<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 24, 1997
REGISTRATION STATEMENT NO. 333-37357
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
SUPERIOR CONSULTANT HOLDINGS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 8742 38-3306717
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
4000 TOWN CENTER, SUITE 1100
SOUTHFIELD, MICHIGAN 48075
(248) 386-8300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRATION'S PRINCIPAL EXECUTIVE OFFICES)
---------------
RICHARD D. HELPPIE, JR.
SUPERIOR CONSULTANT HOLDINGS CORPORATION
CHIEF EXECUTIVE OFFICER
4000 TOWN CENTER, SUITE 1100
SOUTHFIELD, MICHIGAN 48075
(248) 386-8300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
WILLIAM N. WEAVER, JR. SCOTT N. GIERKE
SACHNOFF & WEAVER, LTD. MCDERMOTT, WILL & EMERY
30 S. WACKER DRIVE, 29TH FLOOR 227 WEST MONROE STREET
CHICAGO, ILLINOIS 60606 CHICAGO, ILLINOIS 60606
(312) 207-6401 (312) 984-7521
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1997
PROSPECTUS
, 1997
3,000,000 SHARES
SUPERIOR CONSULTANT
LOGO HOLDINGS CORPORATION
COMMON STOCK
Of the 3,000,000 shares of Common Stock offered hereby, 2,000,000 shares are
being issued and sold by Superior Consultant Holdings Corporation (the
"Company") and 1,000,000 shares are being sold by the Selling Stockholders. See
"Principal and Selling Stockholders." The Company will not receive any part of
the proceeds from the sale of shares by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"SUPC." On October 23, 1997, the last reported sale price of the Common Stock
was $35 7/8 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS PROCEEDS TO
TO THE COMMISSIONS TO THE THE SELLING
PUBLIC (1) COMPANY (2) STOCKHOLDERS
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total (3).......... $ $ $ $
- ------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses, estimated at $350,000, which will be paid by the
Company.
(3) Certain Selling Stockholders have granted to the Underwriters a 30-day
option to purchase up to 450,000 additional shares of Common Stock at the
Price to the Public, less Underwriting Discounts and Commissions, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to the Public, Underwriting Discounts and Commissions and
Proceeds to the Selling Stockholders will be $ , $ and
$ , respectively. The Company will not receive any of the proceeds of
the sale of shares by the Selling Stockholders pursuant to the
Underwriters' over-allotment option, if exercised. See "Principal and
Selling Stockholders" and "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in
New York, New York, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY
JEFFERIES & COMPANY, INC.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (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 Seven 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 on 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.
ADDITIONAL INFORMATION
The Company has filed with the Commission, a registration statement on Form
S-1 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus, which constitutes
a part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain parts of which have been omitted in accordance with 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
and to the exhibits and schedules filed as part of the Registration Statement.
Statements contained in this Prospectus concerning the contents of any
contract or any other document referred to are not necessarily complete;
reference is made in each instance to the copy of such contract or document
filed as an exhibit to the Registration Statement. Each such statement is
qualified in all respects by such reference to such exhibit. Copies of the
Registration Statement and the exhibits and schedules thereto may be inspected
without charge at the public reference facilities maintained by the
Commission, and copies of all or any part thereto may be obtained from the
Commission, as described in "Available Information." The Registration
Statement, including the exhibits and schedules thereto, are also available on
the Commission's web site at http://www.sec.gov.
This Prospectus contains certain forward-looking statements which involve
substantial risks and uncertainties. These forward-looking statements can
generally be identified as such because the context of the statement includes
words such as the Company "believes," "anticipates," "expects," "estimates,"
"intends," or other words of similar intent. Similarly, statements that
describe the Company's future plans, objectives and goals are also forward-
looking statements. The Company's actual results, performance or achievements
could differ materially from those expressed or implied in these forward-
looking statements as a result of certain factors, including those set forth
in "Risk Factors" and elsewhere in this Prospectus.
Superior and Enterprise are service marks of the Company. All trademarks,
service marks and trade names referred to in this Prospectus are the property
of their respective owners.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<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
Consolidated Financial Statements and related Notes thereto appearing elsewhere
in this Prospectus. Unless indicated otherwise, all information contained in
this Prospectus assumes that the Underwriters over-allotment option is not
exercised. The Company has two wholly-owned operating subsidiaries, Superior
Consultant Company, Inc. ("Superior") and Enterprise Consulting Group, Inc.
("Enterprise," formerly known as UNITIVE Corporation). Unless the context
otherwise indicates, all references to the "Company" include Superior and
Enterprise.
THE COMPANY
The Company, through Superior, is a national healthcare consulting firm that
provides a wide range of information technology ("IT") consulting and strategic
and operations management consulting services to a broad cross-section of
healthcare industry participants and healthcare information system vendors. The
Company uses its in-depth institutional knowledge and nationally deployed group
of experienced consultants to help clients plan and execute business
strategies. The Company's comprehensive continuum of solutions includes:
strategic planning and operations management consulting; information systems
planning, implementation and integration; and interim management and
outsourcing.
The Company's healthcare consulting services integrate many diverse facets
and constituencies of the healthcare industry. Through its strategic
consulting, the Company brings together the healthcare and business
relationships required to establish and maintain efficient and collaborative
Integrated Delivery Networks ("IDNs"). Through its operations management
consulting, IT project consulting, interim management and IT outsourcing, the
Company links the needs and optimizes the contributions of clinical,
information and management personnel. Through its IT implementation, planning
and integration consulting, the Company forges a value-added link between
healthcare information systems vendors and their customers by maximizing the
potential of existing technology and providing a bridge to emerging
technologies. The Company's broad expertise in numerous healthcare information
systems and technologies and its independent status enable the Company to
recommend and implement customized solutions that are unbiased toward specific
organizations including hardware and software vendors.
The Company believes several competitive factors distinguish it from other
participants in the healthcare consulting market, including: (i) an extensive
healthcare focus giving the Company an in-depth knowledge of the healthcare
industry and a detailed understanding of each client's particular business
environment and market dynamics; (ii) proprietary information and communication
systems which are used by the Company's consultants on a daily basis to access
product and industry knowledge, facilitate seamless geographic communication
and effectively manage and complete engagements; (iii) recognized expertise
resulting from Superior's experienced healthcare consultants, who have an
average of over 17 years of healthcare and IT experience; (iv) a demonstrated
ability to attract outsourcing clients; (v) an ability to recruit and retain
highly experienced personnel which is enhanced by the Company's motivational
and interactive work environment; (vi) a structured framework and supportive
culture for education, skills enhancement and personnel development; (vii) an
extensive knowledge of the products and technologies of major healthcare
information system vendors; and (viii) long-term client relationships that
often create opportunities for additional engagements.
The Company serves clients across a broad cross-section of the healthcare
industry. From January 1, 1996 through June 30, 1997, the Company provided
services to over 420 healthcare clients on over 1,000 engagements. The Company
believes that its long-term relationships, in-depth knowledge of its client's
needs and its broad range of services provide it with significant advantages
over its competitors in marketing additional services and winning new
engagements. In each of the last three completed fiscal years, the Company's
revenues from clients served in the prior year exceeded 75% of total revenues.
The Company's goal is to be the preferred, if not sole, provider of a broad
range of solutions for each of its clients.
3
<PAGE>
The healthcare industry continues to undergo rapid, profound change as
healthcare providers face external and internal pressures to meet the
competitive demands of the marketplace, comply with increasing government
regulations and cope with the advent of managed care. As industry consolidation
and the formation of IDNs create larger and increasingly far-reaching
healthcare organizations, providers must place greater focus on information
management and business process solutions to control costs, demonstrate
quality, measure performance and increase efficiency. Those pressures have
driven the healthcare industry's substantial spending on IT, which was
estimated by International Data Corporation to have been approximately $9.9
billion in 1995. Healthcare IT has grown increasingly complex, costly and
burdensome due to the challenges of deploying new technology, implementing new
enterprise-wide information systems, maintaining older systems and meeting
staffing requirements in a market with an insufficient pool of qualified IT
professionals. In addition, the changing business environment has also produced
an evolving range of strategic and operational options for healthcare entities,
many of which are unfamiliar to an industry that has historically operated
under a non-aligned, third-party payor environment. As a result, the Company
believes that healthcare organizations will continue to turn to outside
consultants for a wide range of IT, strategic and operational solutions. For
example, according to DataQuest, expenditures by healthcare industry
participants on IT professional services have grown at a compound annual rate
of 14.9% from an estimated $2.5 billion in 1994 to an estimated $3.3 billion in
1996.
The Company's growth strategy is focused on: (i) growing the core business;
(ii) providing outsourcing; (iii) pursuing strategic acquisitions and
alliances; and (iv) intensifying its geographic presence. By successfully
achieving these goals, the Company believes it can further enhance its
leadership position in the healthcare consulting industry.
In addition, the Company's strategy focuses on expanding Enterprise, which
assists its diverse group of clients in various industries with network and
telecommunication design and acquisition, enterprise messaging, intranet and
web strategies, workgroup consulting and software and application development
solutions. The Company intends to capitalize on opportunities to cross-market
Enterprise's groupware development and management services to its healthcare
clients while continuing to expand Enterprise's business across a broad range
of industries.
RECENT DEVELOPMENTS
In pursuit of its growth strategy, in 1997 the Company entered into three
multi-year IT outsourcing agreements and acquired three companies which had
combined aggregate revenue of approximately $21.1 million for their most
recently completed fiscal years.
. In January 1997, the Company entered into a five-year outsourcing agreement
with a new client, Zieger Healthcare Corporation ("Zieger"). Under the
Zieger agreement, the Company assumed responsibility for the information
systems function, including planning, project management, "just-in-time"
opportunities and data center operations, for Botsford General Hospital in
Farmington Hills, Michigan ("Botsford"). The Company hired most of
Botsford's existing IT staff who now serve Botsford or other clients of the
Company.
. In March 1997, the Company entered into a five-year outsourcing agreement
with The Detroit Medical Center ("Detroit Medical"), an existing client.
The agreement with Detroit Medical encompasses a wide array of applications
management services, including patient, financial, clinical and operational
projects. A portion of Detroit Medical's IT staff joined the Company and
continue to serve Detroit Medical or other Company clients.
. In September 1997, the Company entered into a comprehensive three-year IT
outsourcing agreement with the Georgetown University Medical Center, an
existing client which serves the entire Georgetown academic research
clinical enterprise, including the faculty practice group ("Georgetown").
Under the Georgetown
4
<PAGE>
agreement, the Company will assume responsibility for Georgetown's entire IT
function, including planning, applications implementation, project
management, data center operations and implementation of a multi-year
strategic plan. A majority of Georgetown's IT staff has joined the Company
and will provide service to Georgetown or other clients of the Company.
. On March 12, 1997, the Company acquired The Kaufman Group, Inc. ("The
Kaufman Group"), a California-based healthcare consulting business, for up
to approximately $4.7 million in cash and $1.6 million in Common Stock
(74,590 shares). The Kaufman Group is a managed care consulting leader,
advising provider organizations on a wide range of matters including
mergers, acquisitions and alliances. The Kaufman Group is operating as a
practice area within Superior, and its market research, strategy,
transaction and valuation services complement the Company's existing
services, broaden its service offerings and open new opportunities for
cross-selling its other services.
. On July 29, 1997, the Company acquired COMSUL, Ltd. ("COMSUL") for
approximately $7.7 million in Common Stock (240,630 shares). COMSUL
specializes in information systems, telecommunications, and corporate
facilities and organizational design for a wide range of clients and has
offices in New York, California and Texas. COMSUL has become the Network
and Telecommunications Division of Enterprise, enhancing the geographic
reach and scope of its business.
. On August 14, 1997, the Company acquired Chi Systems, Inc. ("Chi"), for
approximately $11.2 million in Common Stock (331,509 shares). Chi, based in
Ann Arbor, Michigan, became an operating division of Superior and has
offices in Philadelphia, Chicago and Denver. Chi's service offerings
encompass strategic and business planning, facility planning and
reconfiguration, ambulatory care planning, operations and quality
improvement, clinical program planning, case management, patient-centered
care, post-acute care and quality outcomes management.
On October 22, 1997, the Company reported financial results for the three and
nine month periods ended September 30, 1997. See "Recent Financial Results."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the 2,000,000 shares
Company...........................
Common Stock offered by the Selling 1,000,000 shares
Stockholders......................
Common Stock outstanding
immediately after the Offering.... 10,206,464 shares (1)
Use of proceeds.................... Expansion of existing operations, including
outsourcing, development of new service of-
ferings, possible acquisitions of related
businesses and general corporate purposes,
including working capital. See "Use of Pro-
ceeds."
Nasdaq National Market Symbol...... SUPC
</TABLE>
- --------------------
(1) Excludes (i) 539,478 shares of Common Stock reserved for issuance pursuant
to stock options granted under the Company's Long-Term Incentive Plan as of
September 30, 1997 at a weighted average exercise price of $21.22 per
share; and (ii) 1,860,522 additional shares of Common Stock reserved for
future issuance under the Company's Long-Term Incentive Plan. See
"Management--Employee Benefit Plans--Long-Term Incentive Plan" and Note 6
of Notes to Consolidated Financial Statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------------
PRO
PRO FORMA FORMA
1992 1993 1994 1995 1996 1996(1)(2) 1996 1997 1997(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $14,316 $15,559 $19,234 $25,906 $35,925 $40,130 $16,547 $25,974 $26,975
Cost of services....... 6,822 6,802 8,505 12,008 17,743 18,926 8,197 12,963 13,275
Selling, general and
administrative
expenses.............. 5,712 6,200 8,223 10,045 13,498 14,380 6,250 9,925 10,180
Executive compensation
expense(3)............ 3,480 1,931 2,445 3,730 4,579 1,885 2,600 444 604
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............ (1,698) 626 61 123 105 4,939 (500) 2,642 2,916
Interest and other
expense (income)...... (34) 22 (28) (58) (359) (380) (6) (976) (976)
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes.......... (1,664) 604 89 181 464 5,319 (494) 3,618 3,892
Income taxes........... -- -- -- 165 886 2,177 13 1,440 1,767
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss).... $(1,664) $ 604 $ 89 $ 16 $ (422) $ 3,142 $ (507) $ 2,178 $ 2,125
======= ======= ======= ======= ======= ======= ======= ======= =======
Net earnings per share. $ 0.57 $ 0.28 $ 0.28
======= ======= =======
Weighted average number
of common and common
equivalent shares
outstanding........... 5,530 7,688 7,718
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED(4)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $36,752 $104,565
Total assets............................................ 51,993 119,806
Total debt.............................................. -- --
Total stockholders' equity.............................. 45,188 113,001
</TABLE>
- --------------------
(1) The pro forma statement of operations data for the year ended December 31,
1996 has been computed by adjusting the Company's net earnings to (i)
eliminate executive compensation expense in excess of the amount of
executive compensation (including the full amount of potential bonus) that
would have been paid had executive compensation agreements, which became
effective on October 16, 1996, the closing date of the Company's initial
public offering, been effective throughout such period; and (ii) record
income taxes, assuming an effective tax rate of 39.4%, which would have
been recorded had Superior been a C Corporation during such period.
(2) Gives effect to the acquisition of The Kaufman Group as if it had occurred
on January 1, 1996. Does not give effect to the acquisitions of COMSUL and
Chi which will be reflected in the Company's financial statements for the
quarter ending September 30, 1997. COMSUL and Chi had aggregate revenues of
approximately $16.9 million for their most recently completed fiscal years.
(3) Executive compensation expense includes salary and bonuses for Richard D.
Helppie, Jr., Charles O. Bracken and Robert R. Tashiro. The Company entered
into agreements with these three officers, effective October 16, 1996, the
closing date of the Company's initial public offering, through December 31,
1997, which will provide them with annual compensation in the aggregate
amount of approximately $1.1 million, comprised of base salary and bonus
compensation based on achievement of certain pre-determined performance
criteria. These limitations did not apply to amounts paid to these three
officers on or prior to the closing of the Company's initial public
offering.
(4) Adjusted to give effect to the sale by the Company of 2,000,000 shares of
Common Stock offered hereby at an assumed public offering price of $35 7/8
per share, net of underwriting discounts and commissions and estimated
costs of this offering.
6
<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus, investors
should consider carefully the following factors in connection with an
investment in the shares of Common Stock offered hereby. This Prospectus
contains certain forward-looking statements which involve substantial risks
and uncertainties. These forward-looking statements can generally be
identified as such because the context of the statement includes words such as
the Company "believes," "anticipates," "expects," "estimates," "intends," or
other words of similar import. Similarly, statements that describe the
Company's future plans, objectives and goals are also forward-looking
statements. The Company's actual results, performance or achievements could
differ materially from those expressed or implied in these forward-looking
statements as a result of certain factors, including those set forth below and
elsewhere in this Prospectus.
RECRUITMENT AND RETENTION OF PROFESSIONAL STAFF
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 consultants. There is
significant competition for employees with the skills required to perform the
services offered by the Company from other consulting firms, healthcare
providers and other healthcare industry participants, health information
systems vendors, clients, systems integrators and many other enterprises.
There can be no assurance that the Company will be able to attract and retain
a sufficient number of highly skilled employees in the future or that it will
continue to be successful in training, retaining and motivating employees. The
loss of a significant number of consultants and/or the Company's inability to
hire a sufficient number of qualified consultants would adversely affect the
Company's ability to secure, service and complete client engagements and could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Employees" and "--Competition."
VARIABILITY OF QUARTERLY OPERATING RESULTS
Variations in the Company's revenue and operating results may occur as a
result of a number of factors, such as the number and significance of active
client engagements during a quarter, delays incurred in connection with a
project, employee hiring and consultant utilization. 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, budgetary
cycles and pressures and general economic conditions. In addition, a
substantial percentage of the Company's expenses, particularly personnel and
rent, are relatively fixed in advance of any particular quarter. As a result,
a variation in the size or number of client assignments or the timing of the
initiation or the completion of client assignments can cause significant
variations in operating results from quarter to quarter. Seasonal factors,
such as vacation days and total business days in a quarter, and the business
practices of clients such as deferring commitments on new projects until after
the end of the calendar year or the client's fiscal year, could require the
Company to maintain under-utilized employees and could therefore have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company's annual employees' meetings
can result in lower consultant utilization in the quarter in which the meeting
occurs. Given the possibility of such fluctuations, the Company believes that
comparisons of its results of operations for preceding quarters are not
necessarily meaningful and that such results for one quarter should not be
relied upon as an indication of future performance. Based on the preceding
factors, it is possible that the Company may experience a shortfall in revenue
or earnings from expected levels or otherwise fail to meet expectations of
securities analysts or the market in general, which could have a material
adverse effect on the market price of the Company's Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results."
MANAGEMENT OF GROWTH
The Company's operational and geographic growth (including an increase from
5 to 18 facilities in the last twelve months) as well as the Company's
acquisitions and success in securing outsourcing contracts has placed
7
<PAGE>
significant demands on the Company's management, administrative, operational
and financial resources. The Company's ability to manage its growth will
require the Company to continue to implement and improve its operational,
financial and management information systems and to continue to expand,
motivate and effectively manage an evolving and expanding workforce. In
addition, the Company's success will depend in large part on its ability to
maintain high levels of consultant utilization, maintain or increase billing
rates, maintain quality and accurately set and meet schedules. If the Company
is unable to manage effectively any of these variables, the quality of the
Company's services, its ability to retain key personnel and its results of
operation could be materially and adversely affected. No assurance can be
given that the Company will continue to experience growth or that the Company
will be successful in managing its growth, if any.
CLIENT CONCENTRATION
The Company derives a significant portion of its revenues from a relatively
limited number of clients. For example, during 1996 and the six months ended
June 30, 1997 the Company's five largest clients accounted for approximately
25.8% and 29.9%, respectively, of the Company's revenues. Detroit Medical
accounted for 7.1% and 10.0% of the Company's revenues in 1996 and the six
months ended June 30, 1997, respectively. Two of the top five clients in 1996
were also among the Company's five largest clients during the six months ended
June 30, 1997. Except for the Company's outsourcing contracts, which typically
are for more than one year, clients engage the Company on an assignment-by-
assignment basis, and a client can generally terminate an assignment at any
time without penalty. In addition, the level of the Company's consulting
services required by any individual client can diminish over the life of its
relationship with the Company, and there can be no assurance that the Company
will be successful in establishing relationships with new clients as this
occurs. Moreover, there can be no assurance that the Company's existing
clients will continue to engage the Company for additional projects or do so
at the same revenue levels. The loss of any significant client could have a
material adverse effect on the Company's business, financial condition and
results of operations.
VENDOR SYSTEMS CONCENTRATION
There are numerous healthcare information systems solutions available to the
healthcare industry. Vendors of these products come into and out of favor
depending on a variety of factors. Although the Company's consultants have
expertise with the information systems developed by numerous healthcare
information system vendors, historically the Company has experienced periodic
revenue concentration from client projects involving the products of an
evolving group of vendors. At present, the Company believes that its current
concentration of revenue derived from the planning, management, process design
and implementation involving the products of three leading healthcare
information systems vendors, Shared Medical Systems Corporation ("SMS"), HBO &
Company ("HBOC") and Cerner Corp. ("Cerner") generally reflects the current
favor of the healthcare industry participants served by the Company to these
vendors. Client projects involving the products of these three vendors,
together, represented approximately 44.2% and 30.9% of the Company's revenues
in 1996 and the six months ended June 30, 1997, respectively. Should one of
these vendors (or any vendors with whose products the Company has substantial
involvement) lose favor in the healthcare industry, it would require the
Company to refocus its efforts on alternative information systems products of
other vendors. The loss of a major portion of the Company's business with
respect to any one of these vendors could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON SENIOR MANAGEMENT
The success of the Company is highly dependent upon the efforts, abilities
and business generation capabilities of its senior management team, including
its three most senior executive officers: Richard D. Helppie, Jr., President
and Chief Executive Officer of the Company; Charles O. Bracken, Executive Vice
President of Superior; and Robert R. Tashiro, Senior Vice President and Chief
Operating Officer of Superior. Although client relationships are managed at
many levels of the Company, the loss of the services of any of these key
executives
8
<PAGE>
for any reason could have a material adverse effect upon the Company's
business, financial condition and results of operations, including its ability
to secure engagements. Moreover, certain client and industry relationships and
areas of expertise are dependent on the efforts, abilities and business
generation capabilities of other members of the Company's management team. The
loss of the services of any of these management team members could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Management."
RISKS OF COMPLETED ACQUISITIONS; RISKS OF ACQUISITION STRATEGY
Since its initial public offering, the Company has consummated three
acquisitions and the Company expects to continue to expand through
acquisitions as a part of its growth strategy. However, the anticipated
benefits of these acquisitions may not be achieved, and the Company's growth
strategies will not be fully implemented, unless the Company successfully
integrates and markets its acquired services in a timely manner. The
difficulties of such integration may initially be increased by the necessity
of integrating personnel with disparate business backgrounds and corporate
cultures. Management's focus on the integration of acquired companies and the
implementation of the Company's strategy may cause interruption, or loss of
momentum, in the ongoing activities of the Company or one or more of the
acquired companies, which could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company intends to continue to expand its geographic presence, industry
expertise and technical scope through strategic acquisitions and alliances
with companies that provide additional and complementary products, services or
skills or have strategic client relationships. There can be no assurance that
the Company will be able to identify suitable acquisition candidates or that,
if identified, the Company will be able to acquire such companies on suitable
terms. Moreover, other companies are competing for acquisition candidates,
which could result in an increase in the price of acquisition targets and a
decrease in the number of attractive companies available for acquisition.
Acquisitions also involve a number of special risks, including: (i) adverse
effects on the Company's reported operating results including increased
goodwill amortization and interest expense; (ii) diversion of management
attention; (iii) risks associated with unanticipated problems, liabilities or
contingencies; (iv) difficulties related to the integration and management of
the acquired business; (v) the risk of entering markets in which the Company
has limited or no direct expertise; and (vi) the potential loss of key
employees of the acquired companies. In addition, acquisitions may involve the
expenditure of significant funds. There can be no assurance that any
acquisition will result in long-term benefits to the Company or that
management will be able to manage effectively the resulting business. The
occurrence of some or all of the events described in these risks could have a
material adverse effect on the Company's business, financial condition and
results of operations.
HEALTHCARE INDUSTRY CONCENTRATION
All of the revenues of the Company's wholly-owned healthcare consulting
subsidiary, Superior, in 1996 and for the six months ended June 30, 1997, were
derived from clients involved in the healthcare industry. These revenues
represented 91.6% and 89.1%, respectively, of the total revenues generated by
the Company on a consolidated basis for the same periods. In addition, for the
six months ended June 30, 1997, the Company's other wholly-owned subsidiary,
Enterprise, derived 22.4% of its revenues from healthcare clients. As a result
of the Company's focus on healthcare consulting, the Company's business,
financial condition and results of operations are influenced by conditions
affecting this industry, including changing political, economic and regulatory
influences that may affect the procurement practices and operation of
healthcare providers. Many federal and state legislators have announced that
they intend to propose programs to reform the United States healthcare system
at both the federal and state level and government agencies have intensified
efforts to monitor fraud and abuse in healthcare programs reimbursed by
federal and state agencies. These efforts could adversely affect the Company's
clients, result in lower reimbursement rates and change the environment in
which providers operate and could otherwise adversely affect service providers
such as the Company. In addition, large private purchasers of healthcare
services are placing increasing cost pressure on providers. Healthcare
providers may
9
<PAGE>
react to these cost pressures and other uncertainties by curtailing or
deferring investments, including investments in the Company's services.
Moreover, many healthcare providers are consolidating to create larger
healthcare delivery organizations and are forming affiliations for purchasing
products and services. These consolidations and affiliations reduce the number
of potential customers for the Company's services and the increased bargaining
power of these organizations could lead to reductions in the amounts paid for
the Company's services. In addition, this consolidation is likely to result in
the acquisition of certain of the Company's clients, and such clients may
scale back or terminate their relationship with the Company following their
acquisition. The impact of these developments in the healthcare industry is
difficult to predict and could have a material adverse effect on the Company's
business, financial condition and results of operations.
PROJECT RISKS; LIMITED OUTSOURCING EXPERIENCE
Many of the Company's engagements involve projects which are critical to the
operations of its clients' business and which provide benefits that may be
difficult to quantify. The Company's failure to meet a client's expectations
in the performance of its services could damage the Company's reputation and
adversely affect its ability to attract new business. In addition, the Company
could incur substantial costs and expend significant resources correcting
errors in its work, and could possibly become liable for damages caused by
such errors. For example, the healthcare industry faces potential difficulties
with its information systems and business operations arising out of potential
Year 2000 problems. The Company is engaged in projects assisting clients in
auditing Year 2000 compliance and taking steps to render information systems
Year 2000 compliant. While the Company is not aware of any existing or
potential claims, the occurrence of Year 2000 related systems failures in the
information systems of clients of the Company could have a materially adverse
effect on the Company's business, financial condition and results of
operations, whether or not the Company bears any responsibility, legal or
otherwise, for the occurrence of those problems.
The Company has established a program to provide healthcare IT outsourcing
which includes interim management, personnel acquisition and facilities
management, and/or the transfer of a client's information system assets--
hardware/software and human resources--from an internal business function to
an outsourced service. To implement its outsourcing program, the Company may
be required to make substantial investments in capital assets and personnel
for certain outsourcing contracts. The Company may also be dependent upon its
ability to hire and retain some or all of an outsourcing client's former IT
staff in order to provide appropriate service levels. The provision of
outsourcing services and its profitability could also be adversely affected by
the recent increase in government scrutiny of provider reimbursement
practices. The Company has limited experience to date as an outsourcing
provider, and there can be no assurance that the Company will be able to
assess accurately the investment required and negotiate and perform in a
profitable manner any of its outsourcing contracts. If the Company is
successful in implementing its outsourcing strategy, the Company anticipates
that competitors may increase their focus on this market which could adversely
affect the Company's ability to obtain new outsourcing contracts as well as
the profitability of any such contracts. In addition, any failure by the
Company to perform adequately under its outsourcing agreements may adversely
effect its ability to obtain future consulting engagements from these or other
clients. As a result of the Company's success in obtaining outsourcing
contracts and the nature of the practices of certain recently acquired
companies, an increasing portion of the Company's projects are billed on a
fixed-fee basis as opposed to the Company's general method of billing on a
time and materials basis. The Company's failure to estimate accurately the
resources and related expenses required for a fixed-fee project or its failure
to complete its contractual obligations in a manner consistent with the
project plan upon which its fixed-fee contract was based could have a material
adverse effect on the Company's business, financial condition and results of
operations.
COMPETITION
The market for the Company's services is highly fragmented and highly
competitive and is subject to rapid change. The Company believes that it
currently competes principally with systems integration firms, national
consulting firms, including the consulting divisions of large accounting
firms, information system vendors, service groups of computer equipment
companies, facilities management companies, general management consulting
firms and regional and specialty consulting firms. Many of the Company's
competitors have
10
<PAGE>
significantly greater financial, technical and marketing resources than the
Company, generate greater revenues and have greater name recognition than the
Company. Moreover, those competitors that sell or license their own software
may in the future attempt to limit or eliminate the use of third party
consultants, such as the Company, to implement and/or customize such software.
In addition, vendors whose systems may enjoy wide market acceptance and large
market share could enter into exclusive or restrictive agreements with other
consulting firms which could eliminate or substantially reduce the Company's
implementation work for those systems. There are relatively low barriers to
entry into the Company's markets, and the Company has faced and expects to
continue to face additional competition from new entrants into the healthcare
consulting industry. In addition, combinations and consolidations in the
consulting industry will give rise to larger competitors, whose relative
strengths are impossible to predict. The Company also competes with its
clients' internal resources, particularly where these resources represent a
fixed cost to the client. This internal client competition may heighten as
consolidation of healthcare providers creates organizations large enough to
support more sophisticated internal information management capabilities. There
can be no assurance that the Company will be able to compete effectively with
current and future competitors or that competitive pressures (including wage
pressures as the consultant labor market tightens) faced by the Company will
not cause the Company's revenue or operating margins to decline or otherwise
materially adversely affect its business, financial condition and results of
operations.
LIMITED PROTECTION OF PROPRIETARY SYSTEMS AND PROCEDURES
The Company's success is in part dependent upon its proprietary internal
information and communication systems, databases, tools, and the methods and
procedures that it has developed specifically to serve its clients. In
addition, Enterprise has and will continue to develop proprietary groupware
tools and applications. The Company has no patents; consequently, it relies on
a combination of nondisclosure and other contractual arrangements and
copyright, trademark and trade secret laws to protect its proprietary systems,
information and procedures. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its proprietary rights.
The Company believes that its systems and procedures and other proprietary
rights do not infringe upon the proprietary rights of third parties. There can
be no assurance, however, that third parties will not assert infringement
claims against the Company in the future or that any such claims will not
require the Company to enter into materially adverse license arrangements or
result in protracted and costly litigation, regardless of the merits of such
claims.
INFLUENCE OF PRINCIPAL STOCKHOLDER
After completion of this offering, the Company's principal stockholder and
Chief Executive Officer, Richard D. Helppie, Jr., will beneficially own
approximately 31.2% (26.8% if the Underwriters' over-allotment option is
exercised in full) of the Company's outstanding shares of Common Stock. As a
result, Mr. Helppie will retain the voting power to exercise significant
influence over the outcome of matters requiring a stockholder vote, including
the election of directors and the approval of significant corporate matters.
Such a concentration of control could adversely affect the market price of the
Common Stock or could have the effect of delaying or preventing a change in
control of the Company.
LIMITED TRADING HISTORY OF COMMON STOCK; STOCK PRICE VOLATILITY
The Common Stock was first publicly traded on October 10, 1996 after the
Company's initial public offering of Common Stock to the public at $16 per
share. Between October 10, 1996 and September 30, 1997, the sale price has
ranged from a low of $14 3/4 per share to a high of $37 1/4 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 services offered by the Company, announcements of new
services by competitors, changes in the healthcare and IT consulting
environments, changes in earnings estimates by analysts, sales of Common Stock
by existing
11
<PAGE>
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 managements 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."
SIGNIFICANT UNALLOCATED NET PROCEEDS
None of the anticipated net proceeds of this offering has been designated
for specific uses. Therefore, the Board of Directors will have broad
discretion with respect to the use of the net proceeds of this offering. See
"Use of Proceeds."
CERTAIN ANTITAKEOVER EFFECTS
The Company's Amended and Restated Certificate of Incorporation and By-Laws
and the Delaware General Corporation Law include provisions that may be deemed
to have antitakeover effects and may delay, defer or prevent a takeover
attempt that stockholders might consider in their best interests. These
include a board of directors which is divided into three classes, each of
which is elected for staggered, three-year terms, By-Law provisions under
which only the Chairman of the Board, a majority of the Board of Directors or
stockholders owning at least 50% of the Company's capital stock may call
meetings of stockholders and which require certain advance notice procedures
for nominating candidates for election to the Board of Directors. The Board of
Directors of the Company is empowered to issue up to 1,000,000 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 an issuance thereof, may have an adverse effect on the market price of the
Company's Common Stock. Furthermore, the Company is subject to the
antitakeover provisions of Section 203 of the Delaware General Corporation Law
that prohibit the Company 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 first becomes an "interested stockholder,"
unless the business combination is approved in a prescribed manner. The
application of Section 203 and certain other provisions of the Certificate of
Incorporation could also have the effect of delaying or preventing a change of
control of the Company, which could adversely affect the market price of the
Company's Common Stock. See "Management--Executive Officers and Directors" and
"Description of Capital Stock--Antitakeover Effects of Provisions of the
Certificate of Incorporation, By-Laws and Delaware Law."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of this offering, the Company will have
10,206,464 shares of Common Stock outstanding, of which the 3,000,000 shares
sold pursuant to this offering as well as the 2,875,000 shares sold in the
Company's initial public offering will be freely tradeable without restriction
or further registration under the Securities Act, except shares acquired by
affiliates of the Company. Holders of the remaining shares will be eligible to
sell such shares pursuant to Rule 144 ("Rule 144") under the Securities Act at
prescribed times and subject to the manner of sale, volume, notice and
information restrictions of Rule 144. The Company has granted certain
registration rights covering an aggregate of 315,220 shares of Common Stock
(128,603 shares of which are being sold pursuant to this Prospectus). In
addition, 539,478 shares of Common Stock are issuable upon the exercise of
outstanding stock options (96,596 of which are currently exercisable) which
shares have been
12
<PAGE>
registered by the Company under the Securities Act and after issuance upon
exercise will be freely tradeable without restriction. The Company, together
with the directors, executive officers and the other Selling Stockholders
(holding in the aggregate 3,939,794 shares of Common Stock upon consummation
of this offering), have agreed not to offer, sell, contract to sell or
otherwise dispose of, directly or indirectly, any Common Stock, or any
securities convertible into or exchangeable or exercisable for Common Stock,
for a period of 90 days after the date of this Prospectus without the prior
consent of Donaldson, Lufkin & Jenrette Securities Corporation. However,
Donaldson, Lufkin & Jenrette Securities Corporation may, in its discretion,
waive the foregoing restrictions in whole or in part, with or without a public
announcement of such action. Sales of substantial amounts of such shares in
the public market or the availability of such shares for future sale could
adversely affect the market price of the shares of Common Stock and the
Company's ability to raise additional capital at a price favorable to the
Company. See "Shares Eligible for Future Sale" and "Underwriting."
ABSENCE OF DIVIDENDS
The Company does not anticipate paying any dividends on its Common Stock in
the foreseeable future. See "Dividend Policy."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Included in this Prospectus are various forward-looking statements,
including, among others, the Company's goals and strategies, the expected
growth of the healthcare consulting industry, the pace of change in the
healthcare and IT marketplace, the demand for healthcare consulting and IT
services, the Company's goal to expand service offerings and to pursue
acquisitions, the ability to leverage the Company's client base into
additional contracts, and the ability to obtain new outsourcing contracts.
These statements are forward-looking and reflect the Company's current
expectations. Such statements are subject to a number of risks and
uncertainties, including, but not limited to, changes in the economic and
political environments, changes to technology and changes in the healthcare
consulting marketplace. In light of the many risks and uncertainties
surrounding the Company and the healthcare consulting marketplace, there can
be no assurance that the events described in forward-looking statements
contained in this Prospectus will transpire.
13
<PAGE>
THE COMPANY
The Company was incorporated under the laws of Delaware on August 14, 1996.
Superior and Enterprise were founded in 1984 and 1993, respectively.
Immediately prior to the closing of the Company's initial public offering,
Superior and Enterprise became wholly-owned operating subsidiaries of the
Company pursuant to two separate merger transactions. The Company maintains
its principal executive offices at 4000 Town Center, Suite 1100, Southfield,
Michigan 48075. The Company's web site is www.superiorconsultant.com. The
Company's web site is not part of this Prospectus. The Company's telephone
number is (248) 386-8300.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $35 7/8 per share are estimated to be approximately $67.8 million, after
deducting the estimated underwriting discounts and commissions and estimated
offering expenses. The Company expects to use the net proceeds from this
offering for expansion of existing operations, including outsourcing,
development of new service offerings, possible acquisitions of related
businesses and general corporate purposes, including working capital. Although
the Company actively seeks to acquire related businesses, it currently has no
understandings, commitments or agreements with respect to any acquisitions.
Pending application as described above, such proceeds will be invested in
short-term, investment grade, interest-bearing securities.
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders. See "Principal and Selling Stockholders."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol "SUPC" since October 10, 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>
PRICE RANGE
OF COMMON STOCK
------------------
HIGH LOW
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Fourth Quarter (from October 10, 1996)............ $ 26 $ 19 1/2
YEAR ENDED DECEMBER 31, 1997:
First Quarter..................................... $ 24 3/4 $ 16
Second Quarter.................................... 37 14 3/4
Third Quarter .................................... 37 1/4 27
Fourth Quarter (through October 6, 1997).......... 36 3/4 33 1/4
</TABLE>
On October 23, 1997, the last reported sale price of the Common Stock was
$35 7/8 per share. As of October 23, 1997, there were approximately 71 holders
of record of the Common Stock.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock. The Company
currently anticipates that all of its earnings will be retained for
development of the Company's business and does not anticipate paying any cash
dividends in the foreseeable future. Future cash dividends, if any, will be at
the discretion of the Company's Board of Directors and will depend upon, among
other things, the Company's future operations and earnings, capital
requirements and surplus, general financial condition, contractual
restrictions and such other factors as the Board of Directors may deem
relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth the short term debt and total capitalization
of the Company as of June 30, 1997, and as adjusted to reflect (i) the
issuance since June 30, 1997 of an aggregate of 572,139 shares in connection
with the acquisitions of COMSUL and Chi; and (ii) the sale of 2,000,000 shares
of Common Stock offered by the Company hereby at an assumed public offering
price of $35 7/8 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds." The following table should be read in
conjunction with the Consolidated Financial Statements and related Notes
thereto, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Line of credit............................................ $ -- $ --
======= ========
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued........................... $ -- $ --
Common stock, $.01 par value; 30,000,000 shares
authorized; 7,634,325 issued and outstanding;
10,206,464 issued and outstanding as adjusted (1)...... 76 102
Additional paid-in capital.............................. 42,548 110,335
Retained earnings....................................... 3,262 3,262
Stockholders' notes receivable.......................... (698) (698)
------- --------
Total stockholders' equity............................ 45,188 113,001
------- --------
Total capitalization................................ $45,188 $113,001
======= ========
</TABLE>
- ---------------------
(1) Excludes (i) 539,478 shares of Common Stock reserved for issuance pursuant
to stock options granted under the Company's Long-Term Incentive Plan as
of September 30, 1997 at a weighted average exercise price of $21.22 per
share; and (ii) 1,860,522 additional shares of Common Stock reserved for
future issuance under the Company's Long-Term Incentive Plan. See
"Management--Employee Benefit Plans--Long-Term Incentive Plan" and Note 6
of Notes to Consolidated Financial Statements.
15
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED FINANCIAL INFORMATION
On March 12, 1997 the Company purchased all of the common stock of The
Kaufman Group for approximately $3.2 million in cash, $1.6 million of the
Company's newly-issued Common Stock, and a maximum additional payment of $1.5
million payable in cash over a three-year period. The pro forma unaudited
consolidated condensed financial statements for the year ended December 31,
1996 present the historical results of the Company combined with the
historical results of The Kaufman Group for the period from January 1, 1996 to
December 31, 1996, and for the six months ended June 30, 1997 present the
historical results of the Company (including the results of The Kaufman Group
from date of acquisition) combined with the historical results of The Kaufman
Group for the period from January 1, 1997 to March 11, 1997, and the pro forma
adjustments as if the purchase had been made at the beginning of the period
presented. The pro forma unaudited consolidated condensed financial statements
do not give effect to the acquisitions of COMSUL and Chi which will be
reflected in the Company's financial statements for the quarter ending
September 30, 1997. COMSUL and Chi had aggregate revenues of approximately
$16.9 million for their most recently completed fiscal years. The pro forma
financial information should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto contained herein. The pro
forma results do not reflect any benefit from economies which might be
achieved from combined operations. These pro forma results have been prepared
for comparative purposes only and do not purport to be indicative of the
results of operations which actually would have occurred if the acquisition
had taken place on the basis presumed above, nor are they indicative of future
combined operations.
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PRO
KAUFMAN FORMA PRO
COMPANY GROUP ADJUSTMENTS(1) FORMA
<S> <C> <C> <C> <C>
Revenues.............................. $35,925 $4,205 $ -- $40,130
Cost and expenses
Cost of services.................... 17,743 1,183 -- 18,926
Selling, general and administrative
expenses........................... 13,498 555 327 (a) 14,380
Executive compensation expense...... 4,579 2,712 (1,887)(b) 5,404
------- ------ ------- -------
Total costs and expenses.......... 35,820 4,450 (1,560) 38,710
------- ------ ------- -------
Earnings (loss) from operations... 105 (245) 1,560 1,420
Interest expense...................... 47 -- -- 47
Other (income), principally interest
income............................... (406) (21) -- (427)
------- ------ ------- -------
Earnings (loss) before income
taxes............................ 464 (224) 1,560 1,800
Income taxes (benefit)................ 886 (82) 609 (c) 1,413
------- ------ ------- -------
Net earnings (loss)............... $ (422) $ (142) $ 951 $ 387
======= ====== ======= =======
Pro forma earnings data
Earnings (loss) before income taxes,
as reported........................ $ 464 $ (224) $ 1,560 $ 1,800
Adjustment for executive
compensation expense............... 3,519 -- -- 3,519
------- ------ ------- -------
Pro forma earnings (loss) before
income taxes....................... 3,983 (224) 1,560 5,319
Pro forma income tax expense........ 1,568 -- 609 2,177
------- ------ ------- -------
Pro forma net earnings (loss)....... $ 2,415 $ (224) $ 951 $ 3,142
======= ====== ======= =======
Pro forma net earnings per share.... $ 0.44 $ 0.57
======= =======
Pro forma weighted average number of
common and common equivalent shares
outstanding(2)..................... 5,455 5,530
======= =======
</TABLE>
- ---------------------
See notes to pro forma consolidated condensed statements on the following
page.
16
<PAGE>
PRO FORMA UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE PRO
KAUFMAN FORMA PRO
COMPANY GROUP ADJUSTMENTS(1) FORMA
<S> <C> <C> <C> <C>
Revenues.............................. $25,974 $1,001 $ -- $26,975
Cost and expenses
Cost of services.................... 12,963 312 -- 13,275
Selling, general and administrative
expenses........................... 9,925 191 64 (a) 10,180
Executive compensation expense...... 444 965 (805)(b) 604
------- ------ ----- -------
Total costs and expenses.......... 23,332 1,468 (741) 24,059
------- ------ ----- -------
Earnings (loss) from operations... 2,642 (467) 741 2,916
Other (income), principally interest
income............................... (976) -- -- (976)
------- ------ ----- -------
Earnings (loss) before income
taxes............................ 3,618 (467) 741 3,892
Income taxes (benefit)................ 1,440 38 289 (c) 1,767
------- ------ ----- -------
Net earnings (loss)............... $ 2,178 $ (505) $ 452 $ 2,125
======= ====== ===== =======
Net earnings per share................ $ 0.28 $ 0.28
======= =======
Pro forma weighed average number of
common and common equivalent shares
outstanding(2)....................... 7,688 7,718
======= =======
</TABLE>
- ---------------------
(1) Pro forma adjustments are as follows:
(a) Adjustment of depreciation and goodwill amortization based on the
cost of the business acquired and the excess of the purchase price over the
fair value of the net assets acquired, using an amortization period of
fifteen years.
(b) Elimination of executive compensation expense in excess of the
maximum amount that would have been paid had the compensation-limiting
agreements for two executives of the acquired company, which became
effective concurrent with the purchase of The Kaufman Group, been effective
throughout the period.
(c) Adjustment to reflect tax expense of the combined operations after
giving effect to the above adjustments.
(2) Pro forma weighted average number of common and common equivalent shares
outstanding includes 74,590 shares issued in satisfaction of the purchase
price.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statements of operations and balance sheet data as
of and for the years ended December 31, 1994, 1995 and 1996 are derived from,
and are qualified by reference to, the consolidated financial statements of
the Company audited by Grant Thornton LLP, independent certified public
accountants, appearing elsewhere in this Prospectus. The selected consolidated
statement of operations and balance sheet data as of and for the year ended
December 31, 1993 are derived from audited financial statements of the Company
not included herein. The selected consolidated statement of operations and
balance sheet data as of and for the year ended December 31, 1992 are derived
from unaudited financial statements of the Company not included herein. The
consolidated statement of operations and balance sheet data as of and for the
six month periods ended June 30, 1996 and 1997 are unaudited but have been
derived from the Company's internal consolidated financial statements, which
in the opinion of management of the Company, have been prepared on the same
basis as the audited financial statements and reflect all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of the financial position and results of operations of the Company. The
selected consolidated financial and operating data presented below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements and the Notes thereto and other financial information appearing
elsewhere in this Prospectus. The results of operations for the period ended
June 30, 1997 are not necessarily indicative of results for the full fiscal
year.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------ -------------------------
PRO
PRO FORMA FORMA
1992 1993 1994 1995 1996 1996(1)(2) 1996 1997 1997(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............... $14,316 $15,559 $19,234 $25,906 $35,925 $40,130 $16,547 $25,974 $26,975
Cost of services....... 6,822 6,802 8,505 12,008 17,743 18,926 8,197 12,963 13,275
Selling, general and
administrative
expenses.............. 5,712 6,200 8,223 10,045 13,498 14,380 6,250 9,925 10,180
Executive compensation
expense(3)............ 3,480 1,931 2,445 3,730 4,579 1,885 2,600 444 604
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) from
operations............ (1,698) 626 61 123 105 4,939 (500) 2,642 2,916
Interest and other
expense (income)...... (34) 22 (28) (58) (359) (380) (6) (976) (976)
------- ------- ------- ------- ------- ------- ------- ------- -------
Earnings (loss) before
income taxes.......... (1,664) 604 89 181 464 5,319 (494) 3,618 3,892
Income taxes........... -- -- -- 165 886 2,177 13 1,440 1,767
------- ------- ------- ------- ------- ------- ------- ------- -------
Net earnings (loss).... $(1,664) $ 604 $ 89 $ 16 $ (422) $ 3,142 $ (507) $ 2,178 $ 2,125
======= ======= ======= ======= ======= ======= ======= ======= =======
Net earnings per share. $ 0.57 $ 0.28 $ 0.28
======= ======= =======
Weighted average number
of common and common
equivalent shares
outstanding........... 5,530 7,688 7,718
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............ $ 344 $ 918 $ 955 $1,457 $39,628 $ 804 $36,752
Total assets............... 3,293 4,061 5,072 7,405 49,602 9,131 51,933
Total debt................. 355 345 5 206 -- 753 --
Total stockholders' equity. 832 1,496 1,585 1,861 41,448 1,355 45,188
</TABLE>
- ---------------------
See notes on following page.
18
<PAGE>
(1) The pro forma statement of operations data has been computed for the year
ended December 31, 1996 by adjusting the Company's net earnings to (i)
eliminate executive compensation expense for such period in excess of the
amount of executive compensation (including the full amount of potential
bonus) that would have been paid had the executive compensation agreements
which became effective on October 16, 1996, the closing date of the
Company's initial public offering, been effective throughout such period;
and (ii) record income taxes, assuming an effective tax rate of 39.4%
which would have been recorded had Superior been a C Corporation during
such period.
(2) The pro forma statement of operations data gives effect to the acquisition
of The Kaufman Group as if it had occurred on January 1, 1996. The pro
forma statement of operations data does not give effect to the
acquisitions of COMSUL and Chi which will be reflected in the Company's
financial statements for the quarter ending September 30, 1997. COMSUL and
Chi had aggregate revenues of approximately $16.9 million for their most
recently completed fiscal years.
(3) Executive compensation expense includes salary and bonuses for Richard D.
Helppie, Jr., Charles O. Bracken and Robert R. Tashiro. The Company
entered into agreements with these three officers effective October 16,
1996, the closing of the Company's initial public offering, through
December 31, 1997, which will provide them with annual compensation in the
aggregate amount of approximately $1.1 million, comprised of base salary
and bonus compensation based on achievement of certain pre-determined
performance criteria. These limitations did not apply to amounts paid to
these three officers on or prior to the closing of the Company's initial
public offering.
19
<PAGE>
RECENT FINANCIAL RESULTS
On October 22, 1997, the Company reported revenues of $19.5 million for the
three month period ended September 30, 1997 and net earnings of approximately
$1.5 million, before merger-related costs of approximately $692,000 related to
the COMSUL and Chi transactions. For the nine months ended September 30, 1997,
the Company reported revenues of approximately $53.6 million and net earnings
of approximately $3.6 million before deducting the merger-related costs.
During the third quarter of 1997 the Company acquired COMSUL and Chi in
separate merger transactions. Both transactions were accounted for by pooling
of interests. As a result of these pooling transactions, the following
consolidated statement of operations data have been restated to include the
results of operations of COMSUL and Chi, and all share quantities and per
share amounts have been restated to give effect to the COMSUL and Chi
transactions. The 1997 results also include the operations of The Kaufman
Group since March 12, 1997.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER ENDED SEPTEMBER
30, 30,
---------------- ----------------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
PRO PRO
FORMA FORMA
1997 1996(1) 1997 1996(1)
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues................................... $19,491 $12,625 $53,573 $36,028
Costs of services.......................... 9,850 6,116 27,047 17,434
Selling, general and administrative
expenses.................................. 7,517 5,010 21,388 15,068
Executive compensation expense............. 208 265 652 795
------- ------- ------- -------
Earnings from operations................... 1,916 1,234 4,486 2,731
Other income (expense)..................... 498 (30) 1,415 (157)
Costs incurred in connection with mergers.. (692) -- (692) --
------- ------- ------- -------
Earnings before income taxes and
extraordinary item........................ 1,722 1,204 5,209 2,574
Income taxes............................... 933 477 2,303 1,164
------- ------- ------- -------
Net earnings before extraordinary item..... 789 727 2,906 1,410
Extraordinary gain on early extinguishment
of debt, net of income taxes.............. -- -- -- 366
------- ------- ------- -------
Net earnings............................... $ 789 $ 727 $ 2,906 $ 1,776
======= ======= ======= =======
Net earnings per share..................... $ 0.09 $ 0.13 $ 0.35 $ 0.33
======= ======= ======= =======
Weighted average number of common and
common equivalent shares outstanding...... 8,379 5,396 8,304 5,396
======= ======= ======= =======
</TABLE>
- ---------------------
(1) The pro forma statement of operations data has been adjusted to eliminate
certain executive compensation expense and record certain income taxes. See
note (1) to "Selected Consolidated Financial Data."
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company conducts business through its two wholly-owned operating
subsidiaries, Superior and Enterprise. Superior is a leading healthcare
consulting firm that provides a wide range of information technology
consulting and strategic and operations management consulting services to a
broad cross-section of healthcare industry participants and healthcare
information system vendors. Enterprise assists clients in various industries
with network and telecommunication design and acquisition, enterprise
messaging, intranet and web strategies, workgroup consulting, and software and
application development solutions.
The Company derives substantially all of its revenues from fees for
professional services, the majority of which are billed at contracted hourly
rates. The Company establishes standard billing guidelines based on the type
and level of service offered. Actual billing rates are established on a
project by project basis and may vary from the standard guidelines. Billings
are typically made on a bi-weekly basis to monitor client satisfaction and
manage outstanding accounts receivable balances. Revenue on time and materials
contracts is recognized as the services are provided. A percentage of the
Company's projects are billed on a fixed-fee basis, which is distinguishable
from the Company's general method of billing on a time and materials basis.
The Company recognizes revenue on fixed fee projects using the percentage of
completion basis. As a result of the Company's success in obtaining
outsourcing contracts and the nature of the practices of certain recently
acquired companies, the Company has increased the number and size of projects
billed on a fixed-fee basis. Increased use of fixed-fee contracts subjects the
Company to increased risks, including cost overruns.
To date in 1997, the Company has been awarded three significant contracts to
provide healthcare IT outsourcing services. Each of the outsourcing agreements
is for a fixed initial term of between three to five years with opportunities
for flexible project commitments beyond the initial scope and term. Under each
agreement, the Company is paid a fixed base amount per period in return for
its commitment to provide a specified type and amount of IT management and
operations services. There can be no assurance that the Company will be able
to achieve profit margins on outsourcing contracts which are consistent with
its historical levels of profitability.
The Company's historical revenue growth is attributable to various factors,
including an increase in the number of projects for existing and new clients,
and expanded geographic presence. In addition, the Company seeks to increase
revenues by expanding its range of specialty services. The Company manages its
client development efforts through several strategic services groups, each
having specific geographic responsibility and focus.
The Company's most significant expense is cost of services, which consists
primarily of consultant salaries and benefits. In recent years, consultant
compensation expense has grown faster than consultant billing rates, resulting
in an increase in the Company's cost of services as a percentage of revenues.
The Company has sought to address this issue by adding an additional variable
portion of compensation payable upon the achievement of measurable performance
goals.
The Company's cost of services as a percentage of revenues is also related
to its consultant utilization. The Company manages utilization 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 significant project could cause the Company to experience
lower consultant utilization, resulting in a higher than expected number of
unassigned consultants. In addition, the establishment of new practice areas
and the hiring of consultants in peak hiring periods have resulted in periods
of lower consultant utilization (and resulting downward pressure on margins)
until project volume increases in these new areas. In the future, the
establishment of new practice areas, as well as further geographic expansion,
could from time to time adversely affect utilization. Variations in consultant
utilization would result in quarterly variability
21
<PAGE>
of the Company's cost of services as a percentage of revenues. The Company's
consultants are generally employed on a full-time basis, and therefore the
Company will, in the short run, incur substantially all of its employee-
related costs even during periods of low utilization.
Selling, general and administrative expenses include the costs of
recruiting, continuing education, marketing, facilities, equipment
depreciation, and administration, including compensation and benefits. The
Company incurred increased rent associated with the Company's move in the
third quarter of 1996 to larger headquarters to accommodate its growth.
Historically, executive compensation expense consisted of salaries, formula
bonuses and discretionary bonuses paid to the principal stockholder and two
other key executives. The Company's historical levels of executive
compensation were related primarily to the Company's status as a Subchapter S
Corporation and period to period increases in executive compensation expense
were related primarily to the Company's period to period earnings growth. The
Company entered into agreements with three key executives effective October
16, 1996 (the closing of the Company's initial public offering) through
December 31, 1997, which provide maximum annual compensation in an aggregate
amount of approximately $1.1 million for these executives, comprised of base
salary and bonus amounts to be awarded based on the attainment of certain
financial performance criteria. The foregoing compensation arrangements for
these three officers did not apply to amounts paid on or prior to the closing
of the Company's initial public offering.
The pro forma statement of operations data reflects an adjustment for
executive officer compensation for the year ended December 31, 1996 to
eliminate the amount by which key executive compensation paid in this period
was in excess of the estimated compensation that would have been paid under
the recently adopted executive compensation agreements, as if such agreements
were in place throughout such period. The estimated amount payable under the
executive compensation agreements was calculated by assuming the payment to
the executive officers of their base salaries plus 100% of their potential
bonus for the year.
From January 1, 1987 to October 9, 1996 Superior was treated as a Subchapter
S Corporation for federal income tax purposes under Subchapter S of the
Internal Revenue Code and for certain state income tax purposes. As a result,
substantially all of the income of Superior during this period was taxed
directly to its stockholders rather than Superior. In addition, prior to
January 1, 1995, Enterprise was taxed as a Subchapter S Corporation and
thereafter as a Subchapter C Corporation. Following the closing of the
Company's initial public offering, the Company, Superior and Enterprise were
subject to corporate federal income taxation on a consolidated basis as
Subchapter C Corporations.
The pro forma statement of operations data reflects an adjustment to federal
income taxes for the year ended December 31, 1996, assuming Superior had been
operating as a C Corporation during such period, and reflects an effective tax
rate of 39.4%, after giving effect to the executive officer compensation
expense adjustments.
In connection with the termination of Superior's S Corporation status, in
the fourth quarter of 1996 the Company recorded deferred income taxes of
approximately $130,000 in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." This income tax expense was
in addition to income tax expense otherwise incurred in such quarter and was
incurred upon termination of the Company's S Corporation status.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of operations data and selected pro forma data expressed as a
percentage of revenues. The trends illustrated in the following table may not
necessarily be indicative of future results.
22
<PAGE>
PERCENTAGE OF REVENUES
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- -------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services........................... 44.2 46.3 49.4 49.5 49.9
Selling, general and administrative
expenses.................................. 42.8 38.8 37.6 37.8 38.2
Executive compensation expense(1).......... 12.7 14.4 12.7 15.7 1.7
----- ----- ----- ----- -----
Earnings from operations................... 0.3 0.5 0.3 (3.0) 10.2
Interest expense........................... -- -- 0.1 0.1 --
Other (income) net......................... (0.2) (0.2) (1.1) (0.1) (3.8)
----- ----- ----- ----- -----
Earnings before income taxes............... 0.5% 0.7% 1.3% (3.0%) 14.0%
===== ===== ===== ===== =====
</TABLE>
- ---------------------
(1) Executive compensation expense includes salary and bonuses for Richard D.
Helppie, Jr., Charles O. Bracken and Robert R. Tashiro. The Company
entered into agreements with these three officers, effective October 16,
1996 (the closing date of the Company's initial public offering) through
December 31, 1997, which will provide them with annual compensation in the
aggregate amount of approximately $1.1 million, comprised of base salary
and bonus compensation based on achievement of certain pre-determined
performance criteria. These limitations did not apply to amounts paid to
these three officers on or prior to the closing of the Company's initial
public offering.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues. Revenues increased by $9.5 million, or 57.0%, to $26.0 million for
the six months ended June 30, 1997, as compared to $16.5 million for the six
months ended June 30, 1996. The revenue growth was due primarily to strong
growth in core lines of business, activity associated with two new outsourcing
contracts and the acquisition of The Kaufman Group.
Cost of services. Cost of services increased by $4.8 million, or 58.1%, to
$13.0 million for the six months ended June 30, 1997, as compared to $8.2
million for the six months ended June 30, 1996. The increase was due to the
hiring of additional consultants required to support the Company's revenue
growth, as well as the costs of services associated with two new outsourcing
agreements and The Kaufman Group activity. Cost of services as a percentage of
revenue increased to 49.9% for the six months ended June 30, 1997, as compared
to 49.5% for the six months ended June 30, 1996. This increase is attributable
to the increase in the Company's consultant base which grew by approximately
40% during the first six months of 1997. This resulted in slightly lower
consultant utilization during start-up, which was partially offset by the
variable portion of compensation payable to these consultants, which is
contingent upon achievement of measurable performance goals.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $3.6 million, or 58.8%, to $9.9 million
for the six months ended June 30, 1997, as compared to $6.3 million for the
six months ended June 30, 1996. This increase was due to incentive and other
compensation expenses associated with the addition of key personnel during the
first quarter in the areas of business development, outsourcing, and legal
services to pursue the Company's multi-faceted growth strategies, as well as
higher recruiting and training expenses consistent with the Company's growth.
Selling, general and administrative expenses as a percentage of revenues
increased to 38.2% for the six months ended June 30, 1997, as compared to
37.8% for the six months ended June 30, 1996. This increase was due to the
inclusion of goodwill amortization relating to the acquisition of The Kaufman
Group.
Executive compensation expense. Executive compensation expense decreased by
$2.2 million to $444,000 for the six months ended June 30, 1997, as compared
to $2.6 million for the six months ended June 30, 1996. As discussed
previously, prior to the Company's initial public offering, the Company's
historical levels of executive
23
<PAGE>
compensation were related primarily to the Company's status as a Subchapter S
Corporation and executive compensation expense was related primarily to the
Company's earnings.
Other income. Other income increased by $948,000 to $976,000 for the six
months ended June 30, 1997, as compared to $28,000 for the six months ended
June 30, 1996. This increase was due primarily to interest earned on the
investment of the majority of the net proceeds of approximately $39.7 million
from the Company's initial public offering in October 1996.
1996 COMPARED TO 1995
Revenues. Revenues increased by $10.0 million, or 38.7%, to $35.9 million
for the year ended December 31, 1996, as compared to $25.9 million for the
year ended December 31, 1995. The revenue growth was attributable primarily to
an increased number of new client assignments.
Cost of services. Cost of services increased by $5.7 million, or 47.8%, to
$17.7 million for the year ended December 31, 1996, as compared to $12.0
million for the year ended December 31, 1995. The increase was primarily due
to the additional number of consultants required to staff the larger revenue
base, as well as increases in their compensation levels. Cost of services as a
percentage of revenues increased to 49.4% for the year ended December 31,
1996, as compared to 46.3% for the year ended December 31, 1995. This increase
was due to an increase in compensation levels, with average billing rates
remaining relatively constant. In addition, in 1996 the Company initiated two
new national practice areas, which required more highly compensated
individuals and produced lower consultant utilization during start-up.
Selling, general, and administrative expenses. Selling, general and
administrative expenses increased by $3.5 million, or 34.4%, to $13.5 million
for the year ended December 31, 1996, as compared to $10.0 million for the
year ended December 31, 1995. This increase was due primarily to the increase
in incentive and other compensation, as well as higher recruiting and training
expenses consistent with the Company's growth and enhanced marketing efforts
to achieve higher revenue levels. Selling, general and administrative expenses
as a percentage of revenues decreased to 37.6% for the year ended December 31,
1996, as compared to 38.8% for the year ended December 31, 1995. This decrease
was due to increased operating efficiencies resulting from higher revenue
levels.
Executive compensation expense. Executive compensation expense increased by
$849,000 to $4.6 million for the year ended December 31, 1996, as compared to
$3.7 million for the year ended December 31, 1995. The Company's historical
levels of executive compensation were related primarily to the Company's
status as a Subchapter S Corporation and period to period increases in
executive compensation expense were related primarily to the Company's period
to period earnings growth.
Other income. Other income increased by $332,000 to $406,000 for the year
ended December 31, 1996, as compared to $74,000 for the year ended December
31, 1995. This increase was due primarily to interest earned on the investment
of the majority of the net proceeds of approximately $39.7 million from the
Company's initial public offering in October 1996.
1995 COMPARED TO 1994
Revenues. Revenues increased by $6.7 million, or 34.7%, to $25.9 million for
the year ended December 31, 1995, as compared to $19.2 million for the year
ended December 31, 1994. The revenue growth was attributable primarily to an
increase in the number of new client assignments. During 1995, in order to
provide better client service, the Company refocused its service organization
into National Practice Areas and refocused its marketing efforts into
strategic service groups having specific geographic areas of responsibility.
Cost of services. Cost of services increased by $3.5 million, or 41.2%, to
$12.0 million for the year ended December 31, 1995, as compared to $8.5
million for the year ended December 31, 1994. The increase was primarily due
to the additional number of consultants required to staff the larger revenue
base, as well as increases in their compensation levels. Cost of services as a
percentage of revenues increased to 46.3% for the year ended December 31,
1995, as compared to 44.2% for the year ended December 31, 1994. This increase
was due to an increase in compensation levels, with average billing rates
remaining relatively constant. In addition,
24
<PAGE>
the Company's organizational shift to National Practice Areas initially
required both more highly-compensated individuals and produced a lower
consultant utilization.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $1.8 million, or 22.2%, to $10.0 million
for the year ended December 31, 1995, as compared to $8.2 million for the year
ended December 31, 1994. This increase was due primarily to the increase in
incentive and other compensation, as well as higher recruiting and training
expenses consistent with the Company's growth and refocused marketing efforts
to achieve higher revenue levels. Selling, general and administrative expenses
as a percentage of revenues decreased to 38.8% for the year ended December 31,
1995, as compared to 42.8% for the year ended December 31, 1994. This decrease
was due to increased efficiencies resulting from higher revenue levels.
Included in selling, general and administrative expenses is bad debt expense,
which increased by $221,000 to $230,000 for the year ended December 31, 1995,
as compared to $9,000 for the year ended December 31, 1994, due primarily to
the recognition of potential collection problems with two specific minor
clients, as well as an increase in reserves for non client-specific collection
risk.
Executive compensation expense. Executive compensation expense increased by
$1.3 million to $3.7 million for the year ended December 31, 1995, as compared
to $2.4 million for the year ended December 31, 1994, due to increased formula
and discretionary bonuses.
QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the last ten quarters. This information has been
prepared on the same basis as the audited financial statements contained
elsewhere in this Prospectus and includes, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for
the fair presentation of information for the periods presented. This
information should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto. Results for any previous quarter are
not necessarily indicative of results for any future quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $5,816 $6,105 $6,961 $7,024 $8,162 $8,385 $8,955 $10,423 $11,961 $14,013
Costs of services....... 2,725 2,827 3,088 3,368 3,924 4,273 4,388 5,158 5,896 7,067
Selling, general and
administrative
expenses............... 2,282 2,390 2,768 2,605 3,078 3,172 3,302 3,946 4,597 5,328
Executive compensation
expense(1)............. 875 891 976 988 1,436 1,164 1,673 306 223 221
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Earnings (loss) from
operations............. (66) (3) 129 63 (276) (224) (408) 1,013 1,245 1,397
Interest and other
expense (income)....... (5) (16) -- (37) (1) (5) 15 (368) (551) (425)
------ ------ ------ ------ ------ ------ ------ ------- ------- -------
Earnings (loss) before
income taxes(1)........ $ (61) $ 13 $ 129 $ 100 $ (275) $ (219) $ (423) $ 1,381 $ 1,796 $ 1,822
====== ====== ====== ====== ====== ====== ====== =======
Net earnings............ $ 1,086 $ 1,092
======= =======
Net earnings per share.. $ 0.14 $ 0.14
======= =======
Weighted average number
of common and common
equivalent shares
outstanding............ 7,629 7,752
======= =======
Pro forma earnings
before income taxes(1). $ 896 $ 680 $ 985 $ 1,422
Pro forma net
earnings(1)............ $ 540 $ 411 $ 595 $ 869
====== ====== ====== =======
Pro forma net earnings
per share(1)........... $ 0.11 $ 0.09 $ 0.12 $ 0.12
====== ====== ====== =======
Shares used in computing
pro forma net earnings
per share.............. 4,824 4,824 4,824 7,328
====== ====== ====== =======
</TABLE>
- ---------------------
See note on following page.
25
<PAGE>
- ---------------------
(1) The pro forma statement of operations data for the year ended December 31,
1996 has been computed by adjusting the Company's net earnings to (i)
eliminate executive compensation expense in excess of the amount of
executive compensation (including the full amount of potential bonus) that
would have been paid had executive compensation agreements, which became
effective on October 16, 1996, the closing of the Company's initial public
offering of its Common Stock, been effective throughout such period; and
(ii) record income taxes, assuming an effective tax rate of 39.4% which
would have been recorded had Superior been a C Corporation during such
period. The pro forma statement of operations data does not reflect the
acquisitions of The Kaufman Group, COMSUL and Chi which had aggregate
revenues of $21.1 million for their most recently completed fiscal years.
Revenues and operating results fluctuate from quarter to quarter due to
several factors, such as the number and significance of client engagements
commenced and completed during a quarter, delays incurred in connection with a
project, consultant hiring and utilization. The timing of revenues varies from
quarter to quarter because the Company's sales cycle can be relatively long
and may depend on factors such as the size and scope of assignments, the
general ability of clients to terminate engagements without penalty, and
general economic conditions. In addition, the timing of the establishment of
new practice areas, geographic expansion and the hiring of key individuals can
also have an effect on consultant utilization. Seasonal factors such as
vacation days, total business days in a quarter or the business practices of
clients, such as deferred commitments on new projects until after the end of
the calendar year or the client's fiscal year, can cause the Company to
experience lower consultant utilization. Because a significant percentage of
the Company's expenses are relatively fixed, a variation in the number or size
of client assignments or the timing of the initiation or the completion of
client assignments can cause significant variations in operating results from
quarter to quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital needs have been to fund the growth in working
capital required to support its growth in revenues. Prior to the Company's
initial public offering, the Company's primary source of liquidity was cash
flow from operations. The Company believes that funds generated from
operations, together with the proceeds received from the Company's initial
public offering and this offering and available credit under its bank credit
facility, will be sufficient to finance its working capital and capital
expenditure requirements for at least the next 12 months.
At June 30, 1997, the Company had cash and cash equivalents of $32.0 million
and working capital of $36.8 million. Working capital at June 30, 1997
represents a decrease of $2.9 million from December 31, 1996. This decrease
was primarily due to purchases of property and equipment and the acquisition
of The Kaufman Group in March 1997.
The Company has a $3.0 million collateralized line of credit facility at
Comerica Bank N.A. The credit facility bears interest at prime. As of June 30,
1997, there were no borrowings outstanding under the Company's line of credit.
Net cash provided by operating activities for the six months ended June 30,
1997 was $663,000, compared with net cash used in operations of $409,000 for
the six months ended June 30, 1996. The increase in cash provided by
operations is primarily due to higher earnings before depreciation and
goodwill in the current period; partially offset by an increase in accounts
receivable and decreases in accounts payable and income taxes payable. Net
cash used in operating activities for the year ended December 31, 1996 was
$1.2 million compared with cash provided by operations of $811,000 for the
year ended December 31, 1995. The increase in cash used was primarily due to
the increased accounts receivable caused by increased revenue volume.
Net cash used in investing activities of $5.3 million during the six months
ended June 30, 1997 consists of additions to property and equipment and the
cash portion of the acquisition price of The Kaufman Group. Net cash used in
investing activities for the year ended December 31, 1996 was $2.1 million,
compared to $807,000 in 1995. Cash used in investing activities consisted
principally of computer and office equipment acquisitions.
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<PAGE>
Net cash provided by financing activities of $39.5 million for the year
ended December 31, 1996 was principally the result of the proceeds received
from the issuance of Common Stock in connection with the Company's initial
public offering. Net cash provided by financing activities for the year ended
December 31, 1995 of $236,000 was principally the result of a loan from the
majority stockholder for working capital purposes.
Effective March 12, 1997, the Company purchased The Kaufman Group, a
healthcare consulting business based in California for approximately $3.2
million in cash, $1.6 million of Common Stock (74,590 shares), and a maximum
additional payment of $1.5 million payable in cash over a three-year period.
The Company does not believe that inflation has had a material effect on the
results of its operations in the past three years.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
was issued in February 1997. The Company will be required to adopt the new
standard for the year and quarter ended December 31, 1997. Early adoption of
this standard is not permitted. The primary requirements of this standard are:
(i) replacement of primary earnings per share with basic earnings per share,
which eliminates the dilutive effective of options and warrants; (ii) use of
an average share price in applying the treasury method to compute dilution for
options and warrants for diluted earnings per share; and (iii) disclosure
reconciling the numerator and denominator of earnings per share calculations.
The Company plans to adopt this statement in fiscal year 1997. The effect of
applying this standard is not expected to be significant. See Note 1 of Notes
to Consolidated Financial Statements.
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<PAGE>
BUSINESS
SUMMARY
The Company, through Superior, is a national healthcare consulting firm that
provides a wide range of IT consulting and strategic and operations management
consulting services to a broad cross-section of healthcare industry
participants and healthcare information system vendors. The Company uses its
in-depth institutional knowledge and nationally deployed group of experienced
consultants to help clients plan and execute business strategies. The
Company's comprehensive continuum of solutions includes: strategic planning
and operations management consulting; information systems planning,
implementation and integration; and interim management and outsourcing. The
Company's wholly-owned subsidiary, Enterprise, assists clients in various
industries with network and telecommunication design and acquisition,
enterprise messaging, intranet and web strategies, workgroup consulting, and
software and application development solutions.
The Company serves clients across a broad cross-section of the healthcare
industry. From January 1, 1996 through June 30, 1997, the Company provided
services to over 420 healthcare clients on over 1,000 engagements. The Company
believes that its long-term relationships, in-depth knowledge of its clients'
needs and its broad range of services provide it with significant advantages
over its competitors in marketing additional services and winning new
engagements. In each of the last three completed fiscal years, the Company's
revenues from clients served in the prior year exceeded 75% of total revenues.
The Company's goal is to be the preferred, if not sole, provider of a broad
range of solutions for each of its clients.
INDUSTRY BACKGROUND
GENERAL
The United States healthcare industry is undergoing rapid, profound change.
In recent years, healthcare expenditures have increased at approximately twice
the rate of inflation and are expected to exceed $1.2 trillion in 1997,
according to a Healthcare Financing Administration report on the healthcare
industry. The Company believes that the consolidation of healthcare systems
and the aging of the U.S. population should result in continued dramatic
change in the healthcare industry. Healthcare providers today face external
and internal pressures to meet the competitive demands of the marketplace,
comply with increasing government regulations and cope with the advent of
managed care. These challenges, combined with increased demands on capital
resources, are forcing healthcare providers to seek new ways to structure and
manage their organizations and deliver services. In the past, the financial
risk of healthcare delivery was absorbed principally by third-party payors,
and providers did not focus on cost containment. Today, through managed care
arrangements and provider capitation (under which providers are paid an annual
fixed fee per individual to deliver all healthcare services required by that
individual), the economic risk of healthcare delivery is shifting from payors
to providers. In order to manage this risk, providers must enhance their
understanding of treatment costs, variability of costs and cost control and
must restructure their processes and organizations to enhance efficiency and
accountability. Providers must achieve each of these objectives, while at the
same time continuing to demonstrate increasing quality and consistency in
healthcare delivery.
The shifting of risk from payor to provider has also encouraged and
accelerated consolidation among healthcare providers. In order to achieve
economies of scale, operating efficiencies, and enhanced contracting
capabilities, healthcare organizations such as hospitals, primary care and
multi-specialty physician groups, laboratories, pharmacies, home health
services and nursing homes are integrating horizontally and vertically to
create IDNs. The goal of IDNs is to deliver comprehensive healthcare in a
cost-effective manner and accordingly, their success is dependent in part on
effectively managing and delivering information to the caregivers. As industry
consolidation and IDN formations create larger and increasingly far-reaching
healthcare organizations, and as the demand for information services is
increasingly required to cross multiple points of care, IDNs must place
greater focus on information management and business process solutions to
control costs, demonstrate quality, measure performance, predict outcomes and
increase efficiency.
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<PAGE>
INFORMATION TECHNOLOGY
The increased demand for tools to collect, analyze and interpret clinical,
operational and financial information rapidly, flexibly and in a technological
framework that supports today's diverse healthcare environment is intensifying
the reliance of the healthcare industry on IT solutions. As a result, the
healthcare industry is rapidly increasing its spending for IT. Expenditures by
healthcare industry participants for hardware, software, staff, consulting and
other outside IT related services increased at a compound annual rate of
approximately 15.7%, from $7.4 billion in 1993 to $9.9 billion in 1995
according to estimates from International Data Corporation. Healthcare IT
spending is being driven not only by the heightened need for better management
information systems, but also continued price-performance improvements in
hardware and software, the ability to develop increasingly user-friendly
software applications and the emergence of better application development
tools.
According to DataQuest, expenditures by healthcare industry participants on
IT professional services have grown at a compound annual rate of 14.9% from an
estimated $2.5 billion in 1994 to an estimated $3.3 billion for 1996. The
healthcare IT environment has grown increasingly complex, costly and
burdensome as a result of the challenges of deploying new technology,
maintaining older systems and meeting staffing requirements in a market with
an insufficient pool of qualified IT professionals. At the same time, external
economic factors have forced organizations to focus on core competencies and
trim work forces. The Company believes that healthcare participants will
continue to turn to outside consultants, external management of internal
information systems and full outsourcing as a means of coping with the
financial and technical demands of information systems management. The
healthcare industry spent an estimated $890 million on outsourcing services in
1996, including $250 million for information systems services, and spending on
healthcare automation outsourcing is expected to grow at an annual compounded
rate of 18% through 2001 according to International Data Corporation. The
Company believes this dynamic is also occurring across other industries as
organizations look to external management and outsourcing of their information
systems in order to remain focused on their core businesses.
CONSULTING
The changing business environment has also produced an evolving range of
strategic and operating options for healthcare entities, many of which are
unfamiliar to an industry that had long operated under a non-aligned, third
party payor environment. In response, healthcare participants are formulating
and implementing new strategies and tactics, including redesigning business
processes and workflows, acquiring better technology and adopting or
remodeling customer service and marketing programs. The Company believes that
healthcare participants will continue to turn to outside consultants to assist
in this process for several reasons: the pace of change is eclipsing their own
internal resources and capacity to identify, evaluate and implement the full
range of options; consultants enable them to develop better solutions in
shorter time frames; and purchasing consulting expertise can be more cost
effective. By employing outside expertise, healthcare providers can often
improve their ability to compete by more rapidly deploying new processes.
The healthcare consulting industry is highly fragmented and consists
primarily of: (i) larger systems integration firms, including the consulting
divisions of the national accounting firms, which offer healthcare as one of
their specialty areas; (ii) healthcare information systems vendors which focus
on services relating to the software solutions they offer; (iii) healthcare
consulting firms, many of whom focus on selected specialty areas, such as
strategic planning or vendor-specific implementation; and (iv) large general
management consulting firms that do not specialize in healthcare consulting
and/or offer systems implementation. Increasingly, the competitive advantage
in healthcare consulting will be gained by those consulting firms which (i)
are able to marshal the necessary expertise and resources to offer
comprehensive skill sets to clients; (ii) have the strength and consistency of
advice along the entire service continuum (from strategy to selection to
implementation); (iii) offer the flexibility to meet the challenges of the
rapidly changing healthcare and IT industries; and (iv) have the ability to
recruit, educate and deploy a diverse set of personnel.
29
<PAGE>
THE SUPERIOR SOLUTION
The Company uses its in-depth institutional knowledge of healthcare delivery
systems and nationally deployed group of experienced consultants to help
clients plan and execute business strategies. The Company offers its clients a
continuum of solutions, ranging from strategic planning and operations
management consulting, to information system planning, implementation and
integration, to interim management and outsourcing. For each client and
engagement the Company structures a project team that understands the
complexities of the healthcare environment for that particular client and can
concurrently address the management and technical ramifications of change and
improvement. In structuring an engagement the Company does not impose any
preordained program on its clients. Rather, utilizing the professional
judgment derived from their years of experience, the Company's consultants
work in concert with each client to develop custom-tailored solutions. As each
client relationship evolves, the Company's professionals add their experiences
to the Company's proprietary databases to accumulate a detailed and intimate
understanding of each client and its specific needs. The Company's nationally
deployed professionals are aided by instant access, via its proprietary
information and communication system, to its knowledge and client resource
databases and to collaboration with colleagues. This unified team approach
helps to ensure high quality, consistent and geographically seamless client
service.
The Company's services integrate many diverse facets and constituencies of
the healthcare industry. Through its strategic consulting, the Company brings
together the healthcare and business relationships required to establish and
maintain efficient and collaborative healthcare delivery networks. Through its
operations management consulting, the Company links the needs and optimizes
the contributions of clinical, information and management personnel. Through
its value-added information systems implementation and integration consulting,
the Company forges a link between healthcare information systems vendors and
their customers by helping each group maximize the potential of existing
technology. The Company also provides a bridge between existing and emerging
technologies by supplying vendors with needed knowledge to develop innovations
focused on the changing needs of the marketplace and by assisting healthcare
industry participants to assess the relative merits and risks of selecting and
implementing new technologies. This enables the Company to help its clients
take advantage of the opportunities presented by emerging technologies such as
the internet and intranet, local and wide area communication networks,
telemedicine and document imaging solutions.
In addition, the Company offers a flexible program of outsourcing services
ranging from interim management to personnel acquisition and facilities
management to total outsourcing. The Company's outsourcing program enables
healthcare providers to simplify their management agenda, improve their return
on information systems investment and strengthen their technology management
by ensuring client access to the Company's skilled technical labor pool.
To assist its clients in achieving the optimal strategic, operational and/or
IT solution for their business needs, the Company implements solutions that
are unbiased toward specific organizations including hardware and software
vendors. The Company offers an objective assessment of the advantages and
disadvantages of each particular strategic, operational and/or IT solution,
including packaged software applications, platforms and operating systems.
Through its unbiased solutions, the Company can take a flexible approach to
its clients' business problems and provide them with the best solution.
BUSINESS STRENGTHS
The Company believes that the following factors have been of principal
importance in its ability to distinguish itself from its competitors and to
achieve its present position as a leading provider of consulting services to
the healthcare industry:
Extensive Healthcare Focus. The Company believes its focus on management and
IT consulting for the healthcare industry allows it to offer a comprehensive
set of services and solutions anchored by in-depth knowledge of the healthcare
industry and a detailed understanding of each client's particular business
30
<PAGE>
environment and market dynamics. This enables the Company, in contrast to many
of its competitors, to be a single source provider of a comprehensive array of
healthcare consulting services while maintaining the advanced skill sets
offered by its 22 specialty practice groups. In response to the rapidly
changing nature of the healthcare and IT industry, the Company regularly
evaluates emerging trends and innovations in these industries in an effort to
enhance and expand its services and practice groups.
Proprietary Information and Communication System (the "Electronic Hallway").
The Company has made substantial investments in proprietary information and
communications systems which the Company's consultants use on a daily basis to
successfully and efficiently service clients. These proprietary systems, which
were developed and are maintained by Enterprise, provide the Company's
nationally deployed consultants with real-time access to product and industry
information, client resource databases, and each consultant's skills inventory
and near term schedules. The Company's communications and information systems
create a virtual "electronic hallway" in which consultants can collaborate by
means of daily individual and group communication across the breadth of the
Company's national network of expertise. The Company's system also includes
access to a proprietary IT diagnostic and planning system, as well as to
consultant time-management, billing, financial tracking and client resource
databases.
Recognized Expertise. The Company believes that its healthcare
specialization, strong industry presence, history of successful engagements
and the expertise of its healthcare consultants, who average over 17 years of
healthcare and IT experience, distinguish the Company from its competitors.
The Company's staff consists of experienced consultants specializing in one or
more areas of healthcare and/or information technology. The Company's
recruiting policy focuses exclusively on attracting and retaining highly
experienced professionals, many of whom come from senior levels of management
within the healthcare industry. Many of the Company's consultants are
recognized experts in their fields and publish and lecture frequently, keeping
the Company's name at the forefront of emerging issues in healthcare
consulting.
Demonstrated Ability to Secure Outsourcing Engagements. Since January 1,
1997, the Company has entered into three multi-year IT outsourcing agreements
with Zieger, Detroit Medical and Georgetown. The Company believes that
healthcare providers will increasingly turn to outsourcing to manage the
financial and human resource demands of information technology on their
operations and focus on their core clinical competencies. The Company's
outsourcing program offers clients attractive benefits including balanced,
just-in-time resources, IT planning, shared financial risk and multi-year
terms. The Company believes that its outsourcing program, combined with the
nationally deployed multi-disciplinary workforce necessary to implement it,
enhances the Company's opportunities to capitalize on this industry trend by
winning additional outsourcing engagements.
Superior Culture, Recruiting and Training. The Company believes its unique
culture is central to its ability to successfully recruit and retain new
personnel to the Company team. The Company has built a unique corporate
culture based upon geographically seamless communication (fostered by its
electronic hallway) and a motivational and interactive work environment that
features extensive professional development opportunities and productivity
incentives. The Company's education and training encompasses multiple
approaches to professional development. Blending the Company's education
offerings with selected assignments helps the employee be effective with high
demand skills.
Expertise with Major Healthcare Information Systems. The Company has
substantial expertise with the information systems developed by numerous
healthcare information system vendors, including the products developed by
such leaders in the field as SMS, HBOC, Cerner, Medic Computer Systems, Inc.,
IDX Systems Corp., Medical Manager Corporation and PeopleSoft, Inc. The
Company's experience with these products has enabled it to attain significant
revenues from a variety of projects such as planning, selection, management,
process design and implementation of these products. The Company's widespread
knowledge of multiple healthcare information systems allows it to select and
implement the best available solution for each client and adapt its service
offerings as healthcare information technology evolves.
31
<PAGE>
GROWTH STRATEGY
The Company's goal is to be the preferred or single source provider of a
wide range of healthcare consulting and information management services,
including outsourcing. The Company's strategy to achieve this goal includes
the following elements:
Grow the Core Business. The Company's strategy to grow its core business
involves expanding existing client relationships, growing its client base and
increasing its range of service offerings in response to the evolving needs of
its clients. From January 1, 1996 through June 30, 1997, the Company provided
services to over 420 healthcare clients on over 1,000 engagements. The Company
believes that its long-term client relationships, in-depth knowledge of its
clients' needs and ability to address those needs with its multidisciplinary,
unified team approach provide the Company with a significant competitive
advantage in marketing additional services and winning new engagements with
the goal of becoming the preferred provider of solutions. In each of the last
three completed fiscal years, the Company's revenues from clients served in
the prior year exceeded 75% of total revenues. From January 1996 through June
1997, the Company added approximately 210 new healthcare industry clients and
performed approximately 450 healthcare consulting engagements for such
clients. The Company intends to further leverage its IT and management
consulting capabilities, emphasizing the provision of high quality,
comprehensive healthcare consulting services, to expand its base of clients.
The Company regularly evaluates emerging trends and innovations in the
healthcare and IT industries and their potential impact on healthcare industry
participants in order to enhance existing practice areas and add new services
to support the evolving needs of its clients and potential clients. Since its
initial public offering the Company has added 9 new practice areas for a total
of 22 National Practice Areas.
Provide Outsourcing. Since January 1, 1997, the Company has entered into
three multi-year IT outsourcing agreements. The Company believes that as
healthcare organizations turn to contracting all, or a major part, of their
information systems processes to consultants to achieve cost savings and focus
on core competencies, the Company's outsourcing program is well positioned to
leverage the Company's comprehensive resources to capitalize on this industry
trend. The Company's outsourcing program enables healthcare providers to
simplify their management agenda, improve their return on information systems
investment, and strengthen their technology management by ensuring client
access to the Company's skilled technical labor pool. The Company offers a
flexible program of services ranging from interim management to personnel
acquisition and facilities management to total outsourcing.
Pursue Strategic Acquisitions and Alliances. Since March 1, 1997, the
Company has acquired three companies which had combined aggregate revenues of
approximately $21.1 million in their most recently completed fiscal years. The
Company believes that significant additional acquisition opportunities exist
due to the highly fragmented nature of the healthcare consulting industry. The
Company intends to continue to expand its geographic presence, industry
expertise and technical scope through strategic acquisitions and alliances
with companies that provide additional and/or complementary products, services
or skills or have strategic client relationships. The Company believes that
its information and communication systems will help it to assimilate the
personnel and technology of companies it may acquire.
Intensify Geographic Presence. The Company believes that the integration of
its consultant team through the electronic hallway provides the necessary
infrastructure for continued geographic expansion while minimizing additional
overhead. In addition, the Company believes it can further develop its client
relationships by maintaining a local office within communities. Accordingly,
the Company expects to continue to strategically add offices to assist its
efforts in forming closer relationships with its clients and strategic
services executives.
Expand Enterprise. Enterprise, which focuses on network and
telecommunications technologies and intranet/internet solutions across a broad
array of industries, believes it can leverage its unique combination of
experienced business and technical IT professionals to play a significant role
in the industry-wide trend towards
32
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consolidation of workgroup computing and streamlining of corporate
communications and business processes. The Company intends to increase
Enterprise's business and market presence through a combination of entry into
new geographic markets, selective acquisitions and provision of outsourcing
services to organizations that are presently under-served. For example, the
recent business combination with COMSUL brings added geographic scope and
depth to Enterprise's network, corporate facilities and telecommunications
service areas. In addition, Enterprise intends to leverage its existing client
relationships to expand consulting and service opportunities to the business
partners, vendors and healthcare industry participants of Superior's existing
clients for network and telecommunication design and acquisition, enterprise
messaging, intranet and web strategies, workgroup consulting, and software and
application development solutions.
SERVICES
The Company offers its clients comprehensive healthcare consulting services,
from visioning, to strategy, to selection of appropriate solutions, to
implementation, on-going management and outsourcing. The Company offers
custom-tailored solutions based on an assessment of each client's needs. The
Company offers services in the following three broadly defined categories:
Information Technology Consulting. The Company provides high quality
services in developing long term IT strategy through selection of technology
and products, systems implementation, integration and management, and contract
negotiation. While the Company's consultants have a wide variety of skills,
the majority have concentrated capabilities in the IT area. This expertise is
derived from a combination of work for Company clients as well as experience
gained prior to joining the Company and includes evaluation, implementation,
operational or other experience with one or more established and emerging
healthcare information systems or technologies offered by over 100 information
system vendors.
Management Consulting. The Company's management consulting services include
focus areas such as strategic planning, analysis of current industry and
competitive conditions, integration services, formation of physician-hospital
alliances, mergers and affiliations, multi-specialty group practice formation,
facility planning, practice valuations and acquisitions, IDN formation,
financial advice and establishment of managed care organizations.
Information Technology Outsourcing. The Company's flexible outsourcing
program enables healthcare providers to simplify their management agenda,
improve their return on information systems investment and strengthen their
technology management by ensuring client access to the Company's skilled labor
pool. The Company's outsourcing program offers the client an array of
services, functions and economic elements which can be tailored to the
specific client program/agenda, including IT management, IT planning and
budgeting, applications support, applications implementation, IT operations,
network and financial management and risk sharing.
Operations Consulting. The Company provides business process workflows and
operations improvement as methods to help clients eliminate organizational
redundancy, reduce cost and implement changes in the areas of patient care,
post-acute care, administrative services, clinical resource allocation,
quality management, finance, physician support and nursing. The Company can
provide executive and staff education, interim management and operational
assistance.
In order to offer its clients a depth of proficiency and experience the
Company organizes its services by its 22 National Practice Areas which work
together synergistically to serve its clients, many of whom have consulting
needs in multiple areas. The National Practice Areas operate in conjunction
with the Company's client relationship executives who coordinate how the
Company's specialty areas can work together to achieve optimum productivity
and cost effectiveness. The Company has developed methodologies for delivering
these skills in a consistent, coordinated manner, either as a full project
team, a joint client-consultant or joint vendor-consultant project team,
selected expertise or as part of a seminar or workshop.
33
<PAGE>
Set forth below is a list of the healthcare consulting services and skills
offered by Superior:
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION OF SERVICES
- ------------------------------------------------------------------------------------------
<S> <C>
INFORMATION TECHNOLOGY . Strategic information system planning, budgeting, development
CONSULTING and implementation
. Systems and departmental audits and assessments
. Interim management and facilities management
. Executive Planning Systems (EPS)
. Executive and technical education and end user training
. Legacy system maximization
. Unbiased product selection and vendor negotiation
. Applications testing and quality assurance
. System implementation and integration, including products of
SMS, Cerner, HBOC and others
. Network and client-server planning and design
. Imaging system feasibility studies, design and implementation
- ------------------------------------------------------------------------------------------
STRATEGIC AND . Case management program development and implementation
OPERATIONS . Strategic and tactical planning
. Collaboration strategies, mergers, acquisitions and affilia-
MANAGEMENT tions
CONSULTING . Executive and departmental interim management
. Operational and executive assessment
. Re-engineering and business process improvement and redesign
. Project management
. State and local comparative data analysis/benchmarking
. Decision Support and Executive Information Systems (DSS/EIS)
. Computerized patient record (CPR) planning and implementation
. Productivity and quality improvement
. Payor and customer surveys and profiles
. Market and competitive landscape research and analysis
. Facility Planning and programming
. Post-acute care services
. Clinical resource allocation
. Clinical program planning
. Market and financial feasibility assessment
- ------------------------------------------------------------------------------------------
OUTSOURCING . IT planning, budgeting and management
. Operations and management staffing and resources
. Project management
. Applications implementation
. Data center operations
- ------------------------------------------------------------------------------------------
INTEGRATED DELIVERY . IDN planning and development
NETWORK (IDN) . Managed care seminars, executive education and retreats
CONSULTING . Managed care organization development and management physician
partnerships, PHOs and MSOs
. Transaction and valuation services
. Network formation planning
. Market analysis and business planning
. Managed care contracting strategies
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION OF SERVICES
- ------------------------------------------------------------------------------------------
<S> <C>
INTEGRATED DELIVERY . Insurance company partner selection
NETWORK (IDN) . Community health information network planning and development
CONSULTING . Capitation and risk contracting
(CONTINUED) . Case management/utilization management
. Managed care systems assessment, evaluation and implementation
. Medicare and Medicaid risk contracting
. Purchasing and Materials Management
. System Implementation
- ------------------------------------------------------------------------------------------
HEALTH INFORMATION . Medical Records Department review/utilization review
MANAGEMENT . Health information network planning and development
CONSULTING . Clinical data repositories/longitudinal patient records
. Interim management
. Coding and grouping
- ------------------------------------------------------------------------------------------
FINANCIAL CONSULTING . Revenue enhancement
. Business Office review
. Revenue cycle management/cash acceleration
. Interim management
. System implementation support
. Accounts management, including admissions, billing and collec-
tions
. Reimbursement analysis/charge capture analysis
. Diagnostic review
. Capital and financial planning
- ------------------------------------------------------------------------------------------
CLINICAL CONSULTING . Patient care and nursing care system design
. Clinical systems implementation
. Patient-focused care planning
. Clinical workflow analysis and reengineering
. Information systems selection and implementation
. Interim management
. Clinical benchmarking
. Quality measurement and outcomes management
. Clinical protocol and pathway development
. Departmental operations analysis
. Redefining nursing and ancillary services
. Post-acute care services
. Laboratory operation/information management consulting serv-
ices
. JCAHO compliance
- ------------------------------------------------------------------------------------------
AMBULATORY PRACTICE . Ambulatory care strategic planning
MANAGEMENT . Operations assessment and re-engineering
CONSULTING . Systems selection and implementation
. Practice revenue analysis
. Facilities management
. Integration strategies
. Communications linkage
</TABLE>
- --------------------------------------------------------------------------------
35
<PAGE>
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION OF SERVICES
- ------------------------------------------------------------------------------------------
<S> <C>
PHYSICIAN SERVICES . Primary care network development
. Medical staff strategic planning
. Multi-specialty group practice formation
. PHO restructuring
. MSO development and improvement
. IPA development/restructure
. Physician practice merger and acquisition
. Financial modeling, budgeting and financial performance im-
provement
. Practice valuations and appraisals
. Management team education and development
. Physician group practice formation, restructuring and improve-
ment
. IDN formation, restructuring and improvement
. Managed care and market research
. Proprietary health plan development
</TABLE>
CLIENT SOLUTIONS
Examples of the Company's engagements, which are representative of the
nature of its services and client relationships, are set forth below:
IT Outsourcing. Superior's outsourcing agreement with Zieger, which operates
Botsford General Hospital and its affiliates, is representative of Superior's
outsourcing strategy. Having developed and approved an aggressive information
technology strategy and capital plan, Zieger selected Superior to implement
the multi-year plan. Under the five-year agreement, Superior is fully
responsible for the entire information technology plan, including the annual
information systems plan, operating and capital budget development and
management, provision and management of all application support and
implementation staff and operation of the data center and telecommunications
network for all facets of Botsford's organization. Superior's commitment to
Botsford includes on-time, on-budget delivery of each year's annual project
plan, including shared financial risks and savings in managing the IT budgets
and the IT staff resources required for successful completion of the plan.
Superior's site manager reports directly to Botsford's Chief Information
Officer and to an Information Systems Steering Committee. Superior hired most
of Botsford's existing information systems staff who now serve Botsford and
other clients of Superior.
Comprehensive Systems and Operational Integration. An East Coast IDN has
engaged the Company to assist with more than 140 specific projects over the
past six years. In 1991, the Company assisted with an HBOC installation and
the Company was subsequently engaged to provide consulting on a range of
systems and operational issues affecting the IDN. These included operational
review and redesign of information services, emergency services and oncology
departments; implementation and provision of technical support for MediPac,
3M, FileNet, and SMS INVISION, SIGNATURE and SoftMed systems; assistance with
system selections and contract review; and cost/benefit analysis for imaging
technology, clinical information systems, and managed care information
systems. The Company also participated in financial consulting engagements for
the IDN and assisted with consolidated business office planning, use of
advanced technology, interim management, policy and procedure development,
patient accounting system training, and diagnosis related grouping costing and
revenue enhancement.
36
<PAGE>
Strategic Planning and Implementation. A Midwestern community hospital
engaged the Company to develop a multi-year process to re-engineer hospital
functions including information systems, medical staff and management
operations. The Company evaluated current systems, conducted interviews of the
hospital's key management, implemented a total quality management program and
facilitated a five-year hospital-wide business and information systems
strategic plan. The Company also conceived, designed and implemented an
affiliation plan for the hospital in order to define business opportunities
and objectives and reporting requirements, and to expand the hospital's market
area. As a result of the joint efforts of the hospital and the Company, the
hospital entered into an affiliation with a major healthcare network;
reorganized its senior management structure with assistance from an interim
chief operating officer, interim chief information officer, interim vice
president of nursing, and interim finance department manager supplied by the
Company; completed reengineering of existing systems; and expanded information
systems applications for clinical and physician networking capabilities. The
Company spearheaded the reengineering of the patient care model, redefining
nurse management, clinician roles, responsibilities and interactions with
information systems functions. This process included labor relations,
organizational transition and on-going quality assurance and education. The
Company also assisted with operational projects to reengineer the hospital's
medical records, finance, patient accounting and other departments.
Long-Term Engagement. Since it first engaged the Company 12 years ago, a
West Coast university-based healthcare system has enlisted the Company for a
wide range of services. The Company provided long range systems planning,
selection and implementation of a healthcare information system, including
project management for approximately 35 system customizations. The Company
managed the design and implementation of an interface between the disparate
information systems of two affiliated facilities, and facilitated the
integration of those information systems into other systems within the
University's healthcare system. In connection with this implementation, the
Company also assisted with training services. In addition, the Company helped
to implement the university's operational improvement program and to develop a
long-term strategy to enhance administrative and clinical information access
throughout the university and to reduce costs in targeted departments while
improving medical service delivery. The Company's consultant team was later
engaged to conduct operational analyses in the medical records, patient
financial services and patient admission services departments. The Company is
currently analyzing the business process for ancillary departments in order to
assist with the implementation of a new physician order entry system.
Complex Strategic, Operational and Clinical Projects. A large Midwestern IDN
engaged the Company to assist in providing strategic and operational guidance.
The Company was first engaged to provide technical assistance and then to help
with several projects related to the integration of the IDN's healthcare
system, including selection of a managed care systems service bureau and
planning and initiating the operations of a large, multi-specialty ambulatory
care facility. The Company further assisted the client in the implementation
of various information systems that will be linked to an existing, state-wide
community health information network; provided an information base of
integrated delivery system models for the IDN's physician organization and its
compensation arrangements; and identified prospective purchasers of the IDN's
benefit plan. The Company also worked with the IDN's laboratory facility to
write and revise policies and procedures and to help implement operational
changes and advised the laboratory facility on meeting compliance standards
for the College of American Pathologists and Joint Commission on the
Accreditation of Healthcare Organizations, and obtaining Food & Drug
Administration and Health Care Financing Administration accreditation.
INFORMATION SYSTEM EXPERIENCE
In order to provide its clients with a comprehensive source for healthcare
IT services and capabilities, the Company seeks to maintain a consultant base
that is experienced with a wide mix of established and emerging information
systems and technologies. The experience of the Company's consultants is
derived from a combination of work for Company clients as well as experience
gained prior to joining the Company. The Company's consultants have
evaluation, implementation, operational or other experience with one or more
healthcare information systems or technologies offered by over 100 information
system vendors.
37
<PAGE>
ENTERPRISE
Enterprise, founded in 1993, is a professional consulting organization
providing solutions to medium and large companies across a wide array of
industries. Enterprise complements and augments Superior through its emphasis
on information and collaborative technologies. Enterprise leverages its
strategic technology partnerships with IBM, Microsoft, Netscape, and Lotus to
provide effective services in the following broadly defined categories:
Network and Telecommunications Consulting. Enterprise develops strategic
plans utilizing its consultants' technical expertise in the areas of network
architecture planning, PBX systems, call centers, computer to telephony
integration, voicemail systems, integrated voice response, wide area network
design, local area networks, high speed networking and alternative local area
exchange carriers.
Enterprise Messaging, Intranet and Web Strategies. Enterprise focuses on
internal web and intranet strategies combining software integration tools
along with web standards from Microsoft, Lotus, and Netscape to meet the needs
of its clients. Enterprise's planning design, acquisition and integration
services include assessment and planning for large corporate e-mail rollouts,
including migration strategies, international e-mail backbone and
infrastructure design.
Workgroup and Groupware Design and Development. Enterprise's workgroup and
groupware services are based on the strategic and effective integration of
workflow design and process engineering and groupware application development
in the workplace. Working in concert with its technology partners, including
Microsoft, Lotus, Netscape and IBM, Enterprise can achieve complete turn-key
solutions allowing its clients to effectively collaborate with its suppliers,
vendors and partners utilizing groupware and web-based technologies.
Enterprise's work with Lotus Notes/Domino groupware solutions places it in the
top tier of Lotus-designated Business Partners leveraging product sales and
number of certified professionals, qualifying Enterprise for designation as a
Premium Lotus Business Partner in 1995, 1996 and 1997. Enterprise is also an
IBM BESTeam Member, Microsoft Solutions Provider and Netscape Affiliate Plus
Partner.
Software and Application Development. Enterprise application design
consultants are skilled in a variety of applications and applications
toolsets, including Lotus Notes, Sybase, C++, Power Builder and Visual Basic.
The focus is on the development of both collaborative applications to support
the groupware services and on user interface tools developing and creating
knowledge-based executive information systems and high-end user application
interfaces.
Corporate Facilities Technology Design and Relocation. Enterprise provides
technology design services for organizations designing and building new
headquarters and facilities for clients, including infrastructure design,
cabling systems, right of way, site planning, multimedia for audiovisual,
video teleconferencing, voice and data communication systems.
Enterprise's turnkey approach to serving its clients has enabled it to grow
its business both by adding new clients and by attracting repeat business from
its current base of clients. Since its inception in 1993, Enterprise has
served over 250 clients primarily in the manufacturing, finance, healthcare,
and service industries. In 1996 Enterprise accounted for 8.4% of the Company's
revenues.
Client Solutions. The Chrysler SCORE project, Enterprise's largest external
engagement to date, involves unique opportunities for Enterprise but is also
representative of Enterprise's service capabilities. Enterprise is engaged by
Chrysler Corporation to assist with a Lotus Notes/Domino workgroup
implementation of the Chrysler SCORE (Supplier Cost Reduction Effort)
initiative. Under the SCORE system, each Chrysler supplier is required to
submit cost reduction proposals and each is ranked by the number of "SCORE
Points" gained through successful cost-reduction activities. In addition,
Enterprise is assisting in the link-up of approximately 2,500 suppliers to the
SCORE System via Lotus Notes. The success of the Chrysler SCORE Program and
the involvement of Enterprise was highlighted in a cover story in the April
28, 1997 Communications Week
38
<PAGE>
magazine titled "Chrysler Saves Big Online: Using the Internet and Notes, the
automotive giant links with its wide range of suppliers to slash billions in
costs." The Company believes that Enterprise's role in this large program
gives it a distinct advantage and opportunities to provide IT consulting,
management and outsourcing to the present and future participating suppliers
in this Chrysler program.
Enterprise assisted a major financial institution with an enterprise
deployment of Lotus Notes to over 5,000 users geographically disbursed
throughout the United States. The engagement consisted of site planning to
define such institution's messaging strategy and enterprise deployment plan
and the management and execution of the deployment over an eight-month period.
Once the messaging infrastructure was deployed Enterprise established an
application development environment including standards, best practices,
procedures and the tools required to manage the enterprise development and
deployment of Lotus Notes applications.
EMPLOYEES
The Company believes that one of its key strengths lies in its ability to
attract, develop, motivate and retain a talented, creative and highly skilled
work force of senior-level professionals who are specialists in one or more
areas of healthcare and/or information technology. The Company's consultants
are highly experienced, many of whom have established their credentials as
healthcare executives and senior management of healthcare entities, business
office managers, medical records administrators, nurse administrators, nurses,
laboratory technicians, physician assistants, medical technologists,
physicians, hospital admissions directors, and information management and
information systems technical personnel. As of September 30, 1997, the Company
employed over 660 employees, over 490 of whom were consultants.
The Company believes it has a unique corporate culture built upon open
communication across geographic regions and practice areas (fostered by the
Company's electronic hallway) and a motivational and interactive work
environment that features extensive professional development opportunities and
productivity incentives. The Company's education and training encompasses
multiple approaches to professional development. Each consultant is free to
choose from a variety of management, technical and personal courses which are
designed to provide sound fundamental principles for each subject. Many of the
courses have advanced editions. These education offerings are delivered
through multiple settings including self-study, group classroom, individual
mentorship and case study. These offerings also include enhanced worklife
topics. The Company's culture, practices and employee support programs offer
employees a wide range of choice in type and location of assignment. The
Company's mission includes continued innovation on balancing worklife issues.
Through the establishment of its Superior Institute, the Company has
developed a comprehensive training and ongoing education program to guide its
professionals through a progression of skill enhancement programs. As part of
this effort, the Company provides training curricula in new trends in
healthcare, information technology and business management. An integral part
of the on-going education process at the Company takes place through its
proprietary information and communications system. This allows the Company's
consultants to continue to upgrade their skills while remaining deployed in
the field. In addition, the Company has developed an employee orientation
program that features a sophisticated presentation to provide new employees
with a comprehensive understanding of the Company's structure and approach to
consulting. The Company also maintains a formal and active network of former
employees; these alumni provide expertise on projects, introduce the Company
to new client leads, and in several cases have returned to the Company from
experiences elsewhere in the healthcare industry.
SALES AND MARKETING
The Company's business development efforts are based upon a highly
organized, company-wide, consistent approach. All personnel are trained and
reinforced in the Company's marketing methods and philosophy, and are
encouraged to identify, develop and pursue client service opportunities. The
Company's marketing efforts are directed by senior management, practice area
leaders and strategic service group leaders, who focus on client development
strategies, geographic market penetration and cross-selling clients. Business
development is an integral part of the formal responsibilities at all levels
of the Company's management, including its National Practice Area leaders, and
the Company sets business development goals on both a departmental and
individual basis.
The Company's business development efforts focus primarily on identifying
key decision makers in the healthcare industry, determining the value to be
provided to each potential client and then managing the sales process to
completion through a sophisticated client resource database, developed and
maintained by Enterprise.
39
<PAGE>
Each potential client lead is entered into the database, and that profile is
updated for subsequent developments and information throughout the entire life
of the Company's relationship with the potential client, as well as after a
client retains the Company for services. At any given time, numerous Company
professionals are active in the development of business from either a new or
existing client, and the client resource database enables all Company
personnel to access up-to-date information on the Company's efforts with
respect to a client or client prospect, identifies other Company contacts with
that client, and highlights the particular needs expressed by the client to
date.
In addition, the Company relies upon its reputation in the marketplace, the
personal contacts and networking of the Company's professionals, direct
industry marketing programs, trade shows, and the industry presence maintained
by Company professionals to enhance its business development efforts. The
Company's marketing efforts are enhanced by its presence within the healthcare
industry by virtue of its employees' speaking engagements and publications on
topics affecting healthcare. The Company's views on a wide range of healthcare
and IT topics are frequently solicited and quoted for articles in major
industry journals and books. The Company's healthcare consultants have been
published extensively on current and emerging topics in healthcare information
and management and have participated in external speaking engagements and
presentations to industry associations and client audiences across the nation.
The Company operates its healthcare consulting business through a
combination of its national presence, regional relationships and its 22
National Practice Areas. Each National Practice Area offers a selected variety
of the Company's healthcare consulting services and often two or more of these
areas work synergistically to provide solutions to clients. Each area is
managed by a National Practice Area leader who has profit and loss
responsibility for the specific area and is responsible for its growth. As the
Company adds to its services through internal growth and acquisition, it will
evaluate adding new practice areas or augmenting the services of its existing
National Practice Areas. The Company actively markets the subject-matter
expertise of its National Practice Areas through the focus of its Strategic
Services Groups. Each Strategic Services Group is responsible for developing
and enhancing knowledge of local regulation and market factors, as well as
developing and nurturing knowledge of and relationships with specific client
organizations. The Company then combines the expertise of its National
Practice Areas to form solutions that are responsive to local conditions and
of value to specific clients.
The Company provides a compensation system designed to foster an active
focus at all levels within the organization on growth and business development
from a company-wide perspective. Group leaders and other middle management
earn incentive compensation on a monthly, quarterly and annual basis based on
group and company-wide performance goals. Senior management earns incentive-
based compensation based on company-wide performance goals.
COMPETITION
The market for the Company's services is highly fragmented, highly
competitive and is subject to rapid change. The Company believes that it
currently competes principally with systems integration firms, national
consulting firms, including the consulting divisions of the national
accounting firms, information system vendors, service groups of computer
equipment companies, facilities management companies, general management
consulting firms and regional and specialty consulting firms. Many of the
Company's competitors have significantly greater financial, technical and
marketing resources than the Company, generate greater revenues and have
greater name recognition than the Company. Moreover, those competitors that
sell or license their own software may in the future attempt to limit or
eliminate the use of third party consultants, such as the Company, to
implement and/or customize such software. In addition, vendors whose systems
may enjoy wide market acceptance and large market share could enter into
exclusive or restrictive agreements with other consulting firms which could
eliminate or substantially reduce the Company's implementation work for those
systems. There are relatively low barriers to entry into the Company's
markets, and the Company has faced and expects to continue to face additional
competition from new entrants into its markets. In addition combinations and
consolidations in the consulting industry will give rise to larger
competitors, whose relative strengths are impossible to predict.
40
<PAGE>
The Company also competes with its clients' internal resources, particularly
where these resources represent a fixed cost to the client. This internal
client competition may heighten as consolidation of healthcare providers
creates organizations large enough to support internal information management
capabilities. See "Risk Factors--Competition."
The Company believes that the principal competitive factors in its market
include reputation, highly experienced workforce, industry expertise, full
array of offerings, project management expertise, vendor neutrality, price,
quality of service, responsiveness and speed of implementation and delivery.
There can be no assurance that the Company will be able to compete effectively
on pricing or other requirements with current and future competitors or that
competitive pressures faced by the Company will not cause the Company's
revenue or operating margins to decline or otherwise materially adversely
affect its business, financial condition and results of operations.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company's success is in part dependent upon its proprietary internal
information and communications systems, databases, tools and the methods and
procedures that it has developed specifically to serve its clients. In
addition, Enterprise has and will continue to develop proprietary groupware
tools and applications. The Company has no patents; consequently, it relies on
a combination of non-disclosure and other contractual arrangements and
copyright, trademark and trade secret laws to protect its proprietary systems,
information, and procedures. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its proprietary rights.
The Company believes that its systems and procedures and other proprietary
rights do not infringe upon the proprietary rights of third parties. There can
be no assurance, however, that third parties will not assert infringement
claims against the Company in the future or that any such claims will not
require the Company to enter into materially adverse license arrangements or
result in protracted and costly litigation, regardless of the merits of such
claims. See "Risk Factors--Limited Protection of Proprietary Systems and
Procedures."
FACILITIES
The Company's headquarters is located in approximately 35,000 square feet of
leased office space in Southfield, Michigan. Superior also leases office space
in an additional 17 locations throughout the United States. The Company
believes that its facilities are adequate for its current needs and that
additional facilities can be leased to meet future needs.
LEGAL PROCEEDINGS
The Company is not now a party to, and is not aware of, any pending or
threatened litigation that would have a material adverse effect on the Company
and its business.
41
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of the Company and their respective
ages and positions as of September 30, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Richard D. Helppie, Jr. (1)............ 41 President, Chief Executive Officer
and Chairman of the Company
Charles O. Bracken..................... 48 Executive Vice President of Superior
Robert R. Tashiro...................... 41 Senior Vice President and Chief
Operating Officer of Superior
James T. House......................... 36 Vice President, Chief Financial
Officer and Treasurer of the Company
Richard P. Saslow (2).................. 50 Vice President, General Counsel and
Director
Reginald M. Ballantyne III............. 54 Director
Bernard J. Lachner (1) (2)............. 69 Director
Douglas S. Peters (2).................. 53 Director
John L. Silverman (1).................. 56 Director
</TABLE>
- ---------------------
(1) Member of the Compensation Committee of the Board of Directors
(2) Member of the Audit Committee of the Board of Directors
Richard D. Helppie, Jr. has served as Superior's President and Chief
Executive Officer since he founded Superior in May 1984. Mr. Helppie also
founded Enterprise and currently serves as Enterprise's Chairman and Chief
Executive Officer. Mr. Helppie also serves as Chairman and Chief Executive
Officer, and is a Director, of the Company. Mr. Helppie has more than 23 years
of experience in the healthcare and information systems industries.
Charles 0. Bracken joined Superior in March 1987 as Executive Vice
President. Mr. Bracken has more than 26 years of experience in the healthcare
and information systems industries. Prior to joining Superior, Mr. Bracken
spent three years as vice president of marketing of a healthcare software
firm, preceded by 10 years of related experience, most recently as chief
information officer of a multi-hospital corporation. Mr. Bracken has also
served as a board member for the Center for Health Information Management.
Robert R. Tashiro joined Superior in 1985 as a Systems Consultant. He was
appointed Vice President in 1990, Senior Vice President in 1992 and Chief
Operating Officer in June 1996. Mr. Tashiro has more than 18 years of
experience in the information systems industry and more than 13 years of
experience in the healthcare industry. Prior to joining the Company, Mr.
Tashiro served as an Information Systems Department project manager at
Kettering Medical Center. Prior to that, Mr. Tashiro worked for EDS.
James T. House joined Superior in 1988 as its Controller. Since that time,
he has held various positions with the Company and is currently the Vice
President, Chief Financial Officer and Treasurer of the Company.
Reginald M. Ballantyne III has served as a Director of the Company since
August 1996. Mr. Ballantyne has served on Superior's advisory council since
1995. He has served as the President of PMH Health Resources, Inc. since 1984.
Prior to that, Mr. Ballantyne served as President of Phoenix Memorial
Hospital. Mr. Ballantyne is the Chairman of the American Hospital Association
("AHA"). He is also a fellow of the American College of
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<PAGE>
Healthcare Executives ("ACHE"). Mr. Ballantyne has served as a member of the
National Board of Commissioners for the Joint Commission on Accreditation of
Healthcare Organizations.
Bernard J. Lachner has served as a Director of the Company since August
1996. Prior to becoming a Director of the Company, Mr. Lachner served as the
chairman of Superior's advisory council. From July 1972 until his retirement
in November 1992, Mr. Lachner served as the Chief Executive Officer of
Evanston Hospital Corporation. Other directorships include subsidiaries of
Allstate Insurance and St. Joseph Health System. Mr. Lachner founded Ohio
State University's graduate program in Health Services Administration and
served as its first director. He is a fellow of ACHE, and is a past member of
its Board of Governors. He has also served as the Chairman of AHA.
Douglas S. Peters has served as a Director of the Company since August 1996.
Mr. Peters has served as the President and Chief Executive Officer of
Jefferson Health System since the 1995 merger with Main Line Health System.
From October 1991 until such merger, Mr. Peters served in the same capacity
for Main Line. Mr. Peters is also a director with the Philadelphia
Contributionship and serves on the Advisory Board of First Union Bank. Mr.
Peters is a fellow of ACHE.
John L. Silverman has served as a Director of the Company since October
1997. Mr. Silverman is the Chief Executive Officer of AsiaCare, Inc. From 1990
to August 1997, he was the Vice President and Chief Financial Officer of Chi
Systems, Inc. Mr. Silverman is currently a director of Integrated Health
Services, Inc.
Richard P. Saslow has served as a Director of the Company since August 1996
and joined the Company as Vice President and General Counsel in January 1997.
Prior to joining the Company, Mr. Saslow practiced business law and commercial
litigation with the firm of Butzel Long, PC since January 1991. Prior to that
period, Mr. Saslow practiced law with the firm of Butzel, Keidan, Simon, Myers
& Graham from 1974 to 1990.
Executive officers of the Company are elected by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company and/or Superior, as specified above next to their
respective names. The Board of Directors currently consists of six members.
The Board of Directors is divided into three classes, each of whose members
serve for a staggered, three-year term. The Board is comprised of two Class I
Directors (Messrs. Lachner and Peters), two Class II Directors (Messrs.
Silverman and Ballantyne) and two Class III Directors (Messrs. Helppie and
Saslow). At each annual meeting of stockholders the appropriate number of
directors will be elected for a three-year term to succeed the directors of
the same class whose terms are then expiring. The terms of the Class I
Directors, Class II Directors and Class III Directors will expire upon the
election and qualification of successor directors at the annual meetings of
stockholders held in calendar years 2000, 1998 and 1999, respectively. There
are no family relationships between any director or executive officer of the
Company.
BOARD COMMITTEES
Prior to October 1996, the Board did not have any committees. In October
1996, the Board formed the Audit Committee and the Compensation Committee to
assist the Board in carrying out its duties. The Company has no nominating
committee. The nomination function is performed by the Board, which has not
established any policy or procedure for considering nominees recommended by
stockholders.
The Audit Committee has three members, two of whom are independent, non-
employee directors. Members of this committee are Mr. Lachner, Mr. Peters and
Richard P. Saslow, who is vice-president and general counsel of the Company.
The Audit Committee considers the adequacy of the internal controls of the
Company and the objectivity and integrity of financial reporting and meets
with the independent certified public accountants and appropriate Company
financial personnel about these matters.
The Compensation Committee currently has three members, two of whom are
independent, non-employee directors. Members of the committee are Mr. Lachner,
Mr. Silverman and Richard D. Helppie, Jr., who is the
43
<PAGE>
President and Chief Executive Officer of the Company. This committee monitors
and makes recommendations to the Board with respect to compensation programs
for directors and officers, administers compensation plans for executive
officers, and provides oversight with respect to employee benefit plans. The
committee has constituted a subcommittee, consisting of the two independent,
non-employee directors (currently Messrs. Lachner and Silverman), with
responsibility for determining the nature, timing and amount of awards and
grants under the Company's Long-Term Incentive Plan, as amended (the "Long-
Term Incentive Plan") to those employees subject to the requirements of
Section 16(b) of the Exchange Act.
DIRECTOR COMPENSATION
Pursuant to the terms of the formula program of the Long-Term Incentive
Plan, each director of the Company who is not otherwise employed by the
Company automatically will be granted an option to purchase 5,000 shares of
Common Stock upon his initial election to the Board and on each anniversary
date of his or her appointment to the Board of Directors during his or her
term, and for so long as he/she remains a director. The options will have an
exercise price equal to the fair market value of the Common Stock on the date
of grant. Of the options to purchase 5,000 shares, options to purchase 3,000
shares will be fully vested on the date of grant. The remaining options to
purchase 2,000 shares will become fully vested on the first anniversary of the
date of grant, provided that the director/grantee shall have attended all
regularly scheduled meetings of the Board and shall have participated in not
less than 80% of all Board conference calls scheduled on notice of not less
than 48 hours. Messrs. Lachner, Peters, Saslow and Ballantyne were each
granted an option to purchase 3,000 shares of Common Stock, all of which
vested on October 9, 1996. These initial options were exercisable at $16.00
per share. Messrs. Lachner, Peters and Ballantyne were each granted an option
for an additional 5,000 shares, exercisable at the current fair market value,
on October 9, 1997. Mr. Silverman was granted an option to purchase 5,000
shares, exercisable at the current fair market value, effective as of the date
of his initial appointment to the Board. Directors are also reimbursed for
travel expenses incurred in connection with attending board and committee
meetings.
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
Richard D. Helppie, Jr. is the Company's Chief Executive Officer and has
been a member of the Compensation Committee since August 1996. The Company did
not have a Compensation Committee prior to August 1996. Prior to August 1996,
Mr. Helppie, who then served as both a director and Chief Executive Officer,
had responsibility for all decisions with respect to executive officer
compensation.
ADVISORY COUNCIL
Superior established its Advisory Council in 1993. The Advisory Council is a
non-governing body currently composed of seven leaders in the healthcare
industry who meet periodically with representatives from Superior to advise on
emerging issues and trends in the healthcare field, as well as both strategic
planning and potential specialization areas. Advisory Council members are
granted options to purchase shares of Common Stock upon appointment to the
Advisory Council and are paid a fee of $1,000 per meeting and are reimbursed
for travel, lodging and meal expenses incurred in connection with attendance
at Advisory Council sessions.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded or earned by the
Company's President and Chief Executive Officer and the four other most highly
paid executive officers during the last two fiscal years (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1) LONG TERM COMPENSATION
-------------------------------- ----------------------------
SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS (#) COMPENSATION (4)
<S> <C> <C> <C> <C> <C> <C>
Richard D. Helppie , 1996 $436,196 $2,558,779 $ -- -- $7,926
Jr....................
President, Chief 1995 477,000 1,948,448 -- -- 9,709
Executive Officer and
Chairman of the
Company
Charles O. Bracken..... 1996 317,136 527,061 -- -- 7,926
Executive Vice 1995 318,000 378,419 150,000(2) -- 9,709
President of Superior
Robert R. Tashiro...... 1996 204,493 364,745 -- 5,000 7,926
Senior Vice President 1995 176,000 207,162 75,000(2) -- 9,709
and Chief Operating
Officer of Superior
James T. House......... 1996 95,000 120,413 13,556(3) 20,000 7,664
Vice President, Chief 1995 80,000 62,145 -- -- 7,198
Financial Officer and
Treasurer of the
Company
Kenneth T. Boone....... 1996 125,000 13,464 -- -- 7,332
President and Chief
Operating Officer of 1995 90,000 63,500 -- -- 7,975
Enterprise(5)
</TABLE>
- ---------------------
(1) The Company has entered into agreements, effective as of October 16, 1996
through December 31, 1997, with Messrs. Helppie, Bracken and Tashiro,
which provide these three executives with aggregate annual compensation of
approximately $1.1 million, comprised of base salary and bonus
compensation based on achievement of certain pre-determined performance
criteria.
(2) Other annual compensation for Messrs. Bracken and Tashiro represents the
difference between the dollar value paid by such persons for shares of
Common Stock in 1995 and the fair market value of the shares at the time
of the sale.
(3) Consists of gain on exercise of stock options.
(4) Represents amounts paid by the Company during fiscal 1996 for (i) long-
term and short-term disability insurance premiums as follows: Messrs.
Helppie, Bracken, Tashiro and Boone $450 each, and Mr. House $348; (ii)
life insurance premiums for which the Company is not the beneficiary as
follows: Messrs. Helppie, Bracken and Tashiro $422 each, Mr. House $262
and Mr. Boone $450; and (iii) profit sharing contributions made by the
Company as follows: Messrs. Helppie, Bracken, Tashiro and House $7,054
each and Mr. Boone $6,432.
(5) Mr. Boone served in this position with Enterprise in fiscal 1995 and
fiscal 1996.
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EXECUTIVE OPTION GRANTS
The following table contains information concerning the stock option grants
made to each of the Named Executive Officers in 1996.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
ANNUAL RATES OF
% OF TOTAL STOCK PRICE
OPTIONS APPRECIATION FOR
SHARES GRANTED TO EXERCISE OPTION TERM (1)
UNDERLYING EMPLOYEES IN PRICE PER EXPIRATION ----------------
NAME OPTIONS GRANTED FISCAL 1996 SHARE (2) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Richard D. Helppie, Jr.. -- -- $ -- -- $ -- $ --
Charles O. Bracken ..... -- -- -- -- -- --
Robert T. Tashiro....... 5,000 2.2% 16.00 10/10/06 50,300 127,500
James T. House.......... 20,000 8.9% 16.00 10/10/06 201,200 510,000
Kenneth T. Boone........ -- -- -- -- -- --
</TABLE>
- ---------------------
(1) In accordance with SEC rules, these columns show gains that might exist
for the option over the life of the option, a period of ten years. This
valuation is hypothetical; if the stock price does not increase above the
exercise price, compensation to the named executive officers will be zero.
A 5% or 10% annually compounded increase in the Company's stock price from
the date of grant to the end of 10-year option term would result in stock
prices of $26.06 and $41.50 per share, respectively. The potential
realizable value does not represent the Company's prediction of its stock
price performance. There can be no assurance that the actual stock price
appreciation over the ten-year option will be at the assumed 5% and 10%
levels or at any other defined level.
(2) The options becomes exercisable at a rate of 20% per year, on the
anniversary date of the grant, over a five-year period.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning stock options
exercised by the Named Executive Officers during 1996, as well as the value of
unexercised options held by such persons at December 31, 1996. The values of
in-the-money options (which represent the positive spread between the exercise
price of any existing stock options and $24 3/4 per share, the closing price
of the Common Stock as reported by the Nasdaq National Market on December 31,
1996) also are included.
AGGREGATED OPTION EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
SHARES OPTIONS AT THE-MONEY OPTIONS AT
ACQUIRED DECEMBER 31, 1996 DECEMBER 31, 1996
UPON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Richard D. Helppie, Jr.. -- $ -- -- -- -- $ --
Charles O. Bracken...... -- -- -- -- -- --
Robert T. Tashiro....... -- -- -- 5,000 -- 43,750
James T. House.......... 1,066 13,556 -- 20,000 -- 175,000
Kenneth T. Boone........ -- -- -- -- -- --
</TABLE>
- ---------------------
(1) Calculated as the difference between the fair market value of the
Company's Common Stock at the time of the option exercise and the exercise
price.
46
<PAGE>
EMPLOYMENT RELATED AGREEMENTS
Richard D. Helppie, Jr.'s employment agreement limits his aggregate annual
compensation to $400,000, consisting of a combination of base salary and
bonus, through the end of fiscal 1997. This agreement became effective October
16, 1996.
Charles O. Bracken's employment agreement provides for an annual base salary
of $290,000 and an annual performance-based bonus of up to $75,000 per year
through the end of fiscal 1997. Under the employment agreement, Mr. Bracken is
subject to noncompetition, nonsolicitation and nondisclosure covenants.
Robert R. Tashiro's employment agreement provides for an annual base salary
of $220,000 and an annual performance-based bonus of up to $75,000 per year
through the end of fiscal 1997. Under the employment agreement, Mr. Tashiro is
subject to noncompetition, nonsolicitation and nondisclosure covenants.
James T. House's employment agreement provides for his employment as a Vice
President and Chief Financial Officer of the Company at an annual base salary
of approximately $110,000. Mr. House also participates in the Company's 1997
Vice President Bonus Plan pursuant to which he is eligible to receive
quarterly and annual base bonuses of $10,000 and $25,000, respectively (which
base bonuses are subject to increase or decrease based on performance as
measured by revenue, profit and certain other criteria as set forth in the
respective plans). Under the employment agreement, Mr. House is subject to
noncompetition, nonsolicitation and nondisclosure covenants.
EMPLOYEE BENEFIT PLANS
LONG-TERM INCENTIVE PLAN
In 1996, the Board of Directors adopted the Long-Term Incentive Plan. The
Long-Term Incentive Plan is designed to enhance the long-term profitability
and stockholder value of the Company by offering Common Stock, Common Stock-
based and other performance incentives to those individuals who are key to the
growth and success of the Company, to attract and retain experienced
executives and to align executives' economic incentives with the Company's
stockholders.
The Long-Term Incentive Plan is administered by the Compensation Committee,
which, except for the formula program (the "formula program") noted below for
non-employee directors, has exclusive authority to grant awards under the
Long-Term Incentive Plan and to make all interpretations and determinations
affecting the Long-Term Incentive Plan. The Compensation Committee has the
discretion to determine the individuals to whom Awards (as defined below) are
granted, the amount of such Award, any applicable vesting schedule and other
terms of any Award.
Participation in the Long-Term Incentive Plan is limited to employees,
consultants, advisors and independent contractors of the Company and its
subsidiaries who are selected from time to time by the Compensation Committee.
In addition, non-employee directors automatically participate in the formula
program. Awards under the Long-Term Incentive Plan may be in the form of stock
options (including both incentive stock options that meet the requirements of
Section 422 of the Internal Revenue Code and nonqualified stock options),
stock awards, restricted stock grants, stock appreciation rights ("SARs") and
performance awards (collectively, "Awards"). Any Award issued under the Long-
Term Incentive Plan that is forfeited, expired, canceled or terminated prior
to exercise will again become available for grant under the Long-Term
Incentive Plan.
The Long-Term Incentive Plan also includes the directors formula program.
The formula program provides for the automatic grant of vested options to
purchase shares of Common Stock to non-employee directors of the Company. See
"Management--Director Compensation."
In October 1997, the Board of Directors and the holders of a majority of the
Company's outstanding Common Stock approved an amendment to the Long-Term
Incentive Plan to increase the maximum number of
47
<PAGE>
additional shares of Common Stock which may be issued and sold under the Long-
Term Incentive Plan from 900,000 shares to 2,400,000 shares of Common Stock.
Prior to such amendment, as of September 30, 1997, the Company had granted
options to purchase an aggregate of 539,478 shares of Common Stock at a
weighted average exercise price per share equal to $21.22. Options under the
Long-Term Incentive Plan are generally exercisable at fair market value on the
date of grant and generally become exercisable over a five-year period. In the
event of any stock dividend, stock split, recapitalization, merger, other
change in the capitalization of the Company or similar corporate transaction
or event affecting the Common Stock, the Compensation Committee may make
appropriate adjustments to the Awards. The Company may also accelerate the
timing of the exercise of any Awards or cancel any Award and provide instead
for the payment to the participant in cash of the economic value of the Award
at the time of cancellation.
401(K) SAVINGS PLAN
The Company maintains the Superior Consultant Holdings Corporation 401(k)
Profit Sharing Plan, a defined contribution retirement plan with a cash or
deferred arrangement as described in Section 401(k) of the Internal Revenue
Code (the "401(k) Plan"). The 401(k) Plan is intended to be qualified under
Section 401(a) of the Internal Revenue Code. All employees of the Company,
Superior and Enterprise who have completed 90 days of service and have
attained age 21 are eligible to participate in the 401(k) Plan on the first
day of the month coinciding with or following the date on which they satisfy
the eligibility criteria. The 401(k) Plan provides that each participant may
make elective contributions of from 1% to 15% of his or her compensation,
subject to statutory limits. The Company may make a discretionary contribution
to the Plan. Under the terms of the 401(k) Plan, allocation of the
discretionary contribution is integrated with Social Security, in accordance
with applicable nondiscrimination rules under the Internal Revenue Code.
48
<PAGE>
CERTAIN TRANSACTIONS
In April 1995, Superior loaned Mr. Bracken $500,000, evidenced by a term
promissory note bearing interest at 7.71% per annum. The note provides for
equal annual payments of principal and interest of $50,000, payable on
December 31 of each year beginning December 31, 1995 with the entire unpaid
principal balance due on December 31, 2015. At the option of the Company, the
entire outstanding indebtedness under the note may be accelerated in the event
that Mr. Bracken's employment with the Company is terminated. The largest
amount of indebtedness outstanding under such note during fiscal 1996 was
$477,000 and as of December 31, 1996 was $465,000.
In April 1995, Superior loaned to Mr. Tashiro $250,000, evidenced by a term
promissory note, bearing interest of 7.71% per annum. The note provides for
equal annual payments of $25,000, payable on December 31 of each year
beginning December 31, 1995 with the entire principal balance due on December
31, 2015. At the option of the Company, the entire outstanding indebtedness
under the note may be accelerated in the event that Mr. Tashiro's employment
with the Company is terminated. The largest amount of indebtedness outstanding
under such note was $238,000 during fiscal 1996 and as of December 31, 1996
was $233,000.
In September 1995, The Richard D. Helppie, Jr. Trust, of which Mr. Helppie
is Trustee, loaned Enterprise $200,000, evidenced by a term promissory note
bearing interest at 8.75% per year. The outstanding principal balance was
repaid by Enterprise before December 31, 1996.
In 1996, the Company entered into a tax indemnification agreement with the S
Corporation shareholders of Superior which provides for, among other things,
the indemnification of each such shareholder for any losses or liabilities
with respect to any additional taxes (including interest, penalties and legal
fees) and the repayment to the Company of any amounts received as refunds,
resulting from Superior's operations during the period in which it was an S
Corporation. Management believes that the Company's maximum exposure pursuant
to this agreement is not material.
In 1996, the Company chartered aircraft from Clearwater Aviation, Inc., of
which Mr. Helppie is sole stockholder. Payments under this arrangement totaled
approximately $36,000 in 1996 and approximately $92,000 for the six-month
period ended June 30, 1997. The payments are at or below market rates and the
arrangement was approved by a majority of the independent and disinterested
members of the Board of Directors.
Mr. Saslow, a Director, was a shareholder in the law firm of Butzel Long,
PC, Detroit, Michigan. Butzel Long and Mr. Saslow's prior firm Butzel, Keidan,
Simon, Myers & Graham, have been outside general counsel to Superior since
1985 and Enterprise since 1993. Mr. Saslow joined the Company as a vice
president and general counsel in January 1997.
49
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 30, 1997, and as adjusted to reflect
the sale of shares offered hereby, by: (i) each person known by the Company to
own beneficially more than five percent of the outstanding shares of Common
Stock; (ii) each director of the Company; (iii) each of the Named Executive
Officers; (iv) all directors and executive officers of the Company as a group;
and (v) the Selling Stockholders. Except as set forth in the footnotes to the
table, the Company believes that each person named below has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such holder, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
BENEFICIAL
BENEFICIAL OWNERSHIP
OWNERSHIP PRIOR NUMBER AFTER OFFERING
TO OFFERING (1) OF (1)
----------------- SHARES -----------------
NUMBER OF BEING NUMBER OF
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT
<S> <C> <C> <C> <C> <C>
Richard D. Helppie, Jr.(2)......... 3,788,111 46.2% 602,162 3,185,949 31.2%
Charles O. Bracken................. 389,223 4.7 77,845 311,378 3.1
Robert R. Tashiro(3)............... 195,610 2.4 50,000 145,610 1.4
James T. House(3).................. 16,500 * -- 16,500 *
Reginald M. Ballantyne III(3)...... 6,000 * -- 6,000 *
Bernard Lachner(3)................. 6,000 * -- 6,000 *
Douglas S. Peters(3)............... 6,000 * -- 6,000 *
Richard P. Saslow(3)............... 6,000 * -- 6,000 *
John L. Silverman(3)............... 53,519 * -- 53,519 *
The Superior Consultant Charitable
Foundation(4)..................... 97,223 1.2 97,223 -- --
The Helppie Family Charitable
Foundation(4)..................... 41,667 * 41,667 -- --
Kenneth T. Boone................... 38,576 * 2,500 36,076 *
Nathan S. Kaufman.................. 67,131 * 50,000 17,131 *
Thomas S. Kumura................... 7,459 * 7,459 -- --
Michael R. Dillingham.............. 51,072 * 20,368 30,704 *
Margaret S. Little Trust........... 3,817 * 2,036 1,781 *
J. V. Stewart Testamentary Trust... 3,817 * 2,036 1,781 *
William L. Stewart, III, Trusts.... 5,394 * 2,877 2,517 *
Court & Co......................... 675 * 675 -- --
George Mainas...................... 2,784 * 2,784 -- --
James D. Posner.................... 51,072 * 10,000 41,072 *
John F. Ungar...................... 51,072 * 20,368 30,704 *
Peter B. Valentine................. 51,072 * 10,000 41,072 *
All Directors and Executive
Officers as a
group (9 persons)(2),(3).......... 4,466,963 54.4 730,007 3,736,956 36.6
</TABLE>
- ---------------------
*Less than 1%.
(1) Applicable percentage of ownership as of September 30, 1997 is based upon
8,206,464 shares of Common Stock outstanding. Applicable percentage of
ownership after offering is based upon 10,206,464 Shares of Common Stock
outstanding. Applicable percentage in each case is determined by assuming
the exercise of options that are held by such persons (but not those held
by any other person) which are exercisable within 60 days of the date
hereof. Beneficial ownership is determined in accordance with the rules of
the Securities and Exchange Commission, and includes voting and investment
power with respect to the shares shown as beneficially owned.
(2) All shares are held by The Richard D. Helppie, Jr. Trust, of which Mr.
Helppie is the sole trustee. The address of the trust is in care of the
Company's principal executive offices. Excludes 97,223 shares of Common
Stock held by The Superior Consultant Charitable Foundation, of which Mr.
Helppie is president and a director, and 41,667 shares of Common Stock
held by The Helppie Family Charitable Foundation, of which Mr. Helppie is
president and a director, and as to which Mr. Helppie is deemed to be a
beneficial owner. If the Underwriters' over-allotment option is exercised
in full, Mr. Helppie would sell an aggregate of 1,052,162 shares in this
offering and, upon completion of this offering, Mr. Helppie would own
2,735,949 shares (26.8%).
(3) Includes shares issuable upon exercise of options exercisable within 60
days from the date hereof as follows: Mr. Tashiro 1,000 shares; Mr. House
4,000 shares; Mr. Ballantyne 6,000 shares; Mr. Lachner 6,000 shares; Mr.
Peters 6,000 shares; Mr. Saslow 6,000 shares; and Mr. Silverman 3,000
shares.
(4) Shares acquired by gift from The Richard D. Helppie, Jr. Trust in October
1997. Mr. Helppie is president and a director of both The Superior
Consultant Charitable Foundation and The Helppie Family Charitable
Foundation.
50
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, par value $0.01 per share, and 1,000,000 shares of Preferred
Stock, par value $0.01 per share (the "Preferred Stock"). The Company currently
has outstanding 8,206,464 shares of Common Stock and no shares of Preferred
Stock. Upon completion of this offering, the Company will have outstanding
10,206,464 shares of Common Stock and no shares of Preferred Stock. As of
October 23, 1997, there were 71 record holders of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share for the
election of directors and all other matters submitted for stockholder vote,
except matters submitted to the vote of another class or series of shares.
Holders of Common Stock are not entitled to cumulative voting rights.
Therefore, the holders of a majority of the shares voting for the election of
directors can elect all of the directors if they choose to do so. The holders
of Common Stock are entitled to dividends in such amounts and at such times, if
any, as may be declared by the Board of Directors out of funds legally
available therefor. The Company has not paid any dividends on its Common Stock
and does not anticipate paying any cash dividends on such stock in the
foreseeable future. See "Dividend Policy." Upon liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all net assets available for distribution to stockholders after
payments to creditors. The Common Stock is not redeemable and has no preemptive
or conversion rights.
The rights of the holders of Common Stock are subject to the rights of the
holders of any Preferred Stock which may, in the future, be issued. All
outstanding shares of Common Stock are, and the shares of Common Stock to be
sold by the Company in this offering when issued will be, duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes 1,000,000 shares of
Preferred Stock. The Board of Directors has the authority to issue the
Preferred Stock in one or more series and to fix the price, rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, liquidation preferences and
the number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company without further action by the stockholders and may
adversely affect the voting and other rights of the holders of Common Stock.
The issuance of Preferred Stock with voting and conversion rights may adversely
affect the voting power of the holders of Common Stock, including the loss of
voting control to others. The Company has no current plans to issue any shares
of Preferred Stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BY-LAWS
AND DELAWARE LAW
Certificate of Incorporation and By-Laws. The Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") provides that
the Board of Directors will be divided into three classes of directors, each
class constituting approximately one-third of the total number of directors and
with the classes serving staggered three-year terms. The By-Laws provide that
only the Chairman of the Board, a majority of the Board of Directors or the
stockholders owning at least 50% of the Company's capital stock may call
meetings of stockholders and require certain advance notice procedures for
nominating candidates for election to the Board of Directors. These provisions
of the Certificate of Incorporation and By-Laws could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company. These provisions are intended to enhance the likelihood of continuity
and stability in the composition of the Board of Directors and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions that may involve
51
<PAGE>
an actual or threatened change of control of the Company. These provisions are
designed to reduce the vulnerability of the Company to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain
tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for the Company's
shares and, as a consequence, they also may inhibit fluctuations in the market
price of the Company's shares that could result from actual or rumored
takeover attempts. Such provisions also may have the effect of preventing
changes in the management of the Company. See "Risk Factors--Certain
Antitakeover Effects."
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), which, subject to certain
exceptions, prohibits a publicly held Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested
stockholder, unless: (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction that
resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
Long-Term Incentive Plan will be tendered in a tender or exchange offer; or
(iii) on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of the
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock that is not owned by the interested
stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets
of the corporation involving the interested stockholder; (iii) subject to
certain exceptions, any transaction that results in the issuance or transfer
by the corporation of any stock of the corporation to the interested
stockholder; (iv) any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any class or
series of the corporation beneficially owned by the interested stockholder; or
(v) the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitation of Liability. As permitted by the Delaware General Corporation
Law, the Company's Certificate provides that directors of the Company shall
not be personally liable for monetary damages to the Company for certain
breaches of their fiduciary duty as directors, unless they violated their duty
of loyalty to the Company or its stockholders, acted in bad faith, knowingly
or intentionally violated the law, authorized illegal dividends or
redemptions, or derived an improper personal benefit from their action as
directors. This provision would have no effect on the availability of
equitable remedies or nonmonetary relief, such as an injunction or rescission
for breach of the duty of care. In addition, the provision applies only to
claims against a director arising out of his or her role as a director and not
in any other capacity (such as an officer or employee of the Company).
Further, liability of a director for violations of the federal securities laws
will not be limited by this provision. Directors will, however, no longer be
liable for monetary damages arising from decisions involving violations of the
duty of care which could be deemed grossly negligent.
Indemnification. The Certificate provides that directors and officers of the
Company shall be indemnified by the Company to the fullest extent authorized
by Delaware law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with service for or
on behalf of the Company. The Certificate also authorizes the Company to enter
into one or more agreements with any person which provide for indemnification
greater or different from that provided in the Certificate. The Company has
52
<PAGE>
entered into indemnification agreements with all current members of the Board
of Directors and executive officers. The Company believes that these
provisions and agreements are desirable to attract and retain qualified
directors and officers. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank, Chicago, Illinois.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 10,206,464 shares of
Common Stock outstanding. Of these shares, the 3,000,000 shares sold in this
offering and the 2,875,000 shares issued in the Company's initial public
offering will be freely tradeable without restriction or further registration
under the Securities Act, except that any shares purchased by "affiliates" as
that term is defined under the Securities Act ("Affiliates"), may generally
only be sold in compliance with the limitations of Rule 144 described below.
All of the remaining 4,331,464 shares of Common Stock constitute restricted
securities under Rule 144. Of these "Restricted Shares," 3,939,794 will be
subject to a lock-up period expiring 90 days after the date of this Prospectus
(the "Lock-Up Period"). Donaldson, Lufkin & Jenrette Securities Corporation,
in its discretion, may waive the foregoing restrictions in whole or in part,
with or without a public announcement of such action. Following the Lock-Up
Period, 3,813,338 of the Restricted Shares will immediately become eligible
for sale, subject, however, to the volume limitations and restrictions (other
than the holding period requirement) of Rule 144. The remaining 518,126
Restricted Shares will become eligible for sale under Rule 144 in 1998. See
"Underwriting."
In general, under Rule 144 of the Securities Act as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
Restricted Shares for at least one year, including a person who may be deemed
an Affiliate of the Company, is entitled to sell within any three-month period
a number of shares of Common Stock that does not exceed the greater of 1% of
the then outstanding shares of Common Stock or the average weekly trading
volume of the Common Stock as reported on the Nasdaq National Market during
the four calendar weeks preceding such sale. Sales under Rule 144 are subject
to certain restrictions relating to manner of sale, notice and the
availability of current public information about the Company. In addition,
under Rule 144(k), a person who is not an Affiliate of the Company at any time
90 days preceding a sale, and who has beneficially owned shares for at least
two years, would be entitled to sell such shares without regard to the volume
limitations, manner of sale provisions or notice or other requirements of Rule
144.
The Company has filed a registration statement on Form S-8 under the
Securities Act to register the 900,000 shares of Common Stock reserved for
issuance under the Company's Long-Term Incentive Plan. The Company plans to
file an additional registration statement on Form S-8 within 30 days of the
date of this Prospectus to register the additional 1,500,000 shares of Common
Stock added by the Board of Directors to the Long-Term Incentive Plan in
October 1997. See "Management--Employee Benefit Plans--Long-Term Incentive
Plan." Accordingly, shares issued under the Long-Term Incentive Plan will be
available for sale in the open market, subject to Rule 144 volume limitations
applicable to Affiliates, and the lock-up agreements described above. Options
to purchase 539,478 shares of Common Stock are outstanding (of which 96,596
are currently exercisable) and 1,860,522 shares of Common Stock remain
available for future grant under the Long-Term Incentive Plan.
53
<PAGE>
REGISTRATION RIGHTS
In connection with the acquisition of The Kaufman Group and COMSUL, the
Company has entered into registration rights agreements with Nathan S.
Kaufman, Thomas S. Kumura and certain shareholders of COMSUL, including
Michael R. Dillingham, James D. Posner, John P. Ungar and Peter B. Valentine,
pursuant to which the Company has granted certain registration rights.
Pursuant to the terms of these registration rights agreements, the Company has
granted these stockholders and their transferees piggyback registration rights
covering an aggregate of 315,220 shares, of which 128,603 shares are being
offered pursuant to this Prospectus. When and as these rights are exercised,
additional shares not being offered hereby will become available for sale upon
the effectiveness of a registration statement relating to such shares.
The Company can make no prediction as to the effect, if any, that market
sales of shares of Common Stock or the availability of shares for sale will
have on the market price prevailing form time to time. Nevertheless, sales of
significant numbers of shares of the Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities. "See Risk Factors--Shares Eligible for Future Sale."
54
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement dated
, 1997 (the "Underwriting Agreement"), the Underwriters named below
(the "Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), William Blair & Company, L.L.C. and Jefferies
& Company, Inc. ("the Representatives"), have severally agreed to purchase
from the Company and the Selling Stockholders the respective number of shares
of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.............
William Blair & Company, L.L.C..................................
Jefferies & Company, Inc........................................
---------
Total....................................................... 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Common Stock offered hereby
(other than those covered by the over-allotment option described below) if any
are purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the price to the public set forth on the cover
page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow to certain
other dealers, a concession not in excess of $ per share. After the
initial offering of the Common Stock, the public offering price and other
selling terms may be changed by the Representatives at any time without
notice.
Certain Selling Stockholders have granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase from
time to time, in whole or in part, up to an aggregate of 450,000 additional
shares of Common Stock at the public offering price set forth on the cover
page of this Prospectus less the underwriting discounts and commissions. The
Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to
certain conditions, to purchase its pro rata portion of such additional shares
based on such Underwriter's percentage underwriting commitment as indicated in
the preceding table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, the Selling Stockholders and the executive officers and
directors of the Company has agreed subject to certain exceptions, not to (i)
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers all or a portion of the economic consequences
associated with the ownership of any Common Stock (regardless of whether any
of the transactions described in clause (i) or (ii) is to be settled by the
delivery of Common Stock, or such other securities, in cash or otherwise) for
a period of 90 days after the date of this Prospectus without the prior
written consent of DLJ. In addition, during such period, the Company has also
agreed not to file any registration statement with respect to, and each of its
executive officers, directors and certain stockholders of the Company
(including the Selling Stockholders) has agreed not to make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock without DLJ's prior written consent.
55
<PAGE>
Other than in the United States, no action has been taken by the Company,
the Selling Stockholders or the Underwriters that would permit a public
offering of the shares of Common Stock offered hereby in any jurisdiction
where action for that purpose is required. The shares of Common Stock offered
hereby may not be offered or sold, directly or indirectly, nor may this
Prospectus or any other offering material or advertisements in connection with
the offer and sale of any such shares of Common Stock be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of such jurisdiction.
Persons into whose possession this Prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the offering of
the Common Stock and the distribution of this Prospectus. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
shares of Common Stock offered hereby in any jurisdiction in which such an
offer or a solicitation is unlawful.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for or purchase shares of Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive
market maker generally may not exceed 30% of its average daily trading volume
in the Common Stock during a specified two-month prior period, or 200 shares,
whichever is greater. A passive market maker must identify passive market
making bids as such on the Nasdaq electronic inter-dealer reporting system.
Passive market making may stabilize or maintain the market price of the Common
Stock above independent market levels. Underwriters and dealers are not
required to engage in passive market making and may end passive market making
activities at any time.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate
short positions or to stabilize the price of the Common Stock. These
activities may stabilize or maintain the market price of the Common Stock
above independent market levels. The Underwriters are not required to engage
in these activities and may end any of these activities at any time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Sachnoff & Weaver, Ltd., Chicago, Illinois. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by McDermott, Will & Emery, Chicago, Illinois.
EXPERTS
The Consolidated Financial Statements of the Company as of December 31, 1995
and 1996, and for each of the three years in the period ended December 31,
1996, appearing elsewhere in this Prospectus and in the Registration
Statement, have been audited by Grant Thornton LLP, independent certified
public accountants, as stated in their report appearing elsewhere herein, and
are included in reliance upon such report of such firm given upon their
authority as experts in accounting and auditing.
The financial statements of The Kaufman Group, Inc. as of December 31, 1996
and for the year then ended appearing elsewhere in this Prospectus and in the
Registration Statement have been audited by Grant Thornton LLP, independent
certified public accountants, as stated in their report appearing elsewhere
herein, and are included in reliance upon such report of such firm given upon
their authority as experts in accounting and auditing.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED
FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants...................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and June
30, 1997 (unaudited)................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997
(unaudited)............................................................ F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and for the six months ended June 30,
1997 (unaudited)....................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997
(unaudited)............................................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
THE KAUFMAN GROUP, INC.
Report of Independent Certified Public Accountants...................... F-16
Balance Sheet as of December 31, 1996................................... F-17
Statement of Operations and Retained Earnings for the year ended
December 31, 1996...................................................... F-18
Statement of Cash Flows for the year ended December 31, 1996............ F-19
Notes to Financial Statements........................................... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
Superior Consultant Holdings Corporation:
We have audited the accompanying consolidated balance sheets of Superior
Consultant Holdings Corporation (a Delaware corporation) and Subsidiaries as
of December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the 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 consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Superior Consultant Holdings Corporation and Subsidiaries as of December
31, 1995 and 1996, and the results of their consolidated operations and their
consolidated cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
Detroit, Michigan
February 21, 1997 (except for Note 14, as to which the date is March 12, 1997)
F-2
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30
1995 1996 1997
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash........................................ $ 455 $ 2,076 $ 383
Short-term investments...................... -- 34,554 31,596
Accounts receivable (net of allowance for
doubtful accounts of $279,000 as of
December 31, 1995; $324,000 as of December
31, 1996; and $389,000 as of June 30,
1997)...................................... 5,811 9,918 10,554
Accrued interest receivable and prepaid
expenses................................... 154 456 444
------ ------- -------
Total current assets...................... 6,420 47,004 42,977
Property and equipment, net................... 985 2,598 4,055
Deferred income taxes......................... -- -- 89
Goodwill, net................................. -- -- 4,872
------ ------- -------
Total Assets.............................. $7,405 $49,602 $51,993
====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Lines of credit............................. $ 50 $ -- $ --
Accounts payable............................ 1,118 2,271 1,568
Accrued liabilities......................... 3,001 3,235 3,539
Deferred revenue............................ 638 1,286 1,118
Note payable to stockholder................. 156 -- --
Income taxes payable........................ -- 584 --
------ ------- -------
Total current liabilities................. 4,963 7,376 6,225
Deferred income taxes......................... 133 198 --
Deferred performance bonuses.................. 448 580 580
Commitments (Note 9).......................... -- -- --
Stockholders' equity
Preferred stock; authorized, 1,000,000
shares of $.01 par value; no shares issued
or outstanding............................. -- -- --
Common stock; authorized, 30,000,000 shares
of $.01 par value; issued and outstanding,
4,777,985 as of December 31, 1995;
7,559,735 as of December 31, 1996; and
7,634,325 as of June 30, 1997.............. 48 76 76
Additional paid-in capital.................. 1,036 40,986 42,548
Retained earnings........................... 1,506 1,084 3,262
Stockholders' notes receivable.............. (729) (698) (698)
------ ------- -------
Total stockholders' equity................ 1,861 41,448 45,188
------ ------- -------
Total Liabilities and Stockholders'
Equity................................... $7,405 $49,602 $51,993
====== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------
1994 1995 1996 1996 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $19,234 $25,906 $35,925 $16,547 $25,974
Costs and expenses
Cost of services........ 8,505 12,008 17,743 8,197 12,963
Selling, general and
administrative
expenses............... 8,223 10,045 13,498 6,250 9,925
Executive compensation
expense................ 2,445 3,730 4,579 2,600 444
------- ------- ------- ------- -------
Total costs and
expenses............. 19,173 25,783 35,820 17,047 23,332
------- ------- ------- ------- -------
Earnings (loss) from
operations........... 61 123 105 (500) 2,642
Interest expense.......... 16 16 47 22 --
Other income, principally
interest income.......... (44) (74) (406) (28) (976)
------- ------- ------- ------- -------
Earnings (loss) before
income taxes......... 89 181 464 (494) 3,618
Income taxes.............. -- 165 886 13 1,440
------- ------- ------- ------- -------
Net earnings (loss)... $ 89 $ 16 $ (422) $ (507) $ 2,178
======= ======= ======= ======= =======
Net earnings per
share................ $ 0.28
=======
Weighted average
number of common and
common equivalent
shares outstanding... 7,688
=======
Pro forma earnings data
(unaudited)
Earnings (loss) before
income taxes, as
reported............... $ 464 $ (494)
Adjustment for executive
compensation expense... 3,519 2,070
------- -------
Pro forma earnings
before income taxes.... 3,983 1,576
Pro forma income tax
expense................ 1,568 625
------- -------
Pro forma net earnings.. $ 2,415 $ 951
======= =======
Pro forma net earnings
per share.............. $ 0.44 $ 0.20
======= =======
Pro forma weighted
average number of
common and common
equivalent shares
outstanding............ 5,455 4,824
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL STOCKHOLDERS'
------------- PAID-IN RETAINED NOTES
SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994................... 4,058 $ 41 $ 54 $1,401 $ -- $ 1,496
Net earnings............ -- -- -- 89 -- 89
----- ---- ------- ------ ----- -------
Balance at December 31,
1994................... 4,058 41 54 1,490 -- 1,585
Net earnings............ -- -- -- 16 -- 16
Issuance of common
stock.................. 720 7 982 -- (764) 225
Payment on stockholders'
notes receivable....... -- -- -- -- 35 35
----- ---- ------- ------ ----- -------
Balance at December 31,
1995................... 4,778 48 1,036 1,506 (729) 1,861
Net loss................ -- -- -- (422) -- (422)
Issuance of common
stock.................. 2,782 28 39,658 -- -- 39,686
Payment on stockholders'
notes receivable....... -- -- -- -- 31 31
Tax benefit relating to
stock options
exercised.............. -- -- 249 -- -- 249
Compensation expense
recognized for fair
value of stock options
granted................ -- -- 43 -- -- 43
----- ---- ------- ------ ----- -------
Balance at December 31,
1996................... 7,560 76 40,986 1,084 (698) 41,448
Net earnings
(unaudited)............ -- -- -- 2,178 -- 2,178
Additional stock
offering costs
(unaudited)............ -- -- (38) -- -- (38)
Issuance of common stock
in connection with The
Kaufman Group, Inc.
acquisition
(unaudited)............ 74 -- 1,600 -- -- 1,600
----- ---- ------- ------ ----- -------
Balance at June 30, 1997
(unaudited)............ 7,634 $ 76 $42,548 $3,262 $(698) $45,188
===== ==== ======= ====== ===== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------------
1994 1995 1996 1996 1997
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities
Net earnings (loss).......... $ 89 $ 16 $ (422) $ (507) $ 2,178
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization.............. 287 405 512 204 450
Amortization of goodwill... -- -- -- -- 97
Non-cash compensation...... -- 225 43 -- --
Bad debt expense........... 9 230 45 59 157
Loss on sale of assets..... 15 47 -- -- --
Deferred income taxes...... -- 133 65 (17) (287)
Tax benefit from exercise
of stock options.......... -- -- 249 -- --
Changes in operating assets
and liabilities:
Accounts receivable...... (825) (1,929) (4,152) (1,799) (793)
Accrued interest
receivable and prepaid
expenses................ (14) (39) (302) (51) 79
Accounts payable......... 234 297 1,153 (72) (703)
Accrued liabilities...... 484 1,484 366 2,270 304
Deferred revenue......... 544 (58) 648 (526) (168)
Income taxes payable..... -- -- 584 30 (651)
------ -------- -------- -------- --------
Net cash provided by
(used in) operating
activities............ 823 811 (1,211) (409) 663
Cash flows from investing
activities:
Purchase of The Kaufman
Group, Inc.................. -- -- -- -- (3,407)
Purchases of property and
equipment................... (353) (807) (2,125) (479) (1,907)
------ -------- -------- -------- --------
Net cash used in
investing activities.. (353) (807) (2,125) (479) (5,314)
Cash flows from financing
activities:
(Repayment of) proceeds from
lines of credit, net........ (340) 50 (50) 630 --
Proceeds from notes payable
to stockholder.............. -- 200 -- -- --
Repayment of note payable to
stockholder................. -- (49) (156) (83) --
Proceeds from issuance of
common stock................ -- -- 39,686 -- --
Principal payments on
stockholders' notes
receivable.................. -- 35 31 1 --
------ -------- -------- -------- --------
Net cash provided by
(used in) financing
activities............ (340) 236 39,511 548 --
------ -------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents.......... 130 240 36,175 (340) (4,651)
Cash and cash equivalents,
beginning of period........... 85 215 455 455 36,630
------ -------- -------- -------- --------
Cash and cash equivalents, end
of period..................... $ 215 $ 455 $ 36,630 $ 115 $ 31,979
====== ======== ======== ======== ========
Supplemental disclosure of cash
flow information--cash paid
for:
Interest..................... $ 16 $ 16 $ 47 $ 12 $ --
Income taxes................. -- 40 -- 12 2,374
Non-cash acquisition costs
(issuance of common stock
for The Kaufman Group,
Inc.)....................... -- -- -- -- 1,600
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
(TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Superior Consultant Holdings Corporation and its subsidiaries, Superior
Consultant Company, Inc. ("Superior") and Enterprise Consulting Group
("Enterprise") (formerly known as Unitive Corporation), collectively referred
to as the "Company". Superior is a leading healthcare consulting firm that
provides a wide range of information technology consulting and strategic and
operations management consulting services to a broad cross-section of
healthcare industry participants and healthcare information system vendors.
Enterprise assists clients in developing, designing, implementing and
maintaining groupware and intranet and web-based information systems and
solutions. The Company operates in one business segment.
Historically, both Superior and Enterprise were majority-owned by an
individual. In connection with the completion of the initial public offering
of common stock on October 16, 1996, the companies entered into and
consummated a corporate reorganization, whereby Superior and Enterprise became
wholly-owned operating subsidiaries of Superior Consultant Holdings
Corporation. This transaction was accounted for as a reorganization of
entities under common control and accounted for in a manner similar to a
pooling of interests. The accompanying consolidated financial statements and
footnotes, and all share amounts included therein, give effect to the
reorganization. All material intercompany accounts and transactions have been
eliminated.
Interim Financial Data
The consolidated financial statements and related notes thereto as of June
30, 1997 and for the six months ended June 30, 1996 and 1997 are unaudited.
The information reflects all adjustments, consisting only of normal recurring
entries, that, in the opinion of management, are necessary to present fairly
the financial position, results of operations and cash flows of the Company
for the periods indicated. Results of operations for the interim periods are
not necessarily indicative of the results of operations for the full fiscal
year.
Short-Term Investments
The Company's policy is to invest cash in excess of operating requirements
in income producing investments. Short-term cash investments at December 31,
1996 and June 30, 1997 include commercial paper and money market accounts
stated at cost, which approximates market.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with a maturity of three months or less to
be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Expenditures for major renewals
and improvements that extend the useful life of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense
as incurred.
F-7
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED) (TABULAR AMOUNTS ARE IN THOUSANDS,
EXCEPT PER SHARE DATA)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
Effective January 1, 1996, the Company changed the method used to calculate
depreciation on new purchases of property and equipment from accelerated
methods (principally the double-declining balance method) to the straight-line
method. The Company believes the straight-line method provides a better
matching of expenses with revenues over the productive life of the assets. In
addition, the Company believes the new method should improve the comparability
of its financial statements with other information technology consulting
companies. The effect of the change during 1996 increased pro forma earnings
and pro forma earnings per share by $58,600 and $.01, respectively.
Income Taxes
Historically, Superior was taxed under Subchapter S of the Internal Revenue
Code. The Subchapter S election of Superior was terminated prior to the
closing of the initial public offering of common stock in October 1996. In
addition, through December 31, 1994, Enterprise had also elected to be taxed
under Subchapter S. As a result of the Subchapter S elections, federal income
taxes were payable personally by the stockholders. Accordingly, the 1994
consolidated statement of operations does not include a provision for federal
income taxes, the 1995 statement includes a provision for federal income taxes
only for Enterprise, and the 1996 statement includes a provision for federal
income taxes for Enterprise for the entire year, and for Superior for only a
portion of the year. Accordingly, a pro forma provision for income taxes is
presented as if the consolidated Company was taxed as a C Corporation for the
year ended December 31, 1996.
Taxes on earnings, including pro forma calculations and the impact of
deferred income taxes as a result of termination of the Subchapter S election,
are accounted for under the liability method pursuant to Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. Deferred
income tax expense recorded in the fourth quarter of 1996 as a result of
Superior's termination of the Subchapter S election totalled approximately
$130,000.
Deferred Bonus
Of the non-current deferred bonuses, approximately $190,000 are payable no
later than March 1999 and approximately $390,000 are payable no later than
March 2000, subject to and contingent upon employees' continued employment on
those dates.
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 revenue and expenses during the
reporting period. Actual results could differ from these estimates.
Fair Value of Financial Instruments
Management believes the fair value of financial instruments approximates
their carrying amounts. The carrying value of the cash and short-term
investments approximates their estimated fair values based upon quoted market
prices. Management believes the fair value of stockholders' notes receivable
approximate their carrying values based on current rates for instruments with
similar characteristics.
F-8
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED) (TABULAR AMOUNTS ARE IN THOUSANDS,
EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company recognizes revenues as services are performed for projects
billed on a time and materials basis. On fixed-fee projects, the Company
recognizes revenue using the percentage of completion basis. Deferred revenue
represents billings and collections made in advance of services being
performed.
Recently Issued Financial Accounting Standard
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards No. 128, Earnings Per Share ("SFAS 128"),
which (i) replaces the presentation of primary earnings per share (EPS) with a
presentation of basic EPS; (ii) requires dual presentation of basic and
diluted EPS on the face of the consolidated statements of income regardless of
whether basic and diluted EPS are the same; and (iii) requires a
reconciliation of the numerator and denominator used in computing basic and
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to Accounting Principles Board Opinion
15. The effect of applying SFAS 128 is not expected to be significant.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. SFAS 128 requires restatement of all prior-period EPS data
presented.
2. ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of activity in connection with the allowance for doubtful accounts
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
<S> <C> <C> <C>
Allowance for doubtful accounts at beginning of
year........................................... $ 40 $ 49 $ 279
Charged to bad debt expense..................... 9 230 45
------- -------- --------
Allowance for doubtful accounts at end of year.. $ 49 $ 279 $ 324
======= ======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, RANGE OF
---------------- JUNE 30, USEFUL
1995 1996 1997 LIVES
<S> <C> <C> <C> <C>
Office equipment....................... $ 338 $ 735 $ 791 5-7 Years
Computer equipment..................... 1,275 2,375 3,888 5-7 Years
Office machines........................ 499 847 1,102 5-7 Years
Condominiums........................... -- 256 256 40 Years
Leasehold improvements................. -- 24 107 7 Years
------- ------- -------
2,112 4,237 6,144
Less: accumulated depreciation....... (1,127) (1,639) (2,089)
------- ------- -------
Property and equipment, net............ $ 985 $ 2,598 $ 4,055
======= ======= =======
</TABLE>
F-9
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED) (TABULAR AMOUNTS ARE IN THOUSANDS,
EXCEPT PER SHARE DATA)
4. LINES OF CREDIT
Superior has a line of credit with a bank which allows borrowings of up to
$2.5 million, due on demand, with no scheduled maturity date. Borrowings bear
interest at 0.5% above the bank's prime rate and are collateralized by
Superior's accounts receivable. At December 31, 1995 and December 31, 1996,
there were no amounts outstanding on this line.
Enterprise has a line of credit with a bank which allows the Company to
borrow up to $500,000, due on demand, with no scheduled maturity date.
Borrowings bear interest at 0.5% above the bank's prime rate and are
collateralized by all assets of Enterprise. At December 31, 1995, $50,000 was
outstanding on this line. No amounts were outstanding on this line as of
December 31, 1996.
As of June 30, 1997 no amounts were outstanding on the line of credit.
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
Payroll and withholding taxes......................... $1,736 $1,094 $1,374
Bonuses and commissions............................... 783 1,691 1,511
Profit sharing........................................ 482 450 654
------ ------ ------
Total accrued liabilities........................... $3,001 $3,235 $3,539
====== ====== ======
</TABLE>
6. STOCKHOLDERS' EQUITY
Initial Public Offering
On October 16, 1996, the Company completed the public offering of 2,723,623
shares of its common stock at $16 per share, resulting in net proceeds of
approximately $39,686,000. In connection with the offering, as discussed in
Note 1, Superior terminated its Subchapter S status. The undistributed
earnings of Superior as of the date of the termination of its S Corporation
status were insignificant.
Stock Option Plans
In June 1987, Superior adopted the 1987 Key Employees' Stock Option Plan
(the "old Stock Plan") under which incentive and non-statutory stock options
to acquire shares of Superior's common stock could be granted to officers and
other employees. The old Stock Plan was administered by the Board of Directors
and permitted the issuance of options for up to 1,600,025 shares of common
stock. Effective January 1, 1993, the exercise price was the estimated fair
market value per share as determined by the Board of Directors at the time the
option was granted. Options were exercisable not sooner than the date of and
immediately prior to (1) any sale of all or substantially all of Superior's
stock or assets or a merger into an acquiring entity or (2) the initial public
offering of common stock, and terminated if not exercised upon the occurrence
of these events. As of December 31, 1995, Superior had granted 58,127 options
to key management and members of the Board of Directors under the old Stock
Plan, all of which were exercised during 1996. The old Stock Plan was
terminated in 1996.
F-10
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED) (TABULAR AMOUNTS ARE IN THOUSANDS,
EXCEPT PER SHARE DATA)
6. STOCKHOLDERS' EQUITY (CONTINUED)
Effective September 1, 1996, the Company adopted its Long-Term Incentive
Plan (the "new Plan"). Pursuant to the new Plan, a maximum of 900,000 shares
of common stock are reserved for the granting of incentive, nonstatutory or
formula options, restricted stock grants and other equity-based compensation.
The options, other than the director formula options, may have terms not
exceeding ten years when granted. The Company granted 219,800 options in
connection with its initial public offering at an exercise price per share
equal to the initial public offering price. The exercise price of each option
equals the market price of the Company's stock on the date of grant.
The Company follows the provisions of Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees. For options to non-
employees, the Company follows the provisions of Statement of Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). For the year ended December 31, 1996, compensation expense of
approximately $43,000 was recognized for the fair value of stock options
granted to non-employees.
Had compensation cost for the plans been determined based on the fair value
of all the options at the grant dates consistent with SFAS 123, for the year
ended December 31, 1996 the Company's net loss, pro forma net earnings and pro
forma net earnings per share would have been $(553,000), $2,284,000 and $0.42,
respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1996: dividend yield of 0%, expected volatility of
52%, risk-free interest rate of 6.38% and expected life of 5 years.
A summary of the status of the Company's stock option plans as of December
31, 1994, 1995 and 1996, and changes during the years ending on those dates,
is presented below:
<TABLE>
<CAPTION>
1994 1995 1996
--------------- --------------- ---------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000) PRICE (000) PRICE (000) PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 716 $2.48 714 $2.48 58 $ 3.40
Granted.................... -- -- -- -- 226 16.14
Exercised.................. -- -- -- -- (58) 3.40
Forfeited.................. (2) 2.81 (656) 2.41 -- --
--- ---- ---
Outstanding at year-end..... 714 2.48 58 3.40 226 16.14
Options exercisable at year-
end........................ -- -- -- -- 21 16.00
Weighted-average fair value
of options granted during
the year................... -- -- -- -- 226 8.44
</TABLE>
The following information applies to options outstanding at December 31,
1996:
<TABLE>
<S> <C>
Number outstanding.......................................... 225,800
Range of exercise prices.................................... $16.00-$21.25
Weighted-average exercise price............................. $16.14
Weighted-average remaining contractual life................. 4.78 years
</TABLE>
F-11
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED) (TABULAR AMOUNTS ARE IN THOUSANDS,
EXCEPT PER SHARE DATA)
7. INCOME TAXES
The historical income tax provision consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
----------------------- JUNE 30,
1994 1995 1996 1997
<S> <C> <C> <C> <C>
Current federal income taxes............. $ -- $ 32 $ 540 $1,515
Deferred federal income taxes............ -- 133 65 (287)
Current state income taxes............... -- -- 32 212
Tax benefit from exercise of stock
options credited directly to additional
paid-in capital......................... -- -- 249 --
------- ------- ------- ------
$ -- $ 165 $ 886 $1,440
======= ======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
DECEMBER
31,
---------
JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
Deferred tax assets:
Compensation payable.................................. $-- $540 $573
Allowance for bad debts............................... -- 110 132
Deferred revenue...................................... -- 79 165
---- ---- ----
Total gross deferred tax assets..................... -- 729 870
Deferred tax liabilities:
Change from cash to accrual basis of tax accounting
for Enterprise effective January 1, 1995, and for
Superior effective January 1, 1996................... 133 873 750
Depreciation.......................................... -- 54 31
---- ---- ----
Total gross deferred tax liabilities................ 133 927 781
---- ---- ----
Net deferred tax liability (asset).................. $133 $198 $(89)
==== ==== ====
</TABLE>
A reconciliation of the provision for income taxes follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------- ----------------------------
1996 1996
PRO PRO
1995 1996 FORMA 1996 FORMA 1997
<S> <C> <C> <C> <C> <C> <C>
Expected expense at the
statutory rate......... $ 62 $ 158 $ 1,354 $ (168) $ 536 $ 1,230
Effect of Superior's S
Corporation election... 83 415 -- 170 -- --
Permanent differences;
expenses recognized for
book, not tax.......... 20 32 55 11 25 70
Tax benefit from
exercise of stock
options credited
directly to additional
paid-in capital........ -- 249 -- -- -- --
State income taxes...... -- 32 159 -- 64 140
------- ------- --------- -------- ------- ---------
Total income taxes.... $ 165 $ 886 $ 1,568 $ 13 $ 625 $ 1,440
======= ======= ========= ======== ======= =========
</TABLE>
F-12
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED) (TABULAR AMOUNTS ARE IN THOUSANDS,
EXCEPT PER SHARE DATA)
8. PROFIT-SHARING PLAN
The Company has a profit-sharing plan which qualifies under Section 401(k)
of the Internal Revenue Code. Eligible employees may contribute up to the
maximum allowable under tax regulations. Company contributions are fully
discretionary. Profit sharing expense was $235,000, $450,000, $450,000,
$280,000 and $204,000 for the years ended December 31, 1994, 1995, 1996 and
six months ended June 30, 1996 and 1997, respectively.
9. COMMITMENTS
The Company leases its office facilities, certain equipment and vehicles
under lease agreements classified as operating leases. Future minimum lease
payments under such noncancelable operating leases as of December 31, 1996 are
summarized as follows:
<TABLE>
<S> <C>
YEARS ENDING DECEMBER 31
1997........................................................... $ 531
1998........................................................... 503
1999........................................................... 463
2000........................................................... 407
2001........................................................... 411
Thereafter..................................................... 644
------
Total future minimum lease payments.......................... $2,959
======
</TABLE>
Rent expense amounted to approximately $298,000, $356,000, $384,000,
$161,000 and $338,000 for the years ended December 31, 1994, 1995, 1996 and
the six months ended June 30, 1996 and 1997, respectively, and has been
included in selling, general and administrative expenses in the accompanying
statements of operations.
In connection with its initial public offering, the Company entered into a
tax indemnification agreement with three shareholders of Superior which
provides for, among other things, the indemnification of each such shareholder
for any losses or liabilities with respect to any additional taxes (including
interest, penalties and legal fees), and the repayment to the Company of any
amounts received as refunds resulting from Superior's operations during the
period in which it was an S Corporation. Management believes that the
Company's maximum exposure pursuant to this agreement is not material.
10. RELATED PARTY TRANSACTIONS
The Company had an unsecured note payable to the trust of the majority
stockholder which matured in August 1996, and bore interest at 8.75% per
annum. Interest expense on this note was approximately $4,000 and $5,000 for
the years ended December 31, 1995 and 1996, respectively.
During 1995, Superior issued 658,833 shares of its common stock to two
stockholders in exchange for two promissory notes totaling $750,000 and the
cancellation of outstanding stock options. The notes bear interest at 7.7% per
annum and require annual payments totaling $75,000. Interest income on these
notes totaled approximately $40,000 and $58,000 for the years ended December
31, 1995 and 1996, and $17,500 and $28,000 for the six months ended June 30,
1996 and 1997, respectively. The Company has recorded compensation expense and
a related increase to additional paid-in capital of $225,000 for the year
ended December 31, 1995 representing the difference between the estimated
market value of the common stock at the date of issuance and its selling
price.
F-13
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED) (TABULAR AMOUNTS ARE IN THOUSANDS,
EXCEPT PER SHARE DATA)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
Commencing in year ended December 31, 1996, the Company chartered aircraft
from a company owned by the majority stockholder, at a total cost of
approximately $36,000. For the six months ended June 30, 1997, the Company
incurred costs of approximately $92,000 in connection with chartering such
aircraft.
11. MAJOR CUSTOMERS
During the year ended December 31, 1994, the Company derived approximately
39% of its revenues from three customers, with each customer providing over
10% of revenues. During the year ended December 31, 1995, the Company derived
approximately 13% of its revenues from a single customer. As of December 31,
1995, accounts receivable from a single customer comprised 15% of total
assets. As of and for the year ended December 31, 1996 and June 30, 1997, no
single customer provided over 10% of the Company's accounts receivable or
revenue.
12. PRO FORMA ADJUSTMENTS TO FINANCIAL STATEMENTS (UNAUDITED)
The following pro forma adjustments have been made to the historical results
of operations to make the presentations more comparable in relation to future
periods.
(a) Elimination of executive compensation expense (including bonuses) in
excess of the amount that would have been paid had the compensation-limiting
agreements, for the majority stockholder and two other executive officers,
which became effective concurrent with the closing of the Company's initial
public offering of common stock on October 16, 1996, been effective throughout
such periods.
(b) Computation of federal income taxes assuming an effective tax rate of
39.4% for the year ended December 31, 1996, and 39.6% for the six months ended
June 30, 1996 which would have been recorded had Superior been a C Corporation
and after eliminating the executive compensation expense in (a).
13. PRO FORMA AND SUPPLEMENTAL NET EARNINGS PER SHARE
Pro forma net earnings per share is computed based on the weighted average
number of shares of common stock outstanding during 1996, and includes the
dilutive effect of unexercised stock options using the treasury stock method.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
<S> <C>
Supplemental net earnings............................... $2,414
======
Supplemental net earnings per share..................... $ 0.44
======
Weighted average number of common and common equivalent
shares outstanding..................................... 5,471
======
</TABLE>
Supplemental net earnings represents pro forma net earnings adjusted for the
elimination of interest expense associated with the repayment of $260,000 in
debt under lines of credit in conjunction with the Company's initial public
offering.
F-14
<PAGE>
SUPERIOR CONSULTANT HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997 (UNAUDITED) (TABULAR AMOUNTS ARE IN THOUSANDS,
EXCEPT PER SHARE DATA)
13. PRO FORMA AND SUPPLEMENTAL NET EARNINGS PER SHARE (CONTINUED)
Supplemental net earnings per share has been computed by dividing
supplemental net earnings by the weighted average number of common and common
equivalent shares outstanding during the period used in the pro forma net
earnings per share and the assumed issuance of 16,250 shares of common stock
by the Company which would be necessary to generate gross proceeds sufficient
to repay the $260,000 in debt outstanding at October 10, 1996 in conjunction
with the Company's initial public offering.
14. PURCHASE ACQUISITION
Effective March 12, 1997, the Company purchased a healthcare consulting
business based in California for $3.2 million in cash, $1.6 million of newly-
issued common stock, and a maximum additional payment of $1.5 million payable
in cash over a three-year period. Goodwill of approximately $5.0 million
resulted from the transaction, which will be amortized over 15 years on a
straight-line basis.
Had the acquisition been made as of January 1, 1996, pro forma revenues, net
earnings and net earnings per share would have been $40,130,000, $3,142,000,
and $.57 for the year ended December 31, 1996, and $26,975,000, $2,125,000 and
$.28 for the six months ended June 30, 1997, respectively.
15. EVENT (UNAUDITED) SUBSEQUENT TO THE DATE OF REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Effective July 29, 1997, the Company completed a business combination with
COMSUL, Ltd., a California corporation. The transaction was consummated as a
merger involving the issuance of 240,630 shares of the Company's common stock
having a value of approximately $7.7 million. The acquisition will be
accounted for as a pooling of interests.
Effective August 14, 1997, the Company completed a business combination with
Chi Systems, Inc., a Delaware corporation. The transaction was consummated as
a merger involving the issuance of 331,509 shares of the Company's common
stock having a value of approximately $11.2 million. The acquisition will be
accounted for as a pooling of interests.
F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
The Kaufman Group, Inc.:
We have audited the accompanying balance sheet of The Kaufman Group, Inc. (a
California corporation) ("Kaufman") as of December 31, 1996, and the related
statements of operations and retained earnings, and cash flows for the year
then ended. These financial statements are the responsibility of Kaufman's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Kaufman as of December 31,
1996, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Detroit, Michigan
May 13, 1997
F-16
<PAGE>
THE KAUFMAN GROUP, INC.
BALANCE SHEET
<TABLE>
<S> <C>
<CAPTION>
DECEMBER 31,
1996
ASSETS ------------
<S> <C>
Current assets
Cash and cash equivalents....................................... $ 130,560
Accounts receivable............................................. 894,071
----------
Total current assets.......................................... 1,024,631
Property and equipment, net....................................... 43,121
----------
Total Assets.................................................. $1,067,752
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................ $ 62,565
Accrued liabilities............................................. 172,995
Deferred revenue................................................ 36,500
Income taxes payable............................................ 38,000
Deferred income taxes........................................... 235,000
----------
Total current liabilities..................................... 545,060
Commitment (Note 7)............................................... --
Stockholders' equity
Common stock; authorized 100,000 shares of $1 par value; issued
and outstanding,
1,000 shares................................................... 1,000
Additional paid-in capital...................................... 5,024
Retained earnings............................................... 516,668
----------
Total stockholders' equity.................................... 522,692
----------
Total Liabilities and Stockholders' Equity.................. $1,067,752
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-17
<PAGE>
THE KAUFMAN GROUP, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Revenues........................................................... $4,204,980
Costs and expenses
Cost of services................................................. 1,182,625
Selling, general and administrative expenses..................... 555,234
Executive compensation expense................................... 2,712,445
----------
Total costs and expenses....................................... 4,450,304
----------
Loss from operations........................................... (245,324)
Other income, principally interest income.......................... 21,484
----------
Loss before income taxes....................................... (223,840)
Income tax benefit................................................. (82,200)
----------
Net loss....................................................... (141,640)
Retained earnings--beginning of year............................... 658,308
----------
Retained earnings--end of year..................................... $ 516,668
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-18
<PAGE>
THE KAUFMAN GROUP, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Cash flows from operating activities
Net loss........................................................ $(141,640)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization................................. 20,767
Deferred income tax credit.................................... (121,000)
Changes in operating assets and liabilities:
Accounts receivable......................................... 270,530
Other assets................................................ 800
Accounts payable............................................ 45,214
Accrued liabilities......................................... 9,802
Deferred revenue............................................ 36,500
Income taxes payable........................................ 38,000
---------
Net cash provided by operating activities................. 158,973
Cash flows used in investing activities:
Purchases of property and equipment............................. (36,247)
---------
Net increase in cash and cash equivalents......................... 122,726
Cash and cash equivalents, beginning of period.................... 7,834
---------
Cash and cash equivalents, end of period.......................... $ 130,560
=========
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-19
<PAGE>
THE KAUFMAN GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF OPERATIONS
The Kaufman Group, Inc. (Kaufman) provides management consulting for firms
in the health care industry throughout the United States. Such consulting
services include structuring medical groups, group practices operations
improvement, practice valuations and practice acquisitions.
2. SUMMARY OF ACCOUNTING POLICIES
Cash and Cash Equivalents
For purposes of the statement of cash flows, Kaufman considers all highly
liquid investments purchased with a maturity of three months or less to be
cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Expenditures for major renewals
and improvements that extend the useful life of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense
as incurred.
Income Taxes
Taxes are accounted for under the liability method pursuant to Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. This
approach requires the recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities.
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 revenue and expenses during the
reporting period. Actual results could differ from these estimates.
Accounts Receivable
Kaufman believes that all accounts receivable as of December 31, 1996 are
fully collectible. Therefore, no allowance for doubtful accounts has been
recorded.
Revenue Recognition
Kaufman recognizes revenues as services are performed for projects billed on
a time and materials basis. On fixed-fee projects, Kaufman recognizes revenue
using the percentage of completion basis. Deferred revenue represents billings
and collections made in advance of services being performed.
F-20
<PAGE>
THE KAUFMAN GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1996:
<TABLE>
<CAPTION>
RANGE
OF LIFE
<S> <C> <C>
Machinery and equipment.................................. $ 83,693 3-10 years
Furniture and fixtures................................... 22,600 3-10 years
--------
106,293
Less accumulated depreciation.......................... 63,172
--------
$ 43,121
========
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1996:
<TABLE>
<S> <C>
Payroll and withholding taxes.................................... $ 4,156
Profit sharing................................................... 60,839
Bonuses.......................................................... 108,000
--------
Total accrued liabilities...................................... $172,995
========
</TABLE>
5. INCOME TAXES
The historical income tax benefit consists of the following for the year
ended December 31, 1996:
<TABLE>
<S> <C>
Current federal income taxes................................... $ 30,000
Deferred federal income tax credit............................. (121,000)
Current state income taxes..................................... 8,800
---------
$ (82,200)
=========
</TABLE>
The tax effects of temporary differences that give rise to the deferred tax
liability at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Accrual basis of accounting for financial reporting, cash basis
for tax reporting.............................................. $232,000
Depreciation.................................................... 3,000
--------
$235,000
========
</TABLE>
6. PROFIT-SHARING PLAN
Kaufman has a profit-sharing plan which qualifies under Section 401(k) of
the Internal Revenue Code. Eligible employees may contribute up to the maximum
allowable under tax regulations. Company contributions are fully
discretionary. Profit sharing expense was $57,000 for the year ended December
31, 1996.
F-21
<PAGE>
THE KAUFMAN GROUP, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
7. COMMITMENT
The Company leases its office facilities under a lease agreement classified
as an operating lease. Future minimum lease payments under such noncancelable
operating lease as of December 31, 1996 are summarized as follows:
<TABLE>
<S> <C>
YEARS ENDING DECEMBER 31
1997......................................................... $ 63,000
1998......................................................... 53,000
--------
Total future minimum lease payments........................ $116,000
========
</TABLE>
Rent expense amounted to approximately $63,000 for the year ended December
31, 1996, and has been included in selling, general and administrative
expenses in the accompanying statement of operations.
8. MAJOR CUSTOMER
During the year ended December 31, 1996, the Company derived approximately
23% of its revenue from one customer. As of December 31, 1996, accounts
receivable from this customer comprised approximately 13% of total accounts
receivable.
9. SUBSEQUENT EVENT
Effective March 12, 1997, the Company was purchased by Superior Consultant
Company, Inc. (a subsidiary of Superior Consultant Holdings Corporation) for
$3.2 million in cash, $1.6 million of newly-issued common stock of Superior,
and a maximum additional payment of $1.5 million payable in cash over a three-
year period.
F-22
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING
STOCKHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CRE-
ATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Additional Information.................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
The Company............................................................... 14
Use of Proceeds........................................................... 14
Price Range of Common Stock............................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Pro Forma Unaudited Consolidated Condensed Financial Information.......... 16
Selected Consolidated Financial Data...................................... 18
Recent Financial Results.................................................. 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 28
Management................................................................ 42
Certain Transactions...................................................... 49
Principal and Selling Stockholders........................................ 50
Description of Capital Stock.............................................. 51
Shares Eligible for Future Sale........................................... 53
Underwriting.............................................................. 55
Legal Matters............................................................. 56
Experts................................................................... 56
Index to Financial Statements............................................. F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,000,000 SHARES
LOGO
SUPERIOR CONSULTANT
HOLDINGS CORPORATION
COMMON STOCK
---------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY
JEFFERIES & COMPANY, INC.
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
1.1 Form of Underwriting Agreement *
2.1 Merger Agreement--Superior (2)
2.2 Merger Agreement--Unitive (2)
3.1 Form of Amended and Restated Certificate of Incorporation (1)
of the Company
3.2 Form of By-Laws of the Company (1)
4.1 Specimen Common Stock certificate (1)
5.1 Opinion of Sachnoff & Weaver, Ltd. *
10.1 Form of Indemnification Agreement between the Company and (1)
each of its directors and officers
10.2 Form of Long-Term Incentive Compensation Plan (1), and
amendment thereto**
10.3 Lease dated March 21, 1996 between P\ITC Limited Partner- (1)
ship and Superior
10.4 Form of Tax Indemnification Agreement (2)
10.5 Employment Agreement dated December 11, 1995, between Su- (2)
perior Consultant Company, Inc. and Charles O. Bracken,
and related 1996 Executive Vice President Bonus Plan
10.6 Employment Agreement dated December 8, 1995, between Su- (2)
perior Consultant Company, Inc. and Robert R. Tashiro and
related 1996 Vice President Bonus Plan
10.7 Employment Agreement dated December 27, 1995, between Su- (2)
perior Consultant Company, Inc. and James T. House, and
related 1996 Vice President Bonus Plan
10.9 Form of Amendment to Employment Agreement between Supe- (2)
rior Consultant Company, Inc. and Robert R. Tashiro
10.10 Form of Amendment of Employment Agreement between Supe- (2)
rior Consultant Company, Inc. and Charles O. Bracken
10.11 Form of Compensation Agreement between Superior Consul- (2)
tant Holdings Corporation and Richard D. Helppie, Jr.
10.12 Promissory Note dated April 20, 1995, executed by Charles (2)
O. Bracken in favor of Superior Consultant Company, Inc.
10.13 Pledge Agreement dated April 20, 1995, between Charles O. (2)
Bracken and Superior Consultant Company, Inc.
10.14 Promissory Note dated April 20, 1995, executed by Robert (2)
R. Tashiro in favor of Superior Consultant Company, Inc.
10.15 Pledge Agreement dated April 20, 1995 between Superior (2)
Consultant Company, Inc. and Robert R. Tashiro
10.16 Stock Purchase Agreement, dated March 12, 1997 among Su- (3)
perior Consultant Holdings Corporation, Superior Consul-
tant Company, Inc., The Kaufman Group, Inc., Nathan S.
Kaufman and Thomas S. Kumura
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.17 Plan and Agreement of Merger, dated July 28, 1997, among (5)
Superior Consultant Holdings Corporation, CMSL Acquisi-
tion Corp., COMSUL, LTD., and certain shareholders of
COMSUL, LTD.
10.18 Agreement dated as of August 14, 1997 among Superior Con- (6)
sultant Holdings Corporation, Chi Acquisition Co., The
Chi Group, Inc. and certain stockholders of the Chi Group
Inc.
21.1 Subsidiaries of Superior Consultant Holdings Corporation (1)
23.1 Consent of Grant Thornton LLP *
23.2 Consent of Sachnoff & Weaver, Ltd. (to be included in Ex-
hibit 5.1)
24.1 Power of Attorney (included on the signature page to this
Registration Statement as filed on October 7, 1997)
</TABLE>
- ---------------------
*Filed herewith.
(1) Incorporated by reference from the Registrant's Form S-1 Registration
Statement No. 333-10213 as filed with the SEC on August 15, 1996.
(2) Incorporated by reference from the Registrant's Amendment No. 1 to Form S-1
Registration Statement No. 333-10213 as filed with the SEC on September 20,
1996.
(3) Incorporated by reference from the Registrant's Form 8-K as filed with the
SEC on March 26, 1997.
(4) Incorporated by reference from the Registrant's Form 10-K as filed with the
SEC on March 31, 1997.
(5) Incorporated by reference from the Registrant's Form 10-Q as filed with the
SEC on August 7, 1997.
(6) Incorporated by reference from the Registrant's Form 8-K as filed with the
SEC on August 28, 1997.
(b) Financial Statement Schedules.
None.
II-2
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1933, THE
COMPANY HAS DULY CAUSED THIS AMENDMENT NO. 1 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, HEREUNTO DULY AUTHORIZED, IN THE CITY OF SOUTHFIELD, STATE OF
MICHIGAN, ON OCTOBER 24, 1997.
Superior Consultant Holdings
Corporation
/s/ Richard D. Helppie, Jr.
By __________________________________
Richard D. Helppie, Jr.
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES
INDICATED ON THE 24TH DAY OF OCTOBER, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard D. Helppie, Jr. President, Chief Executive October 24, 1997
____________________________________ Officer (Principal
Richard D. Helppie, Jr. Executive Officer) and
Director
* Vice President and Chief October 24, 1997
____________________________________ Financial Officer
James T. House (Principal Financial and
Accounting Officer)
* Vice President, General October 24, 1997
____________________________________ Counsel and Director
Richard P. Saslow
* Director October 24, 1997
____________________________________
Reginald M. Ballantyne III
* Director October 24, 1997
____________________________________
Bernard J. Lachner
* Director October 24, 1997
____________________________________
Douglas S. Peters
</TABLE>
/s/ Richard D. Helppie,
Jr.
*By : ____________________
Richard D. Helppie, Jr.
Attorney-in-Fact
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement *
2.1 Merger Agreement--Superior (2)
2.2 Merger Agreement--Unitive (2)
3.1 Form of Amended and Restated Certificate of Incorpo- (1)
ration of the Company
3.2 Form of By-Laws of the Company (1)
4.1 Specimen Common Stock certificate (1)
5.1 Opinion of Sachnoff & Weaver, Ltd. *
10.1 Form of Indemnification Agreement between the Company (1)
and each of its directors and officers
10.2 Form of Long-Term Incentive Compensation Plan (1),
and amendment thereto**
10.3 Lease dated March 21, 1996 between P\ITC Limited (1)
Partnership and Superior
10.4 Form of Tax Indemnification Agreement (2)
10.5 Employment Agreement dated December 11, 1995, between (2)
Superior Consultant Company, Inc. and Charles O.
Bracken, and related 1996 Executive Vice President
Bonus Plan
10.6 Employment Agreement dated December 8, 1995, between (2)
Superior Consultant Company, Inc. and Robert R. Ta-
shiro and related 1996 Vice President Bonus Plan
10.7 Employment Agreement dated December 27, 1995, between (2)
Superior Consultant Company, Inc. and James T. House,
and related 1996 Vice President Bonus Plan
10.9 Form of Amendment to Employment Agreement between Su- (2)
perior Consultant Company, Inc. and Robert R. Tashiro
10.10 Form of Amendment of Employment Agreement between Su- (2)
perior Consultant Company, Inc. and Charles O.
Bracken
10.11 Form of Compensation Agreement between Superior Con- (2)
sultant Holdings Corporation and Richard D. Helppie,
Jr.
10.12 Promissory Note dated April 20, 1995, executed by (2)
Charles O. Bracken in favor of Superior Consultant
Company, Inc.
10.13 Pledge Agreement dated April 20, 1995, between (2)
Charles O. Bracken and Superior Consultant Company,
Inc.
10.14 Promissory Note dated April 20, 1995, executed by (2)
Robert R. Tashiro in favor of Superior Consultant
Company, Inc.
10.15 Pledge Agreement dated April 20, 1995 between Supe- (2)
rior Consultant Company, Inc. and Robert R. Tashiro
10.16 Stock Purchase Agreement, dated March 12, 1997 among (3)
Superior Consultant Holdings Corporation, Superior
Consultant Company, Inc., The Kaufman Group, Inc.,
Nathan S. Kaufman and Thomas S. Kumura
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S> <C>
10.17 Plan and Agreement of Merger, dated July 28, 1997, among (5)
Superior Consultant Holdings Corporation, CMSL Acquisi-
tion Corp., COMSUL, LTD., and certain shareholders of
COMSUL, LTD.
10.18 Agreement dated as of August 14, 1997 among Superior Con- (6)
sultant Holdings Corporation, Chi Acquisition Co., The
Chi Group, Inc. and certain stockholders of the Chi Group
Inc.
21.1 Subsidiaries of Superior Consultant Holdings Corporation (1)
23.1 Consent of Grant Thornton LLP *
23.2 Consent of Sachnoff & Weaver, Ltd. (to be included in Ex-
hibit 5.1)
24.1 Power of Attorney (included on the signature page to this
Registration Statement as filed on October 7, 1997)
</TABLE>
- ---------------------
*Filed herewith.
(1) Incorporated by reference from the Registrant's Form S-1 Registration
Statement No. 333-10213 as filed with the SEC on August 15, 1996.
(2) Incorporated by reference from the Registrant's Amendment No. 1 to Form S-1
Registration Statement No. 333-10213 as filed with the SEC on September 20,
1996.
(3) Incorporated by reference from the Registrant's Form 8-K as filed with the
SEC on March 26, 1997.
(4) Incorporated by reference from the Registrant's Form 10-K as filed with the
SEC on March 31, 1997.
(5) Incorporated by reference from the Registrant's Form 10-Q as filed with the
SEC on August 7, 1997.
(6) Incorporated by reference from the Registrant's Form 8-K as filed with the
SEC on August 28, 1997.
<PAGE>
Exhibit 1.1
3,000,000 Shares
SUPERIOR CONSULTANT HOLDINGS CORPORATION
Common Stock
UNDERWRITING AGREEMENT
----------------------
, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY, L.L.C.
JEFFERIES & COMPANY, INC.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Superior Consultant Holdings Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to the several underwriters named in
Schedule I hereto (the "Underwriters"), and certain stockholders of the Company
named in Schedule II hereto (the "Selling Stockholders") severally propose to
sell to the several Underwriters, an aggregate of 3,000,000 shares of the Common
Stock, $0.01 par value per share, of the Company (the "Firm Shares"), of which
2,000,000 shares are to be issued and sold by the Company and 1,000,000 shares
are to be sold by the Selling Stockholders, each Selling Stockholder selling the
amount set forth opposite such Selling Stockholder's name in Schedule II hereto.
[The Company and] certain Selling Stockholders as identified on Schedule II (the
"Option Selling Stockholders") also propose to issue and sell to the several
Underwriters not more than an additional 450,000 shares of its Common Stock,
$0.01 par value per share, (the "Additional Shares") if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter referred to collectively as the "Shares". The shares of
common stock of the Company to be outstanding after giving effect to
<PAGE>
the sales contemplated hereby are hereinafter referred to as the "Common Stock".
The Company and the Selling Stockholders are hereinafter sometimes referred to
collectively as the "Sellers."
Section 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"Commission") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "Act"), a registration statement on Form S-1, including a
prospectus, relating to the Shares. The registration statement, as amended at
the time it became effective, including the information (if any) deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430A under the Act, is hereinafter referred to as the "Registration Statement";
and the prospectus in the form first used to confirm sales of Shares is
hereinafter referred to as the "Prospectus". If the Company has filed or is
required pursuant to the terms hereof to file a registration statement pursuant
to Rule 462(b) under the Act registering additional shares of Common Stock (a
"Rule 462(b) Registration Statement"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462(b) Registration Statement.
Section 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
[2,000,000] Firm Shares, (ii) each Selling Stockholder agrees, severally and not
jointly, to sell the number of Firm Shares set forth opposite such Selling
Stockholder's name in Schedule II hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from each Seller at a price per Share of
$______ (the "Purchase Price") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Firm Shares to be sold by such Seller as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedules I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company and the Option
Selling Stockholders agree to issue and sell the Additional Shares and the
Underwriters shall have the right to purchase, severally and not jointly, up to
450,000 Additional Shares from the Company at the Purchase Price. Additional
Shares may be purchased solely for the purpose of covering over-allotments made
in connection with the offering of the Firm Shares. The Underwriters may
exercise their right to purchase Additional Shares in whole or in part from
time to time by giving written notice thereof to the Company and the Attorneys
(as defined in Section 7(a)(iii)) within 30 days after the date of this
Agreement. You shall give any such notice on behalf of the Underwriters and such
notice shall specify the aggregate number of Additional Shares to be purchased
pursuant to
-2-
<PAGE>
such exercise and the date for payment and delivery thereof, which date shall
be a business day (i) no earlier than two business days after such notice has
been given (and, in any event, no earlier than the Closing Date (as hereinafter
defined)) and (ii) no later than ten business days after such notice has been
given. The number of Additional Shares to be purchased from the Company and
each Option Selling Stockholder are set forth in Schedule II hereto. If less
than all Additional Shares are purchased such Shares shall be purchased (a)
first, from the Option Selling Stockholders (pro rata in proportion to the
number of Shares set forth opposite the name of such Option Selling Stockholder
on Schedule II), and (b) second, from the Company. If any Additional Shares are
to be purchased, each Underwriter, severally and not jointly, agrees to purchase
from the Company and each Option Selling Stockholder the number of Additional
Shares (subject to such adjustments to eliminate fractional shares as you may
determine) which bears the same proportion to the total number of Additional
Shares to be purchased from the Company as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I bears to the total number of
Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 90 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options,
rights and other equity-based grants pursuant to the Company's existing long
term incentive plan as described in the Prospectus, (ii) the Company may issue
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof, (iii) the Company may
issue shares of Common Stock or warrants or rights to acquire Common Stock or
securities exchangeable or convertible into Common Stock in connection with
joint ventures or acquisition transactions, (iv) any Seller who is an individual
or trust may make bona fide gifts of shares of Common Stock (provided the donee
or donees agree in writing to be bound by the restriction described above), and
(v) any Seller who is an individual may make dispositions to members of such
Seller's family or to a trust the beneficiaries of which are exclusively such
Seller and/or a member or members of such Seller's family (provided that each
transferee agrees in writing to be bound by the restrictions described above).
The Company also agrees not to file any registration statement, except a
registration statement on form S-8 with respect to the long-term incentive plan,
with respect to any shares of Common Stock or any
-3-
<PAGE>
securities convertible into or exercisable or exchangeable for Common Stock for
a period of 90 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. In addition,
each Selling Stockholder agrees that, for a period of 90 days after the date of
the Prospectus without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation, he or she will not make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock. The
Company shall, prior to or concurrently with the execution of this Agreement,
deliver an agreement executed by (i) each Selling Stockholder and (ii) each of
the directors and executive officers of the Company who is not a Selling
Stockholder to the effect that such person will not, during the period
commencing on the date such person signs such agreement and ending 90 days after
the date of the Prospectus, without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation, (A) engage in any of the transactions
described in the first sentence of this paragraph or (B) make any demand for, or
exercise any right with respect to, the registration of any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock.
Section 3. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Firm Shares shall be made at 9:00 A.M., New York City time, on
__________ , 1997 (the "Closing Date") at such place as you shall designate.
The Closing Date and the location of delivery of and payment for the Firm Shares
may be varied by agreement between you and the Company.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at such place as you shall designate
at 9:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you pursuant to Section 2 (an "Option Closing Date").
Any such Option Closing Date and the location of delivery of and payment for
such Additional Shares may be varied by agreement between you and the Company.
Certificates for the Shares shall be registered in such names and issued in
such denominations as you shall request in writing not later than two full
business days prior to the Closing Date or an Option Closing Date, as the case
may be. Such certificates shall be made available to you for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be.
Certificates in definitive form evidencing the Shares shall be delivered to you
on the Closing Date or the
-4-
<PAGE>
applicable Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the respective Sellers, for the respective accounts of the
several Underwriters, against payment to the Sellers of the Purchase Price
therefor by wire transfer of Federal or other funds immediately available in New
York City.
Section 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the Company
will use its best efforts to obtain the withdrawal or lifting of such order at
the earliest possible time.
(b) To furnish to you four signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the Act;
during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been advised
or to which you shall reasonably object after being so advised; and, during such
period, to prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or amendment or supplement
to the Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
-5-
<PAGE>
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall occur
or condition shall exist as a result of which, in the opinion of counsel for the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if, in the opinion of
counsel for the Underwriters, it is necessary to amend or supplement the
Prospectus to comply with applicable law, forthwith to prepare and file with the
Commission an appropriate amendment or supplement to the Prospectus so that the
statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending
December 31, 1998 that shall satisfy the provisions of Section 11(a) of the Act,
and to advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement,
furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the
-6-
<PAGE>
Commission or any national securities exchange on which any class of securities
of the Company is listed and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel, the Company's accountants and any Selling Stockholder's counsel (in
addition to the Company's counsel) in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or duplicating this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel for
the Underwriters in connection with such registration or qualification and
memoranda relating thereto), (v) the filing fees and fees and disbursements of
counsel for the Underwriters in connection with the review and clearance of the
offering of the Shares by the National Association of Securities Dealers, Inc.
(which fees and disbursements of counsel, including those provided for under
(iv) above, shall not exceed $10,000 in the aggregate), (vi) all fees and
expenses incident to the listing of the Shares on the Nasdaq National Market,
(vii) the cost of printing certificates representing the Shares, (viii) the
costs and charges of any transfer agent, registrar and/or depositary, and (ix)
all other costs and expenses incident to the performance of the obligations of
the Company and the Selling Stockholders hereunder for which provision is not
otherwise made in this Section 5(i). The provisions of this Section shall not
supercede or otherwise affect any agreement that the Company and the Selling
Stockholders may otherwise have for allocation of such expenses among
themselves.
(j) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior
-7-
<PAGE>
to the Closing Date or any Option Closing Date, as the case may be, and to
satisfy all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed by the Company after the
effectiveness of this Agreement) and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the Act,
(iii) if the Company is required to file a Rule 462(b) Registration Statement
after the effectiveness of this Agreement, such Rule 462(b) Registration
Statement and any amendments thereto, when they become effective (A) will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (B) will comply in all material respects with the Act and (iv)
the Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to
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the Company in writing by such Underwriter through you expressly for use
therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and its subsidiaries, including without
limitation Superior Consultant Company, Inc., a Michigan corporation
("Superior"), and Enterprise Consulting Group, Inc., a Michigan corporation
(together with Superior, the "Material Subsidiaries"), has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties, and each is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or leasing of property
requires such qualification, except where the failure to be so qualified would
not have a material adverse effect on the business, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect").
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company (including
the Shares to be sold by the Selling Stockholders) have been duly authorized and
validly issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights; and the Shares to be issued and sold by the
Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
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fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound ("Material Agreement").
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any Material
Agreement, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Company, any of its subsidiaries or their
respective property or (iv) result in the suspension, termination or revocation
of any Authorization (as defined below) of the Company or any of its
subsidiaries or any other impairment of the rights of the holder of any such
Authorization.
(k) There are no legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is or could be a party or to
which any of their respective property is or could be subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("Environmental Laws") or any provisions of
the Employee Retirement Income Security Act of 1974, as amended, or the rules
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and regulations promulgated thereunder, except for such violations which, singly
or in the aggregate, would not have a Material Adverse Effect.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its subsidiaries is in compliance in all material respects with all the terms
and conditions thereof and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto; and the Company has
received no notice or knowledge that any event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its subsidiaries;
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
Material Adverse Effect.
(o) This Agreement has been duly authorized, executed and delivered by
the Company.
(p) Grant Thornton LLP are independent public accountants with respect
to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly in all material respects the
consolidated financial position, results of operations and changes in financial
position of the Company and its subsidiaries on the basis stated therein at the
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respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; the supporting schedules, if any,
included in the Registration Statement present fairly in all material respects
in accordance with generally accepted accounting principles the information
required to be stated therein; and the other financial and statistical
information and data set forth in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) are, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(r) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
in all material respects the historical and proposed transactions contemplated
by the Registration Statement and the Prospectus. Such pro forma financial
statements have been prepared in accordance with the applicable requirements of
Rule 11-02 of Regulation S-X promulgated by the Commission. The other pro forma
financial and statistical information and data set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) are, in
all material respects, accurately presented and prepared on a basis consistent
with the pro forma financial statements.
(s) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(t) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement except as otherwise disclosed
in the Registration Statement.
(u) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
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subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
(v) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
Section 7. Representations and Warranties of the Selling Stockholders.
(a) Each Selling Stockholder represents and warrants to each Underwriter that:
(i) Such Selling Stockholder is the lawful owner of the Shares to be sold
by such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever.
(ii) The Shares to be sold by such Selling Stockholder have been duly
authorized and are validly issued, fully paid and non-assessable.
(iii) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement signed by
such Selling Stockholder and Harris Trust and Savings Bank, as Custodian,
relating to the deposit of the Shares to be sold by such Selling Stockholder
(the "Custody Agreement") and the Power of Attorney of such Selling Stockholder
appointing certain individuals as such Selling Stockholder's attorneys-in-fact
(the "Attorneys") to the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement and the Custody Agreement
(the "Power of Attorney") and to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder in the manner provided herein and
therein.
(iv) This Agreement has been duly authorized, executed and delivered by or
on behalf of such Selling Stockholder.
(v) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms.
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<PAGE>
(vi) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Stockholder's behalf this
Agreement and any other document that they, or any one of them, may deem
necessary or desirable in connection with the transactions contemplated hereby
and thereby and to deliver the Shares to be sold by such Selling Stockholder
pursuant to this Agreement.
(vii) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and clear title to such
Shares will pass to the Underwriters, free of all restrictions on transfer,
liens, encumbrances, security interests, equities and claims whatsoever.
(viii) The execution, delivery and performance of this Agreement and
the Custody Agreement and Power of Attorney of such Selling Stockholder by or on
behalf of such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Stockholder or any property
of such Selling Stockholder.
(ix) The information in the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relates to such Selling
Stockholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(x) At any time during the period described in Section 5(d), if there is
any change in the information referred to in Section 7(a)(ix), such Selling
Stockholder will immediately notify you of such change.
(xi) Each certificate signed by or on behalf of such Selling Stockholder
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed
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<PAGE>
to be a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
(b) Richard D. Helppie, Jr. represents and warrants to each Underwriter to the
same effect as the representations of the Company set forth in Section 6 of this
Agreement.
Section 8. Indemnification. (a) The Sellers, jointly and severally, agree
to indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein in light of the circumstances under which they were made
not misleading, except insofar as such losses, claims, damages, liabilities or
judgments are caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any Underwriter
furnished in writing to the Company by such Underwriter through you expressly
for use therein.
Without limiting the full extent of the Company's agreement to indemnify
each Underwriter, as herein provided,
(i) each Selling Stockholder other than Mssrs. Helppie, Tashiro and Bracken
shall be liable, under the indemnity agreements contained in paragraph (a) of
this Section and the contribution provisions of paragraph (d) only for losses,
claims, damages or liabilities arising out of or based upon untrue or alleged
untrue statements or omissions or alleged omissions made under the caption
"Principal and Selling Stockholders" in the Registration Statement, any
preliminary prospectus, the Prospectus, or any amendment or supplement thereto
that relate to such Selling Stockholder;
(ii) each Selling Stockholder other than Messrs. Helppie, Tashiro and
Bracken shall be liable under the indemnity agreements contained in paragraph
(a) of this Section, the contribution provisions of paragraph (d) and for
breaches of any representations and warranties made by such Selling Stockholder
in this Agreement only for an amount not exceeding (in the aggregate for all
claims hereunder) the proceeds received by such Selling Stockholder from the
sale of Shares hereunder, and
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(iii) Mssrs. Helppie, Tashiro and Bracken, shall each be liable under the
indemnity agreements contained in paragraph (a) of this Section, the
contribution provisions of paragraph (d) and for breaches of any of their
respective representations and warranties contained in this Agreement for an
amount not exceeding (in the aggregate for all claims hereunder) the proceeds
received by such Selling Stockholder from the sale of Shares hereunder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, who controls such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Sellers to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"indemnified party"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "indemnifying party") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised in writing by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or
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related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for (i) the fees and expenses of more
than one separate firm of attorneys (in addition to any local counsel) for all
Underwriters, their officers and directors and all persons, if any, who control
any Underwriter within the meaning of either Section 15 of the Act or Section 20
of the Exchange Act, (ii) the fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) for the Company, its directors,
its officers who sign the Registration Statement and all persons, if any, who
control the Company within the meaning of either such Section and (iii) the fees
and expenses of more than one separate firm of attorneys (in addition to any
local counsel) for all Selling Stockholders and all persons, if any, who control
any Selling Stockholder within the meaning of either such Section, and all such
fees and expenses shall be reimbursed as they are incurred. In the case of any
such separate firm for the Underwriters, their officers and directors and such
control persons of any Underwriters, such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation. In the case of any such
separate firm for the Company and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the Company. In the
case of any such separate firm for the Selling Stockholders and such control
persons of any Selling Stockholders, such firm shall be designated in writing by
the Attorneys. The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action (i) effected
with its written consent or (ii) effected without its written consent if the
settlement is entered into more than twenty business days after the indemnifying
party shall have received a request from the indemnified party for reimbursement
for the fees and expenses of counsel (in any case where such fees and expenses
are at the expense of the indemnifying party) and, prior to the date of such
settlement, the indemnifying party shall have failed to comply with such
reimbursement request. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement or compromise of, or
consent to the entry of judgment with respect to, any pending or threatened
action in respect of which the indemnified party is or could have been a party
and indemnity or contribution may be or could have been sought hereunder by the
indemnified party, unless such settlement, compromise or judgment (i) includes
an unconditional release of the indemnified party from all liability on claims
that are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses,
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claims, damages, liabilities and judgments (i) in such proportion as is
appropriate to reflect the relative benefits received by the Sellers on the one
hand and the Underwriters on the other hand from the offering of the Shares or
(ii) if the allocation provided by clause 8(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Sellers on the one hand and the Underwriters on the other hand in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Sellers, and the total underwriting discounts and
commissions received by the Underwriters, bear to the total price to the public
of the Shares, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault of the Sellers on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
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(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) Each Selling Stockholder hereby designates the Company, 4000 Town
Center, Suite 1100 Southfield, Michigan 48075, Attention: Chief Executive
Officer, as its authorized agent, upon which process may be served in any action
which may be instituted in any state or federal court in the State of New York
by any Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8.
Section 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on the Closing
Date with the same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Richard D. Helppie, Jr. and James T. House, in their
capacities as the Chief Executive Officer and Chief Financial Officer of the
Company, respectively, confirming the matters set forth in Sections 6(t), 9(a)
and 9(b) and that the Company has complied with all of the agreements and
satisfied all of the conditions herein contained and required to be complied
with or satisfied by the Company on or prior to the Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, and (ii) there shall not have been any change or any development
involving a prospective change in the capital stock or in the long-term debt of
the Company or any of its subsidiaries, the effect of which, in any such case
described in clause
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<PAGE>
9(d)(i) or 9(d)(ii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct in all material respects
on the Closing Date with the same force and effect as if made on and as of the
Closing Date and you shall have received on the Closing Date a certificate dated
the Closing Date from or on behalf of each Selling Stockholder to such effect
and to the effect that such Selling Stockholder has complied with all of the
agreements and satisfied all of the conditions herein contained and required to
be complied with or satisfied by such Selling Stockholder on or prior to the
Closing Date.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Sachnoff &
Weaver, Ltd. counsel for the Company and the Selling Stockholders, to the effect
that:
(i) the Company has been duly incorporated and each of the Company
and its subsidiaries is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has all requisite
corporate power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties;
(ii) to such counsel's knowledge each of the Company and its
Material Subsidiaries is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property requires
such qualification, except where the failure to be so qualified would not
have a Material Adverse Effect;
(iii) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been
duly authorized and validly issued and are fully paid, non-assessable and
not subject to any preemptive or similar rights;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights;
(v) all of the outstanding shares of capital stock of each of the
Company's Material Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable, and are owned directly by
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the Company, free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company and by or on behalf of each Selling Stockholder;
(vii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the
Act, no stop order suspending its effectiveness has been issued and no
proceedings for that purpose are, to such counsel's knowledge, pending
before or contemplated by the Commission;
(ix) the statements under the captions "Management--Employment
Related Agreements", "Management--Employee Benefit Plans", "Certain
Transactions", "Shares Eligible for Future Sale", and "Description of
Capital Stock" in the Prospectus and Items 14 and 15 of Part II of the
Registration Statement, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to therein, fairly
present in all material respects the information called for with respect to
such legal matters, documents and proceedings;
(x) neither the Company nor any of its Material Subsidiaries is in
violation of its respective charter or by-laws and, to such counsel's
knowledge, neither the Company nor any of its subsidiaries is in default in
the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its
subsidiaries, taken as a whole, to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound;
(xi) the execution, delivery and performance of this Agreement by
the Company, the compliance by the Company with all the provisions hereof
and the consummation of the transactions contemplated hereby will not (A)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states and except as to those provisions requiring indemnification or
contribution for liabilities under the Act or the Exchange Act, as to which
no opinion need be expressed), (B) conflict with or constitute a breach of
any of the terms or provisions of, or a default under, the charter or by-
laws of the Company or any of its Material Subsidiaries or any indenture,
loan
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<PAGE>
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to which
the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound, (C) to
such counsel's knowledge violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company, any of
its subsidiaries or their respective property or (D) result in the
suspension, termination or revocation of any Authorization of the Company
or any of its subsidiaries or any other impairment of the rights of the
holder of any such Authorization;
(xii) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is or could be a party or to which any of their respective
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, or of
any statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not so described
or filed as required;
(xiii) to such counsel's knowledge, neither the Company nor any of
its Material Subsidiaries has violated any Environmental Law or any
provisions of the Employee Retirement Income Security Act of 1974, as
amended, or the rules and regulations promulgated thereunder, except for
such violations which, singly or in the aggregate, would not have a
Material Adverse Effect;
(xiv) each of the Company and its subsidiaries has such
Authorizations of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations
and all courts and other tribunals, including, without limitation, under
any applicable Environmental Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its business, except
where the failure to have any such Authorization or to make any such filing
or notice would not, singly or in the aggregate, have a material adverse
effect on the business, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole; each
such Authorization is valid and in full force and effect and each of the
Company and its subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities
and governing bodies having jurisdiction with respect thereto; and no event
has occurred (including, without limitation, the receipt of any notice from
any authority or governing body) which allows or, after notice or lapse of
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<PAGE>
time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both,
would result in any other impairment of the rights of the holder of any
such Authorization; and such Authorizations contain no restrictions that
are burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in compliance,
the occurrence of any such event or the presence of any such restriction
would not, singly or in the aggregate, have a material adverse effect on
the business, prospects, financial condition or results of operations of
the Company and its subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as
described in the Prospectus, will not be, an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended;
(xvi) to such counsel's knowledge, there are no contracts or
agreements between the Company and any person granting such person the
right to require the Company to file a registration statement under the Act
with respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except as otherwise disclosed in the Registration
Statement;
(xvii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and
other financial and statistical data included therein as to which no
opinion need be expressed) comply as to form in all material respects with
the Act, (B) nothing has come to such counsel's attention which has caused
such counsel to believe that at the time the Registration Statement became
effective or on the date of this Agreement, the Registration Statement and
the prospectus included therein (except for the financial statements and
other financial and statistical data as to which such counsel need not
express any belief or opinion) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (C) nothing has
come to such counsel's attention which has caused such counsel to believe
that the Prospectus, as amended or supplemented, if applicable (except for
the financial statements and other financial and statistical data, as
aforesaid) contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
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<PAGE>
(xviii) to such counsel's knowledge each Selling Stockholder is
the lawful owner of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement and has good and clear title to such Shares,
free of all restrictions on transfer, liens, encumbrances, security
interests, equities and claims whatsoever;
(xix) to such counsel's knowledge each Selling Stockholder has all
requisite legal right, power and authority to enter into this Agreement and
the Custody Agreement and the Power of Attorney of such Selling Stockholder
and to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder in the manner provided herein and therein (such counsel
may assume that the Underwriters are "bona fide purchasers" under
applicable laws);
(xx) the Custody Agreement of each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is
a valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms subject, except as enforceability of the same may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights and by the exercise of judicial
discretion in accordance with general principles applicable to equitable
and similar remedies;
(xxi) the Power of Attorney of each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is
a valid and binding instrument of such Selling Stockholder, enforceable in
accordance with its terms, except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights and by the exercise of judicial
discretion in accordance with general principles applicable to equitable
and similar remedies;
(xxii) upon delivery of and payment for the Shares to be sold by
each Selling Stockholder pursuant to this Agreement, good and valid title
to such Shares will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
(such counsel may assume that the Underwriters are "bona fide purchasers"
under applicable laws); and
(xxiii) the execution, delivery and performance of this Agreement
and the Custody Agreement and Power of Attorney of each Selling Stockholder
by such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (A) require any
consent, approval, authorization or other order of, or
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<PAGE>
qualification with, any court or governmental body or agency known by such
counsel to be applicable to such Selling Stockholder (except such as may be
required under the securities or Blue Sky laws of the various states and
except as to those provisions requiring indemnification or contribution for
liabilities under the Act or the Exchange Act, as to which no opinion need
be expressed), (B) conflict with or constitute a breach of any of the terms
or provisions of, or a default under, the organizational documents of such
Selling Stockholder, if such Selling Stockholder is not an individual, or
any indenture, loan agreement, mortgage, lease or other agreement or
instrument to which such Selling Stockholder is a party or by which any
property of such Selling Stockholder is bound of which such counsel has
knowledge or (C) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body
or agency having jurisdiction over such Selling Stockholder or any property
of such Selling Stockholder known by such counsel to be applicable to such
Selling Stockholder.
The opinion of Sachnoff & Weaver, Ltd. described in Section 9(f) above
shall be rendered to you at the request of the Company and the Selling
Stockholders and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of McDermott, Will & Emery, counsel for the Underwriters, as to
the matters referred to in Sections 9(f)(iv), 9(f)(vi) (but only with respect to
the Company), 9(f)(ix) (but only with respect to the statements under the
caption "Description of Capital Stock" and "Underwriting") and 9(f)(xvii).
In giving such opinions with respect to the matters covered by Section
9(f)(xvii), Sachnoff & Weaver, Ltd. and McDermott, Will & Emery may state that
their opinion and belief are based upon their participation in the preparation
of the Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
(h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Grant Thornton LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
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<PAGE>
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company and the Selling Stockholders shall not have failed on or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or the
Selling Stockholders, as the case may be, on or prior to the Closing Date.
(l) You shall have received on the Closing Date, a certificate of each
Selling Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not a
U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
Section 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (xxiv) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (xxv) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (xxvi) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (xxvii) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of any
court or other governmental authority which in your opinion materially and
adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, or (xxviii) the declaration of a banking
moratorium by either federal or New York State authorities.
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<PAGE>
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to
you, the Company and the Selling Stockholders for purchase of such Firm Shares
are not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case which does not result in
termination of this Agreement, either you or the Sellers shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. If, on an
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of any such Underwriter under this
Agreement.
Section 11. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with you and the Company:
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<PAGE>
(a) To pay or to cause to be paid all transfer taxes payable in connection
with the transfer of the Shares to be sold by such Selling Stockholder to the
Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
Section 12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to Superior
Consultant Holdings Corporation, 4000 Town Center, Suite 1100, Southfield,
Michigan 48075, (ii) if to the Selling Stockholders, to the Attorneys c/o the
Company and (iii) if to any Underwriter or to you, to you c/o Donaldson, Lufkin
& Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Stockholder or any person controlling such Selling
Stockholder, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement in accordance with its terms, the Company shall be
liable for all expenses which it has agreed to pay pursuant to Section 5(i)
hereof. The Sellers also agree, jointly and severally, to reimburse the several
Underwriters, their directors and officers and any persons controlling any of
the Underwriters for any and all fees and expenses (including, without
limitation, the reasonable fees and disbursements of counsel) incurred by them
in connection with enforcing their rights hereunder (including, without
limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
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<PAGE>
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
SUPERIOR CONSULTANT HOLDINGS CORPORATION
By:
------------------------------------
Title:
THE SELLING STOCKHOLDERS NAMED IN
SCHEDULE II HERETO, ACTING SEVERALLY
By
-------------------------------------
Attorney-in-fact
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<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY, L.L.C.
JEFFERIES & COMPANY, INC.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By
-------------------------------
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<PAGE>
SCHEDULE I
----------
<TABLE>
<CAPTION>
Number of Firm Shares
Underwriters to be Purchased
- ------------ ---------------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities
Corporation
William Blair & Company, L.L.C.
Jefferies & Company, Inc.
-----------
Total
</TABLE>
<PAGE>
SCHEDULE II
-----------
Selling Stockholders
--------------------
<TABLE>
<CAPTION>
Number of Firm
Name Shares Being Sold
- ---- -----------------
<S> <C>
-----------
Total
</TABLE>
<PAGE>
EXHIBIT 5.1
[SACHNOFF & WEAVER, LTD. LETTERHEAD]
October ___, 1997
Superior Consultant Holdings Corporation
4000 Town Center
Suite 1100
Southfield, MI 48075
Dear Ladies and Gentlemen:
We have acted as counsel to Superior Consultant Holdings Corporation, a
Delaware corporation (the "Company"), in connection with the Registration
Statement on Form S-1 (the "Registration Statement"), filed by the Company under
the Securities Act of 1933, as amended, with the Securities and Exchange
Commission (the "Commission"), relating to the sale of up to 3,450,000 shares
(the "Shares") of the Company's Common Stock, par value $0.01 per share. We have
examined the Registration Statement and the form of the Underwriting Agreement
filed with the Commission as an exhibit to the Registration Statement (the
"Underwriting Agreement"). In addition, we have reviewed such other documents
and records of corporate proceedings, and have made such further investigations,
as we have deemed necessary to enable us to express the opinion hereinafter set
forth.
We hereby advise you that in our opinion the Shares have been duly
authorized by the Company and, upon payment and delivery in accordance with the
Underwriting Agreement, will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the Registration Statement. In giving this consent, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933 or the rules and regulations of the
Securities and Exchange Commission.
Very truly yours,
/s/ Sachnoff & Weaver, Ltd.
SACHNOFF & WEAVER, LTD.
JAS/WED
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 21, 1997, (except for Note 14, as
to which the date is March 12, 1997) accompanying the consolidated financial
statements of Superior Consultant Holdings Corporation and Subsidiaries
contained in the Registration Statement and Prospectus. We have also issued our
report dated May 13, 1997 accompanying the financial statements of The Kaufman
Group, Inc. contained in the Registration Statement and Prospectus. We consent
to the use of the aforementioned reports in the Registration Statement and
Prospectus, and to the use of our name as it appears under the captions
"Selected Consolidated Financial Data" and "Experts".
/s/ GRANT THORNTON LLP
Detroit, Michigan
October 24, 1997
