<PAGE>
PROSPECTUS SUPPLEMENT DATED NOVEMBER 21, 1997
TO THE PROSPECTUS DATED MAY 7, 1997 COVERING SHARES OF
COMMON STOCK OF WHITTMAN-HART, INC.
Attached hereto are the consolidated results of operations for the nine
month period ending September 28, 1997 of Whittman-Hart, Inc. (the "Company").
This information supplements the information presented in the Prospectus
dated May 7, 1997, covering 4,055,978 shares of common stock, $.001 par
value, of the Company, and should be read in conjunction therewith. The
results of operations, which are shown in this Supplement, and which have not
been audited by the Company's independent public accountants, reflect, in the
opinion of the Company, all material adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the results of operations
for the periods presented. The results of operations for the interim period
are not necessarily indicative of results for the entire year.
<PAGE>
PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS.
WHITTMAN-HART, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 31,
1997 1996
----------------- ----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,147,003 $ 35,898,095
Short-term investments 57,765,977 30,901,003
Trade accounts receivable, net of allowance for doubtful accounts
of $361,300 and $160,000 in 1997 and 1996, respectively 27,757,510 15,564,791
Income tax receivable - 140,154
Prepaid expenses and other current assets 2,594,831 1,290,798
Notes and interest receivable 73,444 28,885
Deferred income taxes 712,594 342,732
------------- --------------
Total current assets 95,051,359 84,166,458
Property and equipment, net 13,022,641 5,843,921
Notes receivable 102,858 148,263
Other assets 718,676 454,379
------------- --------------
Total assets $108,895,534 $ 90,613,021
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,042,558 $ 1,333,854
Accrued compensation and related costs 9,792,176 8,600,608
Income taxes payable 1,248,294 -
Accrued expenses and other liabilities 2,688,452 981,718
------------- --------------
Total current liabilities 16,771,480 10,916,180
Deferred income taxes 76,122 89,472
Deferred revenue 90,200 -
Deferred rent 1,010,315 888,165
------------- --------------
Total liabilities 17,948,117 11,893,817
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.001 par value; 37,000,000 authorized, 20,743,774
and 20,134,680 shares issued in 1997 and 1996, respectively 20,744 20,135
Additional paid-in capital 78,846,449 73,256,942
Retained earnings 12,946,746 5,552,755
Deferred compensation (866,522) (97,831)
------------- --------------
90,947,417 78,732,001
Common stock held in treasury, at cost; 6,605 shares in 1996 - (12,797)
------------- --------------
Total stockholders' equity 90,947,417 78,719,204
------------- --------------
Total liabilities and stockholders' equity $108,895,534 $ 90,613,021
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to financial statements.
S-2
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 28, SEPT. 30, SEPT. 28, SEPT. 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 39,251,560 $ 23,301,500 $103,029,350 $ 62,164,250
Cost of services 22,670,110 13,842,490 60,606,650 37,204,470
------------ ------------ ------------ ------------
Gross profit 16,581,450 9,459,010 42,422,700 24,959,780
Costs and expenses:
Selling 1,597,190 926,250 4,308,690 2,635,790
Recruiting 1,693,820 926,730 4,041,520 2,533,760
General and administrative 9,502,558 5,244,244 24,272,251 14,889,466
------------ ------------ ------------ ------------
Total costs and expenses 12,793,568 7,097,224 32,622,461 20,059,016
------------ ------------ ------------ ------------
Operating income 3,787,882 2,361,786 9,800,239 4,900,764
Other income (expense):
Interest expense - - - (47,400)
Interest income 894,918 498,000 2,645,615 766,720
Other, net 7,546 (192,680) (227,679) (109,600)
------------ ------------ ------------ ------------
Total other income 902,464 305,320 2,417,936 609,720
------------ ------------ ------------ ------------
Income before income taxes 4,690,346 2,667,106 12,218,175 5,510,484
Income taxes 1,829,237 983,240 4,824,184 2,081,930
------------ ------------ ------------ ------------
Net income $ 2,861,109 $ 1,683,866 $ 7,393,991 $ 3,428,554
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income per share $ 0.13 $ 0.08 $ 0.34 $ .20
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used in computing net income per share 22,369,961 20,274,448 22,088,944 17,165,800
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
S-3
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPT. 28, SEPT. 30,
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,393,991 $ 3,428,554
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 1,182,258 841,169
Deferred income taxes (383,212) (133,604)
Gain on disposition of property and equipment - (12,607)
Loss on sales of short-term investments (4,529) -
Executive stock expense - 29,213
Changes in assets and liabilities, net of acquisitions:
Trade accounts receivable, net (11,890,559) (4,369,068)
Prepaid expenses and other current assets (1,304,033) (870,770)
Notes receivable 846 305,569
Other assets 340,967 (162,674)
Accounts payable 1,708,704 (379,564)
Accrued compensation and related costs 1,191,568 (630,355)
Income taxes payable 3,100,332 402,199
Accrued expenses and other liabilities 1,748,369 167,818
Deferred revenue 90,200 -
Deferred rent 122,150 288,483
------------ -------------
Net cash provided by (used in) operating activities 3,297,052 (1,095,637)
------------ -------------
Cash flows from investing activities:
Purchases of investments (75,659,324) (12,571,399)
Sales and maturities of investments 49,188,986 999,784
Payment for acquisitions (605,264)
Purchases of property and equipment (8,383,894) (3,096,154)
Proceeds from disposition of property and equipment 19,960 43,122
------------ -------------
Net cash used in investing activities (35,439,536) (14,624,647)
------------ -------------
Cash flows from financing activities:
Proceeds from issuance of bank debt - 48,775
Payments on bank debt - (1,733,867)
Payments on related party debt - (317,413)
Proceeds from issuance of common stock, net of issuance costs - 65,933,251
Proceeds from exercise of stock options 1,750,937 72,733
Proceeds from employee stock purchase plan 640,455 529,919
Partnership capital distributions - (860,646)
------------ -------------
Net cash provided by financing activities 2,391,392 63,672,752
------------ -------------
Net increase (decrease) in cash and cash equivalents (29,751,092) 47,952,468
------------ -------------
Cash and cash equivalents at beginning of period 35,898,095 4,083,178
------------ -------------
Cash and cash equivalents at end of period $ 6,147,003 $ 52,035,646
------------ -------------
------------ -------------
Supplemental disclosures of cash flow information:
Interest paid $ - $ 58,181
Income taxes paid 2,107,064 1,813,335
Supplemental disclosures of noncash financing activities:
Tax benefit related to stock plans 1,711,884 -
Issuance of restricted stock awards 900,000 -
Issuance of common stock to executives - 102,130
Issuance of common stock for purchase of software 247,874
Issuance of 214,986 common shares for payment of acquisition
</TABLE>
See accompanying notes to financial statements.
S-4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Whittman-Hart,
Inc. (the "Company") have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission for quarterly reports on Form 10-Q
and do not include all of the information and note disclosures required by
generally accepted accounting principles. The information furnished herein
includes all adjustments which are, in the opinion of management, necessary
for a fair presentation of results for these interim periods, and all such
adjustments are of a normal recurring nature. The results of operations for
the three and nine months ended September 28, 1997 are not necessarily
indicative of the results to be expected for the year ending December 31,
1997.
These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1996, included in the Form 10-K filed by the Company with the
Securities and Exchange Commission.
2. COMPUTATION OF NET INCOME PER SHARE
Net income per common and common equivalent share is computed based on the
weighted average of common and common equivalent shares (redeemable
convertible preferred stock and stock options) outstanding during the period.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common and common equivalent shares issued during the twelve months
immediately preceding the initial public offering date (using the treasury
stock method and the initial public offering price per share) have been
included in the calculation of common and common equivalent shares as if they
were outstanding for all periods presented.
3. STOCKHOLDERS' EQUITY
On May 8, 1996, the Company completed an initial public offering of its
common stock in which 5,200,000 shares were sold by the Company, resulting in
net proceeds of approximately $37.8 million. On August 27, 1996, the Company
completed a follow-on public offering of its common stock in which an
additional 2,100,000 shares were sold by the Company, resulting in net
proceeds of approximately $27.8 million.
On April 3, 1996, the Company filed an Amendment to its Certificate of
Incorporation effecting an increase in the number of authorized shares of
common stock to 15,000,000 and authorizing 3,000,000 shares of preferred
stock. On November 25, 1996, the Company filed an Amendment to its
Certificate of Incorporation further increasing the number of authorized
shares of common stock to 37,000,000 and eliminating the Redeemable Preferred
Stock from the Company's authorized capital.
The Company's Board of Directors approved a 4-for-1 split of common stock
in the form of a stock dividend effective April 3, 1996. The Board of
Directors approved a 2-for-1 split of common stock in the form of a stock
dividend effective December 10, 1996. All common share and per share amounts
have been adjusted retroactively to give effect to the stock splits.
S-5
<PAGE>
PROSPECTUS
4,055,978 SHARES
[LOGO] WHITTMAN-HART, INC.
COMMON STOCK
The shares of common stock, $.001 par value per share ("Common Stock"),
covered by this Prospectus may be offered and issued from time to time by
Whittman-Hart, Inc. (the "Company") in connection with acquisitions of other
businesses, real or personal properties, or securities in business combination
transactions in accordance with Rule 415(a) (1) (viii) of Regulation C under the
Securities Act of 1933, as amended (the "Securities Act"), or otherwise under
Rule 415 promulgated under the Securities Act. This Prospectus may also be used,
with the Company's prior consent, by persons who have received or will receive
shares in connection with acquisitions and who wish to offer and sell such
shares under circumstances requiring or making desirable its use. See
"Securities Covered by this Prospectus."
The Common Stock is traded on the Nasdaq National Market under the symbol
"WHIT." On May 5, 1997, the last reported sale price of the Common Stock was
$22 1/8 per share. See "Price Range of Common Stock."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 7, 1997.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO ANY
PERSON IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO MAKE SUCH OFFER. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
The Company............................................................... 9
Securities Covered by this Prospectus..................................... 9
Price Range of Common Stock............................................... 11
Dividend Policy........................................................... 11
Selected Financial Data................................................... 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 13
Business.................................................................. 18
Management................................................................ 26
Principal Stockholders.................................................... 32
Certain Transactions...................................................... 33
Description of Capital Stock.............................................. 34
Legal Matters............................................................. 36
Experts................................................................... 36
Additional Information.................................................... 36
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS
THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED IN, OR IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DESCRIBED IN "RISK FACTORS."
------------------------
Whittman-Hart-Registered Trademark-, Making Information Technology
Work-Registered Trademark- and We Are IT-Registered Trademark- are registered
service marks of the Company. Windows-Registered Trademark- is a registered
trademark of Microsoft Corporation. All other trademarks, service marks and
trade names referred to in this Prospectus are the property of their respective
owners.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS INDICATED OTHERWISE, THE INFORMATION CONTAINED IN THIS
PROSPECTUS: (I) GIVES RETROACTIVE EFFECT TO A 2 FOR 1 SPLIT OF THE SHARES OF
COMMON STOCK, $.001 PAR VALUE PER SHARE (THE "COMMON STOCK"), EFFECTED ON
DECEMBER 10, 1996 AND A 4 FOR 1 SPLIT OF THE SHARES OF COMMON STOCK EFFECTED ON
APRIL 3, 1996, AND (II) REFLECTS THE CONVERSION OF THE COMPANY'S REDEEMABLE
CONVERTIBLE PREFERRED STOCK, $.001 PAR VALUE PER SHARE (THE "REDEEMABLE
PREFERRED STOCK"), INTO 1,912,148 SHARES OF COMMON STOCK ON MAY 2, 1996. UNLESS
OTHERWISE INDICATED, ALL REFERENCES TO THE "COMPANY" OR "WHITTMAN-HART" INCLUDE
THE AFFILIATED ENTITIES INVOLVED IN THE REORGANIZATION DESCRIBED IN "THE
COMPANY."
THE COMPANY
Whittman-Hart, Inc. ("Whittman-Hart" or the "Company") provides strategic
information technology ("IT") business solutions designed to improve its
clients' productivity and competitive position. The Company offers its clients a
single source for a comprehensive range of services required to successfully
design, develop and implement integrated solutions in the client/server, open
systems, midrange and mainframe computing environments. Among the services
offered by the Company are systems integration; strategic IT planning; software
development; package software implementation; business process reengineering;
organizational change management; networking and connectivity; conventional and
multimedia documentation and training; design and implementation of
collaborative computing solutions; and design and implementation of electronic
commerce solutions (such as Internet/intranet and electronic data interchange).
The Company believes this breadth of services fosters long-term client
relationships, affords cross-selling opportunities and minimizes the Company's
dependence on any single technology.
Whittman-Hart's marketing efforts focus on middle market companies ranging
from $50 million to $500 million in annual revenues and divisions of Fortune
1000 companies. The Company serves clients in a broad range of industries,
including communications, consumer products, distribution, diversified services,
financial services, insurance, manufacturing, pharmaceuticals, professional
services, retail and technology. The Company employs consultants with business
experience in these areas to enhance its ability to understand industry-specific
business issues and develop unbiased IT solutions to address these issues. Many
of the Company's clients have maintained ongoing relationships with
Whittman-Hart over multiple years, spanning a variety of projects and services.
The demand for IT consulting services has increased rapidly in recent years
and is continuing to grow because: (i) businesses and other organizations are
becoming more reliant on IT for their competitive success; (ii) companies are
migrating from centralized, mainframe-based computer systems to distributed
client/server environments; (iii) widespread organizational downsizing requires
improved business process efficiencies; (iv) IT solutions have become more
complex; and (v) organizations do not generally possess the quantity and variety
of IT skills needed to execute complex IT projects. Whittman-Hart has competed
successfully in this environment, experiencing a compound annual revenue growth
rate of 60% since inception. For 1996, Whittman-Hart's revenues were $87.5
million, an increase of 76% from $49.8 million in 1995. From December 31, 1995
to December 31, 1996, the number of consultants increased 65% from 511 to 844.
Whittman-Hart sells and delivers its services through a network of nine
branch offices located in Chicago, Indianapolis, Milwaukee, Denver, Cincinnati,
Cleveland, Columbus, Dallas and Peoria, as well as several client support
centers. Based on its experience operating the existing branches, the Company
has developed a branch expansion model. The Company intends to leverage this
model through its national branch expansion strategy. The Company opened the
branches in Cleveland and Columbus in December 1996 and expanded the Peoria
location to a branch office in January 1997. Expansion plans for 1997 include
significant growth of recently opened operations in Cleveland, Columbus and
Peoria and establishing new branches in Grand Rapids and Atlanta. In support of
its growth strategy, Whittman-Hart has made
3
<PAGE>
significant investments in its business and systems infrastructure, recruiting
organization, training methodologies and marketing programs, all of which the
Company believes will be necessary to support a significantly larger
organization. The Company's growth strategy includes the following elements: (i)
expanding service capabilities; (ii) increasing client penetration by
cross-selling additional services; (iii) acquiring other firms to facilitate
entry into new geographic markets or increase technical expertise; and (iv)
seeking strategic relationships to share technical and industry knowledge and
pursue joint marketing opportunities.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1992 1993 1994 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................... $ 18,632 $ 23,422 $ 29,543 $ 49,822 $ 87,491
Gross profit....................................... 7,395 9,593 11,816 19,430 34,799
Operating income................................... 713 1,037 1,175 1,713 7,416
Net income......................................... 693 1,100 1,100 1,780 5,503
Net income per share............................... $ 0.30
Shares used in computing net income per share...... 18,272
Pro forma net income (1)........................... 679 1,073 855 1,114
Pro forma net income per share (1)(2).............. $ 0.08
Shares used in computing pro forma net income per
share (2)........................................ 14,130
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1996
----------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments.................................... $ 66,799
Working capital......................................................................... 73,250
Total assets............................................................................ 90,613
Total stockholders' equity.............................................................. 78,719
</TABLE>
- ------------------------------
(1) Reflects federal and additional state income tax expense that would have
been required had the Company and its predecessors operated as a C
corporation for all periods presented.
(2) See Note 2 of Notes to Financial Statements for information concerning the
computation of pro forma net income per share.
4
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS IN
ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS.
ATTRACTION AND RETENTION OF EMPLOYEES
The Company's business involves the delivery of professional services and is
labor-intensive. The Company's success depends in large part upon its ability to
attract, develop, motivate and retain highly skilled technical employees.
Qualified technical employees are in great demand and are likely to remain a
limited resource for the foreseeable future. There can be no assurance that the
Company will be able to attract and retain sufficient numbers of highly skilled
technical employees in the future. The Company has historically experienced
turnover rates which it believes are consistent with industry norms. An increase
in this rate could have a material adverse effect on the Company's business,
operating results and financial condition, including its ability to secure and
complete engagements. See "Business -- Human Resources."
MANAGEMENT OF GROWTH
The Company is currently experiencing rapid growth that has strained, and
could continue to strain, the Company's managerial and other resources. From
March 31, 1996 through March 31, 1997, the number of consultants increased from
618 to 989 and further increases are anticipated during the current year. The
Company opened branches in Cleveland and Columbus in late 1996 and expanded the
Peoria location to a branch office in January 1997. Expansion plans for 1997
include significant growth of recently opened operations in Cleveland, Columbus
and Peoria and establishing new branches in Grand Rapids and Atlanta. The
Company's ability to manage the growth of its operations will require it to
continue to improve its operational, financial and other internal systems and to
attract, develop, motivate and retain its employees. If the Company's management
is unable to manage growth or new employees are unable to achieve anticipated
performance levels, the Company's business, operating results and financial
condition could be materially and adversely affected.
PROJECT RISKS
Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be difficult
to quantify. The Company's failure or inability to meet a client's expectations
in the performance of its services could result in a material adverse change to
the client's operations and therefore could give rise to claims against the
Company or damage the Company's reputation, adversely affecting its business,
operating results and financial condition.
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in the Company's revenues and operating results occur from time
to time as a result of a number of factors, such as the significance of client
engagements commenced and completed during a quarter, the number of business
days in a quarter, timing of branch and service line expansion activities, the
timing of corporate expenditures and employee hiring and utilization rates. The
timing of revenues is difficult to forecast because the Company's sales cycle
can be relatively long and may depend on factors such as the size and scope of
assignments and general economic conditions. Because a high percentage of the
Company'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, particularly at or near the end of any quarter, can cause
significant variations in operating results from quarter to quarter and could
result in losses to the Company. In addition the Company's engagements generally
are terminable by the client without penalty. Although the number of consultants
can be adjusted to correspond to the number of active projects, the Company must
maintain a sufficient number of senior consultants to oversee existing client
projects and assist with the Company's sales force in securing new client
assignments. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
5
<PAGE>
COMPETITION
The market for IT services includes a large number of competitors, is
subject to rapid change and is highly competitive. Primary competitors include
participants from a variety of market segments, including "Big Six" accounting
firms, systems consulting and implementation firms, application software firms,
service groups of computer equipment companies, facilities management companies,
general management consulting firms and programming companies. In addition, the
Company competes with its clients' internal resources, particularly where these
resources represent a fixed cost to the client. Such competition may impose
additional pricing pressures on the Company. There can be no assurance that the
Company will compete successfully with its existing competitors or with any new
competitors. See "Business -- Competition."
RELIANCE ON KEY EXECUTIVES
The success of the Company is highly dependent upon the efforts and
abilities of its executive officers, particularly Mr. Robert Bernard, the
Company's founder and Chief Executive Officer. Although these executives have
entered into employment agreements containing noncompetition, nondisclosure and
nonsolicitation covenants, these contracts do not guarantee that these
individuals will continue their employment with the Company. The loss of the
services of any of these key executives for any reason could have a material
adverse effect upon the Company's business, operating results and financial
condition. See "Management -- Employment Agreements."
CONCENTRATION OF REVENUES
The Company derives a significant portion of its revenues from a relatively
limited number of clients. For example during 1996, revenues from the Company's
ten most significant clients accounted for approximately 28% of its revenues,
and its largest client accounted for approximately 6% of the Company's revenues.
There can be no assurance that these clients will continue to engage the Company
for additional projects or do so at the same revenue levels. Clients engage the
Company on an assignment-by-assignment basis, and a client can generally
terminate an assignment at any time without penalty. The loss of any significant
client could have a material adverse effect on the Company's business, operating
results and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Clients and
Representative Solutions."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW SOLUTIONS
The Company's success will depend in part on its ability to develop IT
solutions that keep pace with continuing changes in IT, evolving industry
standards and changing client preferences. There can be no assurance that the
Company will be successful in adequately addressing these developments on a
timely basis or that, if these developments are addressed, the Company will be
successful in the marketplace. In addition, there can be no assurance that
products or technologies developed by others will not render the Company's
services uncompetitive or obsolete. The Company's failure to address these
developments could have a material adverse effect on the Company's business,
operating results and financial condition.
RISKS RELATED TO POSSIBLE ACQUISITIONS
The Company may expand its operations through the acquisition of additional
businesses. There can be no assurance that the Company will be able to identify,
acquire or profitably manage additional businesses or successfully integrate any
acquired businesses into the Company without substantial expenses, delays or
other operational or financial problems. Further, acquisitions may involve a
number of special risks or effects, including diversion of management's
attention, failure to retain key acquired personnel, unanticipated events or
circumstances, legal liabilities and amortization of acquired intangible assets
and other one-time or ongoing acquisition related expenses, some or all of which
could have a material adverse effect on the Company's business, operating
results and financial condition. Client satisfaction or performance problems at
a single acquired firm could have a material adverse impact on the
6
<PAGE>
reputation of the Company as a whole. In addition, there can be no assurance
that acquired businesses, if any, will achieve anticipated revenues and
earnings. The failure of the Company to manage its acquisition strategy
successfully could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Growth Strategy."
CONTROL BY PRINCIPAL STOCKHOLDER
As of April 25, 1997, Mr. Bernard beneficially owned approximately 37.8% of
the Company's outstanding shares of Common Stock. As a result, Mr. Bernard will,
as a practical matter, continue to be able to control the outcome of matters
requiring a stockholder vote, including the election of the members of the Board
of Directors, thereby controlling the affairs and management of the Company.
Such control could adversely affect the market price of the Common Stock or
delay or prevent a change in control of the Company. See "Principal
Stockholders."
INTELLECTUAL PROPERTY RIGHTS
The Company's success is dependent upon certain methodologies it utilizes in
designing, installing and integrating computer software and systems and other
proprietary intellectual property rights. The Company's business includes the
development of custom software in connection with specific client engagements.
Ownership of such software is generally assigned to the client. The Company also
develops certain foundation and application software products, or software
"tools," which remain the property of the Company.
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company enters into confidentiality
agreements with its employees and limits distribution of proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights.
Although the Company believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, the Company is
subject to the risk of claims alleging infringement of third-party intellectual
property rights. Any such claims could require the Company to spend significant
sums in litigation, pay damages, develop non-infringing intellectual property or
acquire licenses to the intellectual property which is the subject of asserted
infringement. See "Business -- Intellectual Property Rights."
FIXED-BID PROJECTS
The Company undertakes certain projects billed on a fixed-bid basis, which
is distinguishable from the Company's principal method of billing on a time and
materials basis, and undertakes other projects on a fee-capped basis. The
failure of the Company to complete such projects within budget or below the cap
would expose the Company to risks associated with cost overruns, which could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
LIMITED TRADING HISTORY OF COMMON STOCK; STOCK PRICE VOLATILITY
The Common Stock first became publicly traded on May 3, 1996 after the
Company's initial public offering at $8 per share. Between May 3, 1996 and May
5, 1997, the sale price has ranged from a low of $10 1/2 per share to a high of
$28 1/8 per share. The market price of the Common Stock could continue to
fluctuate substantially due to a variety of factors, including quarterly
fluctuations in results of operations, adverse circumstances affecting the
introduction or market acceptance of new products and services offered by the
Company, announcements of new products and services by competitors, changes in
the IT environment, changes in earnings estimates by analysts, changes in
accounting principles, sales of Common
7
<PAGE>
Stock by existing holders, loss of key personnel and other factors. The market
price for the Company's Common Stock may also be affected by the Company's
ability to meet analysts' expectations, and any failure to meet such
expectations, even if minor, could have a material adverse effect on the market
price of the Company's Common Stock. In addition, the stock market is subject to
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of these companies. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Any such litigation instigated against the Company could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Price Range of Common Stock."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Certificate of Incorporation and By-Laws and the Delaware
General Corporation Law include provisions that may be deemed to have
anti-takeover effects and may delay, defer or prevent a takeover attempt that
stockholders might consider in their best interests. These include By-Law
provisions under which only the Chairman of the Board or the President may call
meetings of stockholders and certain advance notice procedures for nominating
candidates for election to the Board of Directors. Directors of the Company are
divided into three classes and are elected to serve staggered three-year terms.
The Board of Directors of the Company is empowered to issue up to 3,000,000
shares of preferred stock and to determine the price, rights, preferences and
privileges of such shares, without any further stockholder action. The existence
of this "blank-check" preferred stock could render more difficult or discourage
an attempt to obtain control of the Company by means of a tender offer, merger,
proxy contest or otherwise. In addition, this "blank-check" preferred stock, and
any issuance thereof, may have an adverse effect on the market price of the
Company's Common Stock. See "Management -- Directors and Executive Officers" and
"Description of Capital Stock -- Delaware Law and Certain Certificate of
Incorporation and By-Law Provisions; Anti-Takeover Effects."
8
<PAGE>
THE COMPANY
From its inception in 1984 to December 31, 1995, the Company's business was
owned by Whittman-Hart, L.P., a Delaware limited partnership ("LP"), and
operated by employees of Whittman-Hart Corporation II, a Delaware corporation
("Corporation II"), pursuant to a client service agreement. The general partner
of LP was Whittman-Hart, Ltd., a Delaware corporation ("Limited") of which 94%
was owned by Mr. Bernard and 6% was owned by Edward Szofer, the Company's Chief
Operating Officer. The limited partners of LP were Corporation II, Mr. Bernard
and, after August 1995, F-WH Corporation ("Frontenac") and PVP-WH Corporation
("Platinum"). The stockholders of Corporation II included officers and certain
other employees of the Company. Frontenac and Platinum acquired their interests
in LP in August 1995 pursuant to their purchases of $4.0 million and $1.5
million, respectively, of convertible preferred equity units. See "Certain
Transactions."
Effective December 31, 1995, the Company restructured itself in a
transaction (the "Reorganization") pursuant to which the partners of LP (other
than Corporation II) became the stockholders of Corporation II, Corporation II
became the successor to all of the assets, liabilities and business of LP and
the client service agreement between LP and Corporation II was canceled. The
convertible preferred and common equity units in LP were converted into a like
number of shares of Redeemable Preferred Stock and Common Stock, respectively,
of Corporation II, and Corporation II changed its name to Whittman-Hart, Inc.,
the issuer in this offering.
Prior to the Reorganization, the portion of the Company's earnings
attributable to the operations of LP was taxed, for federal and certain state
income tax purposes, directly to the partners of LP rather than to the Company.
The Company has made cash distributions to Mr. Bernard aggregating $179,476 for
the purpose of enabling him to pay federal and state income taxes for fiscal
1995 attributable to LP's taxable income, and in connection with the
Reorganization the Company declared, and in April 1996 paid, a final
distribution to the Company's predecessor partners aggregating $860,646 for the
purpose of enabling them to pay federal and state income taxes for fiscal year
1995 attributable to LP's taxable income and to the tax consequences of the
Reorganization (collectively, the "Tax Distributions"). From and after the date
of the Reorganization, all earnings of the Company will be subject to federal
and state corporate income taxes.
The Company maintains its principal executive offices at 311 South Wacker
Drive, Suite 3500, Chicago, Illinois 60606. The Company's telephone number is
(312) 922-9200 and its Internet address is http://www.whittman-hart.com. The
Company's Web site is not a part of this Prospectus.
SECURITIES COVERED BY THIS PROSPECTUS
The shares of Common Stock covered by this Prospectus are available for use
in future acquisitions of other businesses, real or personal properties, or
securities in business combination transactions in accordance with Rule
415(a)(1)(viii) of Regulation C under the Securities Act or otherwise under Rule
415. Such acquisitions may be made directly by the Company or indirectly through
a subsidiary, may relate to businesses or securities of businesses similar or
dissimilar to those of the Company or to properties of a type which may or may
not currently be used by the Company, and may be made in connection with the
settlement of litigation or other disputes. The consideration offered by the
Company in such acquisitions, in addition to the shares of Common Stock offered
by this Prospectus, may include cash, debt, or other securities (which may be
convertible into shares of Common Stock covered by this Prospectus), or
assumption by the Company of liabilities of the business, properties, or
securities being acquired or of their owners, or a combination thereof. It is
contemplated that the terms of acquisitions will be determined by negotiations
between the Company and the owners of the businesses, properties, or securities
to be acquired, with the Company taking into account such factors as the quality
of management, the past and potential earning power, growth and appreciation of
the businesses, properties, or securities acquired, and other relevant factors,
and it is anticipated that shares of Common Stock issued in acquisitions will be
valued at a price reasonably related to the market value of the Common Stock
either at the time the terms of the acquisition are tentatively agreed upon or
at or about the time or times of delivery of the shares.
9
<PAGE>
The Company may from time to time, in an effort to maintain an orderly
market in the Common Stock, negotiate agreements with persons receiving Common
Stock covered by this Prospectus that will limit the number of shares that may
be sold by such persons at specified intervals. Such agreements may be more
restrictive than restrictions on sales made pursuant to the exemption from
registration requirements of the Securities Act, including the requirements
under Rule 144 or Rule 145(d), and certain persons party to such agreements may
not otherwise be subject to such Securities Act requirements. The Company
anticipates that, in general, such negotiated agreements will be of limited
duration and will permit the recipients of Common Stock issued in connection
with acquisitions to sell up to a specified number of shares per business day or
days.
With the consent of the Company, this Prospectus may also be used by persons
who have received or will receive from the Company Common Stock covered by this
Prospectus and who may wish to sell such stock under circumstances requiring or
making desirable its use. The Company's consent to such use may be conditioned
upon such persons' agreeing not to offer more than a specified number of shares
following supplements or amendments to this Prospectus, which the Company may
agree to use its best efforts to prepare and file at certain intervals. The
Company may require that any such offering be effected in an organized manner
through securities dealers.
Sales by means of this Prospectus may be made from time to time privately at
prices to be individually negotiated with the purchasers, or publicly through
transactions in the over-the-counter market (which may involve block
transactions), at prices reasonably related to market prices at the time of sale
or at negotiated prices. Broker-dealers participating in such transactions may
act as agent or as principal and, when acting as agent, may receive commissions
from the purchasers as well as from the sellers (if also acting as agent for the
purchasers). The Company may indemnify any broker-dealer participating in such
transactions against certain liabilities, including liabilities under the
Securities Act. Profits, commissions, and discounts on sales by persons who may
be deemed to be underwriters within the meaning of the Securities Act may be
deemed underwriting compensation under the Securities Act.
Stockholders may also offer shares of stock covered by this Prospectus by
means of prospectuses under other registration statements or pursuant to
exemptions from the registration requirements of the Securities Act, including
sales which meet the requirements of Rule 144 or Rule 145(d) under the
Securities Act, and stockholders should seek the advice of their own counsel
with respect to the legal requirements for such sales.
This Prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who have received shares of Common Stock for whom
the Company has consented to the use of this Prospectus in connection with
resales of such shares.
10
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "WHIT" since May 3, 1996. The following table sets forth, for
the periods indicated, the range of high and low sale prices for the Common
Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
1996 HIGH LOW
<S> <C> <C>
Second Quarter (from May 3, 1996)................................ $20 3/4 $10 1/2
Third Quarter.................................................... 23 7/8 11 1/4
Fourth Quarter................................................... 28 1/8 19 1/4
1997
First Quarter.................................................... 27 13 5/8
Second Quarter (through May 5, 1997)............................. 23 1/4 16 13/16
</TABLE>
On May 5, 1997, the last reported sale price of the Common Stock was $22 1/8
per share. At May 5, 1997, the Company had approximately 112 stockholders of
record.
DIVIDEND POLICY
Other than the Tax Distributions made in connection with the Reorganization,
the Company has never made any distributions with respect to its equity
securities. The Company does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. The Company currently intends to retain
future earnings to fund the development and growth of its business.
11
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data is derived from the Company's
financial statements and notes thereto that have been audited by KPMG Peat
Marwick LLP, independent accountants. This information should be read in
conjunction with the financial statements and notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $18,632 $23,422 $29,543 $49,822 $87,491
Cost of services..................................... 11,237 13,829 17,727 30,392 52,692
------- ------- ------- ------- -------
Gross profit....................................... 7,395 9,593 11,816 19,430 34,799
Costs and expenses:
Selling............................................ 946 1,073 1,431 2,497 3,520
Recruiting......................................... 471 769 1,121 2,181 3,169
General and administrative......................... 5,265 6,714 8,089 13,039 20,694
------- ------- ------- ------- -------
Total costs and expenses......................... 6,682 8,556 10,641 17,717 27,383
------- ------- ------- ------- -------
Operating income..................................... 713 1,037 1,175 1,713 7,416
Other income (expense)............................... (18) 66 (36) 17 1,356
------- ------- ------- ------- -------
Income before income taxes........................... 695 1,103 1,139 1,730 8,772
Income taxes......................................... 2 3 29 (50) 3,269
------- ------- ------- ------- -------
Net income........................................... $ 693 $ 1,100 $ 1,110 $ 1,780 $ 5,503
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Pro forma income data:
Net income as reported............................. $ 693 $ 1,100 $ 1,110 $ 1,780 $ 5,503
Pro forma adjustment to provision for income taxes
(1).............................................. 14 27 255 666 --
------- ------- ------- ------- -------
Pro forma net income (actual in 1996) (1)............ $ 679 $ 1,073 $ 855 $ 1,114 $ 5,503
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Pro forma net income per share (actual in 1996)
(1)(2)............................................. $ 0.08 $ 0.30
Shares used in computing net income per share........ 14,130 18,272
<CAPTION>
AS OF DECEMBER 31,
-------------------------------------------
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and short-term
investments........................................ $ -- $ -- $ -- $ 4,083 $66,799
Working capital (deficit)............................ (1,514) (210) 613 4,178 73,250
Total assets......................................... 3,808 4,797 7,246 17,330 90,613
Long-term debt, less current portion................. 1,044 610 1,600 1,135 --
Redeemable convertible preferred stock............... -- -- -- 5,584 --
Total stockholders' equity (deficit)................. (1,700) (188) 992 271 78,719
</TABLE>
- ------------------------------
(1) Reflects federal and additional state income tax expense that would have
been required had the Company and its predecessors operated as a C
corporation for all periods presented.
(2) See Note 2 of Notes to Financial Statements for information concerning the
computation of pro forma net income per share.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING SECTION OF THE PROSPECTUS, MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS CERTAIN
FORWARD-LOOKING STATEMENTS THAT INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES.
WHEN USED IN THIS SECTION, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," AND
"EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO THE COMPANY OR ITS MANAGEMENT
ARE INTENDED TO IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS,
PERFORMANCE OR ACHIEVEMENTS EXPRESSED IN, OR IMPLIED BY, THESE FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE
THOSE DISCUSSED IN "RISK FACTORS."
OVERVIEW
Whittman-Hart's revenues are generated primarily from professional fees,
which are generally billed at a contracted hourly rate and are recognized as
services are provided. Over the last three fiscal years, at least 90% of the
Company's revenues have been generated on a time and materials basis. The
Company's services may also be provided on a fixed-bid or fee-capped basis, in
which case revenues are recognized by the percentage of completion method. These
arrangements subject the Company to the risk of cost overruns; however,
historically, such overruns have not been significant. The Company typically
bills on a weekly basis to monitor client satisfaction and manage its
outstanding accounts receivable balances. The Company's most significant cost is
project personnel cost, which consists of consultant salaries and benefits.
Thus, the Company's financial performance is primarily based upon billing margin
(billable hourly rate less the consultant's hourly cost) and personnel
utilization rates (billable hours divided by paid hours).
To date, the Company has been able to maintain its billing margins by
offsetting increases in consultant salaries with increases in its hourly rates.
Because most of the Company's engagements are on a time and materials basis,
increases in its cost of services are generally passed along to the Company's
clients and, accordingly, do not have a significant impact on the Company's
financial results. In addition, the Company attempts to control expenses that
are not passed through to its clients. Furthermore, profitability is improved by
tying significant incentive compensation to achieving performance goals.
The Company establishes standard billing guidelines based on the type of
service offered. Actual billing rates are established on a project by project
basis and may vary from the standard guidelines. Over the last three years, the
Company's average revenue per assignment hour has steadily increased. The growth
in average revenue per assignment hour reflects a higher percentage of
value-added services, such as package software implementations and
solutions-oriented, strategic consulting projects.
Whittman-Hart manages its personnel utilization rates by monitoring project
requirements and timetables. The number of consultants assigned to a project
will vary according to the size, complexity, duration and demands of the
project. Project terminations, completions and scheduling delays may result in
periods when consultants are not fully utilized. An unanticipated termination of
a project could result in a higher than expected number of unassigned
consultants or, if the Company were to terminate such consultants, increased
severance expenses. Although the number of the Company's consultants can be
adjusted to correspond to the number of active projects, Whittman-Hart must
maintain a sufficient number of senior consultants to oversee existing client
projects and assist the Company's sales force in securing new client
assignments. Whittman-Hart consultants are subject to employment-at-will
contracts, which may be terminated upon two weeks' notice without substantial
penalty or further expense to the Company.
The Company's historical revenue growth is partly attributable to the growth
of its branch network, which consisted of eight branch offices and several
client support centers as of December 31, 1996. Expansion plans for 1997 include
significant growth of recently opened operations in Cleveland and Columbus,
Ohio; broadening operations in Peoria, Illinois; and establishing new branches
in Grand Rapids, Michigan, and Atlanta, Georgia. Each of the Company's
established branches has generated annual revenue and gross profit growth since
inception.
13
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues and the percentage
change in each line item between comparative periods:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
------------------------------------- PERIOD-TO-PERIOD
YEARS ENDED PERCENTAGE CHANGES
DECEMBER 31, ----------------------------------
------------------------------------- 1995 COMPARED TO 1996 COMPARED
1994 1995 1996 1994 TO 1995
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................. 100% 100% 100% 69% 76%
Cost of services..................................... 60 61 60 71 73
--- --- ---
Gross profit....................................... 40 39 40 64 79
Costs and expenses:
Selling............................................ 5 5 4 74 41
Recruiting......................................... 4 4 4 95 45
General and administrative......................... 27 26 24 61 59
--- --- ---
Total costs and expenses......................... 36 35 32 67 55
--- --- ---
Operating income..................................... 4 4 8 46 333
Other income (expense)............................... -- -- 2 * *
--- --- ---
Income before income taxes........................... 4 4 10 52 407
Income taxes......................................... -- -- 4 * *
--- --- ---
Net income........................................... 4% 4% 6% 60 209
--- --- ---
--- --- ---
</TABLE>
- ------------------------
* NOT MEANINGFUL.
1996 COMPARED TO 1995
REVENUES. Revenues increased 76% to $87.5 million in 1996 from $49.8
million in 1995. The increase was attributable to the growth of existing client
relationships and the addition of a significant number of new clients. Each of
the Company's established branch offices and significant business units
experienced revenue growth in excess of 50% for the second consecutive year. The
opening of the Dallas branch in the first quarter of 1996 contributed
approximately $2.0 million to revenues. During 1996, the Company expanded its
package software expertise in SAP, Oracle and PeopleSoft, and introduced new
services including a year 2000 solution, Internet/intranet services,
organizational change management, and software testing and quality assurance.
Revenues from the Company's ten most significant clients grew 46%, but as a
percentage of total revenues declined to 28% in 1996 from 33% in 1995.
GROSS PROFIT. Gross profit consists of revenues less cost of services,
which includes consultant salaries and benefits. Gross profit increased 79% to
$34.8 million in 1996 from $19.4 million in 1995. Gross profit as a percentage
of revenues increased to 40% in 1996 from 39% in 1995. This increase was
attributable to a change in the sales mix toward higher-end service offerings
and the Company's established branches reaching critical mass, partially offset
by lower margins in recently opened branches.
SELLING EXPENSES. Selling expenses include the salaries, benefits,
commissions, travel, entertainment and all other direct costs associated with
the Company's direct sales force. Selling expenses increased 41% to $3.5 million
in 1996 from $2.5 million in 1995. As a percentage of revenues, selling expenses
decreased to 4% in 1996 from 5% in 1995. The decrease as a percentage of
revenues was attributable to a change in the structure of the sales commission
plan and the Company's ability to leverage its fixed costs over a greater
revenue base.
RECRUITING EXPENSES. Recruiting expenses consist of costs related to hiring
new personnel. These costs include the salaries, benefits, bonuses and other
direct costs of in-house recruiters, outside recruiting
14
<PAGE>
agency fees, sign-on bonuses, relocation fees and advertising costs. Recruiting
expenses increased 45% to $3.2 million in 1996 from $2.2 million in 1995. The
Company benefited from expanded hiring activity in the fourth quarter of 1995,
lower attrition rates and reduced costs per hire. The number of consultants
increased 65% to 844 as of December 31, 1996 from 511 as of December 31, 1995,
while total recruiting costs per hire decreased to approximately $6,200 in 1996
from approximately $6,500 in 1995. As a percentage of revenues, recruiting
expenses remained constant at 4%.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include salaries and benefits of management and support personnel, facilities
costs, training, travel, outside professional fees and all other branch and
corporate costs. General and administrative expenses increased 59% to $20.7
million in 1996 from $13.0 million in 1995. The increase was primarily
attributable to the establishment of new branch offices, the expansion of
facilities at several other branch locations, increased personal computer
leasing due to the rollout of laptop computers for consultants, and the
expansion of corporate and branch management personnel to support the growth of
the Company. As a percentage of revenues, general and administrative expenses
declined to 24% in 1996 from 26% in 1995 due to operating efficiencies and
economies of scale.
OPERATING INCOME. Operating income increased 333% to $7.4 million in 1996
from $1.7 million in 1995. As a percentage of revenues, operating income doubled
to 8% in 1996 from 4% in 1995 due to the increase in the gross profit margin and
the Company's ability to leverage its selling, recruiting, and general and
administrative infrastructure. The Company was able to increase operating
margins despite incurring net start-up costs of $2.0 million for new branches.
OTHER INCOME (EXPENSE). The increase in other income (expense) in 1996 as
compared to 1995 was primarily attributable to interest earned on investments of
available net proceeds from the Company's initial and follow-on public
offerings.
INCOME TAXES. The Company's effective tax rate was 37% in 1996 as compared
to 36% on a pro forma basis in 1995. Prior to December 31, 1995, the Company
operated as a partnership. The pro forma tax adjustment for 1995 represents
federal and additional state income tax expense that would have been required
had the Company operated as a C corporation during the entire period.
1995 COMPARED TO 1994
REVENUES. Revenues increased 69% to $49.8 million in 1995 from $29.5
million in 1994. Each of the Company's five branch offices experienced revenue
growth in excess of 50% for 1995 compared to 1994. Revenues from the Company's
ten most significant clients grew 67%, but as a percentage of total revenues
remained constant at approximately 33%. Expansion of the Company's existing
service offerings, primarily client/server, solution strategies and networking
services, accounted for approximately 75% of the revenue increase, while the
addition of new service offerings, such as SAP and collaborative computing
solutions, accounted for the remaining 25% of the revenue increase.
GROSS PROFIT. Gross profit increased 64% to $19.4 million in 1995 from
$11.8 million in 1994. Gross profit as a percentage of revenues declined to 39%
in 1995 from 40% in 1994. This decrease was attributable to the 16% start-up
margin associated with the Company's addition of SAP to the package software
solutions business unit. Excluding the low start-up margins associated with the
SAP services, 1995 gross profit as a percentage of revenues would have been 40%.
SELLING EXPENSES. Selling expenses increased 74% to $2.5 million in 1995
from $1.4 million in 1994. The Company's selling expenses, as a percentage of
revenues, remained constant at approximately 5%.
RECRUITING EXPENSES. Recruiting expenses increased 95% to $2.2 million in
1995 from $1.1 million in 1994, but as a percentage of revenues remained
constant at 4%. This increase in recruiting expenses was a result of expanded
hiring activity in preparation for anticipated employee requirements in 1996.
The number of consultants increased 69% to 511 as of December 31, 1995 from 302
as of December 31, 1994, while total recruiting costs per hire remained constant
at approximately $6,500.
15
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 61% to $13.0 million in 1995 from $8.1 million in 1994. This increase
was primarily attributable to significant infrastructure additions, the
establishment of new corporate and Chicago branch office facilities, increased
personal computer leasing and development of SAP services. As a percentage of
revenues, general and administrative expenses declined to 26% in 1995 from 27%
in 1994.
The infrastructure additions in 1995 were made primarily in the fourth
quarter to support significantly higher anticipated growth. These costs included
the establishment of a branch expansion team, additional SAP investments and the
development of the Company's integrated marketing campaign. Excluding these $1.1
million charges to general and administrative expenses, the Company's general
and administrative expenses as a percentage of revenues in 1995 would have been
24%.
OPERATING INCOME. Operating income increased 46% to $1.7 million in 1995
from $1.2 million in 1994. As a percentage of revenues, operating income
remained constant at 4%.
UNAUDITED QUARTERLY RESULTS
The following tables set forth certain unaudited quarterly operating
information for each of the eight quarters ending with the quarter ended
December 31, 1996, both in dollars and as a percentage of total revenues. These
data have been prepared on the same basis as the audited financial statements
contained elsewhere in this Prospectus and include all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of the
information for the periods presented, when read in conjunction with the
Company's financial statements and related notes thereto. Results for any
previous fiscal quarter are not necessarily indicative of results for the full
year or for any future quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 9,672 $ 11,740 $ 13,194 $ 15,216 $ 17,794 $ 21,069 $ 23,301 $ 25,327
Cost of services................ 5,946 7,184 7,993 9,269 10,675 12,687 13,842 15,488
----------- ----------- --------- --------- --------- ----------- --------- ---------
Gross profit.................. 3,726 4,556 5,201 5,947 7,119 8,382 9,459 9,839
Costs and expenses:
Selling....................... 528 576 660 733 799 911 926 884
Recruiting.................... 479 535 643 524 734 873 927 635
General and administrative.... 2,330 2,929 3,343 4,437 4,468 5,177 5,244 5,805
----------- ----------- --------- --------- --------- ----------- --------- ---------
Total costs and expenses.... 3,337 4,040 4,646 5,694 6,001 6,961 7,097 7,324
----------- ----------- --------- --------- --------- ----------- --------- ---------
Operating income................ 389 516 555 253 1,118 1,421 2,362 2,515
Other income (expense).......... (58) (41) 48 68 (5) 309 306 746
----------- ----------- --------- --------- --------- ----------- --------- ---------
Income before income taxes...... 331 475 603 321 1,113 1,730 2,668 3,261
Income taxes.................... -- -- -- (50) 445 653 984 1,187
----------- ----------- --------- --------- --------- ----------- --------- ---------
Net income...................... $ 331 $ 475 $ 603 $ 371 $ 668 $ 1,077 $ 1,684 $ 2,074
----------- ----------- --------- --------- --------- ----------- --------- ---------
----------- ----------- --------- --------- --------- ----------- --------- ---------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEP. 30, DEC. 31, MAR. 31, JUNE 30, SEP. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ 100% 100% 100% 100% 100% 100% 100% 100%
Cost of services................ 62 61 61 61 60 60 59 61
----------- ----------- --------- --------- --------- ----------- --------- ---------
Gross profit.................. 38 39 39 39 40 40 41 39
Costs and expenses:
Selling....................... 5 5 5 5 5 4 4 3
Recruiting.................... 5 5 5 3 4 4 4 3
General and administrative.... 24 25 25 29 25 25 23 23
----------- ----------- --------- --------- --------- ----------- --------- ---------
Total costs and expenses.... 34 35 35 37 34 33 31 29
----------- ----------- --------- --------- --------- ----------- --------- ---------
Operating income................ 4 4 4 2 6 7 10 10
Other income (expense).......... (1) * 1 * * 1 1 3
----------- ----------- --------- --------- --------- ----------- --------- ---------
Income before income taxes...... 3 4 5 2 6 8 11 13
Income taxes.................... -- -- -- * 2 3 4 5
----------- ----------- --------- --------- --------- ----------- --------- ---------
Net income...................... 3% 4% 5% 2% 4% 5% 7% 8%
----------- ----------- --------- --------- --------- ----------- --------- ---------
----------- ----------- --------- --------- --------- ----------- --------- ---------
</TABLE>
- ------------------------------
* Less than one percent.
Variations in the Company's revenues and operating results occur from time
to time as a result of a number of factors, such as the significance of client
engagements commenced and completed during a quarter, the number of business
days in a quarter, timing of branch and service line expansion activities, the
timing of corporate expenditures and employee hiring and utilization rates.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had approximately $66.8 million of cash,
cash equivalents, and short-term investments. Prior to its initial public
offering in May 1996, the Company's primary source of liquidity had been
operating cash flow, periodically supplemented by borrowings under the Company's
revolving credit and term facilities with a commercial bank. The Company has a
loan agreement for up to $5.0 million of unsecured credit with interest, at the
Company's option, at LIBOR plus 1.5% or the lender's prime rate. There were no
borrowings under this loan agreement as of April 25, 1997. The Company's loan
agreement expires on April 30, 1998.
On May 8, 1996, the Company completed an initial public offering of its
Common Stock, which resulted in net proceeds to the Company of $37.8 million. A
portion of the proceeds from the offering were used to retire the Company's term
facilities. On August 27, 1996, the Company completed a follow-on public
offering of its Common Stock resulting in net proceeds to the Company of
approximately $27.8 million.
Operating activities provided net cash flows of $3.0 million, $2.4 million
and $1.0 million in 1996, 1995 and 1994, respectively, primarily as the result
of net income and increases in accrued compensation, partially offset by
increases in accounts receivable.
Capital expenditures of $3.9 million, $1.9 million and $1.7 million in 1996,
1995 and 1994, respectively, consisted primarily of computer equipment and
software and office furniture and equipment to support the growth and expansion
of the Company. The Company expects to make similar types of expenditures in
1997 and future years relating to the opening of new branch offices.
The Company anticipates that the net proceeds of its two public offerings,
together with existing sources of liquidity and funds generated from operations,
will provide adequate cash to fund its anticipated cash needs at least through
the next twelve months.
17
<PAGE>
BUSINESS
SUMMARY
Whittman-Hart, Inc. ("Whittman-Hart" or the "Company") provides strategic
information technology ("IT") business solutions designed to improve its
clients' productivity and competitive position. The Company offers its clients a
single source for a comprehensive range of services required to successfully
design, develop and implement integrated solutions in the client/server, open
systems, midrange and mainframe computing environments. Among the services
offered by the Company are systems integration; strategic IT planning; software
development; package software implementation; business process reengineering;
organizational change management; networking and connectivity; conventional and
multimedia documentation and training; design and implementation of
collaborative computing solutions; and design and implementation of electronic
commerce solutions (such as Internet/intranet and electronic data interchange).
The Company believes this breadth of services fosters long-term client
relationships, affords cross-selling opportunities and minimizes the Company's
dependence on any single technology.
Whittman-Hart's marketing efforts focus on middle market companies ranging
from $50 million to $500 million in annual revenues and divisions of Fortune
1000 companies. The Company serves clients in a broad range of industries,
including communications, consumer products, distribution, diversified services,
financial services, insurance, manufacturing, pharmaceuticals, professional
services, retail and technology. The Company employs consultants with business
experience in these areas to enhance its ability to understand industry-specific
business issues and develop unbiased IT solutions to address these issues. Many
of the Company's clients have maintained ongoing relationships with
Whittman-Hart over multiple years, spanning a variety of projects and services.
The demand for IT consulting services has increased rapidly in recent years.
Whittman-Hart has competed successfully in this environment, experiencing a
compound annual revenue growth rate of 60% since inception. For 1996,
Whittman-Hart's revenues were $87.5 million, an increase of 76% from $49.8
million in 1995. From December 31, 1995 to December 31, 1996, the number of
consultants increased 65% from 511 to 844.
Whittman-Hart sells and delivers its services through a network of nine
branch offices located in Chicago, Indianapolis, Milwaukee, Denver, Cincinnati,
Cleveland, Columbus, Dallas and Peoria, as well as several client support
centers. Based on its experience operating the existing branches, the Company
has developed a branch expansion model. The Company intends to leverage this
model through its national branch expansion strategy. The Company opened the
branches in Cleveland and Columbus in December 1996 and expanded the Peoria
location to a branch office in January 1997. Expansion plans for 1997 include
significant growth of recently opened operations in Cleveland, Columbus and
Peoria, and establishing new branches in Grand Rapids and Atlanta. In support of
its growth strategy, Whittman-Hart has made significant investments in its
business and systems infrastructure, recruiting organization, training
methodologies and marketing programs, all of which the Company believes will be
necessary to support a significantly larger organization.
INDUSTRY BACKGROUND
Many businesses today are facing intense competition, accelerating
technological change, personnel downsizing and widespread business process
reengineering. Increasingly, these companies are turning to IT solutions to
address these issues and to compete more effectively. As a result, the ability
of an organization to integrate and deploy new information technologies has
become critical.
Although many companies have recognized the importance of IT systems and
products to compete in this business climate, the process of designing,
developing and implementing IT solutions has become increasingly complex.
Companies are continuing to migrate away from centralized mainframes running
proprietary software toward decentralized, scalable architectures based on
personal computers, client/ server architectures, local and wide area networks,
shared databases and packaged application software. These advances have greatly
enhanced the ability of companies to benefit from the application of IT.
18
<PAGE>
Consequently, the number of companies desiring to use IT in new ways and the
number of end users within these organizations are rising rapidly.
As a result of the variety and complexity of these new technologies, IT
managers must integrate and manage "open systems" and "distributed computing
environments" consisting of multiple computing platforms, operating systems,
databases and networking protocols, and must implement off-the-shelf software
applications to support business objectives. Companies must also continually
keep pace with new developments, which often render existing equipment and
internal skills obsolete. At the same time, external economic factors have
forced organizations to focus on core competencies and trim workforces in the IT
management area. Accordingly, these organizations often lack the quantity or
variety of IT skills necessary to design and develop IT solutions. IT managers
are charged with developing and supporting increasingly complex IT systems and
applications of significant strategic value, while working under budgetary,
personnel and expertise constraints within their own organizations.
Due to the foregoing factors, demand for IT services has grown
significantly. According to International Data Corporation, the worldwide market
for IT services was estimated at $202 billion in 1996, with a projected market
of $292 billion for 2000. The domestic IT services market is projected to grow
from $84 billion in 1996 to $130 billion in 2000. Currently, substantially all
of the Company's revenues are derived from IT consulting and planning services
and IT implementation and integration services, two segments within the overall
IT services industry. It is estimated that the domestic market for IT consulting
and planning services will nearly double from roughly $10 billion in 1996 to
more than $18 billion in 2000. The worldwide market for IT consulting and
planning services is estimated to have been $23 billion in 1996, with a forecast
of $38 billion by 2000. Domestic IT implementation and integration services
revenues are estimated to have been $22 billion in 1996, with a forecast of $35
billion by 2000. The worldwide market for IT implementation and integration
services is estimated to have been $55 billion in 1996, with a forecast of $81
billion by 2000.
The Company believes the demand for IT services is particularly strong among
middle market companies, which typically lack the time and technical resources
to satisfy all of their IT needs internally. These companies must often rely on
IT service providers to help implement and manage their systems. However, many
middle market companies must rely on multiple providers for their IT needs.
Generally, larger IT service providers do not target these companies and smaller
IT service providers often lack sufficient breadth of services or industry
knowledge to satisfy these companies' needs. The Company believes this reliance
on multiple service providers creates multiple relationships which are more
difficult and less cost-effective to manage and can adversely impact the quality
and compatibility of IT solutions. Further, many smaller IT service providers
have a financial incentive to recommend a particular hardware and software
provider, which may not be optimal or best of breed for the client's IT problem.
THE WHITTMAN-HART SOLUTION
The Whittman-Hart solution is designed to enable middle market companies and
divisions of Fortune 1000 companies to use IT as a more effective business tool.
The following are key attributes of the Whittman-Hart solution:
SOLVE CRITICAL BUSINESS PROBLEMS. The Company focuses on providing IT
solutions that address strategic business issues, such as increasing
productivity, reducing costs, improving customer service and using data more
effectively. To maintain this focus, Whittman-Hart employs senior consultants
and other professionals who have relevant experience in specific industries,
including communications, consumer products, distribution, diversified services,
financial services, insurance, manufacturing, pharmaceuticals, professional
services, retail and technology. In addition to this industry focus, the
Company's professionals provide a high level of technical competency. To this
end, Whittman-Hart has developed systems, methodologies and an environment to
attract, develop, motivate and retain professionals with the highest levels of
technical skills.
19
<PAGE>
PROVIDE WIDE RANGE OF IT SERVICES. Because many of its clients have
multiple IT needs, the Company provides a wide range of IT services that are
organized under five business units, with each business unit addressing a
specific area of IT and specific IT problems. This structure enables the Company
to be a single source provider of IT services while maintaining advanced skill
sets offered by each business unit. In response to the rapidly changing nature
of IT, the Company regularly evaluates emerging technologies and their potential
benefit as new services to clients. Based on these evaluations, the Company may
develop other business units or expand the service lines of existing business
units to enhance the Company's ability to support its clients' ongoing IT
requirements.
OFFER LOCAL PRESENCE. By delivering its services to clients through a
geographically dispersed branch network, the Company demonstrates its commitment
to each local market and enhances its ability to attract skilled, locally-based
consultants. This branch network also increases efficiencies to clients by
enhancing responsiveness and minimizing travel expense. Furthermore,
Whittman-Hart believes that local branch offices establish greater name
recognition for the Company and increase referrals for its services within the
potential client base in their locales. As a result, the Company believes it has
a competitive advantage when competing against firms that do not maintain a
local presence.
IMPLEMENT UNBIASED SOLUTIONS. To ensure its clients receive the optimal IT
solution for their business needs, the Company implements solutions that are
unbiased as to specific hardware or software providers. The Company offers an
objective viewpoint and assessment of the advantages and disadvantages of each
particular IT solution, including packaged software applications, platforms and
operating systems. Consistent with this approach, the Company avoids the bias of
generating significant revenue from promoting third-party products. By offering
its services independently, Whittman-Hart is able to take a flexible approach to
its clients' business problems and provide them with a best-of-breed IT
solution.
GROWTH STRATEGY
The Company's goal is to become its clients' preferred and single source
provider of a wide range of IT services. The Company's strategy to achieve this
goal includes the following elements:
EXPAND GEOGRAPHIC PRESENCE. Whittman-Hart plans to expand by opening
additional branches in targeted geographic locations. The Company uses an
evaluation methodology to identify cities that possess the characteristics
needed to support a successful branch operation. The Company believes at least
25 domestic cities satisfy its branch expansion criteria. The Company opened
branches in Cleveland and Columbus in December 1996 and expanded the Peoria
location to a branch office in January 1997. Expansion plans for 1997 include
significant growth of operations in Cleveland, Columbus and Peoria and
establishing new branches in Grand Rapids and Atlanta. In addition, the Company
plans to begin evaluating selected international markets.
BROADEN SERVICE LINES. Whittman-Hart believes that it can increase its
revenues from existing clients and attract new clients by expanding its range of
IT services. To advance this strategy, the Company's product management staff is
responsible for identifying, evaluating and recommending new IT service
opportunities. Recent additions to the service line have focused on value-added
services, including Internet/intranet services, Compliance 2000(sm) -- the
Company's year 2000 solution, new media solutions (such as multimedia-based
training and Web site design), organizational change management and software
testing and quality assurance. The Company plans to add new business units and
expand the service offerings within its existing business units in order to
offer clients access to a more comprehensive range of services.
LEVERAGE EXISTING CLIENT BASE. Whittman-Hart believes it can sustain growth
in its existing branches by continuing to establish and maintain long-term
client relationships. The access and goodwill offered by these relationships
provide the Company with significant advantages over its competitors in
marketing additional services and solutions to such clients. The Company also
believes its long-term client relationships and ability to address its clients'
needs throughout the life cycle of their IT systems distinguish the
20
<PAGE>
Company from many of its competitors and provide the opportunity to become a
preferred provider of IT solutions for a broad range of its existing and new
clients.
PURSUE STRATEGIC ACQUISITIONS AND AGREEMENTS WITH BUSINESS PARTNERS. Given
the highly fragmented nature of the IT services marketplace, the Company
believes acquisition opportunities exist. On an ongoing basis Whittman-Hart
evaluates potential acquisition candidates to expand its branch office network,
increase its technical expertise or provide other competitive advantages.
Whittman-Hart may also seek to form strategic relationships with business
partners to share technical and industry knowledge and pursue joint marketing
opportunities. The Company has established business partner relationships with
Informix Software, Inc., International Business Machines Corporation, Lotus
Corporation, Microsoft Corporation, Novell, Inc., Oracle Corporation, SAP
America, Inc. and Sybase, Inc. These relationships typically allow the Company
to gain access to training, product support and the technology developed by
these partners. The training programs often enable Company employees to become
certified in a given technology. Establishing these relationships allows the
Company to use the business partner's name and the "business partner"
designation in marketing the Company's services. These relationships also
facilitate the Company's pursuit of marketing opportunities with the business
partners.
The business partner relationships do not require the Company to use
technology developed by the business partners in implementing IT solutions for
clients. Nonetheless, the Company may be retained by a client based in part upon
one or more of the Company's business partner relationships. Although the
Company is not obligated to resell products offered by the business partners, in
the event it does so, it is generally entitled to purchase discounts on products
purchased for resale. It is the Company's current practice to pass any such
discounts on to the clients to whom the business partner products are resold.
OPERATIONAL INVESTMENTS
Over the past several years, the Company has invested in the development of
systems, methodologies, training programs and infrastructure. The Company
believes that it is positioned to leverage these investments into a larger
organization. Whittman-Hart is pursuing its strategy to become a leading single
source provider of IT services through a diverse national branch network by
utilizing the following operational investments:
GEOGRAPHIC EXPANSION MODULE. Under Whittman-Hart's branch expansion
methodology and related database, the Company evaluates and prioritizes
geographic markets based on, among other things, the estimated number of
potential clients and the overall business environment. This methodology also
identifies the appropriate mix of service offerings in such markets. The
implementation phase of the expansion module is overseen by a field task force,
a team of professionals representing each of the major functions of a branch
office, responsible for the efficient replication of the Company's branch model
and ongoing compliance with the Company's policies, procedures and performance
standards. This methodology includes an automated tracking system that enables
the Company to monitor project status and control project expenses.
RECRUITING MODULE. In order to address the strong demand for qualified
consultants in the IT services industry, the Company has developed a recruiting
system and database that facilitates the rapid identification of skill-specific
employee candidates and the efficient processing of a large number of
applicants. This system resulted in a reduction in recruiting expenses from
approximately $7,100 per hire in 1993 to approximately $6,200 per hire in 1996.
During this period, the number of recruiting personnel increased from four to
nineteen.
PROPRIETARY TRAINING MODULE. Whittman-Hart has invested in a training
curriculum and methodology known as the Whittman-Hart Institute for Strategic
Education ("WHISE"). The Company employs a "virtual" university approach to its
training by using conventional university teaching methods while taking
advantage of multimedia and computer-based training and tools, as well as
self-study programs. The
21
<PAGE>
Company believes the WHISE curriculum and methodology enable it to train
employees efficiently and effectively.
INFORMATION SYSTEMS. In order to enhance the efficiency of its business
operations, Whittman-Hart has invested in the Whittman-Hart Information Network,
a Lotus Notes-based collection of integrated applications, including an
executive information system, a prospect database, a proposal tracking and
development system, e-mail and a wide-area network linking the Company's
employees through remote access. Substantially all of the development expenses
for these information systems have been incurred.
INTEGRATED MARKETING CAMPAIGN. The Company has designed and produced an
integrated marketing campaign, including a series of radio, print and direct
mail advertisements, collateral materials and the Company's Web site
(http://www.whittman-hart.com). The campaign is designed to strengthen the
Whittman-Hart brand name and generate new clients and employee candidates.
Substantially all of the development expenses have been incurred for this
marketing program, which can be deployed on a market-by-market basis as new
branches are opened.
SERVICES
Whittman-Hart offers its clients a single source for a comprehensive range
of IT services required to successfully design, develop and implement integrated
IT solutions in diverse computing environments. The Company believes that
successful implementation of a major systems project requires a wide range of
skills and a comprehensive methodology for delivering these skills in an
efficient and effective manner. Accordingly, the Company employs senior
consultants who possess industry-specific knowledge and a broad range of
technical expertise. In addition, the Company has developed a methodology for
delivering these skills, which includes in-depth consultation with the client
and development of a well-defined blueprint and specific timetable for the
project.
The Company delivers its solutions through five business units focused on
providing integrated services in specific areas of expertise -- Solution
Strategies, Interactive Solutions, Network Enabled Solutions, Custom
Applications and Package Software Solutions. These groups also work together to
provide cross-functional solutions. For example, solutions for the Internet
incorporate disciplines from the full spectrum of Whittman-Hart business units.
SOLUTION STRATEGIES. The Solutions Strategies business unit helps clients
identify their critical objectives and formulates integrated people, process and
technology solutions to improve their business. The group provides services
including managing cross-functional business solutions, developing IT
strategies, designing information architectures, and implementing business
process redesign, industry specific solutions and organizational change
management.
INTERACTIVE SOLUTIONS. The Interactive Solutions business unit helps
clients assess their training and education needs and develop appropriate
strategies. The group provides customized, performance-based training solutions
to support package and custom software system implementations in instructor-led
and computer-based formats. The group also develops multimedia sales and
marketing presentations and World Wide Web site designs.
NETWORK ENABLED SOLUTIONS. The Network Enabled Solutions business unit
utilizes network computing strategies and technologies to develop business
connectivity solutions that allow people, technology and organizations to work
collaboratively, regardless of geographic location. Examples of these solutions
include network design and management, and Internet and electronic commerce
strategies.
CUSTOM APPLICATIONS. The Custom Applications business unit develops and
maintains custom business software applications, from analysis and design
through software testing and quality assurance. The group employs traditional
approaches and software reuse frameworks to develop applications that meet
clients' needs rapidly and efficiently with high quality results. The group
works with a wide range of development technologies from mainstream application
development languages and technologies to state-of-the-art CASE and
object-oriented tools.
22
<PAGE>
PACKAGE SOFTWARE SOLUTIONS. The Package Software Solutions business unit
employs a business-requirements and user-driven methodology for rapid package
software implementations. Combined with end-user training, quality assurance and
organizational change management, Whittman-Hart provides a complete package
implementation solution. The group has teams dedicated to the most popular
software packages (such as JD Edwards, PeopleSoft, SAP and SSA's BPCS) and
another team devoted to continually monitoring competitive and emerging
solutions for their applicability to client needs.
The Company regularly evaluates emerging IT services and new software
products and may add new business units or expand the service lines or skill
sets of existing business units.
CLIENTS
Whittman-Hart's clients consist primarily of middle market companies ranging
from $50 million to $500 million in annual revenues and divisions of Fortune
1000 companies. The Company's revenue base consists of several hundred clients.
Many of these clients have maintained ongoing relationships with Whittman-Hart
over many years, spanning multiple projects and services. The Company believes
that it has established significant ongoing relationships with many of its
clients.
Whittman-Hart's ten most significant clients accounted for approximately 28%
and 33% of its revenues during 1996 and 1995, respectively. During 1996 and
1994, no client accounted for more than 10% of the Company's total revenues. One
client, Novus Services, Inc., accounted for approximately 10% of the Company's
revenues in 1995. Annual revenues from each of the Company's ten largest clients
in 1996 ranged from approximately $1.4 million to $4.9 million. The Company has
served clients in a broad range of industries, including communications,
consumer products, distribution, diversified services, financial services,
insurance, manufacturing, pharmaceuticals, professional services, retail and
technology.
SALES AND MARKETING
Whittman-Hart markets and provides its services directly through its branch
offices and client support centers. In addition, Whittman-Hart has developed an
advertising campaign in its branch markets. The campaign includes print, direct
mail and radio advertising, combined with local seminars, trade shows, public
relations and collateral materials.
Sources of new client relationships include referrals, telemarketing and
Whittman-Hart's integrated marketing campaign. The Company's sales organization
is supported by its prospect database, which includes the names of companies and
decision makers in each targeted geographic market. This proprietary Lotus
Notes-based information system, a component of the Whittman-Hart Information
Network, also allows Whittman-Hart employees to access the Company's skills
database and project portfolio.
Whittman-Hart account executives establish contact with targeted prospects
to create awareness, understanding and preference for the Company. Account
executives also identify general client needs and introduce the appropriate IT
consultant or team of IT consultants to help develop the initial proposal. A
senior level manager is assigned to the account to establish a long-term
relationship. The manager serves as the client's primary source of IT advice and
overall coordinator of Whittman-Hart's multiple service offerings to the client.
In addition to its branch locations, the Company maintains several client
support centers. These centers consist of small offices, usually located in
smaller or more remote markets, which the Company maintains to support the needs
of an existing client or clients near that location.
HUMAN RESOURCES
The Company's success depends in large part upon its ability to attract,
develop, motivate and retain highly skilled technical employees. Qualified
technical employees are in great demand and are likely to remain a limited
resource for the foreseeable future. Whittman-Hart dedicates significant
resources to recruiting consultants with both IT consulting and industry
experience. Many consultants are selected from among the largest and most
successful IT, accounting and other professional services organizations. Each
23
<PAGE>
candidate is screened through detailed interviews by Whittman-Hart's recruiting
personnel, technical interviews by consultants and an appraisal by
Whittman-Hart's managers. As of March 31, 1997, the Company employed
approximately 1,189 employees, of whom approximately 989 were consultants.
Whittman-Hart has implemented a number of distinctive human resources
programs. For example, the Company's performance-based incentive compensation
program provides guidelines for career development, encourages development of
skills, provides a tool to manage the employee development process and
establishes compensation guidelines. Whittman-Hart has also developed its WHISE
training module to guide consultants through a progression of skill and
competency development programs. As part of this module, the Company reimburses
employees for education and training, provides computer-based training curricula
and provides access to the Company's Technology Center where employees can gain
hands-on experience with a diverse array of computing environments. In addition,
Whittman-Hart has developed a centralized new employee orientation program that
features multimedia presentations and a computer-based training program. See
"Business -- Operational Investments -- Proprietary Training Module."
None of the Company's employees are subject to a collective bargaining
arrangement. Whittman-Hart has entered into employment agreements, which are
terminable upon two weeks notice (without substantial penalty), with virtually
all of its sales, recruiting and technical personnel. The agreements contain
noncompetition, nondisclosure and nonsolicitation covenants. Although most
consultants are Company employees, the Company does engage consultants as
independent contractors from time to time.
COMPETITION
The market for IT services includes a large number of competitors, is
subject to rapid change and is highly competitive. Primary competitors include
participants from a variety of market segments, including "Big Six" accounting
firms, systems consulting and implementation firms, application software firms,
service groups of computer equipment companies, facilities management companies,
general management consulting firms and programming companies. In addition, the
Company competes with its clients' internal resources, particularly where these
resources represent a fixed cost to the client. Such competition may impose
additional pricing pressures on the Company.
The Company believes that the principal competitive factors in the IT
services market include breadth of services offered, technical expertise,
knowledge and experience in the industry, price, perceived value, quality of
service and responsiveness to client needs and speed in delivering IT solutions.
INTELLECTUAL PROPERTY RIGHTS
Whittman-Hart's success has resulted, in part, from its methodologies and
other proprietary intellectual property rights. The Company relies upon a
combination of nondisclosure and other contractual arrangements and trade
secret, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third parties from whom the Company licenses intellectual
property. The Company enters into confidentiality agreements with its employees
and limits distribution of proprietary information. There can be no assurance
that the steps taken by the Company in this regard will be adequate to deter
misappropriation of proprietary information or that the Company will be able to
detect unauthorized use and take appropriate steps to enforce its intellectual
property rights.
Software developed by Whittman-Hart in connection with a client engagement
is typically assigned to the client. In limited situations, the Company may
retain ownership, or obtain a license from its client, which permits
Whittman-Hart or a third party to market the software for the joint benefit of
the client and Whittman-Hart or for the sole benefit of Whittman-Hart.
"Whittman-Hart-Registered Trademark-," "Making Information Technology
Work-Registered Trademark-" and "We Are IT-Registered Trademark-" are registered
service marks of Whittman-Hart. The Company holds no patents or registered
copyrights, and has no present intention of making any copyright or patent
applications.
24
<PAGE>
PROPERTIES
Whittman-Hart's principal executive offices are located at 311 South Wacker
Drive, Chicago, Illinois. The Company's lease on these premises covers
approximately 50,000 square feet and expires October 31, 2004. The Company also
leases facilities in Indianapolis, Milwaukee, Denver, Cincinnati, Peoria,
Ft. Wayne, Dallas, Cleveland, and Columbus. In addition, in April 1997 the
Company acquired a 37,000 square foot facility in Chicago and has signed a
letter of intent to acquire an additional 179,000 square feet through January
2000. Whittman-Hart anticipates that additional space will be required as its
business expands and believes that it will be able to obtain suitable space as
needed.
LEGAL PROCEEDINGS
Whittman-Hart is not presently involved in any legal proceedings which the
Company believes are material to its business.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company and their respective
ages and positions as of March 31, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert F. Bernard........................................ 35 Chairman of the Board, President and Chief
Executive Officer
Edward V. Szofer......................................... 37 Director, Vice President, Chief Operating Officer
and Secretary
Kevin M. Gaskey.......................................... 38 Chief Financial Officer and Treasurer
Susan B. Reardon......................................... 41 Director of Human Resources
Stanley F. Martin........................................ 42 Vice President of Marketing and Sales
Robert F. Steel (1)(2)................................... 42 Director
Paul D. Carbery (1)(2)................................... 35 Director
Lawrence P. Roches (1)(2)................................ 45 Director
</TABLE>
- ------------------------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
ROBERT F. BERNARD, the founder of the Company, has served as Chairman of the
Board, President and Chief Executive Officer of the Company since its inception
in 1984. He was selected as the KPMG Illinois High Tech Entrepreneur of the Year
in 1992.
EDWARD V. SZOFER has served as a director of the Company since August 1995.
He has been Vice President and Chief Operating Officer since January 1994 and
Secretary since May 1996. From 1984 to December 1993, Mr. Szofer held various
management positions with the Company in operations. Mr. Szofer was employed as
a consultant in the Management Information Consulting division of Arthur
Andersen & Co. prior to joining the Company.
KEVIN M. GASKEY has served as the Chief Financial Officer and Treasurer of
the Company since April 1990. Mr. Gaskey, a certified public accountant, joined
the Company with over nine years of financial experience from his prior
positions with KPMG Peat Marwick LLP, Beatrice Companies, Inc. and Baxter
International, Inc.
SUSAN B. REARDON has served as the Company's Director of Human Resources
since February 1990. From June 1987 to January 1990, she established the human
resource function at the Company. Prior to joining the Company, Ms. Reardon
served as Human Resources Manager at TTX Co., a Chicago-based transportation
equipment leasing company.
STANLEY F. MARTIN has served as the Company's Vice President of Marketing
and Sales since January 1997. From 1994 until joining the Company, Mr. Martin
was the Area Director of Sales and Marketing for Ernst & Young LLP in New York.
Mr. Martin previously served in a variety of management positions with Siemens
Nixdorf Information Systems and IBM Corporation.
ROBERT F. STEEL has served as a director of the Company since August 1995.
He served as Secretary from January 1996 to May 1996. Since 1977, Mr. Steel has
served in various positions with K.A. Steel Chemicals Inc., a chemical
processing firm, most recently as President, Chief Executive Officer and
Director. Mr. Steel also serves as an officer and director of several other
privately held companies.
PAUL D. CARBERY has served as a director of the Company since August 1995.
Mr. Carbery has been a general partner of Frontenac Company, a private equity
investment management partnership, since
26
<PAGE>
June 1993 and was an associate of that firm from September 1989 to June 1993. He
also serves as a director of Eagle River Interactive, Inc. as well as several
privately held companies.
LAWRENCE P. ROCHES has served as a director of the Company since August
1995. He has been the Chief Executive Officer and a director of Melson
Technologies, Inc. a provider of investment management systems for securities,
mortgage loans and real estate portfolios since September 1994. From November
1991 to August 1994, he was employed as the Vice President of Marketing of
ShipNet Systems, Inc., an information services company. From October 1985 to May
1991, Mr. Roches was employed as Vice President of Technology and Chief Services
Officer of System Software Associates, Inc., a software company.
The Company's By-Laws and Certificate of Incorporation provide for the
Company's Board of Directors to be comprised of as many directors as are
designated from time to time by the Board of Directors. The Board is currently
comprised of five members. Each director holds office until his successor is
duly elected and qualified, or until his earlier death, resignation or removal.
The Company's Certificate of Incorporation and By-Laws provide that the Board of
Directors be classified into three classes. Messrs. Roches and Steel serve in
the class the term of which expires in 1997; Messrs. Carbery and Szofer serve in
the class the term of which expires in 1998; and Mr. Bernard serves in the class
the term of which expires in 1999. Upon the expiration of the term of each class
of directors, directors comprising such class will be elected for a three-year
term at the next succeeding annual meeting of stockholders.
Two of the Company's current directors, Messrs. Carbery and Steel, were
nominated and elected to the Company's Board of Directors in accordance with a
stockholders agreement as designees of Frontenac and Platinum, respectively. See
"Certain Transactions." There are currently no voting agreements in effect
regarding the election of directors. Executive officers of the Company are
appointed by, and serve at the discretion of, the Board of Directors. There are
no family relationships among any of the executive officers or directors of the
Company.
BOARD COMMITTEES
The Board of Directors established a Compensation Committee and an Audit
Committee in December 1995. The Compensation Committee, consisting of Messrs.
Carbery, Roches and Steel, makes recommendations concerning the salaries and
incentive compensation of employees of the Company. The Audit Committee,
consisting of Messrs. Carbery, Roches and Steel, is responsible for reviewing
the results and scope of audits and other services provided by the Company's
independent auditors and reviewing the Company's internal controls.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to establishing the Compensation Committee, all decisions relating to
executive compensation were made by the Company's Management Committee. Mr.
Bernard, the Company's Chairman, President and Chief Executive Officer, and Mr.
Szofer, the Company's Vice President and Chief Operating Officer, both served as
members of the Company's Management Committee and in such capacity participated
in deliberations concerning executive compensation during 1995.
DIRECTOR COMPENSATION
Except for Mr. Roches, directors do not receive any compensation for their
services, although directors are reimbursed for their reasonable out-of-pocket
expenses incurred in attending meetings. In 1996, Mr. Roches was granted a
nonqualified option to acquire 16,000 shares of Common Stock at an exercise
price of $2.315 per share.
27
<PAGE>
EXECUTIVE COMPENSATION
The following tables provide information concerning the annual and long-term
compensation for services in all capacities to the Company for the fiscal years
ended December 31, 1996 and 1995 of those persons who were at December 31, 1996
(i)the chief executive officer and (ii)the four other most highly compensated
(based upon combined salary and bonus) executive officers of the Company
(collectively, with the chief executive officer, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION -------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION (2)
<S> <C> <C> <C> <C> <C> <C>
Robert F. Bernard .............. 1996 $ 360,000 $ 9,989 $ -- -- $ --
Chairman of the Board, President 1995 360,000 -- 103,446(3) -- --
and Chief Executive Officer
Edward V. Szofer ............... 1996 200,000 -- -- 854 500
Vice President, Chief Operating 1995 199,000 25,000 -- 115,704 500
Officer and Secretary
Kevin M. Gaskey ................ 1996 165,000 15,000 -- 490 500
Chief Financial Officer and 1995 160,500 141,250(4) -- 124,000 500
Treasurer
Susan B. Reardon ............... 1996 135,000 -- -- 576 500
Director of Human Resources 1995 132,500 27,000 -- 108,000 500
Glen A. Metelmann .............. 1996 136,000 -- -- 582 500
Director of Marketing and Sales 1995 135,000 20,400 -- 110,096 500
(5)
</TABLE>
- ------------------------------
(1) The Company did not issue any restricted stock or grant any stock
appreciation rights in 1996 or 1995. None of the Named Officers held any
restricted stock as of December 31, 1996 and 1995, respectively.
(2) Represents matching payments under the Company's 401(k) Plan.
(3) Represents amounts paid as reimbursement for income tax liabilities incurred
as a result of the Company's predecessors' earnings. See "The Company."
(4) Represents a cash bonus of $41,250 and the issuance of 61,800 shares of
Common Stock on February 15, 1995.
(5) Mr. Metelmann served as the Company's Director of Marketing and Sales until
April 1997, when he became the Company's Director of Marketing and Sales for
Information Technology ("IT") Products.
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<PAGE>
The following table sets forth certain information with respect to the grant
of stock options by the Company to the Named Officers during 1996. No stock
appreciation rights were granted to the Named Officers in 1996.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS (1) ANNUAL RATES OF
-------------------------------------------------------------- STOCK PRICE
NUMBER OF APPRECIATION FOR
SECURITIES % OF TOTAL OPTIONS EXERCISE OPTION TERM (2)
UNDERLYING GRANTED TO PRICE EXPIRATION --------------------
OPTIONS GRANTED EMPLOYEES IN YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Robert F. Bernard...................... -- -- -- -- -- --
Edward V. Szofer....................... 854 1.2% $ 18.00 6/28/06 $ 9,667 $ 24,499
Kevin M. Gaskey........................ 490 0.7 18.00 6/28/06 5,547 14,057
Susan B. Reardon....................... 576 0.8 18.00 6/28/06 6,520 16,524
Glen A. Metelmann...................... 582 0.8 18.00 6/28/06 6,588 16,696
</TABLE>
- ------------------------------
(1) These options, all of which are nonqualified stock options, were granted
pursuant to the 1995 Incentive Stock Plan. These options vested 10% upon
grant and vest an additional 22.5% on each of the first four anniversaries
of the date of the grant. The exercise price is payable in cash or, subject
to certain limitations, by delivery of shares of Common Stock.
(2) Potential realizable value is presented net of the option exercise price but
before any federal or state income taxes associated with exercise. These
amounts represent certain assumed rates of appreciation only. Actual gains
are dependent on the future performance of the Common Stock and the option
holder's continued employment throughout the vesting period. The potential
realizable value does not represent the Company's prediction of its stock
price performance. The amounts reflected in the table may not be achieved.
The following table sets forth certain information with respect to option
exercises in 1996 by the Named Officers and on the Named Officers' unexercised
options at December 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996 AND YEAR-END 1996 OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED ON VALUE AT YEAR-END 1996 (#) AT YEAR-END 1996 ($) (1)
EXERCISE REALIZED -------------------------- --------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Robert F. Bernard.................. -- -- -- -- -- --
Edward V. Szofer................... 5,000 101,275 32,572 78,806 731,735 1,752,332
Kevin M. Gaskey.................... 20,000 403,225 31,149 73,341 696,392 1,634,865
Susan B. Reardon................... -- -- 35,157 73,419 785,973 1,635,459
Glen A. Metelmann.................. 10,800 218,417 25,056 74,822 559,897 1,666,785
</TABLE>
- ------------------------------
(1) The value per option is calculated by subtracting the exercise price from
the closing price of the Common Stock on the Nasdaq National Market on
December 31, 1996, which was $25.625.
EMPLOYMENT AGREEMENTS
The Company is a party to substantially identical employment contracts with
Messrs. Bernard, Szofer, Gaskey and Metelmann and Ms. Reardon, pursuant to which
each of those individuals serves as an executive of the Company at compensation
levels and terms to be agreed upon between those individuals and the Company.
These agreements provide that upon termination of employment by the Company,
other than for Cause (as defined in the agreements) or retirement, the Company
shall pay the officer an amount equal to twice the executive's annual base
compensation in effect at the time of termination in the case of Messrs. Bernard
and Szofer and one year in the case of Messrs. Gaskey and Metelmann and Ms.
Reardon. The agreements also provide that in the event of a Change in Control
(as defined in the agreements) and the occurrence of certain events, and to the
extent deductible under then applicable tax
29
<PAGE>
laws, the Company shall pay such executives a payment equal to two times the sum
of: (i) the executives' most recent base annual compensation in effect at the
date of the Change in Control; and (ii) the cash value of purchasing on an
individual basis insurance protection (including dependent coverage) that is
equal to the coverage then in effect with respect to the Company's health
insurance plan, based upon the cost of such insurance coverage for a six-month
period following the Change in Control date. Mr. Bernard's employment agreement
does not provide for payments in the event of a Change in Control. Each of these
executives is subject to noncompetition, nonsolicitation and nondisclosure
covenants.
STOCK PLANS
EMPLOYEE STOCK PURCHASE PLAN. The Company has reserved an aggregate of
800,000 shares of Common Stock for issuance under the Company's Employee Stock
Purchase Plan (the "Purchase Plan"). Such shares may be authorized but unissued
Common Stock, treasury shares or Common Stock purchased in the open market. The
Purchase Plan is intended to qualify under Section 423 of the Internal Revenue
Code of 1986, as amended (the "Code"), and will permit eligible employees of the
Company who have completed five full calendar months of service to purchase
Common Stock through payroll deductions of up to 20% of their total cash
compensation, provided that no employee may purchase more than $20,000 worth of
stock in any calendar year. The Purchase Plan has two six-month offering
periods, beginning on April 1 and September 1 of each year, with the first
offering period commencing on May 3, 1996. The Purchase Price (as defined in the
Purchase Plan) of Common Stock purchased under the Purchase Plan equals 90% of
the market value of the Common Stock (as calculated in the Purchase Plan) on the
first or last day of an offering period, whichever is lower. The Purchase Plan
is administered by the Compensation Committee. The Board is able to amend or
terminate the Purchase Plan at any time. However, the Board may not, without
stockholder approval, modify the Purchase Plan if stockholder approval of the
amendment is required for the Purchase Plan to continue to comply with the
requirements of Rule 16b-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Section 423 of the Code.
ESOP. The Company sponsors an Employee Stock Ownership Plan (the "ESOP"),
covering substantially all employees of the Company. As of April 25, 1997, the
ESOP owned 391,920 shares of Common Stock. The Company does not intend to make
future contributions to the ESOP. See Note 9 of Notes to Financial Statements.
1995 INCENTIVE STOCK PLAN. The Company has reserved an aggregate of
4,000,000 shares of Common Stock for issuance under the 1995 Incentive Stock
Plan, as amended (the "Incentive Stock Plan"), which may be granted to employees
and officers of the Company. The maximum number of shares that may be subject to
awards granted to any participant in any fiscal year is 176,168 shares. The
Incentive Stock Plan is administered by the Compensation Committee. The
Incentive Stock Plan provides for awards, which may consist of Common Stock,
restricted shares of Common Stock, NQSOs and ISOs to purchase shares of Common
Stock, performance awards and stock appreciation rights ("SARs").
The exercise price for options may be paid: (i) in cash; (ii) by
surrendering shares already owned by the optionee; or (iii) if the Compensation
Committee so determines by instructing a broker to sell enough of the optionee's
exercised shares to deliver to the Company sufficient sales proceeds to pay the
exercise price. The exercise price per share of Common Stock may not be less
than 85% (100% in the case of an ISO) of the mean of the highest and lowest
sales price for the Common Stock last reported on the Nasdaq National Market on
the date the stock option is granted. The base value of an SAR will equal not
less than 85% of the market value of a share of Common Stock on the grant date.
Options and SARs to be granted under the Incentive Stock Plan must be exercised
within fifteen years from the date of grant (ten years in the case of ISOs) and
will generally vest in annual installments as determined by the Compensation
Committee. In the case of any eligible employee who owns or is deemed to own
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company, the exercise price of any ISOs granted under the
Incentive Stock Plan may not be less than 110% of the fair market value of the
Common Stock on the date of grant and the exercise period may not exceed five
years from the date of grant.
30
<PAGE>
The Board of Directors can terminate or amend the Incentive Stock Plan at
any time, except that no such action generally will be able to adversely affect
any right or obligation regarding any awards previously made under the Incentive
Stock Plan without the consent of the recipient. In addition, no amendment may
be effective without the prior approval of stockholders, if such approval is
required for the Incentive Stock Plan to continue to comply with applicable
regulations of the Securities and Exchange Commission (the "Commission"). In the
event of any changes in the capital structure of the Company, such as a stock
dividend or split-up, the Board of Directors must make equitable adjustments to
outstanding unexercised awards and to the provisions of the Incentive Stock Plan
so that the net value of the award is not changed. If the Company becomes a
party to a merger, reorganization, liquidation or similar transaction, the Board
of Directors may make such arrangements it deems advisable regarding outstanding
awards, such as substituting new awards for outstanding awards, assuming
outstanding awards or terminating or paying for outstanding awards.
At April 25, 1997, ISOs for 96,317 shares and NQSOs for 2,481,550 shares
were outstanding under the Incentive Stock Plan.
31
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of April 25, 1997 (except as otherwise
indicated), certain information with respect to the beneficial ownership of
Common Stock by: (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock; (ii) each of the Company's
directors; (iii) each of the Named Officers; and (iv) all directors and
executive officers of the Company as a group. Unless otherwise indicated in the
footnotes to the table set forth below, each person or entity named below has
(a) an address in care of the Company's principal executive offices, and (b) to
the Company's knowledge, sole voting and investment power with respect to all
shares of Common Stock shown as beneficially owned by such holder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------
NUMBER OF
NAME SHARES PERCENT
<S> <C> <C>
Robert F. Bernard (1)....................................................................... 7,687,617 37.8%
Smith Barney Mutual Funds Management Inc. (2)............................................... 1,045,000 5.1
Smith Barney Holdings Inc. (2).............................................................. 1,101,105 5.4
Travelers Group Inc. (2).................................................................... 1,101,105 5.4
Putnam Investments, Inc. (3)................................................................ 1,057,793 5.2
Edward V. Szofer (1)........................................................................ 456,766 2.2
Kevin M. Gaskey (1)......................................................................... 123,872 *
Susan B. Reardon (1)........................................................................ 82,546 *
Glen A. Metelmann (1)....................................................................... 2,871 *
Robert F. Steel (4)......................................................................... -- --
Paul D. Carbery (5)......................................................................... 123,574 *
Lawrence P. Roches (1)...................................................................... 4,000 *
All executive officers and directors as a group (8 persons) (1)............................. 8,481,246 41.5%
</TABLE>
- ------------------------------
* Less than one percent.
(1) Includes shares of Common Stock which can be acquired through the exercise
of options within 60 days of April 25, 1997, as follows: Robert F. Bernard
6,663 shares, Edward V. Szofer 36,526 shares; Kevin M. Gaskey 33,872 shares;
Susan B. Reardon 36,960 shares; Glen A. Metelmann 1,871 shares; Lawrence P.
Roches 4,000 shares; and all executive officers and directors as a group
119,862 shares.
(2) As reported on a Schedule 13G filed with the Securities and Exchange
Commission (the "Commission") on February 14, 1997 (the "Travelers 13G") by
Smith Barney Mutual Funds Management Inc. ("SBMFM"), Smith Barney Holdings
Inc. ("SBH") and Travelers Group Inc. ("Travelers"). According to the
Travelers 13G, SBMFM has shared voting and dispositive power with respect to
1,045,000 shares, and each of SBH and Travelers has shared voting and
dispositive power with respect to 1,101,105 shares. The address of each of
SBMFM, SBH and Travelers is 338 Greenwich Street, New York, New York 10013.
(3) As reported on a Schedule 13G filed with the Commission on January 31, 1997
(the "Putnam 13G") by Putnam Investments, Inc. ("PI"), Marsh & McLennan
Companies, Inc., Putnam Investment Management, Inc. and The Putnam Advisory
Company, Inc. According to the Putnam 13G, PI has shared voting power with
respect to 66,818 shares and shared dispositive power with respect to all
1,057,793 shares. The address of PI is One Post Office Square, Boston,
Massachusetts 02109.
(4) Mr. Steel, a director of the Company, is a limited partner of Platinum
Venture Partners I, L.P. and Platinum Venture Partners II, L.P. As such, Mr.
Steel may be deemed to beneficially own the 37,564 shares of the Common
Stock beneficially owned by Platinum Venture Partners I, L.P. and the 42,930
shares of the Common Stock beneficially owned by Platinum Venture Partners
II, L.P. Mr. Steel disclaims beneficial ownership of these shares within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934 ("Exchange
Act").
(5) Mr. Carbery, a director of the Company, is a general partner of Frontenac
Company, which is the general partner of Frontenac VI Limited Partnership.
As such, Mr. Carbery may be deemed to beneficially own the 123,574 shares of
Common Stock beneficially owned by Frontenac VI Limited Partnership. Mr.
Carbery disclaims beneficial ownership of these shares within the meaning of
Rule 13d-3 under the Exchange Act.
32
<PAGE>
CERTAIN TRANSACTIONS
In August 1995, Frontenac purchased 173,832 preferred equity units in LP for
$4.0 million and Platinum purchased 65,187 preferred equity units in LP for $1.5
million. The preferred equity units were converted into a like number of shares
of Redeemable Preferred Stock in connection with the Reorganization, and such
shares were converted into 1,912,148 shares of Common Stock immediately prior to
the consummation of the Company's initial public offering. See "The Company."
Contemporaneously with Frontenac's and Platinum's investment in preferred equity
units, the Company redeemed 260,748 common equity units owned by Mr. Bernard at
a redemption price of $5.75 per unit, or a total of $1.5 million.
Frontenac and Platinum were granted certain registration rights with respect
to the preferred equity units and any securities issuable upon conversion of the
preferred equity units. They were also granted certain other rights, including:
(i) the right to each designate one member to the Company's five person Board of
Directors; (ii) certain class voting rights; (iii) certain preferences upon
liquidation, dissolution or winding up of the Company; (iv) a preferred dividend
accrual of 10% per annum payable upon redemption of the preferred equity units;
and (v) certain rights of first refusal and co-sale rights involving existing
management securities. In addition, Frontenac, Platinum, Limited and each of
Messrs. Bernard and Szofer entered into a Voting Agreement whereby the parties,
other than Limited, agreed to vote in favor of the others' respective designees
to the Board of Directors. The preferential rights, including those enumerated
above, and the Voting Agreement, terminated immediately prior to the
consummation of the Company's initial public offering.
During the time when the Company's business was conducted as a partnership,
various loans were made among Mr. Bernard, Limited and LP, all of which have
been repaid. In January 1996, loans by the Company to Mr. Bernard aggregated
$326,356 and bore interest at the per annum rate of prime less 2%. These loans
were made to enable Mr. Bernard to make certain payments owed by him to an
affiliate of the Company. Also in January 1996, loans from Mr. Bernard to the
Company aggregated $317,413 and bore interest at the per annum rate of 10%.
These loans were made for working capital and other general corporate purposes.
On January 25, 1996, the loans were offset against each other and the remaining
balance owed by Mr. Bernard to the Company was paid in full.
In 1995 the Company acquired a 50% ownership interest in Sleep Relief
L.L.C., an Illinois limited liability company ("Sleep Relief"). Sleep Relief
develops and markets sleep laboratory software products and provides consulting,
education and risk assessment services to providers involved in the practice of
sleep medicine as well as organizations seeking to identify sleep disorders in
targeted populations. In consideration of its ownership interest, the Company
made a nominal capital investment in Sleep Relief and committed to provide up to
$150,000 in technical and administrative support and to match capital
contributions made by other interested parties, provided an appraisal determines
that the value of Sleep Relief will increase by the value of the Company's
contribution. Mr. Bernard serves on Sleep Relief's Management Committee.
33
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 37,000,000 shares of
Common Stock, par value $.001 per share, and 3,000,000 shares of preferred
stock, $.001 par value per share, to be issued from time to time by the Board of
Directors as shares of one or more classes or series ("Blank Check Preferred").
As of May 5, 1997, the Company has outstanding 20,344,950 shares of Common
Stock, and no shares of Blank Check Preferred. As of May 5, 1997, there were 112
holders of record of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on all
matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then-outstanding shares of preferred stock, the
holders of the Common Stock are entitled to such dividends as may be declared at
the discretion of the Board of Directors out of funds legally available
therefor. See "Dividend Policy." Holders of Common Stock are entitled to share
ratably in the net assets of the Company upon liquidation after payment or
provision for all liabilities and any preferential liquidation rights of any
preferred stock then outstanding. The holders of Common Stock have no preemptive
rights to purchase shares of capital stock of the Company. Shares of Common
Stock are not subject to any redemption provisions and are not convertible into
any other securities of the Company. All outstanding shares of Common Stock are,
and the shares of Common Stock to be issued pursuant to this offering will be,
upon payment therefor, duly authorized, validly issued, fully paid and non-
assessable.
The Common Stock is listed on the Nasdaq National Market under the symbol
"WHIT."
PREFERRED STOCK
Subject to the provisions of the Company's Certificate of Incorporation and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue shares of Blank Check Preferred, to fix the number of
such shares and to change the number of such shares constituting any series, and
to provide for or change the voting powers, designations, preferences and
relative, participating, optional or other special rights, qualifications,
limitations or restrictions thereof, including dividend rights (including
whether dividends are cumulative), dividend rates, terms of redemption
(including sinking fund provisions), redemption prices, conversion rights and
liquidation preferences of the shares constituting any class or series of Blank
Check Preferred, in each case without any further action or vote by the
stockholders. The Company has no current plans to issue any shares of Blank
Check Preferred.
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS;
ANTI-TAKEOVER EFFECTS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "DGCL"). Subject to certain exceptions, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the interested stockholder attained such status with the
approval of the Board of Directors or the business combination is approved in a
prescribed manner, or certain other conditions are satisfied. A "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and By-Laws provide that the
directors of the Company shall be classified into three classes, with staggered
three-year terms. See "Management -- Directors and Executive Officers." Any
director may be removed only for cause upon the affirmative vote of at least 66%
of the shares entitled to vote for the election of directors.
34
<PAGE>
The Company's By-Laws provide that for nominations for the Board of
Directors or for other business to be properly brought by a stockholder before a
meeting of stockholders, the stockholder must first have given timely notice
thereof in writing to the Secretary of the Company. To be timely, a notice must
generally be delivered not less than 60 days nor more than 90 days prior to the
first anniversary of the preceding year's annual meeting. The notice must
contain, among other things, certain information about the stockholder
delivering the notice and, as applicable, background information about each
nominee or a description of the proposed business to be brought before the
meeting.
The Company's By-Laws provide that special meetings of stockholders may be
called only by the Chairman of the Board of Directors or the President of the
Company. These provisions could have the effect of delaying until the next
annual stockholders meeting stockholder actions which are favored by the holders
of a majority of the outstanding voting securities of the Company.
The foregoing provisions could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from acquiring,
control of the Company.
The existence of Blank Check Preferred enables the Board of Directors to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a tender offer, proxy contest, merger or otherwise, thereby
protecting the continuity of the Company's management. The issuance of Blank
Check Preferred pursuant to the Board of Directors' authority described above
may adversely affect the rights of the holders of Common Stock. For example,
Blank Check Preferred issued by the Company may rank prior to the Common Stock
as to dividend rights, liquidation preference or both, may have full or limited
voting rights and may be convertible into shares of Common Stock. Accordingly,
the issuance of Blank Check Preferred may discourage bids for the Common Stock
or may otherwise adversely affect the market price of the Common Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation contains certain provisions
permitted under the DGCL relating to the liability of directors. These
provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, such as: (i) for any breach of the director's
duty of loyalty to the Company or its stockholders; (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from
which the director derives an improper personal benefit. These provisions do not
limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief, such as an injunction or rescission, in the event of a
breach of a director's fiduciary duty. These provisions will not alter a
director's liability under federal securities laws. The Company's Certificate of
Incorporation and By-Laws also contain provisions indemnifying the directors and
officers of the Company to the fullest extent permitted by the DGCL. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors and officers.
REGISTRATION RIGHTS
Under the terms of a Registration Agreement dated as of December 31, 1995
(the "1995 Registration Agreement"), among Frontenac, Platinum (collectively,
the "1995 Investors") and the Company, at any time after May 8, 1996 (the
closing date of the Company's initial public offering), the holders of a
majority of the Registrable Stock (as defined therein), have the right to
require the Company to register any or all of the Registrable Stock, subject to
the conditions and limitations contained in the 1995 Registration Agreement. In
addition, under the terms of a Registration Agreement dated May 8, 1996 (the
"1996 Registration Agreement" and together with the 1995 Registration Agreement,
the "Registration Agreements"), among the Company, Mr. Bernard and Mr. Szofer
(Mr. Bernard and Mr. Szofer, together with the 1995 Investors, the "Investors"),
at any time after May 8, 1997, Mr. Szofer has the right to require the Company
to register 100,000 of his shares of Common Stock, subject to the conditions and
limitations contained in the 1996 Registration Agreement.
35
<PAGE>
In addition, pursuant to the Registration Agreements and the conditions and
limitations set forth therein, the Company is required to: (i) pay all
associated Registration Expenses (as defined therein) in connection with certain
registrations; (ii) use its best efforts to effect such registrations; and (iii)
indemnify the Investors and certain of their affiliates against certain
liabilities, including liabilities under the Securities Act, in connection with
the registration of their shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.
LEGAL MATTERS
The legality of the issuance of the shares offered hereby has been passed
upon for the Company by McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The Financial Statements and Schedule of the Company as of December 31, 1996
and 1995, and for each of the years in the three-year period ended December 31,
1996 included herein and elsewhere in the Registration Statement, have been
included herein in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act, with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statements, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is made
to the Registration Statement, including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract,
agreement or any other document referred to herein are not necessarily complete;
with respect to each such contract, agreement or document filed as an exhibit to
the Registration Statement, reference is made to such exhibit for a more
complete description of the matters involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected without charge at
the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549 and copies of either of them or any part thereof may be obtained from such
office, upon payment of the fees prescribed by the Commission. The Registration
Statement, including the exhibits and schedules thereto, are also available on
the Commission's Web site at
http://www.sec.gov.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy material and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. The Company's Common Stock is listed in the Nasdaq
National Market, and such reports, proxy material and other information can also
be inspected at the offices of The Nasdaq Stock Market, Inc.,
1735 K Street, N.W., Washington, D.C. 20549.
Copies of reports, proxy and information statements and other information
regarding registrants that file electronically are available on the Commission's
Web site.
36
<PAGE>
WHITTMAN-HART, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Independent Auditors' Report............................................................................... F-2
Balance Sheets at December 31, 1995 and 1996............................................................... F-3
Statements of Earnings for the years ended December 31, 1994, 1995 and 1996................................ F-4
Statements of Stockholders' Equity for the years ended December 31, 1994, 1995 and 1996.................... F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996.............................. F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Whittman-Hart, Inc.:
We have audited the accompanying balance sheets of Whittman-Hart, Inc. as of
December 31, 1995 and 1996, and the related statements of earnings,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Whittman-Hart, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 7, 1997
F-2
<PAGE>
WHITTMAN-HART, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,083,178 $ 35,898,095
Short-term investments -- 30,901,003
Trade accounts receivable, net of allowance for doubtful accounts of $100,000 and
$160,000 in 1995 and 1996, respectively 8,785,240 15,564,791
Income tax receivable -- 140,154
Prepaid expenses and other current assets 426,161 1,290,798
Notes and interest receivable 432,711 28,885
Deferred income taxes 151,350 342,732
- -----------------------------------------------------------------------------------------------------------------
Total current assets 13,878,640 84,166,458
Property and equipment, at cost:
Office furniture and equipment 2,497,413 3,785,806
Computer equipment and software 2,019,435 4,262,257
Automobiles 107,735 60,612
Leasehold improvements 147,039 456,493
- -----------------------------------------------------------------------------------------------------------------
4,771,622 8,565,168
Less accumulated depreciation and amortization (1,574,292) (2,721,247)
- -----------------------------------------------------------------------------------------------------------------
Net property and equipment 3,197,330 5,843,921
Notes receivable 51,500 148,263
Other assets 202,847 454,379
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 17,330,317 $ 90,613,021
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 550,363 $ --
Notes payable -- stockholder 317,413 --
Accounts payable 1,264,048 1,333,854
Accrued compensation and related costs 5,843,859 8,600,608
Accrued expenses and other liabilities 863,916 981,718
Distributions payable 860,646 --
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 9,700,245 10,916,180
Long term debt, less current maturities 1,134,729 --
Deferred income taxes 101,350 89,472
Deferred rent 538,934 888,165
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 11,475,258 11,893,817
Redeemable convertible preferred stock, 10%, $.001 par value, 239,019 shares
authorized, issued and outstanding (redemption value $5,683,334) 5,583,843 --
Stockholders' equity:
Preferred stock, $.001 par value; 3,000,000 shares authorized, none issued and
outstanding -- --
Common stock, $.001 par value; 37,000,000 shares authorized, 10,742,744 and
20,134,680 shares issued in 1995 and 1996, respectively 10,743 20,135
Additional paid-in capital 284,571 73,256,942
Retained earnings -- 5,552,755
Deferred compensation -- (97,831)
- -----------------------------------------------------------------------------------------------------------------
295,314 78,732,001
Common stock held in treasury, at cost; 15,396 and 6,605 shares in 1995 and 1996,
respectively (24,098) (12,797)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 271,216 78,719,204
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 17,330,317 $ 90,613,021
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Revenues $ 29,543,250 $ 49,822,060 $ 87,491,040
Cost of services 17,727,690 30,392,200 52,691,990
- -----------------------------------------------------------------------------------------------------------------
Gross profit 11,815,560 19,429,860 34,799,050
Costs and expenses:
Selling 1,431,030 2,497,100 3,519,500
Recruiting 1,120,750 2,181,293 3,169,240
General and administrative 8,088,921 13,038,560 20,694,323
- -----------------------------------------------------------------------------------------------------------------
Total costs and expenses 10,640,701 17,716,953 27,383,063
- -----------------------------------------------------------------------------------------------------------------
Operating income 1,174,859 1,712,907 7,415,987
Other income (expense):
Interest expense (101,060) (214,620) (47,400)
Interest income 20,980 98,850 1,565,360
Other, net 44,723 133,030 (162,130)
- -----------------------------------------------------------------------------------------------------------------
Total other income (expense) (35,357) 17,260 1,355,830
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 1,139,502 1,730,167 8,771,817
Income taxes (note 7) 29,349 (50,000) 3,269,062
- -----------------------------------------------------------------------------------------------------------------
Net income $ 1,110,153 $ 1,780,167 $ 5,502,755
- -----------------------------------------------------------------------------------------------------------------
Pro forma income data (unaudited) (note 7):
Net income as reported $ 1,110,153 $ 1,780,167 $ 5,502,755
Pro forma adjustment to provision for income taxes 254,880 666,593 --
- -----------------------------------------------------------------------------------------------------------------
Pro forma net income (actual in 1996) $ 855,273 $ 1,113,574 $ 5,502,755
- -----------------------------------------------------------------------------------------------------------------
Pro forma net income per share (actual in 1996) $ 0.08 $ 0.30
- -----------------------------------------------------------------------------------------------------------------
Shares used in computing net income per share 14,129,772 18,271,665
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
TREASURY STOCK AT
COMMON STOCK ADDITIONAL COST
-------------------- PAID-IN RETAINED DEFERRED ------------------
SHARES AMOUNT CAPITAL EARNINGS COMPENSATION SHARES AMOUNT TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 1,384,855 $ 1,385 $ (152,466) $ -- $ -- (4,340) $(36,635) $ (187,716)
Retroactive restatement for a
four-for-one stock split in the
form of a common stock dividend
effective April 3, 1996 4,154,565 4,155 (4,155) -- -- (13,020) -- --
Retroactive restatement for a
two-for-one stock split in the
form of a common stock dividend
effective December 10, 1996 5,539,420 5,539 (5,539) -- -- (17,360) -- --
- ----------------------------------------------------------------------------------------------------------------------------------
As restated 11,078,840 11,079 (162,160) -- -- (34,720) (36,635) (187,716)
Partnership income before business
combination 1,110,153 1,110,153
Purchase of common stock (52,138) (68,239) (68,239)
Issuance of common stock 36,767 83,622 100,644 137,411
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 11,078,840 11,079 984,760 -- -- (3,236) (4,230) 991,609
Partnership income before business
combination 1,730,167 1,730,167
Net income after business
combination 50,000 50,000
Purchase of common stock (12,160) (19,868) (19,868)
Issuance of common stock 185,400 185 249,815 250,000
Purchase and retirement of common
stock (521,496) (521) (1,499,479) (1,500,000)
Partnership capital distributions (1,040,122) (1,040,122)
Redeemable convertible preferred
stock dividends (133,334) (50,000) (183,334)
Accretion of redeemable convertible
preferred stock issuance costs (7,236) (7,236)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 10,742,744 10,743 284,571 -- -- (15,396) (24,098) 271,216
Net income 5,502,755 5,502,755
Issuance of common stock 7,363,528 7,363 65,738,869 65,746,232
Issuance of common stock from
exercise of stock options 42,660 43 209,810 46,563 84,406 294,259
Issuance of common stock from
employee stock purchase plan 73,600 74 529,845 529,919
Tax benefit related to stock plans 836,976 836,976
Purchase of common stock (37,772) (73,105) (73,105)
Conversion of redeemable
convertible preferred stock to
common stock 1,912,148 1,912 5,531,931 50,000 5,583,843
Deferred compensation from issuance
of stock options 124,940 (124,940) --
Amortization of deferred
compensation 27,109 27,109
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 20,134,680 $ 20,135 $73,256,942 $5,552,755 $ (97,831) (6,605) $(12,797) $78,719,204
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
WHITTMAN-HART, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1995 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $1,110,153 $1,780,167 $ 5,502,755
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 340,699 600,946 1,277,085
Deferred income taxes -- (50,000) (203,260)
Gain on disposition of property and equipment -- -- (12,489)
Gain on sales of short-term investments -- -- (10,438)
ESOP expense 137,411 -- --
Executive stock expense 29,168 241,668 30,214
Changes in assets and liabilities:
Trade accounts receivable, net (1,080,687) (4,653,985) (6,779,551)
Income taxes receivable -- -- 696,822
Prepaid expenses and other current assets 26,672 204,839 (847,805)
Notes receivable (127,874) 29,753 307,063
Other assets 6,321 (120,389) (251,532)
Accounts payable 67,412 818,665 69,806
Accrued compensation and related costs 131,814 3,165,292 2,828,665
Accrued expenses and other liabilities 394,282 (13,955) 42,802
Deferred rent (83,312) 412,178 349,231
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 952,059 2,415,179 2,999,368
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of short-term investments -- -- (38,980,367)
Sales of short-term investments -- -- 8,064,005
Purchases of property and equipment (1,717,907) (1,911,390) (3,901,281)
Proceeds from disposition of property and equipment -- -- 43,000
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,717,907) (1,911,390) (34,774,643)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of redeemable convertible preferred stock, net of
issuance costs -- 5,393,273 --
Proceeds from issuance of bank debt 1,650,000 500,000 48,775
Payments on bank debt (456,220) (492,738) (1,733,867)
Payments on related party debt (265,000) -- (317,413)
Proceeds from issuance of common stock, net of issuance costs -- -- 65,719,102
Proceeds from exercise of stock options -- -- 277,427
Proceeds from employee stock purchase plan -- -- 529,919
Purchase of common stock (68,239) (1,519,868) (73,105)
Partnership capital distributions -- (179,476) (860,646)
Checks issued in excess of bank balance (94,693) (121,802) --
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 765,848 3,579,389 63,590,192
- ----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents -- 4,083,178 31,814,917
Cash and cash equivalents at beginning of year -- -- 4,083,178
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ -- $4,083,178 $35,898,095
- ----------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 82,060 $ 225,480 $ 58,181
Income taxes paid -- -- 2,775,500
Supplemental disclosures of noncash financing activities:
Issuance of common stock to executives -- 250,000 102,130
Partnership capital distribution payable -- 860,646 --
Conversion of redeemable convertible preferred stock -- -- 5,583,843
Tax benefit related to stock plans -- -- 836,976
Accretion of redeemable convertible preferred stock dividends and
issuance costs -- 190,570 --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
WHITTMAN-HART, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. DESCRIPTION OF BUSINESS
Whittman-Hart, Inc. (the "Company") provides strategic information
technology ("IT") business solutions designed to improve its clients'
productivity and competitive position. The Company offers its clients a single
source for a comprehensive range of services required to successfully design,
develop and implement integrated solutions in the client/server, open systems,
midrange and mainframe computing environments. Among the services offered by the
Company are systems integration; strategic IT planning; software development;
package software implementation; business process reengineering; organizational
change management; networking and connectivity;, conventional and multimedia
documentation and training; design and implementation of collaborative computing
solutions; and design and implementation of electronic commerce solutions (such
as Internet/intranet and electronic data interchange). The Company serves
clients in a broad range of industries including communications, consumer
products, distribution, diversified services, financial services, insurance,
manufacturing, pharmaceuticals, professional services, retail and technology
throughout the United States.
The Company's business was previously owned by Whittman-Hart, L.P. ("LP"), a
Delaware limited partnership, and operated by employees of Whittman-Hart
Corporation II ("Corporation II"), a Delaware corporation, pursuant to a client
service agreement. Corporation II's operations consisted solely of revenues and
expenses related to its client service agreement with LP. The Company was a
limited partner in LP. Corporation II's revenues and LP's related expenses
associated with the client service agreement have been eliminated in the
accompanying financial statements. Partnership income before business
combination as reported in the statements of stockholders' equity represents
LP's undistributed earnings.
Effective December 31, 1995, the Company issued common and redeemable
convertible preferred stock in exchange for the remaining partnership interests
of LP. The exchange represents a combination of entities under common control
and has been accounted for on an "as-if" pooling-of-interests basis, with the
accompanying financial statements restated for all periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenues are recognized as the related services are performed.
PROPERTY AND EQUIPMENT
Depreciation is computed using the straight-line method based on the
estimated useful lives, ranging from three to seven years, of the various
classes of property. Amortization of leasehold improvements is computed over the
shorter of the lease term or estimated useful life of the asset.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash equivalents are comprised of certain highly liquid investments with
original maturities of less than three months. Short-term investments consist of
debt securities with original maturities beyond three months but less than
twelve months. The short-term investments are classified as available-for-sale
under
F-7
<PAGE>
WHITTMAN-HART, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Short-term
investments are reported at amortized cost, which approximates fair value.
INCOME TAXES
Income taxes, including pro forma calculations, are accounted for in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("Statement 109"). Under the asset and liability method of
Statement 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
COMPUTATION OF NET INCOME AND PRO FORMA NET INCOME PER SHARE
Net income and pro forma net income per common and common equivalent share
are computed based on the weighted average of common and common equivalent
shares -- redeemable convertible preferred stock, 10%, $.001 par value
("Redeemable Preferred Stock") and stock options -- outstanding during the year.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, common and common equivalent shares issued during the twelve months
immediately preceding the initial public offering date (using the treasury stock
method and the initial public offering price per share) have been included in
the calculation of common and common equivalent shares as if they were
outstanding for all periods presented.
STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock options in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement 123"), which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of grant.
Alternatively, Statement 123 also allows entities to continue to apply the
provisions of APB 25 and provide pro forma net income and pro forma net income
per share disclosures for employee stock options grants made in 1995 and future
years as if the fair-value-based method defined in Statement 123 had been
applied. The Company has elected to continue to apply the provisions of APB 25
and provide the pro forma disclosure provisions of Statement 123.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments approximate
their fair values due to the short maturity of these instruments.
F-8
<PAGE>
WHITTMAN-HART, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain 1995 and 1994 balances have been reclassified to conform to the 1996
presentation.
3. DEBT OBLIGATIONS
The Company has a loan agreement for up to $5,000,000 of unsecured credit
with interest, at the Company's option, at the London Interbank Offered Rate
(LIBOR) plus 1.5% or the lender's prime rate. No borrowings were outstanding
under this loan agreement at December 31, 1996 or 1995. The loan agreement
expires on April 30, 1997.
At December 31, 1995, the Company had a total of $1,685,092 outstanding
under various notes payable to banks. All amounts were repaid during 1996.
4. REDEEMABLE CONVERTIBLE PREFERRED STOCK
During 1995, the Company issued 239,019 shares of Redeemable Preferred
Stock. The Redeemable Preferred Stock was recorded at fair value on the date of
issuance less issue costs. The excess of the preference value over the carrying
value was being accreted by periodic charges to additional paid-in capital over
the life of the issue.
In connection with the Company's initial public offering in May 1996, the
239,019 shares of Redeemable Preferred Stock were converted into 1,912,148
shares of common stock. Upon the conversion to common stock, all accrued and
unpaid dividends were canceled.
5. STOCKHOLDERS' EQUITY
On May 8, 1996, the Company completed an initial public offering of its
common stock in which 5,200,000 shares were sold by the Company, resulting in
net proceeds of approximately $37.8 million. On August 27, 1996, the Company
completed a follow-on public offering of its common stock selling an additional
2,100,000 shares, which resulted in net proceeds of approximately $27.8 million.
On April 3, 1996, the Company filed an Amendment to its Certificate of
Incorporation effecting an increase in the number of authorized shares of common
stock to 15,000,000 and authorizing 3,000,000 shares of preferred stock. On
November 25, 1996, the Company filed an Amendment to its Certificate of
Incorporation further increasing the number of authorized shares of common stock
to 37,000,000 and eliminating the Redeemable Preferred Stock from the Company's
authorized capital.
The Company's Board of Directors approved a 4-for-1 split of common stock in
the form of a stock dividend effective April 3, 1996. The Board of Directors
approved a 2-for-1 split of common stock in the form of a stock dividend
effective December 10, 1996. All common share and per share amounts have been
adjusted retroactively to give effect to the stock splits.
6. LEASE COMMITMENTS
The Company leases its office facilities and certain equipment under
operating lease arrangements which expire at various dates through October 2004.
F-9
<PAGE>
WHITTMAN-HART, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
6. LEASE COMMITMENTS (CONTINUED)
Rent expense for the years ended December 31, 1994, 1995 and 1996 was
$1,251,420, $2,631,720 and $4,669,910, respectively. The future minimum annual
lease payments under noncancelable long-term leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
<S> <C>
- ----------------------------------------------------------------------------------------------
1997 $ 3,587,301
1998 2,732,859
1999 1,242,198
2000 1,131,729
2001 1,055,845
Thereafter 2,872,652
- ----------------------------------------------------------------------------------------------
$ 12,622,584
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
7. INCOME TAXES
Prior to December 31, 1995, the Company's business was owned and operated by
LP; therefore, federal and certain state income tax liabilities were the
responsibility of the partners. Income taxes for the years ended December 31,
1995 and 1994 are comprised of certain state income taxes of LP and federal and
state income taxes of the Company. The pro forma income tax adjustments included
in the statements of earnings represent federal and the additional state income
tax expense that would have been required had the Company operated as a C
corporation for all periods presented.
Income tax expense (benefit) for the years ended December 31, 1994, 1995 and
1996 consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Current:
Federal $ 21,112 $ -- $ 2,820,410
State 8,237 -- 651,912
- ----------------------------------------------------------------------------------------------
29,349 -- 3,472,322
- ----------------------------------------------------------------------------------------------
Deferred:
Federal -- (39,817) (165,793)
State -- (10,183) (37,467)
- ----------------------------------------------------------------------------------------------
-- (50,000) (203,260)
- ----------------------------------------------------------------------------------------------
$ 29,349 $ (50,000) $ 3,269,062
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
WHITTMAN-HART, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
7. INCOME TAXES (CONTINUED)
The reconciliation of income taxes computed using the federal statutory rate
of 34% to the Company's income tax expense is as follows:
<TABLE>
<CAPTION>
1996
<S> <C>
- -------------------------------------------------------------------------------------------------
Federal income tax at the statutory rate 34.0%
State income tax, net of federal tax benefit 4.6
Tax exempt interest income (2.1)
Nondeductible expenses 1.4
Other (0.6)
- -------------------------------------------------------------------------------------------------
37.3%
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for doubtful accounts $ 39,280 $ 62,080
Accrued expenses 112,070 270,134
Deferred rent -- 184,683
Deferred compensation -- 10,518
- ----------------------------------------------------------------------------------------------
Total gross deferred tax assets 151,350 527,415
Less valuation allowance -- --
- ----------------------------------------------------------------------------------------------
Net deferred tax assets 151,350 527,415
- ----------------------------------------------------------------------------------------------
Deferred tax liabilities:
Property and equipment -- depreciation (101,350) (147,581)
Other -- (126,574)
- ----------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (101,350) (274,155)
- ----------------------------------------------------------------------------------------------
Net deferred tax asset $ 50,000 $ 253,260
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
No valuation allowance for deferred tax assets has been recorded as the
Company believes it is more likely than not the deferred tax assets will be
realized in the future.
As a result of income tax benefits related to certain employee stock plans,
$836,976 was credited to additional paid-in capital during 1996.
8. EXECUTIVE STOCK PLAN
Prior to the Company's initial public offering, the Executive Stock Plan was
used to reward selected executives for future services. Under the plan,
executives were awarded common stock that vested over a specified period. In the
event employment was terminated prior to vesting, the executive would not be
entitled to receive the common stock. Executive stock expense reported in the
statements of earnings amounted to $29,168, $241,668 and $30,214 in 1994, 1995
and 1996, respectively.
F-11
<PAGE>
WHITTMAN-HART, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
9. EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors an Employee Stock Ownership Plan ("ESOP") which covers
substantially all employees over the age of 21 who have completed one year of
service. Annual ESOP contributions are determined at the discretion of the
Company's Board of Directors. Plan participants become fully vested after
completing four years of service. ESOP contributions reported in the statements
of earnings amounted to $137,411 in 1994. There were no contributions in 1996
and 1995. The ESOP held 511,604 and 413,076 shares of the Company's common stock
at December 31, 1995 and 1996, respectively. The Company does not intend to make
future contributions to the ESOP.
10. 401(K) RETIREMENT PLAN
The Company's 401(k) plan covers all employees who have reached 21 years of
age. Participants may contribute up to 12% of their eligible compensation. The
Company matches participant contributions as defined within the plan. Company
contributions amounted to $92,100, $183,857 and $320,081 in 1994, 1995 and 1996,
respectively.
11. EMPLOYEE STOCK PURCHASE PLAN
In 1996, the Company established a stock purchase plan which permits
eligible employees to purchase, through payroll deductions, shares of the
Company's common stock at 90% of the fair market value on the first or last day
of each six-month offering period, whichever is lower. Payroll deductions may
not exceed 20% of the employee's total gross pay in any calendar year. The
Company has reserved an aggregate of 800,000 shares of common stock for issuance
under the plan. During the year ended December 31, 1996, 73,600 shares of common
stock were purchased under the plan.
12. STOCK COMPENSATION PLANS
In 1995, the Company adopted a stock option plan under which certain
employees may be granted the right to purchase shares of common stock at the
fair market value on the date of grant. The Company has reserved an aggregate of
4,000,000 shares of common stock for issuance under the plan. Stock options may
be exercised only to the extent they have vested in accordance with provisions
determined by the Board of Directors. In addition, the Company has from time to
time granted stock options outside of the stock option plan.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $7.82 and $1.20 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: 1996 --
expected dividend yield of 0%, expected volatility of 45%, risk-free interest
rate of 6.0% and an expected life of 3.25 years; 1995 -- expected dividend yield
of 0%, expected volatility of 45%, risk-free interest rate of 5.4% and an
expected life of 3.23 years.
Under Statement 123, compensation cost is recognized for the fair value of
the employees' purchase rights under the Employee Stock Purchase Plan. The
weighted-average fair value of those purchase rights granted in 1996 was $2.89
using the Black-Scholes model with the following assumptions: dividend yield of
0%, expected volatility of 45%, risk-free interest rate of 5.2% and an expected
life of six months.
The Company applies APB 25 in accounting for its plans and accordingly, no
compensation cost has been recognized in the financial statements for its stock
options and its stock purchase plan. Had the Company determined compensation
cost based on the fair value at the grant date for its stock-based
F-12
<PAGE>
WHITTMAN-HART, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
12. STOCK COMPENSATION PLANS (CONTINUED)
compensation plans under Statement 123, the Company's net income and net income
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
Net income (pro forma in 1995) As reported $ 1,113,574 $ 5,502,755
Pro forma $ 963,875 $ 5,117,593
Net income per share (pro forma in 1995) As reported $ 0.08 $ 0.30
Pro forma $ 0.07 $ 0.29
</TABLE>
Stock option activity for the periods indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
Outstanding on December 31, 1994 -- --
Granted 1,821,712 $ 3.19
- ----------------------------------------------------------------------------------------------
Outstanding on December 31, 1995 1,821,712 3.19
Granted 70,320 12.00
Exercised (89,223) 3.30
Canceled (97,433) 3.39
- ----------------------------------------------------------------------------------------------
Outstanding on December 31, 1996 1,705,376 $ 3.54
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ------------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
$1.645 to 3.245 1,660,870 9.0 years $ 3.18 493,707 $ 3.17
$8.00 11,114 9.3 8.00 400 8.00
$18.00 to 24.00 33,392 9.6 19.97 3,272 20.02
- --------------------------------------------------------------------------------------
$1.645 to 24.00 1,705,376 9.0 $ 3.54 497,379 $ 3.29
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
13. RELATED-PARTY TRANSACTIONS
The Company has several notes receivable from executives outstanding at
December 31, 1996 totaling $177,148. The notes bear interest at the prime rate
and are due on various dates through August 1998.
14. REVENUES FROM SIGNIFICANT CLIENTS
During 1996 and 1994, no client accounted for 10% or more of the Company's
total revenues. One client accounted for approximately 10% of the Company's
total revenues during 1995.
F-13
