrees to
execute the Company's standard confidentiality agreement requested from each
of its employees, at such time as he/she shall be requested by the Company to
do so.
3.4 At the time of or before the termination of Employee's employment with
the Company, Employee agrees to deliver promptly to the Company all notes,
books, electronic data (regardless of storage media), correspondence and other
written and graphical records (including all copies thereof in Employee's
possession or under Employee's control relating to any business, work, the
Clients or any other aspect of the Company, including but not limited to all
original and copies of all or any part thereof.
Exhibit J
Page 2 of 5
<PAGE>
3.5 Employee agrees to comply with the Company's current rules, regulations
and practices, including but not limited to those rules concerning vacation
and sick leave, as they may from time to time be adopted or modified, so long
as they are uniformly applied to all employees.
3.6 Employee hereby agrees to indemnify the Company against any and all
joint and several liability, loss, damage, costs or expense which the Company
may hereafter incur, suffer or be required to pay by reason of the violation
or breach of any agreement to which Employee was or is bound in connection
with Employee's prior employment.
4. RELIEF.
In the event of a breach or threatened breach by Employee of any of the
provisions of this Agreement, Employee agrees that the Company, in addition to
and not in limitation of any other rights, remedies, or damages available to
the Company at law or in equity, shall be entitled to a preliminary and a
permanent injunction in order to prevent or restrain any such breach by
Employee or by Employee's partners, agents, representatives, servants,
employers, employees, and/or any and all persons directly or indirectly acting
for or with Employee.
5. EFFECTIVE DATE OF AGREEMENT.
Each of the parties acknowledge and agree that this Agreement is expressly
made and conditioned upon the consummation of the merger (the "Merger") of the
Company with and into Systems & Programming Consultants, Inc., a North
Carolina corporation, and in the event that the Merger is not consummated, all
of the obligations of the parties hereunder shall be null and void.
6. MISCELLANEOUS PROVISIONS.
6.1 In the event that any of the provisions of this Agreement shall be held
to be invalid or unenforceable, then all other provisions shall nevertheless
continue to be valid and enforceable as though the invalid or unenforceable
parts had not been included in the Agreement. In the event that any provision
relating to the time period of any restriction imposed by this Agreement shall
be declared by a court of competent jurisdiction to exceed the maximum time
period which such court deems reasonable and enforceable, then the time period
of restriction deemed reasonable and enforceable by the court shall become and
shall thereafter be the maximum time period.
6.2 This Agreement shall be binding upon the heirs, executors,
administrators, and successors-in-interest of the parties hereto.
6.3 All affiliates of the Company, including Data Processing Resources
Corporation, shall be deemed third party beneficiaries to this Agreement and
shall be afforded the same rights, benefits and privileges as the Company.
6.4 This Agreement shall be construed and enforced according to the laws of
the State of Minnesota, excluding its choice of law rules.
6.5 This Agreement supersedes all previous correspondence, promises,
representations, and agreements, if any, either written or oral. No provision
of this Agreement may be modified except by a writing signed by both the
Company and Employee.
6.6 Except as otherwise provided in this Agreement, the Company and the
Employee hereby consent to the resolution by binding, non-appealable
arbitration of all claims or controversies in any way arising out of, relating
to or associated with the Employee's employment with the Company or its
termination ("Claims"), that the Company may have against the Employee or that
the Employee may have against the Company or against its officers, directors,
employees, agents or clients. The Claims covered by this Agreement include,
but are not limited to, Claims for wages or other compensation due; Claims for
breach of any contract or covenant, express
Exhibit J
Page 3 of 5
<PAGE>
or implied; tort Claims; Claims for discrimination or harassment; Claims for
benefits, including stock options, except as excluded below; and Claims for
violation of any federal, state or other governmental constitution, statute,
ordinance or regulation. This consent to arbitrate, however, shall not apply
to, or cover Claims for workers' compensation benefits; Claims for
unemployment compensation benefits; Claims by the Company for injunctive
and/or other equitable relief; Claims relating to unfair competition or
solicitation and/or the use or disclosure of trade secrets, confidential
information, proprietary information or other intellectual property rights of
the Company or its clients; and Claims based upon an employee's pension or
other benefit plan, the terms of which contain an arbitration or other non-
judicial dispute resolution procedure, in which case the provisions of such
plan shall apply. Any arbitration required by this Agreement shall be
conducted in accordance with the commercial arbitration rules of the American
Arbitration Association then existing, and any award, order or judgment
pursuant to such arbitration may be enforced in any court of competent
jurisdiction and the prevailing party shall be entitled to recover its fees
and expenses incurred in connection with such arbitration. All such
arbitration proceedings shall be conducted on a confidential basis.
7. TERMINATION OF EMPLOYMENT.
The Company and Employee each acknowledge and understand that the employment
of Employee by the Company is at will, and that said employment of Employee
shall be terminable by either the Company or Employee by providing the other
party with fourteen (14) days' prior written notice. Further, the Company
shall have the right to terminate the employment of Employee at any time,
without notice, for violating any of the covenants set forth in Article 3,
above. No policies or procedures of the Company or benefits provided by the
Company, whether oral or written, express or implied, formal or informal, are
intended, nor shall they be construed to limit the right or ability of the
Company or Employee to terminate said employment as set forth above. Except as
otherwise agreed in writing or as otherwise provided by this Agreement, upon
termination of employment neither the Company nor Employee shall have any
further obligation to each other by way of compensation or otherwise.
[rest of page intentionally left blank]
Exhibit J
Page 4 of 5
<PAGE>
8. ACKNOWLEDGMENT BY EMPLOYEE.
Employee has carefully read and considered the provisions of this Agreement
and agrees that all of the above-stated restrictions, obligations and promises
are fair and reasonable and reasonably required for the protection of the
interests of the Company. Employee further acknowledges that the goodwill and
value of the Company is enhanced by these provisions and that said enhancement
is desired by Employee. Finally, Employee indicates his/her acceptance of this
Agreement by signing and returning the enclosed copy of the Agreement where
indicated below.
THE "COMPANY" "EMPLOYEE":
DRPC ACQUISITION CORP.,
a North Carolina corporation
By:
--------------------------------- -------------------------------------
Michael A. Piraino [Name of Employee]
Executive Vice President
Dated: , 1998 Dated: , 1998
------------ ------------
Exhibit J
Page 5 of 5
<PAGE>
EXHIBIT K
LIST OF OMITTED SCHEDULES
<TABLE>
<C> <S>
1.1 List of Key Persons Employed by SPC
4.1 Articles and Bylaws of SPC
4.4 Certain Conflicts or Violations--none
4.5 SPC's Consents and Approvals--consents required to continue
office leases and bank commitment letter
4.6 SPC's Litigation--two employment disputes
4.7 Capitalization of SPC
4.8 Financial Statements of SPC
4.9 Undisclosed Liabilities--none
4.10 Certain Changes or Events--new bonuses or other compensation for
key employees of SPC and certain recent leases by SPC
4.11 Properties of SPC
4.13 Intellectual Property of SPC
4.14 Leases of SPC
4.15 Receivables of SPC
4.16 Contracts and Major Customers of SPC
4.17 Employment Matters--wages and benefits of SPC employees
4.18 Employee Benefit Plans of SPC
4.19 Transactions With Affiliated Parties--none
4.21 Tax Matters--audits of SPC and list of filing jurisdictions
4.23 Permits--business licenses
4.24 Insurance Coverage of SPC--1996 to 1998
4.27 Banking Facilities of SPC
6.5 DPRC's Consents and Approvals--consent to the Merger of Lenders
under DPRC's credit facilities
11.4 Stock Options Granted to SPC Employees by DPRC
</TABLE>
Exhibit K
Page 1 of 1
<PAGE>
ANNEX B
OPINION OF NATIONSBANC MONTGOMERY SECURITIES LLC
[Letterhead of NationsBanc Montgomery Securities LLC]
June 15, 1998
Board of Directors
Data Processing Resources Corporation
4400 MacArthur Blvd., Suite 600
Newport Beach, CA 92660
Ladies and Gentlemen:
We understand that Systems & Programming Consultants, Inc., a North Carolina
corporation ("Seller"), the Controlling Shareholders (all terms not defined
herein shall have the same meanings as set forth in the Merger Agreement
(defined below)), Data Processing Resources Corporation, a California
corporation ("Buyer") and DPRC Acquisition Corp., a North Carolina corporation
and a wholly-owned subsidiary of Buyer ("Acquisition Sub") propose to enter
into an Agreement and Plan of Merger, a draft of which has been provided to us
by management of Buyer dated June 12, 1998 (the "Merger Agreement") pursuant
to which Acquisition Sub will be merged with and into Seller, which will be
the surviving entity (the "Merger"). We understand that the aggregate
consideration to be delivered by Buyer in connection with the Merger will be
paid exclusively in shares of common stock, no par value, of Buyer ("Buyer
Common Stock") valued at $86.0 million less deductions for certain payments
and liabilities to be assumed by Buyer (the "Consideration"). Pursuant to the
Merger, as more fully described in the Merger Agreement and as further
described to us by management of Buyer: (i) all of the outstanding common
stock, no par value, of Seller ("Seller Common Stock") will be convertible
into and exchangeable for, the right to receive shares of Buyer Common Stock
in accordance with an exchange ratio (the "Exchange Ratio") based on the
Consideration; (ii) Buyer will assume Seller's existing stock option plan and
certain outstanding stock options to purchase shares of Seller Common Stock,
which options, following the Merger, will remain outstanding and be
exercisable for shares of Buyer Common Stock of equivalent value, as
determined by the Exchange Ratio; and (iii) certain other options to purchase
shares of Seller Common Stock which are outstanding under Seller's stock
option plan will be cancelled in the Merger in exchange for shares of Buyer
Common Stock with an aggregate value equal to the appraised value of such
options. The number of shares of Buyer Common Stock issued in connection with
the Consideration will be reduced by the number of shares of Buyer Common
Stock issued in consideration of the cancellation of such options. The terms
and conditions of the Merger are set forth in more detail in the Merger
Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by Buyer pursuant to the Merger is fair to Buyer from
a financial point of view, as of the date hereof. As you are aware, we were
not retained to nor did we advise Buyer with respect to alternatives to the
Merger or Buyer's underlying decision to proceed with or effect the Merger.
In connection with our opinion, we have, among other things: (i) reviewed
publicly available financial and other data with respect to Buyer, including
the consolidated financial statements for recent years and interim periods to
January 31, 1998 and certain other relevant financial and operating data
relating to Seller and Buyer made available to us from published sources and
from the internal records of Seller and Buyer; (ii) reviewed the financial
terms and conditions of the Merger Agreement; (iii) reviewed certain publicly
available information concerning the trading of, and the trading market for,
Buyer Common Stock, (iv) compared Seller and Buyer from a financial point of
view with certain other companies in the information technology supplemental
staffing industry which we deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent business
combinations of companies in the information technology supplemental staffing
industry which we deemed to be comparable, in whole or in part, to the Merger;
(vi) reviewed and discussed with
B-1
<PAGE>
Board of Directors
Data Processing Resources Corporation
June 15, 1998
Page Two
representatives of the management of Seller certain information of a business
and financial nature regarding Seller, including financial forecasts and
related assumptions of Seller furnished to us by Seller with respect to Seller
and reviewed financial forecasts with respect to Buyer which were obtained by
us from a NationsBanc Montgomery Securities LLC research report ("Buyer
Forecasts"); (vii) made inquiries regarding and discussed the Merger and the
Merger Agreement and other matters related thereto with Buyer's counsel; and
(viii) performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by Seller's management and Buyer's
Forecasts, upon their advice and with your consent we have assumed for
purposes of our opinion that the forecasts have been reasonably prepared on
bases reflecting the best available estimates and judgments of their
respective managements at the time of preparation as to the future financial
performance of Seller and Buyer and that they provide a reasonable basis upon
which we can form our opinion. We have also assumed that there have been no
material changes in Seller's or Buyer's assets, financial condition, results
of operations, business or prospects since the respective dates of their last
financial statements made available to us. We have relied on advice of counsel
to Buyer as to all legal matters with respect to Buyer, the Merger and the
Merger Agreement. We have assumed that the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes,
rules and regulations. In addition, we have not assumed responsibility for
making an independent evaluation, appraisal or physical inspection of any of
the assets or liabilities (contingent or otherwise) of Seller or Buyer, nor
have we been furnished with any such appraisals. Finally, our opinion is based
on economic, monetary and market and other conditions as in effect on, and the
information made available to us as of, the date hereof. We shall provide, if
practicable, an update of this opinion to you as to the financial fairness of
the Consideration to Buyer as of the Effective Date; provided, however, that
subsequent developments may affect our ability to provide such an opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Buyer of any of
the conditions to its obligations thereunder.
We have provided this fairness opinion letter in connection with the Merger
and will receive a fee for our services upon delivery of this letter to you.
In the ordinary course of our business, we actively trade the equity
securities of Buyer for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offerings of
securities of Buyer and performed various investment banking services for
Buyer. Our parent corporation, NationsBank Corp., is a significant client of
Seller.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by Buyer pursuant to the
Merger is fair to Buyer from a financial point of view, as of the date hereof.
This opinion is directed to the Board of Directors of Buyer in its
consideration of the Merger and is not a recommendation to any shareholder as
to how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to be paid
by Buyer and does not address the
B-2
<PAGE>
Board of Directors
Data Processing Resources Corporation
June 15, 1998
Page Three
relative merits of the Merger and any alternatives to the Merger, Buyer's
underlying decision to proceed with or affect the Merger or any other aspect
of the Merger. This opinion may not be used or referred to by Buyer, or quoted
or disclosed to any person in any manner, without our prior written consent,
which consent is hereby given to the inclusion of this opinion in any proxy
statement filed with the Securities and Exchange Commission in connection with
the Merger. In furnishing this opinion, we do not admit that we are experts
within the meaning of the term "experts" as used in the Securities Act and the
rules and regulations promulgated thereunder, nor do we admit that this
opinion constitutes a report or valuation within the meaning of Section 11 of
the Securities Act.
Very truly yours,
/s/ NationsBanc Montgomery
Securities, LLC
NATIONSBANC MONTGOMERY SECURITIES
LLC
B-3
<PAGE>
[Letterhead of NationsBanc Montgomery Securities LLC]
June 16, 1998
Board of Directors
Data Processing Resources Corporation
4400 MacArthur Blvd., Suite 600
Newport Beach, CA 92660
Ladies and Gentlemen:
We have previously delivered to you our opinion letter, dated June 15, 1998
(the "Opinion Letter"; all terms not defined herein shall have the meanings
set forth in the Opinion Letter). We understood that the Consideration to be
paid in the Merger has increased from the $86,000,000 used as a basis for the
analysis performed in connection with the Opinion Letter to $87,500,000 (the
"New Consideration"). With your consent, we have not updated the analyses
performed in connection with the Opinion Letter; however, if the analyses
conducted with respect to the Opinion Letter and the assumptions and
qualifications expressed therein had been performed on the basis of the New
Consideration, it would not have changed our opinion as investment bankers
that the Consideration to be paid by Buyer pursuant to the Merger was fair to
Buyer from a financial point of view, as of the date hereof.
This letter and the Opinion Letter have been directed to the Board of
Directors of Buyer in its consideration of the Merger and is not a
recommendation to any shareholder as to how such shareholder should vote with
respect to the Merger. Further, this letter addresses only the financial
fairness of the New Consideration to be paid by Buyer and does not address the
relative merits of the Merger and any alternatives to the Merger, Buyer's
underlying decision to proceed with or affect the Merger or any other aspect
of the Merger. This letter may not be used or referred to by Buyer, or quoted
or disclosed to any person in any manner, without our prior written consent,
which consent is hereby given to the inclusion of this letter in any proxy
statement filed with the Securities and Exchange Commission in connection with
the Merger, provided it is accompanied by the Opinion Letter. In furnishing
this letter, we do not admit that we are experts within the meaning of the
term "experts" as used in the Securities Act and the rules and regulations
promulgated thereunder, nor do we admit that this letter constitutes a report
or valuation within the meaning of Section 11 of the Securities Act.
Very truly yours,
/s/ NationsBanc Montgomery
Securities, LLC
NATIONSBANC MONTGOMERY SECURITIES
LLC
B-4
<PAGE>
[Letterhead of NationsBanc Montgomery Securities LLC]
October 21, 1998
Board of Directors
Data Processing Resources Corporation
4400 MacArthur Blvd., Suite 600
Newport Beach, CA 92660
Ladies and Gentlemen:
We understand that Systems & Programming Consultants, Inc., a North Carolina
corporation ("Seller"), the Controlling Shareholders (all terms not defined
herein shall have the same meanings as set forth in the Merger Agreement
(defined below)), Data Processing Resources Corporation, a California
corporation ("Buyer") and DPRC Acquisition Corp., a North Carolina corporation
and a wholly-owned subsidiary of Buyer ("Acquisition Sub") have entered into
an Agreement and Plan of Merger dated as of September 1, 1998 and as amended
on October 13, 1998 and October 20, 1998 (collectively, the "Merger
Agreement") pursuant to which Acquisition Sub will be merged with and into
Seller, which will be the surviving entity (the "Merger"). We understand that
the aggregate consideration to be delivered by Buyer in connection with the
Merger will be paid exclusively in shares of common stock, no par value, of
Buyer ("Buyer Common Stock") valued at $71,501,000 less deductions for certain
payments and liabilities to be assumed by Buyer (the "Consideration").
Pursuant to the Merger, as more fully described in the Merger Agreement and as
further described to us by management of Buyer: (i) all of the outstanding
common stock, no par value, of Seller ("Seller Common Stock") will be
convertible into and exchangeable for, the right to receive shares of Buyer
Common Stock in accordance with an exchange ratio (the "Exchange Ratio") based
on the Consideration; (ii) Buyer will assume Seller's existing stock option
plan and certain outstanding stock options to purchase shares of Seller Common
Stock, which options, following the Merger, will remain outstanding and be
exercisable for shares of Buyer Common Stock of equivalent value, as
determined by the Exchange Ratio; and (iii) certain other options to purchase
shares of Seller Common Stock which are outstanding under Seller's stock
option plan will be cancelled in the Merger in exchange for shares of Buyer
Common Stock with an aggregate value equal to the appraised value of such
options. The number of shares of Buyer Common Stock issued in connection with
the Consideration will be reduced by the number of shares of Buyer Common
Stock issued in consideration of the cancellation of such options. The terms
and conditions of the Merger are set forth in more detail in the Merger
Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be paid by Buyer pursuant to the Merger is fair to Buyer from
a financial point of view, as of the date hereof. As you are aware, we were
not retained to nor did we advise Buyer with respect to alternatives to the
Merger or Buyer's underlying decision to proceed with or effect the Merger.
In connection with our opinion, we have, among other things: (i) reviewed
publicly available financial and other data with respect to Buyer, including
the consolidated financial statements for recent years and interim periods to
July 31, 1998 and certain other relevant financial and operating data relating
to Seller and Buyer made available to us from published sources and from the
internal records of Seller and Buyer; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, Buyer
Common Stock, (iv) compared Seller and Buyer from a financial point of view
with certain other companies in the information technology supplemental
staffing industry which we deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent business
combinations of companies in the information technology supplemental staffing
industry which we deemed to be comparable, in whole or in part, to the Merger;
(vi) reviewed and discussed with representatives of the management of Seller
certain information of a business and financial nature regarding Seller,
including financial forecasts and related assumptions of Seller furnished to
us by Buyer's management on behalf of Seller's management with respect to
Seller and reviewed financial forecasts with respect to Buyer which were
obtained by us from a NationsBanc Montgomery Securities LLC research report
("Buyer
B-5
<PAGE>
Board of Directors
Data Processing Resources Corporation
October 21, 1998
Page Two
Forecasts"); (vii) made inquiries regarding and discussed the Merger and the
Merger Agreement and other matters related thereto with Buyer's counsel; and
(viii) performed such other analyses and examinations as we have deemed
appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by Buyer's management on behalf of
Seller's management and Buyer's Forecasts, upon their advice and with your
consent we have assumed for purposes of our opinion that the forecasts have
been reasonably prepared on bases reflecting the best available estimates and
judgments of their respective managements at the time of preparation as to the
future financial performance of Seller and Buyer and that they provide a
reasonable basis upon which we can form our opinion. We have also assumed that
there have been no material changes in Seller's or Buyer's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to us. We have relied
on advice of counsel and independent accountants to Buyer as to all legal and
financial reporting matters with respect to Buyer, the Merger and the Merger
Agreement, and financial reporting matters with respect to Seller. We have
assumed that the Merger will be consummated in a manner that complies in all
respects with the applicable provisions of the Securities Act of 1933, as
amended (the "Securities Act"), the Securities Exchange Act of 1934 and all
other applicable federal and state statutes, rules and regulations. In
addition, we have not assumed responsibility for making an independent
evaluation, appraisal or physical inspection of any of the assets or
liabilities (contingent or otherwise) of Seller or Buyer, nor have we been
furnished with any such appraisals. Finally, our opinion is based on economic,
monetary and market and other conditions as in effect on, and the information
made available to us as of, the date hereof. We shall provide, if practicable,
an update of this opinion to you as to the financial fairness of the
Consideration to Buyer as of the Effective Date; provided, however, that
subsequent developments may affect our ability to provide such an opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Buyer of any of
the conditions to its obligations thereunder.
We have provided this fairness opinion letter in connection with the Merger
and will receive a fee for our services upon delivery of this letter to you.
In the ordinary course of our business, we actively trade the equity
securities of Buyer for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offerings of
securities of Buyer and performed various investment banking services for
Buyer. Our parent corporation, BankAmerica Corp., is a significant client of
Seller.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be paid by Buyer pursuant to the
Merger is fair to Buyer from a financial point of view, as of the date hereof.
This opinion is directed to the Board of Directors of Buyer in its
consideration of the Merger and is not a recommendation to any shareholder as
to how such shareholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to be paid
by Buyer and does not address the relative merits of the Merger and any
alternatives to the Merger, Buyer's underlying decision to proceed with or
affect the Merger or any other aspect of the Merger. This opinion may not be
used or referred to by Buyer, or quoted or disclosed to any person in any
manner, without our prior written consent, which consent is hereby
B-6
<PAGE>
Board of Directors
Data Processing Resources Corporation
October 21, 1998
Page Three
given to the inclusion of this opinion in any proxy statement filed with the
Securities and Exchange Commission in connection with the Merger. In
furnishing this opinion, we do not admit that we are experts within the
meaning of the term "experts" as used in the Securities Act and the rules and
regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
NATIONSBANC MONTGOMERY
SECURITIES LLC
B-7
<PAGE>
ANNEX C-1
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW RELATING TO DISSENTERS'
RIGHTS OF SHAREHOLDERS
Section 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair
market value the shares owned by the shareholder which are dissenting shares
as defined in subdivision (b). The fair market value shall be determined as of
the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or
depreciation in consequence of the proposed action, but adjusted for any stock
split, reverse stock split or share dividend which becomes effective
thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and, provided further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization, or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
Section 1301. DEMAND FOR PURCHASE.
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's right under such
sections. The statement of price constitutes an offer by the corporation to
purchase at the price stated any dissenting shares as defined in subdivision
(b) of Section 1300, unless they lose their status as dissenting shares under
Section 1309.
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(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such
price.
Section 1302. ENDORSEMENT OF SHARES.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfer of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
Section 1303. AGREED PRICE--TIME FOR PAYMENT.
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
Section 1304. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of
the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court of
the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
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<PAGE>
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. APPRAISERS' REPORT--PAYMENT--COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of
any party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market
value of each dissenting share multiplied by the number of dissenting shares
which any dissenting shareholder who is a party, or who has intervened, is
entitled to require the corporation to purchase, with interest thereon at the
legal rate from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Section 1300,
1301 and 1302 if the value awarded by the court for the shares is more than
125 percent of the price offered by the corporation under subdivision (a) of
Section 1301).
Section 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
Section 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
Section 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
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<PAGE>
Section 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys'
fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Section 1304 and 1305 shall be suspended until final determination of
such litigation.
Section 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger.
Section 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted in
favor thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event
of a reorganization or short-form merger is entitled to payment in accordance
with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1202, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
is a member.
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<PAGE>
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.
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<PAGE>
ANNEX C-2
TEXT OF CHAPTER 55, ARTICLE 13 OF THE GENERAL STATUTES OF NORTH CAROLINA
CONCERNING RIGHTS OF DISSENTING SHAREHOLDERS
PART I. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES.
Section 55-13-01. Definitions
In this Article:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under G.S. 55-13-02 and who exercises that right when and
in the manner required by G.S. 55-13-20 through 55-13-28.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects excluding any appreciation or depreciation
in anticipation of the corporate action unless exclusion would be
inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances, giving due consideration to the rate currently
paid by the corporation on its principal bank loans, if any, but not less
than the rate provided in G.S. 24-1.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
Section 55-13-02. Right to dissent.
(a) In addition to any rights granted under Article 9, a shareholder is
entitled to dissent from, and obtain payment of the fair value of his shares
in the event of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation (other than
a parent corporation in a merger under G.S. 55-11-04) is a party unless (i)
approval by the shareholders of that corporation is not required under G.S.
55-11-03(g) or (ii) such shares are then redeemable by the corporation at a
price not greater than the cash to be received in exchange for such shares;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, unless such
shares are then redeemable by the corporation at a price not greater than
the cash to be received in exchange for such shares;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than as permitted by G.S. 55-12-01,
including a sale in dissolution, but not including a sale pursuant to court
order or a sale pursuant to a plan by which all or substantially all of the
net proceeds of the sale will be distributed in cash to the shareholders
within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it (i)
alters or abolishes a preferential right of the shares; (ii) creates,
alters, or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of
the shares; (iii) alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities; (iv) excludes or limits
the right of the shares to vote on any matter, or to cumulate votes; (v)
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
G.S. 55-6-04; or (vi) changes the corporation into a nonprofit corporation
or cooperative organization;
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(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this Article may not challenge the corporate action creating his
entitlement, including without limitation a merger solely or partly in
exchange for cash or other property, unless the action is unlawful or
fraudulent with respect to the shareholder or the corporation.
(c) Notwithstanding any other provision of this Article, there shall be no
right of dissent in favor of holders of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at the meeting at which the plan of merger or share
exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
(1) The articles of incorporation of the corporation issuing the shares
provide otherwise;
(2) In the case of a plan of merger or share exchange, the holders of the
class or series are required under the plan of merger or share exchange to
accept for the shares anything except:
a. Cash;
b. Shares, or shares and cash in lieu of fractional shares of the
surviving or acquiring corporation, or of any other corporation which,
at the record date fixed to determine the shareholders entitled to
receive notice of and vote at the meeting at which the plan of merger
or share exchange is to be acted on, were either listed subject to
notice of issuance on a national securities exchange or held of record
by at least 2,000 record shareholders; or
c. A combination of cash and shares as set forth in sub-subdivisions
a. and b. of this subdivision.
Section 55-13-03. Dissent by nominees and beneficial owners.
(a) A record shareholder may assert dissenter's rights as to fewer than all
the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection
are determined as if the shares as to which he dissents and his other shares
were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenter's rights as to shares held
on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenter's rights; and
(2) He does so with respect to all shares of which he is the beneficial
shareholder.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.
Section 55-13-20. Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under G.S. 55-
13-02 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters'
rights under this Article and be accompanied by a copy of this Article.
(b) If corporate action creating dissenters' rights under G.S. 55-13-02 is
taken without a vote of shareholders, the corporation shall no later than 10
days thereafter notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the dissenters'
notice described in G.S. 55-13-22.
(c) If a corporation fails to comply with the requirements of this section,
such failure shall not invalidate any corporate action taken; but any
shareholder may recover from the corporation any damage which he
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suffered from such failure in a civil action brought in his own name within
three years after the taking of the corporate action creating dissenters'
rights under G.S. 55-13-02 unless he voted for such corporate action.
Section 55-13-21. Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under G.S. 55-
13-02 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights:
(1) Must give to the corporation, and the corporation must actually
receive, before the vote is taken written notice of his intent to demand
payment for his shares if the proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his shares under this Article.
Section 55-13-22. Dissenters' notice.
(a) If proposed corporate action creating dissenters' rights under G.S. 55-
13-02 is authorized at a shareholders' meeting, the corporation shall mail by
registered or certified mail, return receipt requested, a written dissenters'
notice to all shareholders who satisfied the requirements of G.S. 55-13-21.
(b) The dissenters' notice must be sent no later than 10 days after
shareholder approval, or if no shareholder approval is required, after the
approval of the board of directors, of the corporate action creating
dissenters' rights under G.S. 55-13-02, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date
the subsection (a) notice is mailed; and
(5) Be accompanied by a copy of this Article.
Section 55-13-23. Duty to demand payment.
(a) A shareholder sent a dissenters' notice described in G.S. 55-13-22 must
demand payment and deposit his share certificates in accordance with the terms
of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice,
is not entitled to payment for his shares under this Article.
Section 55-13-24. Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under G.S. 55-13-26.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
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Section 55-13-25. Payment.
(a) As soon as the proposed corporate action is taken, or within 30 days
after receipt of a payment demand, the corporation shall pay each dissenter
who complied with G.S. 55-13-23 the amount the corporation estimates to be the
fair value of his shares, plus interest accrued to the date of payment.
(b) The payment shall be accompanied by:
(1) The corporation's most recent available balance sheet as of the end
of a fiscal year ending not more than 16 months before the date of payment,
an income statement for that year, a statement of cash flows for that year,
and the latest available interim financial statements, if any;
(2) An explanation of how the corporation estimated the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under G.S. 55-
13-28; and
(5) A copy of this Article.
Section 55-13-26. Failure to take action.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the
transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under G.S. 55-13-22 and repeat the payment demand
procedure.
Section 55-13-27 [Reserved for future codification purposes.]
Section 55-13-28. Procedure if shareholder dissatisfied with corporation's
payment or failure to perform.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
the amount in excess of the payment by the corporation under G.S. 55-13-25 for
the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under G.S. 55-13-25 is
less than the fair value of his shares or that the interest due is
incorrectly calculated;
(2) The corporation fails to make payment under G.S. 55-13-25; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section unless
he notifies the corporation of his demand in writing (i) under subdivision
(a)(1) within 30 days after the corporation made payment for his shares or
(ii) under subdivisions (a)(2) and (a)(3) within 30 days after the corporation
has failed to perform timely. A dissenter who fails to notify the corporation
of his demand under subsection (a) within such 30-day period shall be deemed
to have withdrawn his dissent and demand for payment.
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Section 55-13-30. Court action.
(a) If a demand for payment under G.S. 55-13-28 remains unsettled, the
dissenter may commence a proceeding within 60 days after the earlier of (i)
the date payment is made under G.S. 55-13-25, or (ii) the date of the
dissenter's payment demand under G.S. 55-13-28 by filing a complaint with the
Superior Court Division of the General Court of Justice to determine the fair
value of the shares and accrued interest. A dissenter who takes no action
within the 60-day period shall be deemed to have withdrawn his dissent and
demand for payment.
(b) Reserved for future codification purposes.
(c) The court shall have the discretion to make all dissenters (whether or
not residents of this State) whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the complaint. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(d) The jurisdiction of the superior court in which the proceeding is
commenced under subsection (a) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision
on the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The parties are entitled to
the same discovery rights as parties in other civil proceedings. The
proceeding shall be tried as in other civil actions. However, in a proceeding
by a dissenter in a corporation that was a public corporation immediately
prior to consummation of the corporate action giving rise to the right of
dissent under G.S. 55-13-02, there is no right to a trial by jury.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds the fair value of his shares,
plus interest, exceeds the amount paid by the corporation.
Section 55-13-31. Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under G.S. 55-13-30 shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of appraisers appointed by the court, and shall assess the costs
as it finds equitable.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the
requirements of G.S. 55-13-20 through 55-13-28; or
(2) Against either the corporation or a dissenter, in favor of either or
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously, or not in good
faith with respect to the rights provided by this Article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
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ANNEX D
DATA PROCESSING RESOURCES CORPORATION
1994 STOCK OPTION PLAN, AS AMENDED
1. PURPOSE.
This Data Processing Resources Corporation 1994 Stock Option Plan, as
amended (the "Plan") is intended to allow employees, directors, officers and
consultants (all of whom are sometimes hereinafter referred to collectively as
"Employees", even though some, particularly directors, may not be employees)
of Data Processing Resources Corporation, a California corporation ("DPRC"),
and Subsidiaries which it may have from time to time (DPRC and such
Subsidiaries being together referred to herein as the "Company") to receive
certain options ("Stock Options") to purchase DPRC's common stock (the "Common
Stock"), as herein provided. "Subsidiary" shall mean each corporation which is
a "subsidiary corporation" of DPRC, within the definition contained in Section
424(f) of the Internal Revenue Code of 1986, as amended (the "Code"). "Parent"
shall mean each corporation which is a "parent corporation" of DPRC, within
the definition contained in Section 424(e) of the Code. The purpose of the
Plan is to provide Employees with additional incentives to make significant
and extraordinary contributions to the long-term performance and growth of the
Company and to attract and retain Employees of exceptional ability.
2. ADMINISTRATION.
2.1 The Plan shall be administered by the entire Board of Directors of DPRC
(the "Board"), or by a Compensation Committee consisting of two (2) or more
Board members (the Board, or if applicable, the Compensation Committee
administering the Plan shall hereinafter be referred to as the "Committee").
The members of the Committee must qualify as "outside directors" under Section
162(m) of the Code and "disinterested directors" under Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the
extent that those provisions apply. The Committee shall select one of its
members as Chairman and shall act by vote of a majority of a quorum, or by
unanimous written consent. A majority of its members shall constitute a
quorum; provided, however, that no member of the Committee or the Board shall
be entitled to vote upon the granting of Stock Options to himself or herself.
The Committee shall be governed by the provisions of DPRC's Bylaws and of
California law applicable to the Board, except as otherwise provided herein or
determined by the Board.
2.2 The Committee shall have full and complete authority, in its discretion,
but subject to the express provisions of the Plan: to approve the employees,
directors, officers and/or consultants of the Company (all of whom are
sometimes hereinafter referred to collectively as "Employees", even though
some, particularly directors, may not be employees) nominated by the
management of the Company to be granted Stock Options; to determine the number
of Stock Options to be granted to an Employee; to determine the time or times
at which Stock Options shall be granted; to establish the terms and conditions
upon which Stock Options may be exercised; to establish the terms and
conditions upon which Stock Options may vest; to remove or adjust any
restrictions and conditions upon Stock Options; to specify, at the time of
grant, provisions relating to exercisability of Stock Options and to
accelerate, extend or otherwise modify the exercisability of any Stock
Options; and to adopt such rules and regulations and to make all other
determinations deemed necessary or desirable for the administration of the
Plan. All interpretations and constructions of the Plan by the Committee, and
all of its actions hereunder, shall be binding and conclusive on all persons
for all purposes.
2.3 The Company hereby agrees to indemnify and hold harmless each Committee
member and each Employee, and the estate and heirs of such Committee member or
Employee, against all claims, liabilities, expenses, penalties, damages or
other pecuniary losses, including legal fees incurred by such Committee member
or employee, which such Committee member or Employee, his or her estate or
heirs may suffer as a result of his or her responsibilities, obligations or
duties in connection with the Plan, to the extent that insurance, if any, does
not cover the payment of such items, unless the losses are due to the
individual's gross negligence, willful misconduct or lack of good faith. The
Company will have the right to select counsel and to control the prosecution
or defense of the suit. The Company will not be required to indemnify any
individual for any amount incurred through any settlement unless the Company
consents in writing to the settlement.
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3. ELIGIBILITY AND PARTICIPATION.
Employees eligible under the Plan shall be approved by the Committee from
those Employees who, in the opinion of the management of the Company, are in
positions which enable them to make significant and extraordinary
contributions to the long-term performance and growth of the Company. In
selecting Employees to whom Stock Options may be granted, consideration shall
be given to factors such as employment position, duties and responsibilities,
ability, productivity, length of service, morale, interest in the Company and
recommendations of supervisors.
4. GRANTS.
The Committee may grant Stock Options in such amounts, at such times, and to
such Employees nominated by the management of the Company as the Committee, in
its discretion, may determine. Stock Options granted under the Plan shall
constitute "incentive stock options" within the meaning of Section 422 of the
Code, if so designated by the Committee on the date of grant. The Committee
shall also have the discretion to grant Stock Options which do not constitute
incentive stock options and any such Stock Options shall be designated
nonstatutory stock options by the Committee on the date of grant. However,
incentive stock options may only be granted to employees of the Company. The
aggregate fair market value (determined as of the time an incentive stock
option is granted) of the Common Stock with respect to which incentive stock
options are exercisable for the first time by any Employee during any one
calendar year (under all plans of DPRC and any Parent or Subsidiary of DPRC)
may not exceed the maximum amount permitted under Section 422 of the Code
(currently $100,000.00). Nonstatutory stock options shall not be subject to
the limitations relating to incentive stock options contained in the preceding
sentence. Each Stock Option shall be evidenced by a written agreement (the
"Option Agreement") in a form approved by the Committee, which shall be
executed on behalf of the Company and by the Employee to whom the Stock Option
is granted. If a Stock Option expires, terminates or is canceled for any
reason without having been exercised in full, the shares of Common Stock not
purchased thereunder shall again be available for purposes of the Plan.
5. PURCHASE PRICE.
The purchase price (the "Exercise Price") of shares of Common Stock subject
to each Stock Option ("Option Shares") which are intended to qualify as an
incentive stock option within the meaning of Section 422(b) of the Code shall
be equal to the fair market value ("Fair Market Value") of such shares on the
date of grant of such Stock Option. Notwithstanding the foregoing, the
Exercise Price of Option Shares subject to an incentive stock option granted
to an Employee who at the time of grant owns stock possessing more than 10% of
the total combined voting power of all classes of stock of DPRC or of any
Parent or Subsidiary (after taking into account the constructive ownership
rules of Section 424(d) of the Code) shall be at least equal to 110% of the
Fair Market Value of such shares on the date of grant of such Stock Option.
The Fair Market Value of a share of Common Stock on any date shall be equal to
the closing price of the Common Stock for the last preceding day on which
DPRC's shares were traded, and the method for determining the closing price
shall be determined by the Committee; provided, however, that if the Common
Stock is not then traded on an exchange, through an automated quotation system
or otherwise in a manner determined by the Committee suitable for determining
the Fair Market Value, the Committee shall determine the Fair Market Value in
its reasonable judgment. The Exercise Price of any Stock Option which shall
not qualify as an incentive stock option shall be determined by the Committee,
but shall not be less than the Fair Market Value of the Common Stock in the
case of Option Shares granted to an individual who is a "covered employee" as
that term is defined in Code Section 162(m).
6. OPTION PERIOD.
The Stock Option period (the "Term") shall commence on the date of grant of
the Stock Option and shall be ten years or such shorter period as is
determined by the Committee. Notwithstanding the foregoing, the Term of an
incentive stock option granted to an Employee who at the time of grant owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of DPRC or of any Parent or Subsidiary (after taking into
account the constructive ownership rules of Section 424(d) of the Code) shall
not exceed five years.
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Each Stock Option shall provide that it is exercisable over its term in such
periodic installments as the Committee in its sole discretion may determine.
Such provisions need not be uniform. Notwithstanding the foregoing, but
subject to the provisions of paragraph 2.2, Stock Options granted to Employees
who are subject to the reporting requirements of Section 16(a) of the Exchange
Act ("Section 16 Reporting Persons") shall not be exercisable until at least
six months and one day from the date the Stock Option is granted. If an
Employee shall not in any period purchase all of the Option Shares which the
Employee is entitled to purchase in such period, the Employee may purchase all
or any part of such Option Shares at any time prior to the expiration of the
Stock Option.
7. EXERCISE OF OPTIONS.
7.1 Each Stock Option may be exercised in whole or in part (but not as to
fractional shares) by delivering it for surrender or endorsement to the
Company, attention of the Chief Financial Officer, at the principal office of
the Company, together with payment of the Exercise Price and an executed
Notice and Agreement of Exercise in the form prescribed by paragraph 7.2.
Payment may be made in cash, by cashier's or certified check, or by surrender
of outstanding shares of the Company's Common Stock valued pursuant to
paragraph 5 (if the Committee authorizes payment in stock).
7.2 Exercise of each Stock Option is conditioned upon the agreement of the
Employee to the terms and conditions of this Plan and of such Stock Option as
evidenced by the Employee's execution and delivery of a Notice and Agreement
of Exercise in a form to be determined by the Committee in its discretion.
Such Notice and Agreement of Exercise shall set forth the agreement of the
Employee that: (a) no Option Shares will be sold or otherwise distributed in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
any other applicable federal or state securities laws; (b) each Option Share
certificate may be imprinted with legends reflecting any applicable federal
and state securities law restrictions and conditions; (c) the Company may
comply with said securities law restrictions and issue "stop transfer"
instructions to its Transfer Agent and Registrar without liability; (d) if the
Employee is a Section 16 Reporting Person, the Employee will furnish to the
Company a copy of each Form 4 or Form 5 filed by said Employee and will timely
file all reports required under federal securities laws; and (e) the Employee
will report all sales of Option Shares to the Company in writing on a form
prescribed by the Company.
7.3 No Stock Option shall be exercisable unless and until any applicable
registration or qualification requirements of federal and state securities
laws, and all other legal requirements, have been fully complied with. The
Company will use reasonable efforts to maintain the effectiveness of a
Registration Statement under the Securities Act for the issuance of Stock
Options and shares acquired thereunder, but there may be times when no such
Registration Statement will be currently effective. The exercise of Stock
Options may be temporarily suspended without liability to the Company during
times when no such Registration Statement is currently effective, or during
times when, in the reasonable opinion of the Committee, such suspension is
necessary to preclude violation of any requirements of applicable law or
regulatory bodies having jurisdiction over the Company. If any Stock Option
would expire for any reason except the end of its term during such a
suspension, then if exercise of such Stock Option is duly tendered before its
expiration, such Stock Option shall be exercisable and exercised (unless the
attempted exercise is withdrawn) as of the first day after the end of such
suspension. The Company shall have no obligation to file any Registration
Statement covering resales of Option Shares.
7.4 Notwithstanding anything contained herein to the contrary,
7.4.1 Stock Options granted hereunder may be exercisable by the Optionee
in the amounts and at such time as shall be determined by the Committee at the
time the Stock Options are granted.
7.4.2 The Committee, with prior approval of the Board, may authorize the
Company to lend, to an Employee who shall desire to exercise his or her
options granted hereunder, an amount up to and including the exercise price of
such options, such loan to be evidenced by a promissory note issued by said
Employee and secured by the Common Stock purchased by said Employee in
exercising his or her Stock Options.
8. SERVICE REQUIREMENTS.
Except as provided in paragraph 10 below, an Employee may not exercise a
Stock Option unless from the date of grant to the date of exercise such
Employee remains continuously in the service of the Company. For purposes of
this Paragraph 8, the period of continuous service of an Employee with the
Company shall be
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deemed to include (without extending the term of the Stock Option) any period
during which such Employee is on leave of absence with the consent of the
Company, provided that such leave of absence shall not exceed ninety (90)
days, unless the Employee's rights to reemployment are guaranteed by statute
or contract. However, an Employee will not be considered to have incurred a
severance of employment because of a transfer of employment between DPRC and a
Subsidiary or Parent (or vice versa). If such Employee fails to return to the
service of the Company at the expiration of such leave of absence, such
Employee's service with the Company shall be deemed terminated as of the date
such leave of absence commenced. For purposes of this paragraph 8, an Employee
who is a consultant to the Company shall be considered to be in continuous
employment as long as the Employee continues performing services for the
Company.
9. RESTRICTIONS ON TRANSFER.
Each Stock Option granted under this Plan shall be transferable only by will
or the laws of descent and distribution. No interest of any Employee under the
Plan shall be subject to attachment, execution, garnishment, sequestration,
the laws of bankruptcy or any other legal or equitable process. Each Stock
Option granted under this Plan shall be exercisable during an Employee's
lifetime only by such Employee.
10. TERMINATION OF EMPLOYMENT.
10.1 Upon an Employee's Retirement, Disability or death, all Stock Options
to the extent then presently exercisable shall remain in full force and effect
and may be exercised prior to the earlier to occur of (i) the expiration of a
period of ninety (90) days thereafter or (ii) the expiration at the end of the
fixed term of said Stock Options, except that, in the case of disability, the
foregoing ninety (90) day period shall be increased to one (1) year. Unless
otherwise provided by the Committee, all Stock Options to the extent not then
presently exercisable by such Employee shall terminate as of the date of such
termination of service with the Company and shall not be exercisable
thereafter.
10.2 Upon the termination of the Employee's service with the Company for any
reason other than the reasons set forth in paragraph 10.1 hereof, unless
otherwise provided by the Committee, (a) all Stock Options to the extent then
presently exercisable by such Employee shall remain exercisable only for a
period of ninety (90) days after the date of such termination of service and
may be exercised pursuant to the provisions thereof, including expiration at
the end of the fixed term thereof, and (b) all Stock Options to the extent not
then presently exercisable by such Employee shall terminate as of the date of
such termination of service and shall not be exercisable thereafter.
10.3 For purposes of this Plan:
10.3.1 "Retirement" shall mean an Employee's retirement from service with
the Company on or after the date on which such Employee attains the age of
sixty-five (65) years; and
10.3.2 "Disability" shall mean the total and permanent disability of an
Employee in accordance with Section 22(e)(3) of the Code. An individual is
permanently and totally disabled if the Employee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical
or mental impairment which can be expected to result in death or which has
lasted or can be expected to last for a continuous period of not less than
twelve (12) months. An individual shall not be considered to be permanently
and totally disabled unless the Employee furnishes proof of the existence
thereof in such form and manner, and at such times, as designated by the
Committee.
11. ADJUSTMENTS UPON CHANGE IN CAPITALIZATION.
11.1 The number and class of shares subject to each outstanding Stock
Option, the Exercise Price thereof (but not the total price), the maximum
number of Stock Options that may be granted under the Plan, and the minimum
number of shares as to which a Stock Option may be exercised at any one time,
shall be proportionately adjusted in the event of any increase or decrease in
the number of the issued shares of Common Stock which results from a split-up
or consolidation of shares, payment of a stock dividend, a recapitalization
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(other than the conversion of convertible securities according to their
terms), a combination of shares or other like capital adjustment, so that upon
exercise of the Stock Option, the Employee shall receive the number and class
of shares such Employee would have received had such Employee been the holder
of the number of shares of Common Stock for which the Stock Option is being
exercised upon the date of such change or increase or decrease in the number
of issued shares of the Company.
11.2 Upon a reorganization, merger or consolidation of the Company with one
or more corporations as a result of which DPRC is not the surviving
corporation, or in which DPRC survives as a wholly-owned subsidiary of another
corporation, or upon a sale of all or substantially all of the property of the
Company to another corporation, or any dividend or distribution to
shareholders, adequate adjustment or other provisions shall be made by the
Company or other party to such transaction so that there shall remain and/or
be substituted for the Option Shares provided for herein, the shares,
securities or assets which would have been issuable or payable in respect of
or in exchange for such Option Shares then remaining, as if the Employee had
been the owner of such shares as of the applicable date. Any securities so
substituted shall be subject to similar successive adjustments.
12. WITHHOLDING TAXES.
The Company shall have the right at the time of exercise of any Stock Option
to make adequate provision for any federal, state, local or foreign taxes
which it believes are or may be required by law to be withheld with respect to
such exercise ("Tax Liability"), to ensure the payment of such Tax Liability.
The Company may provide for the payment of any Tax Liability by any of the
following means or a combination of such means, as determined by the Committee
in its sole and absolute discretion in the particular case: (i) by requiring
the Employee to tender a cash payment to the Company; (ii) by withholding from
the Employee's compensation; (iii) by withholding from the Option Shares which
would otherwise be issuable upon exercise of the Stock Option.
13. RELATIONSHIP TO OTHER EMPLOYEE BENEFIT PLANS.
Income recognized by an Employee as the result of the exercise of Stock
Options granted hereunder shall not be deemed to be salary or other
compensation to any Employee for purposes of any pension, thrift, profit-
sharing, stock purchase or any other employee benefit plan now maintained or
hereafter adopted by the Company.
14. AMENDMENTS AND TERMINATION.
The Board of Directors may at any time suspend, amend or terminate this
Plan. No amendment or modification of this Plan may be adopted, except subject
to shareholder approval, which would: (a) materially increase the benefits
accruing to Employees under this Plan; (b) materially increase the number of
securities which may be issued under this Plan (except for adjustments
pursuant to paragraph 11 hereof); or (c) materially modify the requirements as
to eligibility for participation in the Plan.
15. SUCCESSORS IN INTEREST.
The provisions of this Plan and the actions of the Committee shall be
binding upon all heirs, successors and assigns of the Company and of
Employees.
16. OTHER DOCUMENTS.
All documents prepared, executed or delivered in connection with this Plan
shall be, in substance and form, as established and modified by the Committee
or by persons under its direction and supervision; provided, however, that all
such documents shall be subject in every respect to the provisions of this
Plan, and in the event of any conflict between the terms of any such document
and this Plan, the provisions of this Plan shall prevail. All Stock Options
granted under the Plan shall be evidenced by written agreements executed by
the Company and the Employees to whom the Stock Options have been granted.
Each agreement shall specify whether a Stock Option is an incentive stock
option or a nonstatutory stock option.
D-5
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17. NO OBLIGATION TO CONTINUE ENGAGEMENT.
This Plan and grants hereunder shall not impose any obligation on the
Company to continue to engage the services of any Employee. Moreover, no
provision of this Plan or any document executed or delivered pursuant hereto
shall be deemed modified in any way by any employment contract or other
engagement agreement between an Employee and the Company.
18. MISCONDUCT OF AN EMPLOYEE.
Notwithstanding any other provision of this Plan, if an Employee commits
fraud or dishonesty toward the Company or wrongfully uses or discloses any
trade secret, confidential data or other information proprietary to the
Company, or intentionally takes any other action materially inimical to the
best interests of the Company, as determined by the Committee, in its sole and
absolute discretion, such Employee shall forfeit all rights and benefits under
this Plan.
19. TERM OF PLAN.
This Plan was adopted by the Board effective January 1, 1994, and was
amended as of January 15, 1996, as of June 2, 1997, as of November 1, 1997 and
as of July , 1998. No Stock Option may be granted under this Plan after
December 31, 2004.
20. GOVERNING LAW.
This Plan shall be construed in accordance with, and governed by, the laws
of the State of California.
21. SHAREHOLDER APPROVAL.
No Stock Option shall be exercisable unless and until the shareholders of
the Company have approved this Plan, including the classes of individuals
entitled to receive incentive stock options under the Plan and the aggregate
number of shares of Common Stock that may be issued under the Plan, and all
other legal requirements have been fully complied with.
22. PRIVILEGES OF STOCK OWNERSHIP.
The holder of a Stock Option shall not be entitled to the privileges of
stock ownership as to any shares of the Company Common Stock not actually
issued to such holder.
23. COMMON STOCK SUBJECT TO PLAN.
The total number of shares of Common Stock for which Stock Options may be
granted under this Plan shall not exceed in the aggregate 3,000,000 shares of
Common Stock, as such number may be adjusted from time to time in accordance
with Section 11. The maximum number of shares that may be issued to a single
Employee is 3,000,000.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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. Section 317 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. DPRC's Board of Directors makes all decisions regarding the
indemnification of its officers and directors on a case-by-case basis.
Any provision in DPRC'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.
Lastly, a corporation has the power to purchase indemnity insurance for its
agents even if it would not have the power to indemnify them.
DPRC'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. DPRC's Bylaws require DPRC 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 DPRC. DPRC 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. DPRC'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 DPRC.
DPRC has also entered into agreements with each of its directors and
officers pursuant to which DPRC has agreed to indemnify such director or
officer from claims, liabilities, damages, expenses, losses, costs, penalties
II-1
<PAGE>
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 DPRC or any other corporation of which he or she is a director or
officer at the request of DPRC 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.
DPRC carries directors' and officers' liability insurance covering its
directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of June 16, 1998, by and among
Data Processing Resources Corporation, DPRC Acquisition Corp., Systems
& Programming Consultants, Inc., Richard K. Carlisle, Thomas G.
Carlisle, Jeffrey Carter and Robert Gallagher(7)
2.2 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)
2.3 Registration Rights Agreement dated July 1, 1996, by and between Data
Processing Resources Corporation and ADD Consulting, Inc.(1)
2.4 Stock Purchase Agreement dated December 16, 1996, by and among Data
Processing Resources Corporation, Leardata Info-Services, Inc.,
General Atlantic Leardata Partners, LP., Bruce M. Smith, Chris P.
Smith, Steve P. Donaldson, Robert M. Howe and Barbara A. Kuhler(3)
2.5 Form of Registration Rights Agreement to be entered into among Data
Processing Resources Corporation, Leardata Info-Services, Inc.,
General Atlantic Leardata Partners, LP., Bruce M. Smith, Chris P.
Smith, Steve P. Donaldson, Robert H. Howe and Barbara A. Kuhler(3)
2.6 Agreement and Plan of Merger dated April 29, 1997, by and among Data
Processing Resources Corporation, DPRC Acquisition Corp., Computec
International Strategic Resources, Inc., Christopher W. Lancashire,
Alicia R. Lancashire and Merrill Lynch Trust Company of California, as
Trustee of The Lancashire Charitable Remainder Unitrust(4)
2.7 Registration Rights Agreement dated April 29, 1997, by and among Data
Processing Resources Corporation, Christopher W. Lancashire and Alicia
R. Lancashire(4)
2.8 Agreement of Purchase and Sale of Assets dated January 27, 1998, by
and among Data Processing Resources Corporation, S3G, Inc. and Michael
G. McCarthy(6)
2.9 Registration Rights Agreement dated January 27, 1998, by and between
Data Processing Resources Corporation and S3G, Inc.(6)
2.10 Letter Agreement amending certain terms of the Merger Agreement, dated
October 13, 1998(8)
2.11 Letter Agreement amending certain terms of the Merger Agreement, dated
October 20, 1998(9)
3.1 Restated Articles of Incorporation of Data Processing Resources
Corporation(2)
3.2 Restated Bylaws of Data Processing Resources Corporation(2)
4.1 Investor's Rights Agreement dated as of March 2, 1995, by and among
Data Processing Resources Corporation and the Holders who are
signatories thereto, as amended by Amendment No. 1(2)
4.2 Specimen Common Stock certificate(2)
4.3 Indenture dated as of March 24, 1998 between Data Processing Resources
Corporation and State Street Bank and Trust Company of California,
N.A. and Form of Note(5)
4.4 Registration Rights Agreement dated as of March 24, 1998 between Data
Processing Resources Corporation and NationsBanc Montgomery
Securities, LLC, Donaldson, Lufkin, Jenrette Securities Corporation,
Robert W. Baird & Co., Incorporated and Lehman Brothers (the "Initial
Purchasers")(5)
4.5 Purchase Agreement dated as of March 18, 1998 between Data Processing
Resources Corporation and the Initial Purchasers(5)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
5.1++ Opinion of Riordan & McKinzie, a Professional Law Corporation
8.1++ Tax Opinion of Riordan & McKinzie, a Professional Law Corporation
23.1++ Consent of Deloitte & Touche LLP, Costa Mesa, California
23.2++ Consent of Deloitte & Touche LLP, Dallas, Texas
23.3++ Consent of Jack Anthony, CPA, Charlotte, North Carolina
23.4++ Consent of Arthur Andersen LLP, Omaha, Nebraska
23.5++ Consent of Arthur Andersen LLP, Chicago, Illinois
23.6++ Consent of Riordan & McKinzie (included in Exhibit 5.1)
23.7 Consent of NationsBanc Montgomery Securities LLC (included in Annex B
to the Proxy Statement/Prospectus constituting Part I of this
Registration Statement)*
23.8++ Consent of Riordan & McKinzie (included in Exhibit 8.1)
23.9++ Consent of Hitchner Whitt & Co., P.A.
24.1 Power of Attorney with respect to Data Processing Resources
Corporation (included on page II-6)*
99.1 Form of Proxy Card*
99.2 Opinion of NationsBanc Montgomery Securities LLC, dated June 15, 1998;
Letter of NationsBanc Montgomery Securities LLC, dated June 16, 1998
and Opinion of NationsBanc Montgomery Securities LLC, dated October
21, 1998 (incorporated by reference from Annex B to the Proxy
Statement/Prospectus constituting Part I of this Registration
Statement)*
</TABLE>
- --------
++ Filed herewith.
* Previously filed as an exhibit to this Registration Statement on Form S-4.
(1) Incorporated by reference to DPRC'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 DPRC'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 Amendment No. 1 to DPRC's Registration
Statement on Form S-1 (No. 333-18719) as filed with the Securities and
Exchange Commission on January 21, 1997.
(4) Incorporated by reference to DPRC's Current Report on Form 8-K dated April
30, 1997 as filed with the Securities and Exchange Commission on May 15,
1997.
(5) Incorporated by reference to DPRC's Current Report on Form 8-K dated March
24, 1998 as filed with the Securities and Exchange Commission on March 24,
1998.
(6) Incorporated by reference to DPRC's Current Report on Form 8-K dated
January 27, 1998, as filed with the Securities and Exchange Commission on
February 11, 1998.
(7) Incorporated by reference to DPRC's Current Report on Form 8-K dated June
16, 1998, as filed with the Securities and Exchange Commission on June 17,
1998.
(8) Incorporated by reference to DPRC's Annual Report on Form 10-K for the
fiscal year ended July 31, 1998.
(9) Incorporated by reference to DPRC's Current Report on Form 8-K dated
October 20, 1998, as filed with the Securities and Exchange Commission on
October 22, 1998.
(b) FINANCIAL STATEMENT SCHEDULES
Not applicable.
(c) OPINION OR APPRAISAL IS FURNISHED AS PART OF THIS PROSPECTUS.
II-3
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement 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.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(3) That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment 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.
(4) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(6) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
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 the registrant of expenses incurred or paid by a director,
officer or controlling person of the 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, the
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.
(7) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
II-4
<PAGE>
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(8) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(9) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Newport Beach, State of California, on November 3, 1998.
DATA PROCESSING RESOURCES
CORPORATION
By: /s/ David M. Connell
_____________________________________
David M. Connell
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following person in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board, Chief November 3, 1998
____________________________________ Executive Officer, and
Mary Ellen Weaver Director (Principal
Executive Officer)
/s/ David M. Connell President, Chief Operating November 3, 1998
____________________________________ Officer and Director
David M. Connell
* Executive Vice President November 3, 1998
____________________________________ (Principal Financial
Michael A. Piraino Officer)
/s/ James A. Adams Chief Financial Officer November 3, 1998
____________________________________ (Principal Accounting
James A. Adams Officer)
* Director November 3, 1998
____________________________________
J. Christopher Lewis
* Director November 3, 1998
____________________________________
Patrick C. Haden
* Director November 3, 1998
____________________________________
Christopher W. Lancashire
</TABLE>
*By: /s/
David M. Connell
----------------------------
David M. Connell
Attorney-in-Fact
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger dated as of June 16, 1998, by and among
Data Processing Resources Corporation, DPRC Acquisition Corp.,
Systems & Programming Consultants, Inc., Richard K. Carlisle, Thomas
G. Carlisle, Jeffrey Carter and Robert Gallagher/(7)/
2.2 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)/
2.3 Registration Rights Agreement dated July 1, 1996, by and between Data
Processing Resources Corporation and ADD Consulting, Inc./(1)/
2.4 Stock Purchase Agreement dated December 16, 1996, by and among Data
Processing Resources Corporation, Leardata Info-Services, Inc.,
General Atlantic Leardata Partners, LP., Bruce M. Smith, Chris P.
Smith, Steve P. Donaldson, Robert M. Howe and Barbara A. Kuhler/(3)/
2.5 Form of Registration Rights Agreement to be entered into among Data
Processing Resources Corporation, Leardata Info-Services, Inc.,
General Atlantic Leardata Partners, LP., Bruce M. Smith, Chris P.
Smith, Steve P. Donaldson, Robert H. Howe and Barbara A. Kuhler/(3)/
2.6 Agreement and Plan of Merger dated April 29, 1997, by and among Data
Processing Resources Corporation, DPRC Acquisition Corp., Computec
International Strategic Resources, Inc., Christopher W. Lancashire,
Alicia R. Lancashire and Merrill Lynch Trust Company of California,
as Trustee of The Lancashire Charitable Remainder Unitrust /(4)/
2.7 Registration Rights Agreement dated April 29, 1997, by and among Data
Processing Resources Corporation, Christopher W. Lancashire and
Alicia R. Lancashire/(4)/
2.8 Agreement of Purchase and Sale of Assets dated January 27, 1998, by
and among Data Processing Resources Corporation, S3G, Inc. and
Michael G. McCarthy/(6)/
2.9 Registration Rights Agreement dated January 27, 1998, by and between
Data Processing Resources Corporation and S3G, Inc./(6)/
2.10 Letter Agreement amending certain terms of the Merger Agreement, dated
October 13, 1998/(8)/
2.11 Letter Agreement amending certain terms of the Merger Agreement, dated
October 20, 1998/(9)/
3.1 Restated Articles of Incorporation of Data Processing Resources
Corporation/(2)/
3.2 Restated Bylaws of Data Processing Resources Corporation/(2)/
4.1 Investor's Rights Agreement dated as of March 2, 1995, by and among
Data Processing Resources Corporation and the Holders who are
signatories thereto, as amended by Amendment No. 1/(2)/
4.2 Specimen Common Stock certificate/(2)/
4.3 Indenture dated as of March 24, 1998 between Data Processing Resources
Corporation and State Street Bank and Trust Company of California,
N.A. and Form of Note/(5)/
4.4 Registration Rights Agreement dated as of March 24, 1998 between Data
Processing Resources Corporation and NationsBanc Montgomery
Securities, LLC, Donaldson, Lufkin, Jenrette Securities Corporation,
Robert W. Baird & Co., Incorporated and Lehman Brothers (the "Initial
Purchasers")/(5)/
4.5 Purchase Agreement dated as of March 18, 1998 between Data Processing
Resources Corporation and the Initial Purchasers/(5)/
5.1++ Opinion of Riordan & McKinzie, a Professional Law Corporation
8.1++ Tax Opinion of Riordan & McKinzie, a Professional Law Corporation
23.1++ Consent of Deloitte & Touche LLP, Costa Mesa, California
23.2++ Consent of Deloitte & Touche LLP, Dallas, Texas
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.3++ Consent of Jack Anthony, CPA, Charlotte, North Carolina
23.4++ Consent of Arthur Andersen LLP, Omaha, Nebraska
23.5++ Consent of Arthur Andersen LLP, Chicago, Illinois
23.6++ Consent of Riordan & McKinzie (included in Exhibit 5.1)
23.7 Consent of NationsBanc Montgomery Securities LLC (included in Annex B
to the Proxy Statement/Prospectus constituting Part I of this
Registration Statement)*
23.8++ Consent of Riordan & McKinzie (included in Exhibit 8.1)
23.9++ Consent of Hitchner Whitt & Co., P.A.
24.1 Power of Attorney with respect to Data Processing Resources
Corporation (included on page II-6)*
99.1 Form of Proxy Card*
99.2 Opinion of NationsBanc Montgomery Securities LLC, dated June 15, 1998;
Letter of NationsBanc Montgomery Securities LLC, dated June 16, 1998
and Opinion of NationsBanc Montgomery Securities LLC, dated October
21, 1998 (incorporated by reference from Annex B to the Proxy
Statement/Prospectus constituting Part I of this Registration
Statement)*
</TABLE>
- --------
++ Filed herewith.
* Previously filed as an Exhibit to this Registration Statement on Form S-4.
(1) Incorporated by reference to DPRC'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 DPRC'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 Amendment No. 1 to DPRC's Registration
Statement on Form S-1 (No. 333-18719) as filed with the Securities and
Exchange Commission on January 21, 1997.
(4) Incorporated by reference to DPRC's Current Report on Form 8-K dated April
30, 1997 as filed with the Securities and Exchange Commission on May 15,
1997.
(5) Incorporated by reference to DPRC's Current Report on Form 8-K dated March
24, 1998 as filed with the Securities and Exchange Commission on March 24,
1998.
(6) Incorporated by reference to DPRC's Current Report on Form 8-K dated
January 27, 1998, as filed with the Securities and Exchange Commission on
February 11, 1998.
(7) Incorporated by reference to DPRC's Current Report on Form 8-K dated June
16, 1998, as filed with the Securities and Exchange Commission on June 17,
1998.
(8) Incorporated by reference to DPRC's Annual Report on Form 10-K for the
fiscal year ended July 31, 1998.
(9) Incorporated by reference to DPRC's Current Report on Form 8-K dated
October 20, 1998, as filed with the Securities and Exchange Commission on
October 22, 1998.
<PAGE>
EXHIBIT 5.1
RIORDAN & MCKINZIE
A PROFESSIONAL LAW CORPORATION
695 TOWN CENTER DRIVE, SUITE 1500
COSTA MESA, CALIFORNIA 92626
November 6, 1998
Data Processing Resources Corporation
4400 MacArthur Blvd., Suite 600
Newport Beach, California 92660
Ladies and Gentlemen:
We have acted as counsel to Data Processing Resources Corporation, a
California corporation (the "Company"), in connection with the registration
under the Securities Act of 1933, as amended (the "1933 Act"), of up to
3,313,769 shares (the "Merger Shares") of the Company's common stock, no par
value per share (the "Common Stock"), to be issued by the Company in
accordance with the terms of the Agreement and Plan of Merger (the "Merger
Agreement") dated as of June 16, 1998, as amended October 13, 1998 and October
20, 1998, among the Company, DPRC Acquisition Corp., a wholly owned subsidiary
of DPRC, Systems & Programming Consultants, Inc. ("SPC") and certain SPC
shareholders. This opinion is delivered to you in accordance with the
requirements of Item 601(b)(5) of Regulation S-K under the 1933 Act in
connection with the Registration Statement on Form S-4, including all pre-
effective and post-effective amendments thereto (the "Registration
Statement"), filed with the Securities and Exchange Commission (the
"Commission") under the 1933 Act.
In rendering the opinion set forth herein, we have made such investigations
of fact and law, and examined such documents and instruments, or copies
thereof established to our satisfaction to be true and correct copies thereof,
as we have deemed necessary under the circumstances.
Based upon the foregoing and such other examination of law and fact as we
have deemed necessary, and in reliance thereon, we are of the opinion that,
the Merger Shares have been duly authorized and, when issued and paid for in
accordance with the terms of the Merger Agreement, will be validly issued,
fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus which is a part of the Registration
Statement. In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the 1933 Act
or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ Riordan & McKinzie
<PAGE>
EXHIBIT 8.1
RIORDAN & MCKINZIE
A PROFESSIONAL LAW CORPORATION
695 TOWN CENTER DRIVE, SUITE 1500
COSTA MESA, CALIFORNIA 92626
November 6, 1998
Data Processing Resources Corporation
4400 MacArthur Blvd., Suite 600
Newport Beach, California 92660
Re: Data Processing Resources Corporation on Form S-4 File No. 333-61017
Dear Ladies and Gentlemen:
You have requested our opinion concerning certain material federal income
tax consequences expected to result to the shareholders of Systems &
Programming Consultants, Inc., a North Carolina corporation ("SPC"), on the
exchange of shares of common stock of Data Processing Resources Corporation, a
California corporation, which have been registered under the Securities Act of
1933, as amended, for outstanding shares of common stock of SPC (the "Merger")
in connection with the Registration Statement on Form S-4 filed with the
Securities and Exchange Commission (the "Commission") on August 7, 1998 (File
No. 333-61017), as amended (as amended, the "Registration Statement").
The facts, as we understand them, and upon which with your permission we
rely in rendering the opinion expressed herein, are as set forth in the
Registration Statement. Based on such facts, it is our opinion that the U.S.
federal income tax consequences set forth under the heading "The Merger--
Material U.S. Federal Income Tax Consequences of the Merger to SPC
Shareholders" in the Registration Statement accurately describes the material
federal income tax consequences of the Merger under present law to the SPC
shareholders. No opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation
or difference in the facts from those set forth in the Registration Statement
may affect the conclusion stated herein.
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit
to the Registration Statement and the use of our name under the caption "The
Merger--Material U.S. Federal Income Tax Consequences of the Merger to SPC
Shareholders."
Very truly yours,
/s/ Riordan & McKinzie
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Amendment No. 3 to
Registration Statement No. 333-61017 of Data Processing Resources Corporation
on Form S-4 of our report dated September 25, 1998, (October 21, 1998 as to
Note 4 paragraph 11) relating to the consolidated financial statements of Data
Processing Resources Corporation, appearing in the Annual Report on Form 10-K
dated October 22, 1998 of Data Processing Resources Corporation.
We consent to the incorporation by reference in Amendment No. 3 to
Registration Statement No. 333-61017 of Data Processing Resources Corporation
on Form S-4 of our report dated March 14, 1997 (April 29, 1997 as to Note 8)
relating to the financial statements of Computec International Strategic
Resources, Inc., appearing in the 424(b)(3) Prospectus dated June 11, 1998
relating to Registration Statement No. 333-53371 of Data Processing Resources
Corporation on Form S-3.
We consent to the incorporation by reference in Amendment No. 3 to
Registration Statement No. 333-61017 of Data Processing Resources Corporation
on Form S-4 of our report dated January 30, 1998 relating to the financial
statements of S3G, Inc., appearing in the Form 8-K, as amended, of Data
Processing Resources Corporation dated January 27, 1998.
We also consent to the reference to us under the heading "Experts" in the
Proxy Statement/Prospectus that is part of this Registration Statement.
/s/ Deloitte & Touche LLP
Costa Mesa, California
November 4, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 3 to
Registration Statement No. 333-61017 of Data Processing Resources Corporation
on Form S-4 of our report dated March 11, 1996 on the financial statements of
Leardata Info-Services, Inc., appearing in the 424(b)(3) Prospectus dated June
11, 1998 relating to Registration Statement No. 333-53371 of Data Processing
Resources Corporation on Form S-3. We also consent to the reference to us
under the heading "Experts" in the Proxy Statement/Prospectus that is a part
of this Registration Statement.
/s/ Deloitte & Touche LLP
Dallas, Texas
November 4, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITOR'S CONSENT
I consent to the use in this Registration Statement of Data Processing
Resources Corporation on Form S-4 of my report dated March 10, 1998 (except
for Note 7 as to which the date is October 20, 1998) on the financial
statements of SPC appearing in the Proxy Statement/Prospectus, which is part
of this Registration Statement. I also consent to the reference to me under
the heading "Experts" in such Proxy Statement/Prospectus.
/s/ Jack L. Anthony, CPA
Jack L. Anthony, CPA
Charlotte, North Carolina
November 4, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 1, 1996, in this Amendment No. 3 to Form
S-4 Registration Statement of Data Processing Resources Corporation
(Registration No. 333-61017), relating to the financial statements of ADD
Consulting, Inc., appearing in the Form 8-K, as amended, of Data Processing
Resources Corporation dated July 1, 1996, and to all references to our Firm
included in this Registration Statement.
/s/ Arthur Andersen LLP
Omaha, Nebraska
November 4, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated May 16, 1994, in this Amendment No. 3 to Form S-
4 Registration Statement of Data Processing Resources Corporation
(Registration No. 333-61017), relating to the financial statements of AD&D
Acquisition, Inc., appearing in the Form 8-K, as amended, of Data Processing
Resources Corporation dated July 1, 1996, and to all references to our Firm
included in this Registration Statement.
/s/ Arthur Andersen LLP
Chicago, Illinois
November 4, 1998
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT APPRAISER
We consent to the reference to this firm under the caption "The Merger--The
Merger Agreement--Treatment of SPC Performance-Vesting Stock Options"
contained in the Registration Statement on Form S-4 and related Proxy
Statement/Prospectus of Data Processing Resources Corporation (File No. 333-
61017). In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Commission thereunder.
/s/ Hitchner Whitt & Co., P.A.
Hitchner Whitt & Co., P.A.
930 East Boulevard
Charlotte, NC 28203
November 5, 1998
