<PAGE> 1
As filed with the Securities and Exchange Commission on April 9, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-1
REGISTRATION STATEMENT
under
THE SECURITIES ACT OF 1933
------------------
SPR INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7370 36-3932665
(State or other jurisdiction of (Primary Standard (I.R.S. Employer Identification
incorporation or organization) Industrial No.)
Classification Code No.)
</TABLE>
2015 SPRING ROAD, SUITE 750, OAK BROOK, ILLINOIS 60523-1874 (630) 990-2040
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
ROBERT M. FIGLIULO
CHIEF EXECUTIVE OFFICER
SPR INC.
2015 SPRING ROAD, SUITE 750, OAK BROOK, ILLINOIS 60523-1874 (630) 990-2040
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
Copies to:
<TABLE>
<S> <C>
DONALD E. FIGLIULO WILLIAM M. HOLZMAN
JOHN E. MCGOVERN, JR. HELEN N. KAMINSKI
WILDMAN, HARROLD, ALLEN & DIXON NEAL, GERBER & EISENBERG
225 WEST WACKER DRIVE TWO NORTH LASALLE STREET
CHICAGO, ILLINOIS 60606-1229 CHICAGO, ILLINOIS 60602
(312) 201-2000 (312) 269-8000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value
per share...................... 2,530,000 $31.4375 $79,536,875 $23,464
========================================================================================================================
</TABLE>
(1) Includes 330,000 additional shares of Common Stock that the Underwriters
have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purposes of computing the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933 on the basis of the average
high and low prices of the Common Stock on the Nasdaq National Market on
April 8, 1998.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
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 APRIL 9, 1998
PROSPECTUS
2,200,000 SHARES
SPR LOGO
COMMON STOCK
------------------
Of the 2,200,000 shares of common stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering"), 900,000 shares are being sold
by SPR Inc. ("SPR" or the "Company") and 1,300,000 shares are being sold by
certain stockholders (the "Selling Stockholders"). See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Stockholders.
The Common Stock is traded on the Nasdaq National Market under the symbol
"SPRI." On April 8 1998, the last reported sale price of the Common Stock was
$31.125 per share. See "Price Range of Common Stock."
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $ $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3) $ $ $ $
==================================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses estimated at $400,000, all of which are payable by
the Company.
(3) Certain Selling Stockholders have granted the Underwriters a 30-day option
to purchase up to 330,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholders will be
$ , $ , $ and $ , respectively. See
"Underwriting" and "Principal and Selling Stockholders."
------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about May ,
1998 at the offices of Smith Barney Inc., 333 West 34th Street, New York, NY
10001.
------------------
SALOMON SMITH BARNEY
ROBERT W. BAIRD & CO.
INCORPORATED
VOLPE BROWN WHELAN & COMPANY
, 1998
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. 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."
<PAGE> 4
INSIDE FRONT COVER OF PROSPECTUS
The inside front cover is a multicolor graphic and text layout. Three photo
collages, forming a partial circle, surround a body of text. The following
text appears above the photos and body of text:
"SPR Inc."
The body of text consists of the following:
"SPR has over 24 years of experience in providing information technology
services to clients in a variety of industries, including financial services,
healthcare, insurance, manufacturing, oil and gas, transportation and
utilities. SPR provides these clients with IT services by blending three
levels of consulting support into four outsourcing services -- Systems
Re-engineering, Century Date Compliance, Application Management and Information
Delivery Services -- in addition to providing General Consulting services.
This blend of consulting support enables SPR to design customized,
comprehensive solutions for maintaining, improving and transitioning existing
systems.
SPR delivers these customized solutions through a combination of experienced
people, using automated software tools, following an established methodology.
When applied with its service offerings, this formula enables SPR to deliver
high quality solutions designed to help clients derive maximum value from their
existing systems."
[The graphic to the left of the body of text is a photo collage consisting of a
man viewing a computer screen. The screen image is reflecting onto the man's
glasses.
The graphic to the right of the body of text is a photo collage consisting of a
column of numbers from a computer program superimposed over the circuit board
of a computer.
The graphic below the body of text is a photo collage consisting of a map of
the midwestern section of the United States with white lines connecting the
cities of Milwaukee, Chicago and Tulsa and branching into other nearby cities.
The collage also includes an overhead view of cubicles in an office; one of the
cubicles includes a man sitting at a computer terminal with a woman standing
behind him.]
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with the more detailed information and the financial statements
and related notes thereto appearing elsewhere in this Prospectus. SPR Inc.
("SPR" or the "Company") is a Delaware corporation which was organized in
October 1996, in connection with the mergers into it of SPR Chicago Inc., an
Illinois corporation ("SPR Chicago"), Systems & Programming Resources of Tulsa,
Inc., an Oklahoma corporation ("SPR Tulsa"), SPR-Wisconsin, Inc., a Wisconsin
corporation ("SPR Wisconsin"), Systems and Programming Resources, Inc., an
Illinois corporation ("Systems Inc."), and Consulting Acquisition, Inc., an
Illinois corporation ("DataFlex"). Such mergers are each individually referred
to in this Prospectus as a "Merger" and collectively as the "Mergers." Unless
indicated otherwise, the information contained in this Prospectus: (i) gives
retroactive effect to the Mergers and (ii) assumes that the Underwriters'
over-allotment option is not exercised. Unless otherwise indicated, all
references to "SPR" or the "Company" refer to SPR Inc. after the Mergers or to
the constituent corporations in the Mergers or their respective predecessors, as
appropriate.
THE COMPANY
SPR has over 24 years of experience in providing information technology
("IT") services to clients in a variety of industries, including financial
services, healthcare, insurance, manufacturing, oil and gas, transportation and
utilities. The Company focuses its marketing efforts on Fortune 1000 companies
and other large organizations which have complex IT operations and significant
IT budgets. SPR provides these clients with three levels of consulting support
which are distinguished by the degree of responsibility the Company assumes:
strategic planning, project management and implementation. Within this
framework, SPR currently provides outsourcing services through four service
offerings: Systems Re-engineering, Century Date Compliance, Application
Management and Information Delivery Services ("IDS") in addition to providing
General Consulting services. The Company believes that this breadth of service
and support fosters long-term client relationships, promotes cross-selling
opportunities and minimizes the Company's dependence upon any particular service
offering or client.
The Company's proprietary service methodologies, Renovation(SM),
Renovation2000(SM) and RenovationEuro(SM), and its proprietary software analysis
tool, CodeVu(SM), provide SPR with a disciplined approach to fulfill its
engagements. Renovation(SM), Renovation2000(SM) and RenovationEuro(SM) will
enable the Company to deliver its service offerings through a tested and
repeatable format. CodeVu(SM) quickly and accurately provides information
concerning client software portfolios. These proprietary methodologies and the
software analysis tool, as well as key strategic alliances with third-party
software providers, facilitate the development of well-defined tasks and
timetables for each phase of an engagement from strategic planning through
implementation.
Many large organizations are outsourcing IT services relating to
mission-critical business systems due to the complex and rapidly changing
technological environment and problems inherent in implementing mass changes to
application systems and their associated data bases. Examples of mass change
include the year 2000 problem (the software glitch that will prevent computers
from properly recognizing dates after the year 1999), the European Community's
expected conversion to the Euro currency and the extension of the number of
digits or other characters in zip codes, product codes and account numbers. The
Company believes this outsourcing trend will continue to grow because: (i)
organizations desire to focus their energies on their core business functions,
(ii) organizations must address and resolve the year 2000 and other mass change
problems, (iii) IT solutions are becoming increasingly complex, and (iv)
organizations often lack the IT skills necessary to address their IT needs.
The Company's objective is to become the leading IT service provider to
both new and existing clients. To achieve this objective, the Company has
pursued, and intends to continue to pursue, the following business and growth
strategies:
- Expand Information Technology Consultant (ITC) Training Program. To
address the industry-wide shortage of qualified technical consultants, the
Company has implemented a comprehensive training program for college
graduates with degrees other than in computer science. In addition, the
Company,
3
<PAGE> 6
in conjunction with DeVry, Inc., a leading higher education institution
specializing in technology, has developed a continuing education program
to complement and enhance its proprietary entry-level training course. The
continuing education program further enhances its consultants' careers and
improves their technical skills. SPR believes that the entry-level and
continuing education training programs and its stock option and stock
purchase plans provide the Company with a competitive advantage in
attracting, developing and retaining qualified technical consultants. As
of March 31, 1998, 200 individuals have entered and successfully completed
the entry-level portion of the ITC Training Program.
- Continue to Focus on Project Management. The Company will continue to
focus on increasing its mix of project management and strategic planning
engagements. The Company believes that by providing these value-added
services, it gains a competitive advantage in assessing its clients' needs
and anticipating opportunities to provide additional IT services.
- Capitalize on Outsourcing Trend through Century Date Compliance and Other
Mass Change Expertise. SPR was an early entrant in the year 2000 segment
of the market, completing its first Century Date Compliance engagement in
1993. The Company's approach to Century Date Compliance provides SPR with
the platform to make unsolicited proposals for additional outsourcing
engagements. The Company believes that its expertise in addressing the
year 2000 problem results in additional engagements, and that such
engagements provide SPR with a competitive advantage in cross-selling
additional IT services. In addition to its Century Date Compliance
expertise, the Company has experience in implementing other "mass changes"
to applications and systems and their associated data bases, such as the
extension of the number of digits or other characters in zip codes,
product codes and account numbers. More recently, the Company has
established a task force and has begun work on projects to allow clients'
systems to process the European Community's expected conversion to the
Euro currency.
- Develop Additional Virtual Insourcing Centers. In 1996, as part of its
outsourcing services, SPR established its first Virtual Insourcing Center
in Chicago enabling the Company to provide the full range of its service
offerings in a Company facility rather than at its clients' facilities.
Since its initial public offering in October 1997, the Company has doubled
the capacity of its Chicago Center and opened and subsequently expanded
its capacity in Centers in Tulsa and Dallas and intends to open a Center
in Milwaukee in the second quarter of 1998.
- Focus on Leading Technologies. The Company maintains and continues to
build expertise not only in mainframe applications but also in other
high-demand technologies, such as Internet/intranet applications, open
computing systems, data warehousing and relational database management
systems. The Company's expertise in these areas, together with its
relationships with software product developers and research institutions,
allow SPR to remain on the leading edge of technological development.
- Deliver Unbiased Service Offerings. The Company uses Renovation(SM),
Renovation2000(SM), RenovationEuro(SM) and CodeVu(SM) in conjunction with
the best available third-party application software and productivity tools
without regard to specific third-party vendor relationships. The ability
to assess client systems objectively enables the Company to provide its
clients with technologies that are best suited to their individual needs.
SPR's growth strategies have allowed it to capitalize on the growing demand
for IT services. The Company's revenues increased at a compound annual growth
rate of 46% from 1993 through 1997 and at an annual rate of 64% from 1996 to
1997. More than 70% of the Company's 1997 revenues were attributable to over 50
companies which had been clients for at least the prior three consecutive years.
The Company has made significant infrastructure investments in recent years,
notably the development and implementation of the ITC Training Program and the
establishment of Virtual Insourcing Centers. These investments have allowed the
Company to keep pace with the growing demand for its service offerings and have
resulted in significant increases in profitability. The Company achieved gross
margins of 39% in 1997, as compared to 28% in 1996 and 32% in 1995.
4
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered Hereby by:
The Company...................................... 900,000 shares
The Selling Stockholders......................... 1,300,000 shares
Common Stock to Be Outstanding After the
Offering......................................... 9,041,371 shares(1)
Use of Proceeds.................................... The Company anticipates that the net proceeds of
this Offering will be used primarily for general
corporate purposes, including: opening
additional Virtual Insourcing Centers, expanding
the Company's ITC Training Program, developing
new service offerings, expanding branch
locations, possibly acquiring related
businesses, and for working capital. See "Use of
Proceeds."
Nasdaq National Market Symbol...................... SPRI
</TABLE>
- -------------------------
(1) Excludes: (i) 1,044,252 shares of Common Stock reserved for issuance upon
exercise of options granted and to be granted pursuant to the Company's
Combined Incentive and Non-statutory Stock Option Plan (of which options to
purchase 764,517 and 35,200 shares of Common Stock are outstanding at an
exercise price of $7.66 and $16.13 per share, respectively), and (ii)
476,029 additional shares reserved for issuance under the Company's Employee
Stock Purchase Plan. See "Management -- Stock Plans," "Description of
Capital Stock" and Note 12 of Notes to Financial Statements.
5
<PAGE> 8
SUMMARY FINANCIAL DATA
The following summary financial data is derived from the Company's
financial statements and notes thereto that have been audited by Arthur Andersen
LLP, independent public accountants. This information should be read in
conjunction with the financial statements and notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues.................................. $11,731 $14,797 $ 22,908 $ 32,511 $53,422
Gross profit.............................. 3,393 4,373 7,383 9,224 21,045
COSTS AND EXPENSES
Selling................................. 1,012 1,165 2,141 3,046 4,855
Recruiting.............................. 341 410 777 1,323 1,608
Stock-based compensation................ -- 6,510(1) 27,987(1) 12,231(1) --
General and administrative expenses..... 1,230 1,334 1,642 3,742 8,438
------- ------- -------- -------- -------
Total costs and expenses.................. 2,583 9,419 32,547 20,342 14,901
------- ------- -------- -------- -------
Operating income (loss)................... 810 (5,046)(1) (25,164)(1) (11,118)(1) 6,144
Other income (expense).................... 6 (57) (109) (71) 47
------- ------- -------- -------- -------
Income (loss) before income taxes......... 816 (5,103)(1) (25,273)(1) (11,189)(1) 6,191
Provision for income taxes................ 4 75 21 9 1,553
------- ------- -------- -------- -------
Net income (loss), as reported............ $ 812 $(5,178)(1) $(25,294)(1) $(11,198)(1) $ 4,638
======= ======= ======== ======== =======
Historical diluted net income (loss) per
share................................... $ (3.91) $ (1.73) $ 0.65
======== ======== =======
Pro forma net income (loss) per common
share -- assuming dilution(2)........... $ (4.08) $ (1.79) $ 0.45
======== ======== =======
Pro forma net income per common share --
assuming dilution and excluding a
one-time deferred tax charge(2)......... $ 0.52
=======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------
PRO FORMA
ACTUAL AS ADJUSTED(3)
------ --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and short term investments............................. $21,158 $47,300
Working capital............................................. 23,097 49,239
Total assets................................................ 31,943 58,085
Long-term debt, less current portion........................ 9 9
Total stockholders' equity.................................. 25,530 51,672
</TABLE>
- -------------------------
(1) In 1994, Systems Inc. transferred certain assets and liabilities to SPR
Chicago and SPR Wisconsin. Inasmuch as such 1994 transactions were among
family members within a control group, such transactions have been recorded
in the Company's financial statements as if the stockholders of SPR Chicago
and SPR Wisconsin received non-cash, stock-based compensation during 1994,
1995 and 1996 in an amount equal to the increase in the estimated value of
such companies since 1994. This expense is non-recurring subsequent to
October 31, 1996. Such compensation expense is recorded as stock-based
compensation with the corresponding credit included in additional paid-in
capital. Upon conversion of the Company to a C corporation upon closing of
the initial public offering in October 1997, the retained deficit of the
Company, which included the aggregate stock-based compensation expense, was
reclassified and netted against additional paid-in capital. See Note 11 of
Notes to Financial Statements.
(2) Prior to the initial public offering, the Company was an S corporation and
was not subject to Federal and certain state corporate income taxes. The
Statement of Operations Data reflects a pro forma provision for income taxes
as if the Company had been subject to Federal and state corporate income
taxes. The pro forma provision for income taxes is computed by multiplying
the effective tax rate times the income (loss) before income taxes adjusted
to eliminate the stock-based compensation expense and subtracting income
taxes previously recorded.
(3) Adjusted to reflect the application of the estimated net proceeds from this
Offering.
6
<PAGE> 9
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the risks associated with investing in the Common Stock, including the
principal risk factors set forth below, as well as other information set forth
in this Prospectus.
Need to Attract and Retain Qualified Technical Consultants. The Company's
business involves the delivery of professional services and is very
labor-intensive. The Company's success depends in large part upon its ability to
attract, develop, motivate and retain qualified technical consultants,
particularly project managers and other senior technical personnel. Qualified
technical consultants are in great demand and are likely to remain a limited
resource for the foreseeable future. Demand also is likely to increase
substantially as companies increasingly devote more resources to implement time
intensive year 2000 conversions. This demand may enable qualified technical
consultants to command significantly greater compensation than is currently paid
by the Company. There can be no assurance that the Company will be able to
continue to attract and retain a sufficient number of qualified technical
consultants in the future. Historically, the Company has experienced turnover
rates which it believes are consistent with industry norms. The Company's
turnover rate was 30% and 27% for 1996 and 1997, respectively. As competition
for qualified technical consultants increases, there can be no assurance that
the turnover rate experienced by the Company will not increase. The Company's
inability to hire a sufficient number of qualified technical consultants, or a
significant increase in the Company's consultant turnover rate, could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Business Strategies."
Management of Growth. The Company's rapid revenue and employee growth has
placed, and could continue to place, significant demands upon its management and
other resources. To manage its growth effectively, the Company will be required
to continue to develop and improve its operational, financial and other internal
systems, as well as its business development capabilities. In addition, the
Company's future success will depend in large part upon its ability to maintain
high rates of consultant utilization and maintain the quality of its services.
Moreover, the Company's senior management has limited experience managing a
public company. The Company's inability to manage its growth and engagements
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. See "-- Need to Attract and
Retain Qualified Technical Consultants" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Reliance on Century Date Compliance Engagements. Market demand for Century
Date Compliance services will likely decrease substantially, and eventually
cease, during and after the year 2000. In addition, the Company's growth
strategy is substantially dependent upon leveraging its Century Date Compliance
expertise to obtain other consulting engagements from its Century Date
Compliance clients. If the Company fails to consistently complete Century Date
Compliance engagements to its clients' satisfaction or to procure additional
consulting engagements from such clients any such failures could have a material
adverse effect on the Company's business, financial condition and results of
operations.
While several software programs have been developed to assist IT service
professionals in making existing systems year 2000-compliant, the Company is
unaware of any fully-automated solution (a "silver bullet") to the year 2000
problem. There can be no assurance that a silver bullet will not be developed.
Moreover, certain companies may elect to replace their existing systems with
year 2000-compliant hardware and software, rather than incur substantial cost in
making their existing systems year 2000-compliant. The development of a silver
bullet or decisions by a significant number of companies to replace their
existing systems with year 2000-compliant hardware and software could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Competition. The highly competitive market for IT services includes a large
number of competitors and is subject to rapid change. The Company believes its
primary competitors include: "Big Five" accounting firms, systems consulting and
implementation firms, application software firms, service groups of computer
equipment companies, general management consulting firms and programming
companies. Many of these competitors have significantly greater financial,
technical and marketing resources and greater name recognition than the Company.
In addition, the Company competes with its clients' internal IT personnel.
7
<PAGE> 10
Such competition may impose additional pricing pressures on the Company. There
can be no assurance that the Company can compete successfully with its existing
competitors or with any new competitors. See "Business -- Competition."
Engagement and Contract Risks. Many of the Company's engagements involve
projects that are critical to the operations of its clients' businesses. The
Company's failure or inability to complete engagements to its clients'
satisfaction could have a material adverse effect on its clients' operations and
could consequently subject the Company to litigation or damage the Company's
reputation, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Substantially all of the Company's contracts are terminable by the client
on relatively short notice, with or without cause and without penalty. The
unexpected termination by a client of a significant contract could have a
material adverse effect on the Company's consultant utilization rate which, in
turn, could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company currently is
performing services for several of its significant clients pursuant to oral
agreements or written contracts that are no longer in effect. In the event of a
dispute, the absence of a written and binding agreement limiting the Company's
liability to the client could have a material adverse effect on the Company's
business, financial condition and results of operations. Some of the Company's
contracts give its clients the right in certain circumstances to hire
consultants employed or retained by the Company, and several clients have, in
fact, hired Company consultants in the past. The loss of a significant number of
project managers or qualified technical consultants at any one time could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is continuing to provide services to a client which filed a
case under Chapter 11 of the federal Bankruptcy Code in July 1997. As a result,
there can be no assurance the Company will receive full payment for services it
provides to such client. The Company does not believe that the case will have a
material adverse effect on the Company's financial condition or results of
operations; however, the ultimate outcome is uncertain. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 2 of Notes to Financial Statements.
Variability of Quarterly Operating Results. The Company's revenues, gross
profit and earnings have fluctuated and, in the future, may fluctuate from
quarter to quarter based on such factors as the number, size and scope of
projects in which the Company is engaged, the contractual terms and degree of
completion of such engagements, any delays incurred in connection with an
engagement, consultant utilization rates, the adequacy of provisions for losses,
the accuracy of estimates of resources required to complete ongoing engagements
and general economic conditions. Unanticipated variations in the number, or
progress toward completion, of the Company's engagements or in consultant
utilization rates may cause significant variations in operating results in any
particular quarter and could result in losses for such quarter. An unanticipated
termination of a major engagement, a client's decision not to proceed to the
stage of the engagement anticipated by the Company or the completion during a
quarter of several major client engagements could leave the Company with
underutilized consultants, which 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."
Liability Risks Associated with Century Date Compliance Engagements. With
respect to many of its Century Date Compliance engagements, the solutions
implemented by the Company in its clients' systems will not be susceptible to
full scale, system-wide testing until on or about January 1, 2000. Many of the
Company's Century Date Compliance solutions involve its clients'
mission-critical computer systems. The Company performs extensive testing as
part of each Century Date Compliance engagement and offers to provide its
clients, for an additional fee, with more comprehensive quality assurance
testing services; however, there can be no assurance that any such testing will
detect all critical errors that may be resident in its clients' systems.
Although the Company attempts to contractually limit its potential liability for
software defects and system malfunctions, there can be no assurance that the
Company will not be exposed to liability claims from clients relating to Century
Date Compliance solutions developed or implemented by the Company, or the
interaction of such solutions with the clients' other software applications. The
Company maintains professional
8
<PAGE> 11
liability insurance to protect against its employees' potential errors or
omissions; however, there can be no assurance that any such claims would be
covered by the Company's insurance. If the Company becomes subject to any such
claims, it may incur significant, unanticipated liabilities and expenses, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Fixed-price Engagements. The Company principally bills for its services on
a time and materials basis; however, some of the Company's contracts contain a
cap on the amount of fees the Company can charge. The Company occasionally has
entered into fixed-price billing engagements and may in the future enter into
additional engagements on a fixed-price basis. The failure of the Company to
complete a fixed-price engagement within budget would expose the Company to
risks associated with cost overruns, which 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."
Customer Concentration. The Company has derived, and believes that it will
continue to derive, a significant portion of its revenues from a limited number
of large clients. In 1996 and 1997, the Company's largest client accounted for
approximately 16% and 12% of its revenues, respectively, and its ten largest
clients accounted for approximately 52% and 50% of its revenues, respectively.
The volume of work performed for specific clients varies from year to year.
There can be no assurance that a large client in one year will continue to use
the Company's services in a subsequent year. Furthermore, the Company rarely is
the exclusive provider of IT consulting services to its clients. The loss of any
large client could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks of Branch Expansion. The Company anticipates future growth through
branch expansion, which is dependent upon a number of factors, including, but
not limited to: (i) the ability to cultivate additional business from existing
clients and obtain new clients, (ii) the ability to identify and hire qualified
IT consultants within both new and existing markets, and (iii) the continued
hiring and training of corporate personnel to open and staff additional branch
offices. The Company opened its Dallas branch office in February, 1997. There
can be no assurance that any branch offices which may be opened will be
profitable. See "-- Need to Attract and Retain Qualified Technical Consultants."
Risks Related to Possible Acquisitions. The Company may expand its
operations through the acquisition of additional businesses. There can be no
assurance that the Company will be able to identify, acquire or profitably
manage additional businesses or successfully integrate any acquired businesses
into the Company without substantial expenses, delays or other operational or
financial problems. Further, acquisitions may involve a number of special risks
or effects, including diversion of management's attention, failure to retain key
personnel, unanticipated events or circumstances, legal liabilities and
amortization of acquired intangible assets and other one-time or ongoing
acquisition related expenses, some or all of which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Client satisfaction or performance problems at an acquired business could have a
material adverse impact on the reputation of the Company as a whole. In
addition, there can be no assurance that acquired businesses, if any, will
achieve anticipated revenues and earnings. The failure of the Company to manage
its acquisition strategy successfully could have a material adverse effect on
the Company's business, financial condition and results of operations.
Intellectual Property Rights. Software developed by SPR in connection with
a client engagement typically becomes the exclusive property of the client. The
Company holds no patents or registered copyrights and has no present intention
of registering any copyrights or filing any patent applications. Although the
Company believes that its services and the software it develops for its clients
do not infringe upon the intellectual property rights of others and that it has
all rights necessary to utilize the intellectual property employed in its
business, the Company is subject to the risk of litigation alleging infringement
of third-party intellectual property rights. The Company typically agrees to
indemnify its clients against such claims. Any such claims could require the
Company to spend significant sums in litigation, pay damages, develop non-
infringing intellectual property or acquire licenses to the intellectual
property which is the subject of asserted infringement.
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its rights, the rights of third parties from whom the Company
9
<PAGE> 12
licenses intellectual property and the proprietary rights of its clients. The
Company requires all consultants to sign confidentiality agreements and limits
distribution of proprietary information. There can be no assurance, however,
that the steps taken by the Company will be adequate to deter misappropriation
of proprietary information or that the Company will be able to detect
unauthorized use and take appropriate steps to enforce its intellectual property
rights. See "Business -- Intellectual Property Rights."
Reliance Upon Executive Officers and Key Employees. The success of the
Company is highly dependent upon the efforts and abilities of its executive
officers, particularly Mr. Robert Figliulo, the Company's Chief Executive
Officer. Although all of its executive officers and certain key employees have
entered into employment agreements with the Company which contain
noncompetition, nondisclosure and nonsolicitation covenants, such agreements do
not guarantee that these individuals will continue their employment with the
Company. The loss of the services of any of these executive officers or key
employees for any reason could have a material adverse effect upon the Company's
business, financial condition and results of operations. See "Management --
Employment Agreements."
Control by Principal Stockholders and Management. After completion of this
Offering, members of the Figliulo family and executive officers and directors of
the Company, in the aggregate, will beneficially own approximately 40.6%, of the
outstanding shares of Common Stock. As a result, such persons collectively will
be able to exert substantial influence over the outcome of matters requiring a
stockholder vote, including the election of directors. Such beneficial ownership
of Common Stock could preclude any unsolicited acquisition of the Company and,
consequently, adversely affect the market price of the Common Stock. See
"Principal and Selling Stockholders" and "Description of Capital Stock --
Delaware Law and Certain Certificate of Incorporation and By-law Provisions;
Anti-takeover Effects."
Employment Liability Risks. The Company generally places its consultants in
the workplaces of other businesses. Risks of such placement include possible
claims of errors and omissions, misuse of client proprietary information,
misappropriation of funds, discrimination and harassment, theft of client
property, other criminal activity or torts and other claims. Although
historically the Company has not experienced any material claims of these types,
there can be no assurance that the Company will not experience such claims in
the future. To reduce its exposure, the Company maintains insurance covering
general liability, workers' compensation claims and errors and omissions. There
can be no assurance, however, that the Company's insurance will cover all such
claims, or that such insurance coverage will continue to be available
economically in amounts adequate to cover any such liability or that such
coverage will adequately compensate the Company for such liabilities.
Risks of Licensing Century Date Compliance Methodology. The Company has
entered into a non-exclusive agreement to license its Century Date Compliance
methodology, Renovation2000(SM), and its proprietary software analysis tool,
CodeVu(SM), to an unaffiliated technical services company operating in New York
and other markets where the Company is not currently doing business. The failure
by licensee to adhere strictly to SPR's standards in utilizing the
Renovation2000(SM) methodology or CodeVu(SM) in Century Date Compliance
engagements could subject SPR to litigation and harm SPR's reputation thereby
resulting in a material adverse effect on the Company's business, financial
condition and results of operations.
Limited Trading History of Common Stock; Price Volatility. The Common Stock
first became publicly traded on October 2, 1997 after the Company's initial
public offering at $16.00 per share. Between October 2, 1997 and April 8, 1998,
the closing sale price has ranged from a low of $13.88 per share to a high of
$35.25 per share. The trading price of the Common Stock could continue to be
subject to wide fluctuations in response to variations in the Company's
quarterly operating results, changes in earnings estimates by analysts,
conditions in the Company's business or general market or economic conditions.
In addition, in recent years, the stock market has experienced extreme price and
volume fluctuations. Such market fluctuations could have a material adverse
effect on the market price for the Common Stock.
Unallocated Net Proceeds. The Company has not designated specific uses for
the anticipated net proceeds of this Offering. The Board of Directors of the
Company will have broad discretion with respect to the use of such unallocated
net proceeds. See "Use of Proceeds."
10
<PAGE> 13
Anti-takeover Provisions. The Company's Certificate of Incorporation and
By-laws and the Delaware General Corporation Law contain certain provisions that
could have the effect of discouraging or making more difficult the acquisition
of the Company by means of a tender offer, a proxy contest or otherwise, even
though such an acquisition might be economically beneficial to the Company's
stockholders. These include provisions under which: (i) only the Chairman of the
Board or the President may call meetings of stockholders, and (ii) stockholders
must comply with certain advance notice procedures to nominate candidates for
election as directors of the Company and to submit proposals for consideration
at stockholders' meetings. The ability of the Board of Directors to issue up to
3,000,000 shares of preferred stock, in one or more classes or series, and with
such powers, designations, preferences and relative, participating, optional or
special rights, qualifications, limitations or restrictions as may be determined
by the Board of Directors of the Company, also could make an acquisition of the
Company more difficult. In addition, these provisions may make the removal of
management more difficult, even in cases where such removal would be favorable
to the interests of the Company's stockholders. See "-- Control by Principal
Stockholders," "Management -- Directors and Executive Officers" and "Description
of Capital Stock -- Delaware Law and Certain Certificate of Incorporation and
By-law Provisions; Anti-takeover Effects."
Shares Eligible for Future Sale. Upon completion of this Offering, the
Company will have 9,041,371 shares of Common Stock outstanding, of which the
2,200,000 shares sold pursuant to this Offering as well as the 2,990,000 shares
sold in the Company's initial public offering and the 23,971 shares issued under
the Employee Stock Purchase Plan will be freely transferable without restriction
or further registration under the Securities Act of 1933, as amended (the
"Securities Act") (other than by an "affiliate" of the Company, as defined in
the Securities Act). The remaining 3,827,400 shares will be "restricted
securities" under Rule 144 ("Rule 144") promulgated under the Securities Act.
Holders of the restricted shares will be eligible to sell such shares pursuant
to Rule 144 at prescribed times and subject to the manner of sale, volume,
notice and information restrictions of Rule 144. In addition, 1,044,252 shares
of Common Stock have been reserved for issuance under the Company's Combined
Incentive and Non-statutory Stock Option Plan (the "Option Plan"), of which
options to purchase an aggregate of 799,717 will be outstanding, and 476,029
additional shares of Common Stock are reserved for issuance under the Company's
Employee Stock Purchase Plan. Such shares are registered under the Securities
Act and upon issuance will be freely tradeable without restriction. The Company,
all of the Company's executive officers and directors and all Selling
Stockholders have agreed not to offer, sell, contract to sell or otherwise
dispose of, any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock, or grant any options or warrants
to purchase Common Stock, except in certain circumstances, for 90 days after the
date of this Prospectus without the prior consent of Smith Barney Inc., which
consent may be granted by Smith Barney Inc. in its sole discretion. Sales or the
expectation of sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market price for the 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."
FORWARD-LOOKING STATEMENTS
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
words "expect," "estimate," "anticipate," "predict," "believe" and similar
expressions and variations thereof are intended to identify forward-looking
statements. Such statements include statements contained in the "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" sections of this Prospectus regarding the
intent, belief or current expectations of the Company, its directors or its
officers with respect to, among other things: (i) trends affecting the Company's
financial condition or results of operations, (ii) the Company's business and
growth strategies, (iii) risks affecting the Company, and (iv) the use of the
net proceeds to the Company of this Offering. Specific forward-looking
statements include, without limitation, (i) the expected continued success of
the Company's ITC Training Program and the expectation that graduates of such
program's entry-level training course will continue to generate substantially
higher gross margins than SPR's other consultants,
11
<PAGE> 14
(ii) the Company's future ability to effectively manage its consultant
utilization rates and its hourly consultant billing rates, (iii) the Company's
ability to leverage its Century Date Compliance expertise into providing other
mass change and project management services to its clients and (iv) the
Company's ability to expand and develop additional branch offices and Virtual
Insourcing Centers. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of various factors
including factors described under "Risk Factors."
THE COMPANY
The Company's business was founded in 1973 by Eugene Figliulo as Systems &
Programming Resources, Inc. During 1994, Systems Inc. transferred certain assets
and liabilities to SPR Chicago, SPR Tulsa, and SPR Wisconsin, respectively.
These entities were organized as S corporations and owned by the executives
primarily responsible for the operations in each of these locations. SPR
Chicago, SPR Tulsa, SPR Wisconsin, Systems Inc. and DataFlex (an affiliated IT
services company in a complementary business) were merged into the Company upon
the Company's formation in October 1996. See "Certain Transactions."
The Company maintains its principal executive offices at 2015 Spring Road,
Oak Brook, Illinois 60523-1874. Its telephone number is (630) 990-2040. The
Company's World Wide Web address is www.sprinc.com.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock will be
approximately $26.1 million, based upon the last sale price of the Common Stock
on April 8, 1998 of $31.125 per share and after deducting estimated
Underwriters' discounts and commissions and estimated offering expenses. The
principal purposes of this Offering are to increase the Company's equity capital
and financial flexibility and provide working capital to fund the Company's
growth strategy. See "Business -- Growth Strategy".
The Company anticipates that the net proceeds of this Offering will be used
primarily for general corporate purposes, including: opening additional Virtual
Insourcing Centers, expanding the Company's ITC Training Program, developing new
service offerings, expanding branch locations, possibly acquiring related
businesses, and for working capital. There can be no assurances that the Company
will open any new offices or that it will make any acquisitions. The Company is
not currently engaged in any negotiations for the acquisition of any other
business. Pending any of the foregoing uses, the Company intends to invest the
net proceeds in short-term investment grade securities, certificates of deposit
or guaranteed obligations of the United States government.
The Company will not receive any of the 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 "SPRI" since October 2, 1997. The following table sets forth,
for the periods indicated, the range of high and low closing sale prices for the
Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1997
Fourth Quarter.............................................. $19.25 $13.88
1998
First Quarter............................................... 35.25 16.13
Second Quarter (through April 8, 1998)...................... 32.63 31.13
</TABLE>
As of April 8, 1998, the last reported sale price of the Common Stock was
$31.125 per share. As of April 8, 1998, the Company had approximately 32
stockholders of record.
12
<PAGE> 15
DIVIDEND POLICY
Other than the distribution of S corporation income earned prior to the
Company's initial public offering, the Company has not made any distributions
with respect to its Common Stock. The Company currently intends to retain future
earnings to fund the development and growth of its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any future determination as to the payment of dividends will depend upon
the results of operations, financial condition, capital expenditure plans and
other obligations of the Company and will be at the sole discretion of the
Company's Board of Directors.
13
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company: (i) as of
December 31, 1997 and (ii) as adjusted to reflect the sale of 900,000 shares of
Common Stock offered by the Company in this Offering at $31.125 per share, the
last sale price of the Common Stock on April 8, 1998, and the application of the
estimated net proceeds therefrom. The information set forth below should be read
in conjunction with the Financial Statements and related Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
---------------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Current debt................................................ $ 27 $ 27
======= =======
Long-term debt, less current maturities..................... 9 9
------- -------
Stockholders' equity:
Preferred Stock, $.01 par value; 3,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common Stock, $.01 par value; 25,000,000 shares
authorized; 8,091,371 shares issued and outstanding
actual; 9,041,371 shares issued and outstanding as
adjusted............................................... 81(1) 90(1)
Additional paid-in capital.................................. 24,544 50,677
Retained earnings........................................... 905 905
------- -------
Total stockholders' equity.................................. 25,530 51,672
------- -------
Total capitalization...................................... $25,539 $51,681
======= =======
</TABLE>
- -------------------------
(1) Excludes 1,044,252 shares of Common Stock reserved for issuance upon
exercise of options granted or to be granted pursuant to the Option Plan and
476,029 additional shares of Common Stock reserved for issuance pursuant to
the Employee Stock Purchase Plan. See "Management -- Stock Plans,"
"Description of Capital Stock" and Note 12 to Financial Statements.
14
<PAGE> 17
SELECTED FINANCIAL DATA
The following selected financial data is derived from the Company's
financial statements and notes thereto that have been audited by Arthur Andersen
LLP, independent public accountants. This information should be read in
conjunction with the financial statements and notes thereto and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................... $11,731 $14,797 $ 22,908 $ 32,511 $53,422
Cost of services....................... 8,338 10,424 15,525 23,287 32,377
------- ------- -------- -------- -------
Gross profit........................... 3,393 4,373 7,383 9,224 21,045
COSTS AND EXPENSES
Selling.............................. 1,012 1,165 2,141 3,046 4,855
Recruiting........................... 341 410 777 1,323 1,608
Stock-based compensation............. -- 6,510(1) 27,987 (1) 12,231 (1) --
General and administrative
expenses.......................... 1,230 1,334 1,642 3,742 8,438
------- ------- -------- -------- -------
Total costs and expenses............... 2,583 9,419 32,547 20,342 14,901
------- ------- -------- -------- -------
Operating income (loss)................ 810 (5,046)(1) (25,164)(1) (11,118)(1) 6,144
Other income (expense)................. 6 (57) (109) (71) 47
------- ------- -------- -------- -------
Income (loss) before income taxes...... 816 (5,103)(1) (25,273)(1) (11,189)(1) 6,191
Provision for income taxes............. 4 75 21 9 1,553
------- ------- -------- -------- -------
Net income (loss), as reported......... $ 812 $(5,178)(1) $(25,294)(1) $(11,198)(1) $ 4,638
======= ======= ======== ======== =======
Historical diluted net income (loss)
per share............................ $ (3.91) $ (1.73) $ 0.65
======== ======== =======
Pro forma net income (loss) per common
share -- assuming dilution(2)........ $ (4.08) $ (1.79) $ 0.45
======== ======== =======
Pro forma net income per common share
-- assuming dilution and excluding a
one-time deferred tax charge(2)...... $ 0.52
=======
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and short-term investments........ $ 289 $ 1,083 $ 1,109 $ 356 $21,158
Working capital........................ 1,771 1,674 2,370 1,194 23,097
Total assets........................... 2,418 3,573 5,584 7,131 31,943
Long-term debt, less current portion... -- 1,841 704 206 9
Total stockholders' equity............. 1,954 326 2,275 2,507 25,530
</TABLE>
- ---------------
(1) In 1994, Systems Inc. transferred certain assets and liabilities to SPR
Chicago and SPR Wisconsin. Inasmuch as such 1994 transactions were among
family members within a control group, such transactions have been recorded
in the Company's financial statements as if the stockholders of SPR Chicago
and SPR Wisconsin received non-cash, stock-based compensation during 1994,
1995 and 1996 in an amount equal to the increase in the estimated value of
such companies since 1994. This expense is non-recurring subsequent to
October 31, 1996. Such compensation expense is recorded as stock-based
compensation with the corresponding credit included in additional paid-in
capital. Upon conversion of the Company to a C corporation upon closing of
the initial public offering in October 1997, the retained deficit of the
Company, which included the aggregate stock-based compensation expense, was
reclassified and netted against additional paid-in capital. See Note 11 of
Notes to Financial Statements.
(2) Prior to the initial public offering, the Company was an S corporation and
was not subject to Federal and certain state corporate income taxes. The
Statement of Operations Data reflects a pro forma provision for income taxes
as if the Company had been subject to Federal and state corporate income
taxes. The pro forma provision for income taxes is computed by multiplying
the effective tax rate times the income (loss) before income taxes adjusted
to eliminate the stock-based compensation expense and subtracting income
taxes previously recorded.
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPANY OVERVIEW
The Company was founded in 1973 and derives its revenues from providing IT
consulting services. SPR principally bills its clients on a time and materials
basis and revenues are recognized as services are provided. The Company has
occasionally entered into fixed-price billing engagements and may enter into
more such engagements in the future. Typically, the Company bills for its
services on a biweekly basis to monitor client satisfaction and to manage its
outstanding accounts receivable balances. The Company's cost of services
consists primarily of consultant compensation and related expenses. Accordingly,
the Company's financial performance is substantially affected by billing margins
(billable hourly rate less consultant hourly cost) and consultant utilization
rates (the ratio of hours billed to total available hours).
SPR has maintained its billing margins by increasing its hourly rates to
offset increases in its consulting staff costs. The Company manages its billing
margins by establishing a target billing rate for each consultant; however,
actual billing rates may be higher or lower than the target billing rates
depending upon competitive pressures and market conditions. Hourly billing rate
increases are generally implemented by the Company based upon market conditions,
consultant skill levels and the terms of its engagements.
To date, the Company believes that it has effectively managed its
consultant utilization rates. Fluctuations in consultant utilization rates
result from variations in the amount of unassigned time, which historically has
consisted of training, vacation, sick and holiday time and time spent on
administrative support activities while between engagements. In order to reduce
unassigned time, the Company actively manages the terms of its engagements and
matches available consultants to client requirements. Additional factors which
vary and impact consultant utilization rates are: the number of entry-level
training classes conducted through the Company's ITC Training Program, and the
amount of time it takes to assign the newly trained consultants.
The Company believes that its business and growth strategies are primarily
dependent upon the availability of qualified technical consultants. To address
the shortage of qualified technical consultants, the Company has developed a
three-to-six year training program targeted at college graduates with degrees
other than in computer science. The initial seven-week entry-level course
specifically focuses on Century Date Compliance, while advanced course modules
concentrate on the Company's other service offerings. The individuals enrolled
in the ITC Training Program are paid a salary commensurate with the salary paid
to computer science graduates. Since the commencement of the program on February
15, 1996, 200 individuals have entered and successfully completed the
entry-level portion of the ITC Training Program. The Company incurred
approximately $1.6 and $1.3 million in 1997 and 1996, respectively, in expenses
attributable to the program, all of which have been expensed as incurred.
Employees who complete the entry-level course and are placed on customer
engagements generate significantly higher gross margins than the Company's more
experienced consultants. Since their cost relative to their billing rate is less
than the more experienced consultants, the Company believes that these higher
margins will enable it to sustain this training program and conduct additional
training classes on a regular basis.
In 1994, Systems Inc. transferred certain assets and liabilities to SPR
Chicago and SPR Wisconsin. Inasmuch as such 1994 transactions were among family
members within a control group, such transactions have been recorded in the
Company's financial statements as if the stockholders of SPR Chicago and SPR
Wisconsin received noncash, stock-based compensation during 1994, 1995 and 1996.
This compensation expense was allocated to each such period based upon the
increase in the estimated fair market value of SPR Chicago and SPR Wisconsin
during the respective periods. Compensation expense was calculated as follows:
(i) multiply the number of shares of Common Stock owned by the former
stockholders of SPR Chicago and SPR Wisconsin by the estimated market value per
share of the Company (which was estimated at $15.00 per share in 1994 and 1995
and $14.00 per share in 1996), (ii) then subtract the payments made by SPR
Chicago and SPR Wisconsin to Systems Inc. on the notes issued in connection with
the 1994 transactions and (iii) then subtract the value of the shares received
by the stockholders of SPR Chicago and SPR Wisconsin attributable to such
stockholders' interests in Systems Inc. and DataFlex. This expense is non-
recurring subsequent to October 31, 1996. Upon the conversion of the Company to
a C corporation at the
16
<PAGE> 19
closing of the initial public offering, the retained deficit of the Company,
which included the aggregate stock-based compensation expense, was reclassified
and netted against additional paid-in capital.
On June 2, 1997, the Company granted options to purchase 819,216 shares of
Common Stock at an exercise price of $7.66 per share, of which options to
purchase 276,725 shares vested immediately. As a result, non-cash compensation
expense related to these vested options of approximately $0.5 million was
recorded for the year ended December 31, 1997. The expense related to these
vested options is non-recurring subsequent to June 30, 1997. However, over the
next five years, the Company will recognize non-cash compensation expense of up
to approximately $150,000 per year as additional options to purchase 537,792
shares of Common Stock vest. See Note 12 of Notes to Financial Statements.
RESULTS OF OPERATIONS
The following table sets forth selected statements of operations data as a
percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... 100% 100% 100%
Cost of services............................................ 68 72 61
---- --- ---
Gross profit.............................................. 32 28 39
Costs and expenses:
Selling................................................... 9 9 9
Recruiting................................................ 3 4 3
Stock-based compensation.................................. 122(1) 38(1) --
General and administrative expenses....................... 7 11 16(2)
---- --- ---
Total costs and expenses............................... 141 62 28
Operating income (loss)(1).................................. (109) (34) 11(2)
Other income (expense)...................................... -- -- --
---- --- ---
Income (loss) before income taxes........................... (109) (34) 11
Provision for income taxes.................................. -- -- 3
Net income (loss), as reported(1)........................... (109)% (34)% 8%(2)
==== === ===
</TABLE>
- ---------------
(1) In 1994, Systems Inc. transferred certain assets and liabilities to SPR
Chicago and SPR Wisconsin. Inasmuch as such transactions were among family
members within a control group, such transactions have been recorded in the
Company's financial statements as if the stockholders of SPR Chicago and SPR
Wisconsin received non-cash, stock-based compensation during 1994, 1995 and
1996, in an amount equal to the increase in the estimated value of such
companies since 1994. This expense is non-recurring subsequent to October
31, 1996. See Note 11 of Notes to Financial Statements.
(2) General and administrative expenses include bad debt expense of
approximately $0.8 million relating primarily to a retail customer which
filed for Chapter 11 bankruptcy and non-cash compensation expense of
approximately $0.5 million relating to the grant of options.
1997 COMPARED TO 1996
Revenues. Revenues increased 64% to $53.4 million in 1997 from $32.5
million in 1996. This increase was primarily the result of revenue generated by
the consultants who completed entry-level training in 1996 and 1997, and an
increased number of engagements for both new and existing clients. A higher
proportion of these engagements encompassed strategic planning and project
focused engagements, which yield higher billing rates. See "Business -- Service
Offerings."
17
<PAGE> 20
Gross Profit. Gross profit consists of revenues less cost of services,
which includes consultant salaries, benefits and travel expenses. The Company's
gross profit of $9.2 million or 28% of revenues in 1996 increased 128% to $21.0
million or 39% of revenues in 1997. The increase in gross profit was primarily
attributable to higher billing rates and a higher billing-to-consultant cost
ratio (which is revenues divided by consultant cost), which were realized as a
result of the increase in project management engagements and the placement of
consultants who completed the entry-level course of the ITC Training Program in
1996 and 1997.
Selling Expenses. Selling expenses include the salaries, benefits,
commissions, bonuses, travel, entertainment and other direct costs associated
with the Company's direct sales force. Selling expenses increased 59% to $4.9
million in 1997 from $3.0 million in 1996. This increase was primarily the
result of increased commissions attributable to the 64% increase in sales over
the comparable period. The Company's selling expenses as a percentage of
revenues were 9% in both 1997 and 1996.
Recruiting Expenses. Recruiting expenses consist of costs related to
hiring new personnel, which include the salaries, benefits, bonuses and other
direct costs of the in-house recruiters, consultant relocation fees, recruiters'
travel expenses, and advertising costs. The Company hired 384 consultants in
1997 compared to 292 in 1996. Recruiting expenses increased to $1.6 million in
1997 from $1.3 million in 1996. Total recruiting costs per hire decreased to
approximately $4,200 in 1997 from approximately $4,500 in 1996.
Stock-based Compensation Expense. Stock-based compensation expense
consists of non-cash expense resulting from the financial statement treatment of
the 1994 transfers by Systems Inc. of certain of its assets and liabilities to
SPR Chicago and SPR Wisconsin. The stock-based compensation expense was
allocated to each period based upon the increase in the estimated fair market
value of SPR Chicago and SPR Wisconsin. The increase in the estimated fair
market value of SPR Chicago and SPR Wisconsin for the periods presented was
based primarily upon SPR Chicago's and SPR Wisconsin's revenue growth over such
periods. The expense is non-recurring subsequent to October 31, 1996. There was
no stock-based compensation expense allocated in 1997 compared to $12.2 million
in 1996.
General and Administrative Expenses. General and administrative expenses
include salaries and benefits of management and support staff, leased facilities
cost, training, travel expenses related to general and administrative matters,
outside professional fees, depreciation and all other corporate costs. General
and administrative expenses increased 126% to $8.4 million in 1997 from $3.7
million in 1996. This increase was primarily attributable to thirteen additional
employees, general salary and management bonus increases, non-cash compensation
expense of approximately $0.5 million related to the grant of options on June 2,
1997, bad debt expense of approximately $0.8 million relating primarily to a
client which filed for Chapter 11 bankruptcy in 1997 and $0.2 million in
expenses relating to the Company's March 1997 proposed initial public offering
that was postponed until October 1997. Additional factors contributing to this
increase include increased rent relating to new office space in Wisconsin,
increased depreciation, increased professional fees and training costs
associated primarily with outside instructors for the ITC Training Program.
1996 COMPARED TO 1995
Revenues. Revenues increased 42% to $32.5 million in 1996 from $22.9
million in 1995. This increase was primarily the result of an increased number
of engagements for both new and existing clients. A higher proportion of these
engagements encompassed strategic planning, project-focused engagements, which
yield higher billing rates.
Gross Profit. Gross profit increased 25% to $9.2 million in 1996 from $7.4
million in 1995. Gross profit as a percentage of revenues decreased to 28% in
1996 from 32% in 1995. The decrease in gross profit was primarily attributable
to salaries and benefits of trainees enrolled in the ITC Training Program, and
the subsequent delay in the assignment of these individuals to billable
engagements. This resulted in an increase in expenses of approximately $0.8
million without any increase in revenues. In addition, the Company hired 20
project managers (an increase of 200% from 1995) to satisfy anticipated demand
for the Company's services. The Company's operating income for the year ended
December 31, 1996 was adversely affected by the large number of project managers
hired during such period and the amount of time these project managers devoted
18
<PAGE> 21
to enhancing the Company's proprietary methodologies and performing marketing
and administrative activities.
Selling Expenses. Selling expenses increased 42% to $3.0 million in 1996
from $2.1 million in 1995. This increase was primarily the result of increased
commissions attributable to the 42% increase in sales over 1995. The Company's
selling expenses, as a percentage of revenues, were 9% in 1996 and 1995.
Recruiting Expenses. The Company hired 292 consultants during 1996
compared to 254 in 1995. Recruiting expenses increased 70% to $1.3 million in
1996 from $0.8 million in 1995. The Company employed on average 4 more
recruiters in 1996 than in 1995 to handle the increased hiring activity. As a
result of such additions, total recruiting costs per hire increased to
approximately $4,500 in 1996 from approximately $3,100 in 1995.
Stock-based Compensation Expense. Stock-based compensation expense
allocated to 1996 was $12.2 million compared to $28.0 million allocated to 1995.
General and Administrative Expenses. General and administrative expenses
increased 128% to $3.7 million in 1996 from $1.6 million in 1995. This increase
was primarily attributable to hiring eight additional employees, increased rent
relating to new office space in Chicago and Wisconsin, increased depreciation,
training costs associated primarily with outside instructors and initial
staffing of the IDS business unit, including the reclassification of certain
employee salaries from cost of services and selling expenses to reflect the
change in responsibilities of these employees.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly operating
information for each of the periods shown. This data has been prepared on the
same basis as the audited financial statements, and in management's opinion,
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the information for the periods
presented. Results for any previous fiscal quarter are not necessarily
indicative of results for the full year or for any future quarter.
<TABLE>
<CAPTION>
1996 1997
---------------------------------------- ----------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $7.4 $7.6 $8.4 $9.1 $10.5 $12.2 $14.2 $16.5
Gross profit.................... 2.3 2.1 2.6 2.2 3.8 4.9 5.8 6.5
</TABLE>
Operating results fluctuate based upon the timing of service offering
expansion activities, the hiring and training of consultants, the initiation and
completion of engagements, the timing of corporate expenditures, and the number
of billable days in the respective quarter.
LIQUIDITY AND CAPITAL RESOURCES
On October 2, 1997, the Company completed its initial public offering of
2,990,000 shares of the Company's Common Stock. The Company sold 1,600,000 of
such shares.
Net proceeds to the Company from the sale of 1,600,000 shares in the
initial public offering was approximately $22.5 million, after deducting
underwriting discounts and commissions of $1.8 million and initial public
offering expenses of $1.3 million paid by the Company. The Company did not
receive any of the proceeds from the sale of shares by the selling stockholders.
The Company distributed a total of approximately $2.8 million of the net
proceeds to the Company's stockholders who owned shares prior to the initial
public offering, which amount represents the Company's undistributed S
corporation earnings from November 1, 1996 through the closing date of the
initial public offering, plus other income tax related distributions. In
addition, the Company used approximately $2.7 million of its net proceeds from
the initial public offering to pay outstanding indebtedness to its lenders under
a
19
<PAGE> 22
revolving credit facility and two term notes and approximately $1.0 million of
such proceeds to expand existing Virtual Insourcing Centers, develop additional
Centers and expand the ITC Training Program.
The remaining net proceeds of approximately $16.0 million from the initial
public offering have been temporarily invested in short-term investment grade
securities, certificates of deposit and direct or guaranteed obligations of the
United States government. The Company intends to use the remaining net proceeds
for general corporate purposes, including the expansion of its ITC Training
Program, the development of additional Virtual Insourcing Centers, branch
expansion, possible acquisitions of related businesses, and for working capital.
At December 31, 1997, the Company had approximately $21.2 million of cash
and short-term investments. Prior to its initial public offering, the Company
financed its growth through cash flows from operations, periodically
supplemented by borrowings under its line of credit or revolving credit and term
loan facilities. Receivables have decreased to 42 days of revenues at December
31, 1997 from 43 days of revenues at December 31, 1996.
Net cash flows provided from operating activities totaled $1.6 million,
$0.7 million, and $5.9 million in 1995, 1996, and 1997, respectively. The
decrease from 1995 to 1996 in net cash flow provided by operating activities was
primarily a result of the decrease in net income adjusted for non-cash
stock-based compensation from approximately $2.7 million in 1995 to $1.0 million
in 1996. The increase in net cash flow in 1997 was primarily a result of
increases in net income, accrued compensation and accounts payable, partially
offset by an increase in accounts receivable. Net cash used in the Company's
investing activities, primarily to fund capital expenditures and to purchase
short-term investment grade securities in 1997, totaled ($0.1 million), ($0.9
million), and ($20.1 million) for the years ended 1995, 1996, and 1997,
respectively. Net cash used in financing activities consisted primarily of
payments on a note payable to Eugene Figliulo and dividend distributions to
stockholders, offset by the net proceeds from the issuance of common stock in
1997.
As of the date of this Prospectus, the Company has no outstanding debt.
The Company believes that funds generated from operations, the net proceeds
from this Offering and the unexpended proceeds from the initial public offering
will provide adequate cash to fund its anticipated operating needs and capital
expenditures for the foreseeable future.
20
<PAGE> 23
BUSINESS
COMPANY OVERVIEW
SPR has over 24 years of experience in providing IT services to clients in
a variety of industries, including financial services, healthcare, insurance,
manufacturing, oil and gas, transportation and utilities. The Company focuses
its marketing efforts on Fortune 1000 companies and other large organizations
which have complex IT operations and significant IT budgets. SPR's objective is
to become the leading IT services provider to both new and existing clients. SPR
provides its clients with three levels of consulting support which are
distinguished by the degree of responsibility the Company assumes: strategic
planning, project management and implementation. Within this framework, SPR
currently provides outsourcing services through four service offerings: Systems
Re-engineering, Century Date Compliance, Application Management and IDS in
addition to providing General Consulting services. SPR bills its clients on
either a time and materials or a fixed-price basis. The Company believes that
this breadth of service and support fosters long-term client relationships,
promotes cross-selling opportunities and minimizes the Company's dependence upon
any particular service offering or client.
The Company currently has four branch offices located in Chicago, Tulsa,
Milwaukee and Dallas and 573 IT consulting professionals, including 52 project
managers and 42 independent contractors. The number of consultants employed or
retained by the Company as of December 31, 1997 was 41% greater than at the end
of 1996. The Company has made, and intends to continue to make, significant
investments in its systems infrastructure, recruiting organization, training
programs and marketing initiatives in an effort to sustain growth. SPR intends
to leverage these investments, as well as its operating expertise, by opening
additional branch offices.
SPR's growth strategies have allowed it to capitalize on the growing demand
for IT services. The Company's revenues increased at a compound annual growth
rate of 46% from 1993 through 1997 and at an annual rate of 64% from 1996 to
1997. More than 70% of the Company's 1997 revenues were attributable to over 50
companies which had been clients for at least the prior three consecutive years.
The Company has made significant infrastructure investments in recent years,
notably the development and implementation of the ITC Training Program and the
establishment of Virtual Insourcing Centers. These investments have enabled the
Company to keep pace with the growing demand for its service offerings and have
resulted in significant increases in profitability. The Company achieved gross
margins of 39% in 1997 as compared to 28% in 1996 and 32% in 1995.
INDUSTRY OVERVIEW
Dataquest Incorporated estimated total expenditures for professional IT
services in the United States were $62 billion in 1997. Dataquest also estimates
that the professional IT services market, consisting of consulting and
education, systems integration and development and systems management services,
will reach approximately $80 billion by 1999. This represents a compound annual
growth rate of approximately 14% between 1997 and 1999.
The Company's experience is that many large organizations find it
increasingly difficult and costly to internally maintain their existing systems.
Management believes that over 80% of existing mainframe and mid-range systems
will still be in operation ten years from now as businesses will continue to
require massive data storage capabilities and tremendous processing power, which
are most efficiently provided by mainframe technology. As providers of IT
services focus more on the client/server segment of the market, however, fewer
professionals possess the skills necessary to support and maintain existing
mainframe and mid-range systems. The Company believes these factors provide it
with a substantial growth opportunity within the IT services industry.
In addition, the Company believes that clients will continue to maintain
and improve their existing systems because: (i) existing systems represent an
enormous investment which may prove too risky and expensive to completely
replace; (ii) mainframe computing is increasingly being utilized in new ways as
Internet/intranet technologies develop; (iii) existing systems are critical to
the functioning of clients'
21
<PAGE> 24
businesses as they contain vital business information needed to build
replacement systems; and (iv) regardless of which front-end computing platform
is utilized, clients still need to access data resident in mainframe computers.
The Company also is capitalizing on the substantial growth opportunity
created by problems inherent in implementing mass changes to application systems
and their associated data bases. Examples of mass change include the European
Community's expected conversion to the Euro currency, the extension of the
number of digits and other characters in zip codes, product codes and account
numbers and, especially, the year 2000 problem, the software glitch that will
prevent computers from properly recognizing dates after the year 1999. Coding
19YY as YY eliminated two characters from each date reference thereby preserving
substantial amounts of disk storage and memory. A date shown as YY/MM/DD
provides many calculation options within a system, such as age, interest
computations, inventory, materials planning, shelf life, shipping dates and
billing. The problem with this programming format is that in the year 2000, when
YY=00, none of the calculations will work properly. If corrections are not made
prior to January 1, 2000, computer systems may fail which could cause businesses
to stop functioning properly. This abbreviated date-coding format is prevalent
in core, mission-critical systems, which comprise millions of lines of computer
code in existing systems. The data used and generated by these systems are
heavily integrated into multiple files and databases. This data integration
typically results in thousands of interfaces, each of which must be analyzed,
changed and tested to correct the problem, while minimizing the impact on
ongoing operations. Capers Jones estimates the cost in the United States to
correct the year 2000 problem associated with software and databases to be $130
billion. In addition, Gartner Group, Inc. projects that only 50% of all systems
in the world will be year 2000-compliant by the end of 1999.
BUSINESS STRATEGIES
The Company's objective is to become the leading ITservices provider to
both new and existing clients. To achieve this objective, the Company has
pursued, and intends to continue to pursue, the following business strategies:
EXPAND INFORMATION TECHNOLOGY CONSULTANT (ITC) TRAINING PROGRAM. The
Company currently employs 18 full-time recruiters: eight in Chicago, five in
Tulsa, four in Milwaukee and one in Dallas. Over the past 24 years, the Company
has developed and refined an internal recruiting database which facilitates
rapid identification of consultant candidates based upon skill and geographic
location. To address the industry-wide shortage of qualified technical
consultants, the Company has developed a three-to-six year training program. The
ITC Training Program, targeted at college graduates with degrees other than in
computer science, begins with a seven-week entry-level course specifically
focused on Century Date Compliance. In addition, the Company, in conjunction
with DeVry, Inc., a leading higher education institution specializing in
technology, has developed a continuing education program to further enhance its
consultants' careers and improve their technical skills. See "-- Recruiting and
Training." The Company believes that these entry-level and continuing education
training programs and the Option Plan and the Employee Stock Purchase Plan
provide the Company with a competitive advantage in attracting, developing and
retaining qualified technical consultants. As of March 31, 1998, 200 individuals
have entered and successfully completed the entry-level portion of the ITC
Training Program. See "Management -- Stock Plans."
CONTINUE TO FOCUS ON PROJECT MANAGEMENT TO DELIVER VALUE-ADDED IT
SOLUTIONS. In recent years, the Company has shifted its focus from general
consulting engagements such as contract programming to outsourcing engagements
focusing on project management and strategic planning such as Century Date
Compliance, Systems Re-engineering, Application Management and IDS. The Company
believes that by providing such value-added services it develops in-depth
knowledge of its clients' existing systems and gains a competitive advantage in
assessing its clients' needs with respect to emerging technologies and
anticipating opportunities to provide additional IT services.
FOCUS ON LEADING TECHNOLOGIES. The Company maintains and continues to build
expertise not only in mainframe applications but also in other high demand
technologies, such as Internet/intranet applications, open computing systems,
data warehousing and relational data base management systems. SPR has
22
<PAGE> 25
developed, and intends to continue developing, relationships with software
product developers and research institutions to remain on the leading edge of
technological development and to provide its clients with technologies that are
best suited to their individual needs.
DELIVER UNBIASED SERVICE OFFERINGS UTILIZING DISCIPLINED METHODOLOGIES. The
Company works closely with its clients' IT personnel from the strategic planning
phase through the completion of an engagement. To increase productivity and
efficiency, the Company has developed specific proprietary service
methodologies, Renovation(SM), Renovation2000(SM), and RenovationEuro(SM) and a
proprietary software analysis tool, CodeVu(SM). See "-- Proprietary Service
Methodologies and Software Analysis Tool." In implementing its methodologies,
the Company utilizes the best available third-party application software and
productivity tools without regard to specific third-party vendor relationships,
thereby avoiding the bias resulting from promoting third-party products. The
Company is capable, therefore, of offering its clients an objective assessment
of the advantages and disadvantages of the latest packaged software
applications, platforms, operating systems and productivity tools.
GROWTH STRATEGIES
Historically, the Company has grown by developing new service offerings and
expanding its client base. The Company may also pursue growth through selected
geographic branch expansion and strategic acquisitions. Management believes that
its strategies have positioned the Company to achieve continued growth in
revenues and earnings. Key elements of the Company's growth strategies include
the following:
CAPITALIZE ON OUTSOURCING TREND THROUGH CENTURY DATE COMPLIANCE AND OTHER
MASS CHANGE EXPERTISE. SPR was an early entrant into the year 2000 segment of
the market, completing its first Century Date Compliance engagement in 1993. The
Company expects that its expertise in this industry segment will result in
additional Century Date Compliance engagements as the year 2000 approaches. To
date, the Company has found that many of its clients request the Company not
only to evaluate their Century Date Compliance needs, but also to assess
functional and technical quality in their application portfolios and develop
strategies for improvement. As a result of its Century Date Compliance
engagements, SPR expects to be strategically positioned to provide additional IT
services to clients who have already entrusted their core, mission-critical
systems to SPR. In addition to its Century Date Compliance expertise, the
Company also has experience in implementing other mass changes to applications
and systems and their associated data bases, such as the extension of the number
of digits or other characters in zip codes, product codes and account numbers.
More recently, the Company has established a task force and has begun work on
projects to allow clients' systems to process the European Community's expected
conversion to the Euro currency.
DEVELOP ADDITIONAL VIRTUAL INSOURCING CENTERS. In order to capitalize on
the corporate trend towards outsourcing, the Company established its first
Virtual Insourcing Center in the third quarter of 1996. Virtual Insourcing
Centers augment the Company's Application Management service offering and are
logical extensions of the Company's Systems Re-engineering, Century Date
Compliance and General Consulting service offerings. See "-- Service Offerings."
Equipped with a variety of computer hardware, software and networking
technologies and systems, these Centers enable the Company to provide the full
range of its service offerings in a Company facility rather than at its clients'
facilities. The Virtual Insourcing Centers also enable the Company to assume
off-site project management responsibilities and to complete Century Date
Compliance and Systems Re-engineering and Application Management engagements
without interrupting its clients' businesses. In addition, Virtual Insourcing
Centers allow the Company to implement the testing phases of its Renovation(SM)
and Renovation2000(SM) methodologies seven days a week, rather than only on
weekends when clients are not utilizing their systems. Since its initial public
offering in October 1997, the Company has doubled the capacity of its Chicago
Center and opened and subsequently expanded its capacity in Centers in Tulsa and
Dallas and intends to open a Center in Milwaukee in the second quarter of 1998.
DEVELOP AND EXPAND ADDITIONAL CLIENT SERVICES. The Company believes there
are substantial opportunities for increasing revenues by developing and
expanding services offered to existing and prospective clients. In response to
client needs, SPR implemented its IDS service offering. IDS was introduced to
provide end-users access to data locked within existing systems. By
incorporating technologies such as data warehousing, on-line
23
<PAGE> 26
analytical processing ("OLAP"), data mining and the Internet/intranet, IDS helps
bridge the gap between modern technologies and existing systems.
LEVERAGE EXISTING CLIENT BASE. The Company intends to continue building
long-term client relationships. Its record of customer satisfaction and expanded
service offerings have contributed to the Company's ability to increase the
revenues generated from existing clients. The Company derived more than 70% of
its revenues in 1997 from over 50 clients to which it had provided IT services
in at least the prior three consecutive years. The Company intends to further
penetrate its existing client base by providing additional service offerings.
EXPAND GEOGRAPHIC PRESENCE. Geographic expansion will be driven primarily
by the growing need to service existing clients' divisions or affiliates in new
geographic locations. The Company opened a Dallas branch in February, 1997. The
Company also may pursue strategic acquisitions either to expand its geographic
presence or to complement and further diversify its existing service offerings.
SERVICE OFFERINGS
Since its inception, the Company has provided technical personnel to
augment its clients' internal IT departments. Over the past several years,
however, the Company has focused its efforts on providing higher-end service
offerings. The Company provides its clients with three levels of consulting
support which are distinguished by the degree of responsibility the Company
assumes: strategic planning, project management and implementation. Within this
framework, SPR currently provides outsourcing services through four service
offerings: Systems Re-engineering, Century Date Compliance, Application
Management and IDS, in addition to providing General Consulting services. The
amount of responsibility assumed by the Company generally depends upon a
client's in-house capabilities and desire to outsource IT functions. Based upon
client needs, SPR can provide strategic planning, project management or
implementation either at its clients' facilities or off-site at SPR's Virtual
Insourcing Centers. See "-- Growth Strategies -- Develop Additional Virtual
Insourcing Centers." SPR employs proven proprietary service methodologies and
software analysis tools to deliver these services. See "-- Proprietary Service
Methodologies and Software Analysis Tool." SPR bills its clients on either a
time and materials or fixed-price basis.
[GRAPHICS REGARDING THE COMPANY'S SERVICE OFFERINGS]
24
<PAGE> 27
GENERAL CONSULTING. General Consulting consists of providing technical
personnel with expertise in a wide variety of skills and disciplines to augment
clients' internal IT departments. Clients' IT departments often require advice
and programming skills without the full range of project management support.
General Consulting consists of staff augmentation principally for maintenance
and development of client/server and mainframe environments.
SYSTEMS RE-ENGINEERING. Systems Re-engineering consists of software
portfolio analysis and assessment, code stabilization, code modularization,
language upgrades or conversions, business specification extraction and system
documentation. The Company re-engineers existing systems to create more
manageable and functional applications and transitions existing systems to
distributed client/server and networking systems. This service offering allows
the Company's clients to leverage their investments in existing systems through
analysis, improvement, redesign and reuse of applications.
CENTURY DATE COMPLIANCE. Century Date Compliance consists of retrofitting
existing systems to address the date-coding problem that will be caused by the
year 2000. Century Date Compliance services include high-level organizational
assessment of a client's software portfolio and organizational readiness,
engagement planning and management and implementation. See "-- Industry
Overview." In 1997, Century Date Compliance services accounted for approximately
43% of the Company's revenues.
APPLICATION MANAGEMENT. Application Management consists of providing the
management, systems maintenance and support of all or part of clients' existing
IT applications. Using proprietary and third-party service methodologies and
tools, the Company provides transition planning, project management, program
maintenance and testing, production support and system improvements.
INFORMATION DELIVERY SERVICES. IDS consists of accessing, analyzing and
managing data which currently resides in existing systems. The Company uses its
expertise with existing systems and emerging technologies to provide its clients
with the ability to retrieve and utilize data resident in existing systems which
would otherwise be inaccessible. Services provided within IDS include
information harvesting, information analysis and information publishing, which
incorporate technologies such as OLAP and the Internet/intranet.
PROPRIETARY SERVICE METHODOLOGIES AND SOFTWARE ANALYSIS TOOL
The Company's proprietary service methodologies, Renovation(SM),
Renovation2000(SM), and RenovationEuro(SM) and its proprietary software analysis
tool, CodeVu(SM), provide SPR with a disciplined approach to fulfill its
engagements. Renovation(SM), Renovation2000(SM) and RenovationEuro(SM) will
enable the Company to deliver its service offerings through a tested and
repeatable format. CodeVu(SM) quickly and accurately provides information
concerning client software portfolios. These service methodologies coupled with
the software analysis tool, as well as key strategic alliances with third-party
software providers, facilitate the development of well-defined tasks and
timetables for each phase of an engagement from strategic planning through
implementation.
RENOVATION(SM). Renovation(SM) was first used by the Company in 1988 for
Systems Re-engineering engagements. The methodology employs a four phase
approach: assessment, improvement, transformation and preservation. In the
assessment phase, the system is analyzed for architectural deficiencies and a
strategy is developed for correcting these deficiencies and transforming the
existing architecture. In the improvement phase, commercially available tools
and internally developed techniques are applied to implement the strategy
developed in the assessment phase. In the transformation phase, the newly
re-engineered system is transformed into a new architectural paradigm. In the
preservation phase, quality assurance procedures are developed. These procedures
are designed to help prevent the degradation of the system after the Systems Re-
engineering process is complete, thereby protecting the client's investment in
its existing systems.
RENOVATION2000(SM). Renovation2000(SM) is SPR's methodology for Century
Date Compliance engagements. This methodology employs a repeatable process
which, in conjunction with the best available third-party application software
and productivity tools, analyzes, locates and retrofits all programs and data
affected by the absence of a century date field to permit processing of dates
after 1999. This methodology enables the
25
<PAGE> 28
Company to capture information allowing the refinement of the process and the
preparation of estimates and schedules throughout the engagement.
RENOVATIONEURO(SM). RenovationEuro(SM) is being developed by SPR for
engagements regarding the conversion of systems to process the European
Community's expected transition to the Euro currency. This methodology will
employ a repeatable process which, in conjunction with the best available
third-party application software and productivity tools, analyzes, locates and
retrofits all programs and data affected by the definitional and functional
requirements to permit processing of the conversion of the European Community's
existing currencies into the Euro currency. This methodology will enable the
Company to capture information allowing the refinement of the process and
preparation of estimates and schedules throughout the engagement.
CODEVU(SM). CodeVu(SM), which runs on mainframe and personal computing
platforms, analyzes source code and provides quantitative information at the
program and system level. CodeVu(SM) provides insight regarding the technical
quality of the source code, identifies programs that are the most costly to
maintain and represent the highest risk and identifies and locates potential
problems hidden within the code. This tool has been used successfully by the
Company in a large number of engagements including Systems Re-engineering,
Century Date Compliance and Application Management. CodeVu(SM) is often
integrated into client environments to assist with the maintenance and
preservation of source code.
RECRUITING AND TRAINING
The Company employs 18 full time recruiters, including three recruiting
managers, who are responsible for recruiting and establishing relationships with
qualified technical personnel. Technical personnel meeting the Company's
standards are added to a computerized database. Recruiting managers maintain
regular contact with technical personnel, monitor their availability and changes
in skill levels and update the database, which has been maintained for over 24
years. See "Risk Factors -- Need to Attract and Retain Qualified Technical
Consultants."
In the first quarter of 1996, the Company implemented its ITC Training
Program to address the current shortage of available technical consultants for
its Century Date Compliance engagements. The Company actively recruits college
graduates with degrees other than in computer science, such as music,
mathematics and philosophy. Based upon its experience with graduates of the
entry-level portion of the training program, the Company believes such
individuals have the aptitude to develop the requisite systems and programming
skills. The Company enrolls these individuals in an intensive seven-week
entry-level training course. Upon completion of training, the Company places
these individuals on Century Date Compliance engagements. The Company enters
into employment agreements with these individuals, whereby the consultants agree
to reimburse the Company for some or all of the cost of their training if they
leave the Company within four years. Since the commencement of the ITC Training
Program course on February 15, 1996, 200 individuals have entered and
successfully completed entry-level portion of the ITC Training Program. The
Company intends to continue to conduct additional training classes on a regular
basis. In addition, the Company has developed training courses in conjunction
with DeVry, Inc., a leading higher education institution specializing in
technology. These courses offer SPR's consultants advanced training in
information technologies. By participating in these advanced training courses,
the Company's consultants can attain certification from DeVry and earn credits
toward both a master's degree in information technology and a master's degree in
business administration.
MARKETING AND SALES
SPR marketing representatives are assigned to a limited number of accounts
in order to develop an in-depth understanding of each client's individual needs
and to build long-term client relationships. These representatives are
responsible for providing highly responsive service and ensuring that the
Company's service offerings achieve client objectives. In many instances, a
portion of SPR's marketing activity is carried out by senior Company executives.
26
<PAGE> 29
The Company employs a variety of business development and marketing
techniques to communicate directly with current and prospective clients,
including: (i) various print and direct mail advertisements, (ii) participation
in print and live interviews, roundtable discussions and seminars, and (iii) a
World Wide Web site (www.sprinc.com). In addition, the Company believes that its
Chief Executive Officer and Chairman is recognized as an expert concerning the
year 2000 problem. He has participated, often with other service providers,
research organizations and productivity tool and hardware companies, in print,
television and live interviews and seminars concerning this problem. The Company
believes these activities promote greater client awareness and enhance the SPR
brand name.
CLIENT BASE
The Company serves clients in a diverse range of industries, including
financial services, insurance, oil and gas, healthcare, manufacturing,
transportation and utilities, thereby mitigating cyclical effects of any one
industry or market. The Company derives an additional level of diversification
from certain of its clients. Different operating divisions of a given client may
utilize any one or several services offered by SPR, which helps mitigate the
risk of customer concentration. During 1997, SPR's ten largest clients accounted
for approximately 50% of the Company's revenues and its largest customer,
Allstate Insurance Company, accounted for approximately 12% of such revenues.
EMPLOYEES
As of December 31, 1997, the Company had 573 IT consulting professionals,
of whom 531 were employees and 42 were independent contractors. Of these IT
consulting professionals, 52 were project managers. As of such date, the Company
had 263 IT consulting professionals in Chicago, 146 in Tulsa, 143 in Milwaukee
and 21 in Dallas.
The Company has three categories of IT consultants: salaried employees,
associate employees and independent contractors. Salaried employees are
full-time employees of the Company and are eligible for all benefits offered by
the Company. Associate employees are eligible for the same benefits offered to
salaried employees but are paid on an hourly basis and, as such, are not
entitled to paid time off in the form of sick days, personal days or vacation.
Approximately 92% of the Company's IT consultants are salaried and associate
employees. Independent contractors are not employees of the Company, but are
paid on an hourly basis and are not entitled to any benefits offered to Company
employees. Approximately 8% of the Company's IT consultants are independent
contractors.
The Company is not a party to any collective bargaining agreements and
considers its relationships with its employees to be good.
COMPETITION
The market for IT professional services is intensely competitive on local
and national levels, and the Company competes frequently with a variety of
companies for both the same clients and qualified technical consultants. These
companies include: "Big Five" accounting firms, systems consulting and
implementation firms, application software firms, service groups of computer
equipment companies, general management consulting firms and programming
companies. The Company considers large organizations with complex IT needs to be
among its primary clients. Within a given market, there are a limited number of
such potential clients, some of which have designated only certain IT
professional services companies as approved providers of IT professional
services. Primary competitive factors for obtaining and retaining clients
include price, quality of services, technical expertise and responsiveness to
client needs. The primary competitive factors in attracting and retaining
qualified candidates as consultants are competitive compensation arrangements
and consistent exposure to high quality and varied engagements.
Several of the Company's competitors are substantially larger than the
Company and have greater financial and other resources. Many of such competitors
have also been in business longer than the Company and have significantly
greater name recognition throughout the United States, including the geographic
areas
27
<PAGE> 30
in which the Company operates and into which it may expand. In addition, such
competitors are able to meet a broader range of a client's IT consulting needs
and serve a broader geographic range than the Company, which permits such
competitors to better serve national accounts. Although the Company believes
that it competes, and will continue to compete, favorably with existing and
future competitors, there can be no assurance that the Company will continue to
do so. See "Risk Factors -- Competition" and "Risk Factors -- Need to Attract
and Retain Qualified Technical Consultants."
INTELLECTUAL PROPERTY RIGHTS
Software developed by SPR in connection with a client engagement typically
becomes the exclusive property of the client. The Company relies upon a
combination of nondisclosure and other contractual arrangements and trade
secret, copyright and trademark laws to protect its proprietary rights, the
rights of third parties from whom the Company licenses intellectual property and
the proprietary rights of its clients. The Company enters into confidentiality
agreements with its consultants in an effort to prevent the distribution of
proprietary information. See "Risk Factors -- Intellectual Property Rights."
SPR(SM), Renovation(SM), Renovation2000(SM), RenovationEuro(SM), CodeVu(SM)
and the SPR logo are service marks of the Company. The Company holds no patents
or registered copyrights, and has no present intention of registering any
copyright or filing any patent applications. See "-- Proprietary Service
Methodologies and Software Analysis Tool."
PROPERTY
SPR leases its principal executive offices, which are located at 2015
Spring Road, Oak Brook, Illinois 60523-1874, and also leases facilities in
Tulsa, Oklahoma, Dallas, Texas and Milwaukee, Wisconsin. These leases expire on
January 21, 2002, May 31, 2004 and May 31, 2001, respectively. The Company also
leases space in Oak Brook, Tulsa and Dallas to house Virtual Insourcing Centers.
These leases expire in 2002, 2002 and 2003, respectively. The Company believes
it has adequate space to conduct its current business. The Company anticipates,
however, that additional space will be required as business expands but believes
that it will be able to obtain suitable space as needed. See Note 6 of Notes to
Financial Statements.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings.
28
<PAGE> 31
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, and their ages and
positions as of March 31, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers and Directors
Robert M. Figliulo................... 43 Chief Executive Officer and Chairman of
the Board of Directors
David A. Figliulo.................... 37 Executive Vice President and Director
Stephen J. Tober..................... 33 Executive Vice President -- Finance and
Business Development
Stephen T. Gambill................... 47 Vice President and Chief Financial Officer
Stephen E. Tone...................... 40 Vice President -- Project Services
Julia R. Wort........................ 31 Vice President -- Sales
Michael J. Fletcher.................. 42 Director of Professional Development --
Tulsa and Director
Ronald L. Taylor(1).................. 53 Director
Sydnor W. Thrift, Jr.(2)............. 68 Director
David P. Yeager(1)(2)................ 44 Director
</TABLE>
- -------------------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
Directors hold office for one year and until their successors are elected
and qualified. Executive officers of the Company are appointed by, and serve at
the direction of, the Board of Directors.
Robert M. Figliulo has served as Chief Executive Officer and Chairman of
SPR since June 1997 and previously served as President and Chairman of SPR
Chicago. Since joining the Company in May 1976, Mr. Figliulo has held numerous
positions, including Programmer, Analyst, Account Manager, General Manager of
both the Tulsa and Chicago offices and Vice President of Marketing. Mr. Figliulo
received a Masters in Business Administration from the University of Chicago in
1987. Mr. Figliulo is the brother of David Figliulo and the son of Eugene
Figliulo.
David A. Figliulo has served as Executive Vice President and Director of
SPR since June 1997, and previously served as Vice President of SPR Chicago.
Since joining the Company in July 1989, Mr. Figliulo has served as an Account
Manager and as the Vice President of Sales in the Company's Chicago office.
Prior to joining the Company, Mr. Figliulo worked as an Account Manager for
Baxter Healthcare, an international pharmaceutical company, in the Oxygen
Systems Division and was recognized as the division's top salesman in the United
States in 1987, 1988 and 1989. Mr. Figliulo is the brother of Robert Figliulo
and the son of Eugene Figliulo.
Stephen J. Tober has served as Executive Vice President -- Finance and
Business Development since June 1997. Prior to joining the Company, Mr. Tober
worked in the investment banking division of Smith Barney Inc. from 1995 through
1997. From 1991 through 1995 Mr. Tober worked in the corporate finance group of
the law firm Latham & Watkins. Mr. Tober received a J.D. degree from the
University of Virginia School of Law in 1991 and a B.A. degree from Amherst
College in 1987.
Stephen T. Gambill has served as Vice President and Chief Financial Officer
since July 1996. From 1982 through July 1996, Mr. Gambill, a certified public
accountant, held various financial management positions within Natural Gas
Pipeline Company of America, a large natural gas pipeline, and most recently
served as its Director of Accounting. Prior to 1982, Mr. Gambill held various
auditing positions with the public accounting firms of Coopers and Lybrand and
Deloitte, Haskins & Sells. Mr. Gambill received a Masters in Business
Administration degree from the University of Chicago in 1987.
29
<PAGE> 32
Stephen E. Tone has served as Vice President of Project Services since
November 1997. Mr. Tone joined SPR in September of 1992 as the Director of
Project Services-Chicago. Prior to joining the Company, Mr. Tone worked for a
variety of technology firms including XA Systems and Technology Solutions
Company. Mr. Tone obtained his Bachelor of Computer Science degree from
California State University in 1985.
Julia R. Wort has served as the Vice President of Sales since November
1997. Ms. Wort joined the Company in September 1992 as a Sales Representative
and most recently served as Director of Sales-Milwaukee. Prior to joining the
Company, Ms. Wort was employed as a Sales Representative for a distributor of
specialized commercial hardware and software and a Sales Representative for a
major hospitality marketing firm. Ms. Wort received a B.S. degree in Political
Science from the University of Illinois in 1989.
Michael J. Fletcher has served as General Manager and is currently serving
as Director of Professional Development -- Tulsa. Previously, he served as
President of SPR Tulsa. Mr. Fletcher joined SPR in 1986 as a Recruiter in the
Chicago office and since that time has held a variety of positions in both the
Tulsa and Chicago offices including Branch Manager of the Tulsa office, Field
Support Representative and Technical Manager. Prior to joining SPR, Mr. Fletcher
worked in the staffing support and personnel recruiting industry.
Ronald L. Taylor has served since 1987 as a director, President and Chief
Operating Officer of DeVry, Inc., one of the largest publicly-owned,
degree-granting, higher education companies in North America. Mr. Taylor
co-founded Keller Graduate School of Management and was, from 1973 to 1987, its
President and Chief Operating Officer. Mr. Taylor received a Masters in Business
Administration degree from Stanford University in 1971.
Sydnor W. Thrift, Jr. has served as Director of Player Development for the
Baltimore Orioles professional baseball team since November 1994. From November
1991 through October 1994, Mr. Thrift served as the Assistant General Manager
for the Chicago Cubs professional baseball team. From January 1991 through
October 1991, Mr. Thrift served as a consultant to three professional baseball
teams: the San Francisco Giants, the Los Angeles Dodgers and the New York Mets.
David P. Yeager has served as Vice Chairman of the Board of Directors of
Hub Group, Inc., the largest intermodal marketing company in the United States,
since January 1992. Mr. Yeager has also served as Chief Executive Officer of Hub
Group, Inc. since March 1995 and was President of Hub Group, Inc. from October
1985 through December 1991. Mr. Yeager received a Masters in Business
Administration degree from the University of Chicago in 1987.
BOARD COMMITTEES
In October 1996, the Board of Directors established a Compensation
Committee consisting of Messrs. Thrift and Yeager and an Audit Committee
consisting of Messrs. Taylor and Yeager. The Compensation Committee makes
recommendations to the Board of Directors concerning compensation of the
Company's directors, officers and employees. The Compensation Committee also
oversees and administers the Employee Stock Purchase Plan and the Option Plan.
The Audit Committee reviews the results and scope of audits and other services
provided by the Company's independent auditors and monitors and reviews the
Company's financial policies and internal control procedures.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the Mergers, none of SPR Chicago, SPR Tulsa or SPR Wisconsin had a
compensation committee or any other committee of their respective boards of
directors performing similar functions. Decisions concerning compensation of
executive officers were made by the boards of directors of each of the
respective companies, subject to certain limitations, such as maximum
compensation thresholds, imposed by Systems Inc. See "Certain Transactions." Mr.
Robert Figliulo and Mr. David Figliulo, former executive officers and directors
of SPR Chicago, determined their 1996 compensation. Mr. Fletcher and Ms. Potter,
former executive officers and directors of SPR Tulsa, determined their 1996
compensation. Mr. John Figliulo, the sole officer and director of SPR Wisconsin,
determined his 1996 compensation.
30
<PAGE> 33
DIRECTOR COMPENSATION
Directors who are not employees of the Company receive $1,000 for each
board meeting attended and $500 for each committee meeting attended on a date
other than a date on which the board meets and are reimbursed for their
reasonable out-of-pocket expenses incurred in attending board and committee
meetings. These directors are also entitled to receive stock options under the
Option Plan for serving on the Board of Directors. See "Management -- Stock
Plans." Employee directors do not receive additional compensation for serving on
the Board of Directors.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information with respect to the
annual and all other compensation earned for the years ended December 31, 1996
and 1997 for the Company's Chief Executive Officer and the four most highly
compensated executive officers other than the Chief Executive Officer
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION AWARDS
---------------------------------- ---------------------
NAME AND OTHER ANNUAL RESTRICTED OPTIONS/ ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION STOCK(#) SARS(#) COMPENSATION
------------------ ---- ------ ----- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Figliulo......... 1997 $180,000 $218,180 -- -- -- $11,242(1)
Chief Executive Officer
and 1996 $140,000 $104,694 -- -- -- $ 6,121(1)
Chairman of the Board of
Directors
David A. Figliulo.......... 1997 $135,000 $142,782 -- -- -- $ 9,499(2)
Executive Vice President 1996 $100,000 $ 63,290 -- -- -- $ 9,499(2)
and Director
Stephen J. Tober(3)........ 1997 $ 86,538 $ 27,084 -- -- 328,939 --
Executive Vice President
-- 1996 -- -- -- -- -- --
Financial and Business
Development
Stephen T. Gambill(4)...... 1997 $150,000 $ 6,667 -- -- 31,328 $ 5,498(5)
Vice President and Chief 1996 $ 60,577 $ -- -- -- -- $ --
Financial Officer
Michael J. Fletcher........ 1997 $125,000 $ 98,396 -- -- -- $11,183(6)
Director of Professional 1996 $108,039 $ 93,273 -- -- -- $ 6,164(6)
Development -- Tulsa and
Director
</TABLE>
- -------------------------
(1) Includes: (i) $11,242 and $5,621 of automobile lease payments made by the
Company, in 1997 and 1996, respectively, and (ii) $500 in matching payments
under the Company's 401(k) plan in each of 1997 and 1996.
(2) Includes: (i) $8,999 and $8,999 of automobile lease payments made by the
Company in 1997 and 1996, respectively, and (ii) $500 in matching payments
under the Company's 401(k) plan in each of 1997 and 1996.
(3) Joined the Company in June 1997. Represents amounts paid from June 1997
through December 31, 1997.
(4) Joined the Company in July 1996. Represents amounts paid from July 1996
through December 31, 1996.
(5) Includes $4,998 of automobile lease payments and $500 in matching payments
under the Company's 401(k) plan made by the Company in 1997.
(6) Includes $11,183 and $6,164 of automobile lease payments made by the Company
in 1997 and 1996, respectively.
31
<PAGE> 34
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES RATES OF STOCK
UNDERLYING % OF TOTAL PRICE APPRECIATION
OPTIONS GRANTED(1) OPTIONS EXERCISE FOR OPTION TERM(4)
------------------ GRANTED TO PRICE EXPIRATION -----------------------
ISO NQSO EMPLOYEES(2) ($/SHARE)(3) DATE 5% 10%
------- -------- ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Figliulo..... -- -- -- -- -- -- --
David A. Figliulo...... -- -- -- -- -- -- --
Stephen J. Tober....... 13,055 315,884 40% 7.66 2007 $2,307,573 $5,157,764
Stephen T. Gambill..... 13,055 18,273 4% 7.66 2007 $ 219,296 $ 491,223
Michael J. Fletcher.... -- -- -- -- -- -- --
</TABLE>
- -------------------------
(1) All options were granted on June 2, 1997. The Incentive Stock Options
("ISOs") and Non-statutory Stock Options ("NQSOs") vest at the rate of 20%
per year over a five year period commencing on the first anniversary of the
stock option grant, except that options to purchase 245,399 shares granted
to Mr. Tober vested immediately upon grant.
(2) Based on an aggregate of 787,889 options granted in 1997 to employees of the
Company, including the Named Executive Officers.
(3) The exercise price was determined by the Board of Directors on that date.
The exercise price is payable in cash or, subject to certain limitations, by
delivery of shares of Common Stock. See Note 12 of Notes to Financial
Statements.
(4) The potential realizable value is calculated based on the term of the option
at the time of grant (ten years). Stock price appreciation of 5% and 10% is
based on the fair value at the time of grant and assumes that the option is
exercised at the exercise price and sold on the last day of its term at the
appreciated price, pursuant to rules promulgated by the Commission. The
potential realizable value does not represent the Company's prediction of
its stock price performance. This table does not take into account
appreciation for the fair value of the Common Stock from the date of grant
to date. 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. If for purposes of this calculation the fair market
value of the Common Stock on the date of grant was assumed to have equaled
the price to the public in the Company's initial public offering, the
potential realizable value of the options calculated would substantially
exceed the potential realizable values shown in the table.
The following table sets forth certain information with respect to the
value of options held at December 31, 1997 by the Named Executive Officers who
held options during 1997. The Named Executive Officers did not exercise any
options to purchase Common Stock during 1997.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, OPTIONS AT DECEMBER 31,
1997 1997(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert M. Figliulo............................ -- -- $ -- $ --
David A. Figliulo............................. -- -- $ -- $ --
Stephen J. Tober.............................. 245,399 83,540 $2,292,027 $780,264
Stephen T. Gambill............................ -- 31,328 $ -- $292,604
Michael J. Fletcher........................... -- -- $ -- $ --
</TABLE>
- -------------------------
(1) The closing price for the Common Stock as reported on the Nasdaq National
Market on December 31, 1997 (the last day of trading in 1997) was $17.00.
Value is calculated on the basis of the difference
32
<PAGE> 35
between the option exercise price and $17.00, multiplied by the number of
shares of Common Stock underlying the option.
EMPLOYMENT AGREEMENTS
The Company has entered into substantially identical employment agreements
with Robert Figliulo, David Figliulo, Michael Fletcher, Stephen Tober, and
Stephen Gambill. The agreements provide that upon termination of employment by
the Company, other than for Cause (as defined in the agreements), death or
retirement, the Company shall pay the executive an amount equal to no more than
the executive's annual base compensation in effect at the time of termination.
The agreements also generally provide that in the event of a Change in Control
(as defined in the agreements) and the occurrence of certain events, and to the
extent deductible under then applicable tax laws, the Company shall pay the
executive a payment equal to the sum of: (i) the executive's most recent base
annual compensation and annual bonus for the fiscal year prior to the date of
the Change in Control; plus (ii) the cash value of the insurance protection
(including dependent coverage) then in effect with respect to the Company's
health insurance plan, based upon the cost of such insurance to the Company for
a 12-month period following the Change in Control date. The agreements also
contain noncompetition, nonsolicitation and nondisclosure covenants.
STOCK PLANS
Employee Stock Purchase Plan. The Company has reserved an aggregate of
476,029 additional shares of Common Stock for issuance under the Company's
Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan is
intended to qualify under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"), and will permit eligible employees of the Company to
purchase Common Stock through payroll deductions of up to 20% of their total
cash compensation; provided that employees may be prohibited from purchasing
more than $25,000 worth of stock in any calendar year. The Purchase Plan has two
six-month offering periods, beginning on January 1 and July 1 of each year, with
the first offering period commencing on October 2, 1997, the date of the
Company's initial public offering. The purchase price of Common Stock purchased
under the Purchase Plan shall be the lesser of: (i) 85% of the fair market value
of the Common Stock (as calculated pursuant to the Purchase Plan) on the first
day of an offering period or (ii) 85% of the fair market value of the Common
Stock on the last day of an offering period. The Purchase Plan is administered
by the Compensation Committee of the Board of Directors. The Board of Directors
is authorized to amend or terminate the Purchase Plan at any time. However, the
Board of Directors may not, without stockholder approval, modify the Purchase
Plan if stockholder approval of the amendment is required for the Purchase Plan
to continue to comply with the requirements of Rule 16b-3 under the Exchange Act
or Section 423 of the Code.
Combined Incentive and Non-statutory Stock Option Plan. The Company has
reserved an aggregate of 1,044,252 shares of Common Stock for issuance under the
Option Plan, which may be granted to employees, officers and directors of the
Company. The Option Plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee provides for awards of NQSO's and
ISO's to purchase shares of Common Stock and stock appreciation rights ("SARs"),
provided that any director who is not an employee of the Company may not be
awarded an ISO. The Option Plan limits the aggregate fair market value of the
shares of Common Stock with respect to which ISOs are exercisable for the first
time in any calendar year to $100,000. No such annual limitation applies to NQSO
grants under the Option Plan.
The exercise price for options and SARs may be paid: (i) in cash; (ii) by
surrendering shares already owned by the optionee; or (iii) if the Compensation
Committee so determines, by instructing a broker to sell enough of the
optionee's exercised shares to deliver to the Company sufficient sales proceeds
to pay the exercise price. The exercise price per share of Common Stock may not
be less than 85% (100% in the case of an ISO) of the fair market value of the
Common Stock (as calculated pursuant to the Option Plan) on the date the stock
option is granted. The base value of an SAR will equal not less than 85% of the
market value of a share of Common Stock on the grant date. Option agreements
covering options and SARs to be granted under the Option Plan will generally
provide that such options and SARs will be exercisable within fifteen years from
the date of grant (ten years in the case of ISOs) and will generally vest in
annual installments as determined by the Compensation Committee. In the case of
any eligible employee who owns or is deemed to own stock possessing more than
10% of the total combined voting power of all classes of stock of the
33
<PAGE> 36
Company, the exercise price of any ISOs granted under the Option Plan may not be
less than 110% of the fair market value of the Common Stock on the date of grant
and the exercise period may not exceed five years from the date of grant.
The Board of Directors can terminate or amend the Option Plan at any time,
except that no such action generally will be able to adversely affect any right
or obligation regarding any awards previously made under the Option Plan without
the consent of the recipient. In addition, no amendment may be effective without
the prior approval of stockholders, if such approval is required for the Option
Plan to continue to comply with applicable regulations of the Code and the
Commission. In the event of any changes in the capital structure of the Company,
such as a stock dividend or stock split, the Board of Directors must make
equitable adjustments to outstanding unexercised awards and to the provisions of
the Option Plan to reflect any increase or decrease in the number of issued
shares of Common Stock. If the Company becomes a party to a merger,
reorganization, liquidation or similar transaction, the Board of Directors may
make such arrangements it deems advisable regarding outstanding awards, such as
substituting new awards for outstanding awards, assuming outstanding awards or
terminating or paying for outstanding awards.
On June 2, 1997 options to purchase 819,216 shares of Common Stock at an
exercise price of $7.66 per share were granted to certain employees and outside
directors under the Option Plan, of which options to purchase 276,725 shares of
Common Stock are presently exercisable.
On January 5, 1998 options to purchase 35,200 shares of Common Stock at an
exercise price of $16.13 per share were granted to certain employees other than
Named Executive Officers.
34
<PAGE> 37
CERTAIN TRANSACTIONS
The Company's business was started in 1973 by Systems Inc., which was
founded by Eugene Figliulo. By 1993, all the stock of Systems Inc. was owned by
Eugene Figliulo, his eight children and a nephew of Eugene Figliulo.
During the years ended December 31, 1995 and 1996, the Company made
distributions of $744,559 and $800,663, to its stockholders to enable them to
pay income taxes attributable to S corporation income of the Company for such
periods. During 1997, the Company declared distributions to persons who were
stockholders of the Company prior to the initial public offering of $4,885,771
which represents a portion of the Company's undistributed S corporation earnings
from the date of the Mergers through the closing date of the initial public
offering plus other income tax related distributions. Robert Figliulo, David
Figliulo and Michael Fletcher, directors and officers of the Company, received
approximately $610,000, $610,000 and $272,000, respectively, of such
distribution.
In 1993, DataFlex made loans to Eugene Figliulo in the original principal
amount of $100,000. The loan was evidenced by an unsecured promissory note
bearing interest at 6% per annum. The entire unpaid principal balance plus
accrued interest due on the DataFlex note was paid in October 1997 by Mr.
Figliulo to the Company.
In January 1997, the Company made an unsecured loan to Robert Figliulo in
the principal amount of $80,000. The loan was evidenced by a demand promissory
note bearing interest at 7% per annum. The entire unpaid principal balance plus
accrued interest was paid by Mr. Figliulo to the Company in October 1997.
Prior to the closing date of the initial public offering in October 1997,
the Company entered into a tax indemnity agreement with each of its then current
stockholders which provides, among other things, that the Company will indemnify
such stockholders against additional income taxes resulting from adjustments
made (as a result of a final determination made by a competent tax authority) to
the taxable income reported by the Company as an S corporation for periods prior
to the initial public offering, but only to the extent those adjustments result
in a decrease in income taxes otherwise payable by the Company as a C
corporation for periods after the initial public offering.
35
<PAGE> 38
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 8, 1998, as adjusted to reflect the
sale of the shares offered hereby, by: (i) each person known by the Company to
own beneficially more than 5% of the Common Stock, (ii) each of the Company's
directors, (iii) each of the Company's Named Executive Officers, (iv) each of
the Selling Stockholders, and (v) all directors and Executive Officers of the
Company as a group. Each person or entity named below has an address in care of
the Company's principal executive offices. The Company believes that the
beneficial owners of the Common Stock listed below, based on information
furnished by such owners, have sole voting and investment power with respect to
such shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING NUMBER OF AFTER OFFERING(1)
--------------------- SHARES OFFERED ---------------------
NAME SHARES PERCENT HEREBY SHARES PERCENT
---- ------ ------- -------------- ------ -------
<S> <C> <C> <C> <C> <C>
Robert M. Figliulo(2)....................... 1,586,581 19.6% 200,000 1,386,581 15.3%
David A. Figliulo(3)........................ 1,440,331 17.8 200,000 1,240,331 13.7
Stephen J. Tober(4)......................... 266,793 3.2 50,000 216,793 2.3
Stephen T. Gambill(5)....................... 12,063 * -- 12,063 *
Ronald L. Taylor(6)......................... 15,442 * -- 15,442 *
Sydnor W. Thrift, Jr.(6).................... 23,992 * -- 23,992 *
David P. Yeager(6).......................... 13,442 * -- 13,442 *
Michael J. Fletcher......................... 534,880 6.6 120,000 414,880 4.6
Rene M. Potter.............................. 535,291 6.6 250,000 285,291 3.2
John Figliulo............................... 336,553 4.2 200,000 136,553 1.5
James Figliulo(7)........................... 90,457 1.1 40,457 50,000 *
Stephen Figliulo(7)......................... 90,457 1.1 40,457 50,000 *
Donald Figliulo(7).......................... 90,457 1.1 40,457 50,000 *
Mark Figliulo(7)............................ 90,457 1.1 40,457 50,000 *
Jeanne Young(7)............................. 85,236 1.1 35,236 50,000 *
Michael Cymbala(7).......................... 45,229 * 20,229 25,000 *
Figliulo Family Trust(8).................... 100,000 1.2 62,707 37,293 *
All Directors and Executive Officers as a
Group (8 persons)......................... 3,893,524 46.4% 3,323,524 35.8%
</TABLE>
- -------------------------
* Less than 1%.
(1) If the Underwriters' over-allotment option is exercised in full, the
following stockholders of the Company will sell pursuant to such option the
number of shares of Common Stock following their names and, after the
Offering, will beneficially own the number and percentage of shares of
Common Stock following their names:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
AFTER OFFERING
-----------------------
SHARES TO NUMBER OF
NAME BE SOLD SHARES PERCENT
---- --------- --------- -------
<S> <C> <C> <C>
Michael J. Fletcher........................................ 180,000 234,880 2.6%
Rene M. Potter............................................. 150,000 135,291 1.5%
</TABLE>
(2) Includes 372,947 shares owned by the Robert M. Figliulo 1997 Grantor
Retained Annuity Trust, for which Robert M. Figliulo serves as sole trustee
and has sole investment and voting discretion.
(3) Includes 372,947 shares owned by the David A. Figliulo 1997 Grantor Retained
Annuity Trust, for which David A. Figliulo serves as the sole trustee and
has sole investment and voting discretion.
(4) Represents 266,284 shares subject to an option granted under the Option Plan
that is exercisable within 60 days, including 50,000 shares to be sold in
connection with this Offering.
(5) Includes 6,265 shares subject to an option granted under the Option Plan
that is exercisable within 60 days.
(6) Includes 10,442 shares subject to an option granted under the Option Plan
that is exercisable within 60 days.
(7) Does not include an aggregate of 100,000 shares held by the Figliulo Family
Trust described in footnote (8).
(8) The indirect beneficiaries of the Figliulo Family Trust are certain of
Eugene Figliulo's children and grandchildren and a nephew, none of whom are
employed by the Company.
36
<PAGE> 39
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following brief description of the Company's capital stock does not
purport to be complete and is subject in all respects to applicable Delaware law
and to the provisions of the Certificate of Incorporation and By-laws, copies of
which have been filed as exhibits to this Registration Statement on Form S-1 of
which this Prospectus is a part and to which exhibits reference is hereby made.
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, $.01 par value per share, and 3,000,000 shares of Preferred
Stock, $.01 par value per share. Immediately following consummation of this
Offering, there will be 9,041,371 shares of Common Stock outstanding, no shares
of Preferred Stock outstanding and 799,717 shares of Common Stock will be
issuable upon exercise of outstanding options (226,725 of which are presently
exercisable).
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by stockholders, including the election of directors. There are
no cumulative voting rights for the election of directors.
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor after payment of dividends required to be paid on outstanding
Preferred Stock, if any. See "Dividend Policy." Holders of Common Stock are
entitled to share ratably in the net assets of the Company upon liquidation
after payment or provision for all liabilities and any preferential liquidation
rights of any Preferred Stock then outstanding.
Holders of Common Stock have no preemptive rights to purchase shares of
capital stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of the
Company. All outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to this Offering will be, upon payment therefor,
duly authorized, validly issued, fully paid and non-assessable.
The Common Stock is listed on the Nasdaq National Market under the symbol
"SPRI."
PREFERRED STOCK
The Board of Directors is authorized without stockholder action to adopt
resolutions to issue up to 3,000,000 shares of Preferred Stock, in one or more
series, with such powers, designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or restrictions as
will be set forth in such resolutions. The holders of Preferred Stock will have
no preemptive rights (unless otherwise provided in the applicable certificate of
designation). Such Preferred Stock may have voting or other rights which could
adversely affect the rights of holders of the Common Stock. In addition, the
issuance of Preferred Stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, under certain
circumstances, make it more difficult for a third-party to gain control of the
Company, discourage bids for the Common Stock at a premium or otherwise
adversely affect the market price of the Common Stock. The Company has no
current plans to issue any shares of Preferred Stock.
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS;
ANTI-TAKEOVER EFFECTS
The Company will be subject to the provisions of Section 203 of the
Delaware General Corporation Law (the "DGCL") upon consummation of this
Offering. Subject to certain exceptions, Section 203 prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the Board of
Directors or the business combination is approved in a prescribed manner, or
certain other conditions are satisfied. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
37
<PAGE> 40
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of the corporation's voting stock.
The Company's By-laws provide that for nominations for the Board of
Directors or for other business to be properly brought by a stockholder before
an annual meeting of stockholders, the stockholder must first have given timely
notice thereof in writing to the Secretary of the Company. To be timely, a
notice must be delivered not less than 60 days nor more than 90 days prior to
the first anniversary of the preceding year's annual meeting. The notice must
contain, among other things, certain information about the stockholder
delivering the notice and, as applicable, background information about each
nominee or a description of the proposed business to be brought before the
meeting. The Company's By-laws provide that any director may be removed only for
cause upon the affirmative vote of at least 66% of the shares entitled to vote
for the election of directors.
The Company's By-laws provide that special meetings of stockholders may be
called only by the Chairman of the Board of Directors or the Chief Executive
Officer of the Company. These provisions could have the effect of delaying until
the next annual stockholders meeting stockholder actions which are favored by
the holders of a majority of the outstanding voting securities of the Company.
The existence of unissued Preferred Stock enables the Board of Directors to
render more difficult or to discourage an attempt to obtain control of the
Company by means of a tender offer, proxy contest, merger or otherwise, thereby
protecting the continuity of the Company's management. The issuance of Preferred
Stock pursuant to the Board of Directors' authority described above may
adversely affect the rights of the holders of Common Stock. For example,
Preferred Stock issued by the Company may rank prior to the Common Stock as to
dividend rights, liquidation preference or both, may have full or limited voting
rights and may be convertible into shares of Common Stock. Accordingly, the
issuance of Preferred Stock may discourage bids for the Common Stock or may
otherwise adversely affect the market price of the Common Stock.
The foregoing provisions could have the effect of making it more difficult
for a third-party to acquire, or of discouraging a third-party from acquiring
control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation contains certain provisions
permitted under the DGCL, relating to the liability of directors. These
provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in certain circumstances
involving certain wrongful acts, such as: (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from
which the director derives an improper personal benefit. These provisions do not
limit or eliminate the rights of the Company or any stockholder to seek
non-monetary relief, such as an injunction or rescission, in the event of a
breach of a director's fiduciary duty. These provisions will not alter a
director's liability under federal securities laws. The Company's Certificate of
Incorporation and By-laws also contain provisions indemnifying the directors and
officers of the Company to the fullest extent permitted by the DGCL. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors and officers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Chicago
Trust Company of New York.
38
<PAGE> 41
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 9,041,371 shares of
Common Stock outstanding, assuming no exercise of options outstanding and
exercisable as of the date of this Prospectus. The shares sold in this Offering,
the 2,990,000 shares issued in the Company's initial public offering, and the
23,971 shares issued pursuant to the Employee Stock Purchase Plan will be freely
tradeable without restriction or limitation under the Securities Act except for
any such shares acquired by "affiliates" of the Company, as such term is defined
under the Securities Act ("Affiliates"), which shares may generally only be sold
in compliance with the volume limitations and restrictions (other than the
holding period requirement) of Rule 144 described below.
The remaining 3,827,400 shares of Common Stock (the "Restricted Shares")
constitute restricted securities under Rule 144 and were issued or sold by the
Company in private transactions and may be publicly sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. The Company, all of the Company's executive
officers and directors and the Selling Stockholders have agreed with the
Underwriters not to offer, sell contract to sell or otherwise dispose, or
contract to dispose, of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or grant any options or
warrants to purchase Common Stock, except in certain circumstances, for a period
of 90 days after the date of this Prospectus (the "Lock-up Period") without the
prior written consent of Smith Barney Inc., which consent may be granted by
Smith Barney Inc. in its sole discretion. Upon the expiration of the Lock-up
Period (or earlier with the consent of Smith Barney Inc.), all of the Restricted
Shares will become eligible for sale subject to the restrictions of Rule 144.
In general, under Rule 144, 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
(approximately 90,413 shares after giving effect to the Offering) and the
average weekly reported trading volume of the Common Stock as reported through
the Nasdaq National Market during the four calendar weeks preceding the 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 has not been an Affiliate
of the Company at any time 90 days preceding a sale, and who has beneficially
owned shares of Common Stock 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.
Options to purchase a total of 764,517 and 35,200 shares of Common Stock at
an exercise price of $7.66 and $16.13 per share, respectively, will be
outstanding after this Offering, of which 226,725 are presently exercisable. An
additional 202,889 shares of Common Stock will be available for future options
grants under the Option Plan. An additional 194,535 shares of Common Stock are
available for issuance under the Employee Stock Purchase Plan. See "Management
- -- Stock Plans." All 1,044,252 shares issuable upon exercise of options granted
or to be granted under the Option Plan and 476,029 additional shares issuable
under the Employee Stock Purchase Plan have been registered under the Securities
Act, and when issued by the Company, such shares will be freely tradeable,
except that, if held by an Affiliate such shares will be subject to the volume
limitations and restrictions (other than the holding period requirement) of Rule
144.
39
<PAGE> 42
UNDERWRITING
Upon the terms and subject to the conditions contained in the Underwriting
Agreement dated the date hereof, each of the underwriters named below (the
"Underwriters"), for whom Smith Barney Inc., Robert W. Baird & Co. Incorporated
and Volpe Brown Whelan & Company, LLC are acting as representatives (the
"Representatives"), has severally agreed to purchase, and the Company and the
Selling Stockholders have agreed to sell to each such Underwriter, the number of
shares of Common Stock set forth opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Smith Barney Inc. ..........................................
Robert W. Baird & Co. Incorporated..........................
Volpe Brown Whelan & Company, LLC...........................
---------
Total..................................................... 2,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters propose to offer a portion of the shares directly to the
public at the public offering price set forth on the cover page of this
Prospectus and a portion of the shares to certain dealers at a price which
represents a concession not in excess of $ per share below the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial offering of the shares to the public, the public offering price and such
concessions may be changed by the Underwriters.
Certain of the Selling Stockholders have granted the Underwriters an
option, exercisable for 30 calendar days from the date of this Prospectus, to
purchase up to 330,000 additional shares of Common Stock at the offering price
set forth on the cover page of this Prospectus, less the underwriting discounts
and commissions. The Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with this Offering.
To the extent such option is exercised, each Underwriter will be obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number of shares set forth opposite each
Underwriter's name above bears to the total number of shares listed above.
The Company, the Selling Stockholders and all of the Company's directors
and executive officers have agreed not to offer, sell, contract to sell or
otherwise dispose, or contract to dispose, of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
grant any options or warrants to purchase Common Stock, for a period of 90 days
after the date of this Prospectus without the prior written consent of Smith
Barney Inc., which consent may be granted by Smith Barney Inc. in its sole
discretion. Notwithstanding the foregoing, the Company may grant options and
issue Common Stock pursuant to the Stock Plan and the Employee Stock Purchase
Plan in the ordinary course consistent with past practices.
The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
40
<PAGE> 43
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids for and purchases of the Common Stock so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the Common Stock in the open market in order
to cover syndicate short positions. Syndicate short positions may also be
covered by exercise of the Underwriters' over-allotment option in lieu of or in
addition to open market purchases. Penalty bids permit the Underwriters to
reclaim a selling concession from a syndicate member where shares of the Common
Stock originally sold by such syndicate member were purchased in a stabilizing
transaction or syndicate covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
In connection with this Offering, certain Underwriters and selling group
members who are qualifying registered market makers on the Nasdaq National
Market may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 103 of Regulation M. Passive
market making transactions must comply with certain volume and price limitations
and be identified as such. In general, a passive market maker may display its
bid at a price not in excess of the highest independent bid for the security,
and, if all independent bids are lowered below the passive market maker's bid,
then such bid must be lowered when certain purchase limits are exceeded.
From time to time in the ordinary course of their business, the
Representatives in this Offering, have provided and may in the future provide
investment banking or other services to the Company.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Wildman, Harrold, Allen & Dixon, Chicago,
Illinois. Donald E. Figliulo, the owner of shares of Common Stock and a Selling
Stockholder, is a partner of Wildman, Harrold, Allen & Dixon. Certain legal
matters will be passed upon for the Underwriters by Neal, Gerber & Eisenberg,
Chicago, Illinois.
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997,
and for each of the years in the three-year period ended December 31, 1997
included herein have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report thereto, and are included in reliance
upon the authority of said firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
Prior to September 9, 1996 Arthur Andersen LLP served as independent public
accountants for SPR Wisconsin, SPR Tulsa, DataFlex and Systems Inc. and Ernst &
Young LLP served as independent public accountants for SPR Chicago. In
connection with the initial public offering, the Board of Directors of the
Company on September 9, 1996 dismissed Ernst & Young LLP and selected Arthur
Andersen LLP to serve as independent public accountants for the Company and to
render an opinion on the financial statements included in this Prospectus,
including the financial statements of SPR Chicago. The Company informed Ernst &
Young LLP of its dismissal on September 9, 1996. The former auditors' report on
SPR Chicago's financial statements for the period from January 14, 1994 to
December 31, 1994 and for the year ended December 31, 1995 is not included in
this Prospectus. During the period from January 14, 1994 to December 31, 1994
and for the year ended December 31, 1995, Ernst & Young LLP's report on the
financial statements of SPR Chicago did not contain an adverse opinion,
disclaimer of opinion, qualification or modification as to uncertainty, audit
scope or accounting principles. There were no disagreements with Ernst & Young
LLP on any matter of accounting principles or practices, financial statement
disclosure, or
41
<PAGE> 44
auditing scope or procedures from January 14, 1994 through September 9, 1996 or
with respect to SPR Chicago's financial statements.
The Company consulted Arthur Andersen LLP and did not consult Ernst & Young
LLP regarding the application of the Commission's accounting principles to the
transactions described in the Prospectus Summary and the type of audit opinion
that would be rendered on the Company's financial statements included in this
Prospectus, which consultations were the subject of written and oral advice.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement, certain parts of
which are 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 hereby made to the Registration Statement, including the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract, agreement or any other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office at
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained from the public reference section of the Commission at
its Washington address upon payment of the prescribed fee. In addition, the
Commission maintains a World Wide Web site on the Internet at www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy material and other
information concerning the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or at its regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, Washington, D.C. 20549
at prescribed rates. The Company's Common Stock is listed in the Nasdaq National
Market, and such reports, proxy material and other information can also be
inspected at the offices of The Nasdaq Stock Market, Inc., 1735 K Street, N.W.,
Washington, D.C. 20549.
42
<PAGE> 45
SPR INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Balance Sheets as of December 31, 1996 and 1997............. F-3
Statements of Operations for the years ended December 31,
1995, 1996 and 1997....................................... F-4
Statements of Stockholders' Equity for the years ended
December 31, 1995, 1996 and 1997.......................... F-5
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of SPR Inc. :
We have audited the accompanying balance sheets of SPR Inc. (a Delaware
corporation) as of December 31, 1996 and 1997 and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of SPR Inc. as of December 31,
1996 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 23, 1998
F-2
<PAGE> 47
SPR INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1997
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 356,179 $ 2,133,357
Accounts receivable, net.................................. 4,272,655 7,832,821
Short-term investments.................................... -- 19,025,000
Notes receivable:
Related parties......................................... 181,245 --
Employees............................................... 74,190 63,311
Prepaid expenses and other................................ 727,471 431,101
------------ -----------
Total current assets...................................... 5,611,740 29,485,590
------------ -----------
Property and equipment, at cost:
Leasehold improvements.................................... 111,318 201,741
Computer equipment and software........................... 1,043,782 1,772,554
Office furniture and equipment............................ 672,105 995,732
------------ -----------
1,827,205 2,970,027
Less -- accumulated depreciation and amortization......... (308,046) (696,192)
------------ -----------
Property and equipment, net............................. 1,519,159 2,273,835
Deferred taxes.............................................. -- 183,554
------------ -----------
Total assets................................................ $ 7,130,899 $31,942,979
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ 1,300,000 $ --
Current portion of term note.............................. 44,967 --
Note payable -- related party............................. 641,266 --
Current portion of capital lease obligations.............. 64,094 26,604
Accounts payable.......................................... 959,492 1,291,951
Dividends payable to stockholders......................... -- 250,510
Income taxes payable...................................... -- 1,323,026
Accrued expenses:
Payroll and payroll related............................. 1,319,950 2,776,526
Other................................................... 87,555 363,707
Deferred income taxes..................................... -- 356,400
------------ -----------
Total current liabilities............................... 4,417,324 6,388,724
------------ -----------
Commitments and contingencies
Long-term liabilities:
Term note, excluding current portion...................... 171,038 --
Capital lease obligations, net of current portion......... 35,189 8,583
Deferred income taxes..................................... -- 16,000
------------ -----------
Total long-term liabilities............................. 206,227 24,583
------------ -----------
STOCKHOLDERS' EQUITY
Common stock $.01 par, 25,000,000 shares authorized,
6,467,400 and 8,091,371 shares issued and outstanding at
December 31, 1996 and 1997, respectively.................. 64,674 80,914
Preferred stock, $.01 par, 3,000,000 shares authorized, no
shares issued and outstanding............................. -- --
Additional paid in capital.................................. 46,734,862 24,544,258
Retained earnings (deficit)................................. (44,292,188) 904,500
------------ -----------
Total stockholders' equity.................................. 2,507,348 25,529,672
------------ -----------
Total liabilities and stockholders' equity.................. $ 7,130,899 $31,942,979
============ ===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE> 48
SPR INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
Revenues........................................ $ 22,907,928 $ 32,510,743 $53,421,924
Cost of services................................ 15,525,198 23,287,234 32,376,687
------------ ------------ -----------
Gross profit.................................. 7,382,730 9,223,509 21,045,237
Costs and expenses
Selling....................................... 2,141,374 3,046,045 4,855,567
Recruiting.................................... 776,651 1,323,105 1,608,059
Stock-based compensation...................... 27,986,681 12,231,085 --
General and administrative expenses........... 1,642,112 3,741,574 8,437,804
------------ ------------ -----------
Total costs and expenses................... 32,546,818 20,341,809 14,901,430
------------ ------------ -----------
Operating income (loss)......................... (25,164,088) (11,118,300) 6,143,807
Other income (expense)
Interest expense.............................. (160,484) (122,862) (178,783)
Interest income............................... 51,477 39,329 266,851
Other, net.................................... -- 13,176 (41,257)
------------ ------------ -----------
Total other income (expense)............... (109,007) (70,357) 46,811
------------ ------------ -----------
Income (loss) before income taxes............... (25,273,095) (11,188,657) 6,190,618
Provision for income taxes...................... 20,788 9,000 1,552,422
------------ ------------ -----------
Net income (loss)............................... $(25,293,883) $(11,197,657) $ 4,638,196
============ ============ ===========
Historical basic net income (loss) per share.... $ (3.91) $ (1.73) $ 0.68
============ ============ ===========
Historical diluted net income (loss) per
share......................................... $ (3.91) $ (1.73) $ 0.65
============ ============ ===========
Pro forma income data (unaudited):
Net income (loss) as reported................. $(25,293,883) $(11,197,657) $ 4,638,196
Pro forma adjustment to recognize "C"
corporation provision for income taxes..... 1,064,646 407,971 1,469,071
------------ ------------ -----------
Pro forma net income (loss)................... $(26,358,529) $(11,605,628) $ 3,169,125
============ ============ ===========
Pro forma basic net income (loss) per share... $ (4.08) $ (1.79) $ 0.46
============ ============ ===========
Pro forma diluted net income (loss) per
share...................................... $ (4.08) $ (1.79) $ 0.45
============ ============ ===========
Pro forma net income per share -- assuming
dilution and excluding a one-time deferred
tax charge................................. $ 0.52
===========
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-4
<PAGE> 49
SPR INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
--------- ------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1994....................... 6,467,400 $64,674 $ 6,517,096 $ (6,255,426) $ 326,344
Net loss................... -- -- -- (25,293,883) (25,293,883)
Distributions.............. -- -- -- (744,559) (744,559)
Stock-based compensation... -- -- 27,986,681 -- 27,986,681
--------- ------- ------------ ------------ ------------
Balance at December 31,
1995....................... 6,467,400 64,674 34,503,777 (32,293,868) 2,274,583
Net loss................... -- -- -- (11,197,657) (11,197,657)
Distributions.............. -- -- -- (800,663) (800,663)
Stock-based compensation... -- -- 12,231,085 -- 12,231,085
--------- ------- ------------ ------------ ------------
Balance at December 31,
1996....................... 6,467,400 64,674 46,734,862 (44,292,188) 2,507,348
Employee stock purchase
plan.................... 23,971 240 324,342 -- 324,582
Capitalization of S
corporation earnings
(loss) in conjunction
with termination of S
corporation election on
October 1, 1997......... -- -- (45,444,263) 45,444,263 --
Net income................. -- -- -- 4,638,196 4,638,196
Distributions.............. -- -- -- (4,885,771) (4,885,771)
Vesting of stock options... -- -- 458,886 -- 458,886
Sale of stock in initial
public offering, net.... 1,600,000 16,000 22,470,431 -- 22,486,431
--------- ------- ------------ ------------ ------------
Balance at December 31,
1997....................... 8,091,371 $80,914 $ 24,544,258 $ 904,500 $ 25,529,672
========= ======= ============ ============ ============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE> 50
SPR INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) for the period............... $(25,293,883) $(11,197,657) $ 4,638,196
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization.................. 51,259 252,215 435,151
Deferred taxes................................. -- -- 188,846
Expense related to grant of stock options...... -- -- 458,886
Stock-based compensation....................... 27,986,681 12,231,085 --
Loss on sale of property and equipment......... -- -- 41,257
Increase in accounts receivable................ (1,623,833) (1,176,435) (3,560,166)
(Increase) decrease in prepaid expenses and
other....................................... (225,640) (432,637) 296,370
(Increase) in accounts payable................. 300,537 556,866 332,459
Increase in accrued expenses and income taxes
payable..................................... 373,047 450,827 3,055,754
------------ ------------ -------------
Net cash provided by operating activities...... 1,568,168 684,264 5,886,753
------------ ------------ -------------
Cash flows from investing activities:
Purchases of property and equipment............ (332,721) (1,238,595) (1,231,084)
Purchases of short-term investments............ -- -- (182,104,000)
Sales/Maturity of short-term investments....... -- -- 163,079,000
(Increase) decrease in notes receivable --
other....................................... (75,000) 75,000 10,879
Decrease in notes receivable -- related
parties..................................... 338,773 260,682 181,245
------------ ------------ -------------
Net cash (used in) investing activities........ (68,948) (902,913) (20,063,960)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from the sale of common stock in
initial public offering, net of issuance
costs....................................... -- -- 22,486,431
Payments on note payable -- related party...... (720,000) (1,200,000) (641,266)
Proceeds from employee stock purchase plan..... -- -- 324,582
Distributions.................................. (744,559) (800,663) (4,635,261)
Payments on capital lease obligations.......... (9,183) (49,020) (64,096)
Borrowings on term note payable................ -- 250,000 --
Payments on term note payable.................. -- (33,995) (216,005)
Net borrowings on line of credit and term
note........................................ -- 1,300,000 (1,300,000)
------------ ------------ -------------
Net cash provided by (used in) financing
activities.................................. (1,473,742) (533,678) 15,954,385
------------ ------------ -------------
Net increase (decrease) in cash................ 25,478 (752,327) 1,777,178
Cash and cash equivalents, beginning of period... 1,083,028 1,108,506 356,179
------------ ------------ -------------
Cash and cash equivalents, end of period......... $ 1,108,506 $ 356,179 $ 2,133,357
============ ============ =============
Supplemental disclosure of cash payments made
for:
Interest....................................... $ 143,148 $ 135,792 $ 178,783
Income taxes................................... 72,087 9,000 40,550
============ ============ =============
Supplemental disclosure of noncash investing and
financing activities:
Investment in equipment through issuance of
capitalized lease obligations............... $ 117,559 $ 39,926 $ --
============ ============ =============
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-6
<PAGE> 51
SPR INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(a) Business -- SPR INC. (THE "COMPANY") provides information technology
services to clients in a variety of industry groups including retail, financial
services, healthcare, insurance, manufacturing, oil and gas, transportation and
utilities. The Company provides its clients with three levels of consulting
support which are distinguished by the degree of responsibility the Company
assumes: strategic planning, project management and implementation. Within this
framework, SPR currently provides outsourcing services through four service
offerings: Systems Re-engineering, Century Date Compliance, Application
Management and Information Delivery Services ("IDS") in addition to providing
General Consulting services.
(b) Basis of Presentation -- SPR Inc. was formed on October 29, 1996.
During October, 1996, Systems and Programming Resources, Inc., Systems &
Programming Resources of Tulsa, Inc., SPR-Wisconsin, Inc., SPR Chicago Inc., and
Consulting Acquisition, Inc. ("DataFlex") merged into SPR Inc. at which time the
stockholders of such companies received an aggregate of 6,467,191 shares of
common stock of SPR Inc. Systems and Programming Resources, Inc., SPR-Wisconsin,
Inc., SPR Chicago Inc., Consulting Acquisition, Inc. and SPR Inc. are under
common ownership and control and were accounted for at historical cost as a
reorganization of entities under common control (similar to the pooling of
interests method of accounting). The merger of Systems & Programming Resources
of Tulsa, Inc. into SPR Inc. was accounted for using the pooling of interests
method of accounting. The accompanying financial statements of the Company have
been prepared to give retroactive effect to the merger.
(c) Cash Equivalents and Short-term Investments -- Cash equivalents are
comprised of certain highly liquid investments with original maturities of less
than three months.
(d) Accounts Receivable -- Accounts receivable include fees and expenses
for services rendered prior to year end which were billed subsequent to year
end. Amounts relating to such fees and expenses included in accounts receivable
are $919,956 and $1,733,359 at December 31, 1996 and 1997, respectively. The
allowance for doubtful accounts was $74,399 and $843,695 as of December 31, 1996
and 1997, respectively. A summary of the activity in allowance for doubtful
accounts for the years ended December 31, 1995, 1996, and 1997 is as follows:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF YEAR EXPENSES WRITE-OFFS YEAR
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1995 Allowance for Doubtful Accounts.............. $89,153 $ (28,753) $28,500 $ 31,900
1996 Allowance for Doubtful Accounts.............. 31,900 45,000 2,501 74,399
1997 Allowance for Doubtful Accounts.............. 74,399 852,747 83,451 843,695
</TABLE>
(e) Short-term Investments -- The Company invests in marketable securities
with maturities of twelve months or less. These securities include municipal
bonds, corporate bonds, federal home mortgages and Euro currency. The Company
accounts for its investments using Statement of Financial Accounting Standard
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS No. 115"). Management determines the classification of investments under
SFAS No. 115 at the time of purchase and reevaluates such classifications as of
each balance sheet date. Securities that were designated as available for sale
as of December 31, 1997 consist of municipal bonds totaling $6,000,000.
Investments designated as held to maturity as of December 31, 1997 consist of
corporate bonds totaling $6,015,000, federal bank and mortgage debt totaling
$5,910,000, and Euro currency totaling $1,100,000. These held to maturity
investments are stated at cost as it is the intent of the Company to hold these
securities until maturity. The market value of all investments approximates cost
as of December 31, 1997.
At December 31, 1997 total investment income related to the securities was
$253,503 of which $244,506 was interest income and $8,997 was dividend income.
F-7
<PAGE> 52
(f) Prepaid Expenses and Other -- Prepaid expenses and other includes
$477,653 in Initial Public Offering-related costs at December 31, 1996.
(g) Revenue Recognition -- Revenues are recognized as the related services
are performed. Clients are generally billed on a time and materials basis. In
June 1997, the Company entered into a fixed-price billing engagement. Services
on this engagement commenced in July, 1997. The Company accounts for this
engagement under the percentage-of-completion method, using costs incurred to
date in relation to estimated total costs of the contract to measure the stage
of completion. The cumulative effects of revisions of estimated total contract
costs and revenues are recorded in the period in which the facts requiring the
revision become known.
(h) Property and Equipment -- Property and equipment are stated at cost.
Expenditures for repair and maintenance are charged to expense as incurred.
Depreciation and amortization are computed using the straight-line method. The
estimated useful lives used in computing depreciation and amortization for
financial statement purposes are as follows:
<TABLE>
<CAPTION>
ASSET DESCRIPTION ASSET LIFE
----------------- ----------
<S> <C>
Leasehold improvements.................................. Shorter of lease term or
estimated useful life of the
asset
Computer equipment and software......................... 5 years
Office furniture and equipment.......................... 5 to 7 years
</TABLE>
(i) Distributions -- Distributions are recorded when declared by the Board
of Directors.
(j) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(k) Income Taxes -- Prior to the consummation of the initial public
offering on October 1, 1997, the Company elected to be taxed as an S
Corporation. As a result, income of the Company was taxable to the shareholders.
On October 1, 1997, the Company's S Corporation status was terminated and the
Company became a C Corporation. At this time, the retained deficit of the
Company was reclassified and netted against additional paid-in capital.
(l) Pro forma Net Income and Income (Loss) Per Share -- The pro forma net
income and net income (loss) per share include a provision for federal and state
income taxes as if the Company had been a C corporation for all periods
presented.
(m) New Accounting Pronouncement -- Comprehensive Income -- In June 1997,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, ("SFAS No. 130"), "Reporting Comprehensive
Income", which establishes standards for reporting of comprehensive income. This
pronouncement requires that all items recognized under accounting standards as
components of comprehensive income, as defined in the pronouncement, be reported
in a financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income includes all changes in equity during
a period except those resulting from investments by share owners and
distributions to share owners. The financial statement presentation required
under SFAS No. 130 is effective for all fiscal years beginning after December
15, 1997. The Company will adopt SFAS No. 130 in 1998. The impact of adopting
this pronouncement has not been determined as of December 31, 1997.
NOTE 2 -- CONCENTRATION OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist of accounts receivable and investments. The Company places
its investments with high quality financial institutions. The
F-8
<PAGE> 53
Company reviews a customer's credit history before extending credit. In
addition, the Company routinely assesses the financial strength of its customers
and, as a consequence, believes that its accounts receivable credit risk is
limited.
During 1997 the Company began performing services for a client which filed
for Chapter 11 bankruptcy during the third quarter of 1997. This customer
accounted for approximately 8% of revenues for the year ended December 31, 1997
and the Company is continuing to perform services for this customer.
The Company's customers are predominantly in the Midwest, with the majority
of customers located in Chicago, Tulsa, Milwaukee and Dallas. One customer in
the insurance industry accounted for approximately 11%, 16% and 12% of revenues
for the years ended December 31, 1995, 1996 and 1997, respectively. The Company
has no off balance sheet credit risk.
NOTE 3 -- NOTES RECEIVABLE FROM RELATED PARTIES
Notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Stockholder notes receivable, unsecured, payable on demand,
interest at 7%............................................ $ 44,745 $ --
Stockholder notes receivable, unsecured, payable on demand,
interest at 6%............................................ 100,000 --
Stockholder note receivable, unsecured, payable on demand,
interest at
prime plus 1%............................................. 36,500 --
-------- -------
Total notes receivable from related parties................. 181,245 --
Less--current portion....................................... 181,245 --
-------- -------
$ -- $ --
======== =======
</TABLE>
NOTE 4 -- INCOME TAXES
Prior to the initial public offering of the Company's Common Stock
completed on October 1, 1997, the Company included its income and expenses with
those of its stockholders for Federal and certain state income tax purposes (an
S Corporation election). By this election, income of the Company is taxable to
the stockholders. In connection with the Company's initial public offering in
October, 1997, the Company terminated its S corporation election and converted
to a C corporation and accordingly recorded a deferred income tax liability and
corresponding income tax expense of $712,000, arising from the change in the
Company's tax status and a change from the cash basis to the accrual basis of
accounting for tax purposes. Beginning October 1, 1997, the Company provides for
deferred income taxes under the asset and liability method of accounting for
income taxes. This method requires the recognition of deferred income taxes
based upon the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statements carrying amounts and the tax basis of existing assets and
liabilities.
Prior to consummation of the initial public offering, the Company made a
distribution to its existing stockholders of part of the Company's undistributed
S corporation earnings.
F-9
<PAGE> 54
The provision for income taxes for the year ended December 31, 1997,
consists of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $1,202,361
State..................................................... 161,215
----------
Total current provision................................ 1,363,576
Deferred:
Federal................................................... (445,264)
State..................................................... (77,890)
----------
Total deferred provision............................... (523,154)
Initial recognition of deferred income taxes resulting
from change in tax status................................. 712,000
----------
Total income tax provision............................. $1,552,422
==========
</TABLE>
A reconciliation of the Statutory Federal tax rate to the pro forma and
actual effective income tax rate for the year ended December 31, 1997, is as
follows:
<TABLE>
<CAPTION>
PRO FORMA ACTUAL
--------- -------
<S> <C> <C>
Statutory rate.............................................. 34.0% 34.0%
State taxes, net of federal benefit......................... 4.6% 1.0%
S corporation income taxed to its shareholders.............. --% (24.0)%
Income taxes recognized as a result of a change in tax
status.................................................... --% 11.5%
Increase in valuation allowance............................. 6.5% 1.6%
Other....................................................... 3.7% 1.0%
----- -------
Effective rate............................................ 48.8% 25.1%
===== =======
</TABLE>
The pro forma income (loss) data in the Statements of Operations provides
information as if the Company had been treated as a C corporation for income tax
purposes for all periods presented.
The significant components of the Company's deferred income tax assets and
liabilities as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
Deferred income tax assets:
Payroll and related....................................... $ 311,196
Allowance for doubtful accounts........................... 75,501
Stock options............................................. 153,360
Intangibles............................................... 965,064
-----------
Total deferred tax assets.............................. 1,505,121
Valuation allowance.................................... (1,321,567)
-----------
Net deferred income tax assets......................... $ 183,554
===========
Deferred income tax liabilities:
Change in tax accounting method (cash to accrual)......... $ 356,400
Depreciation.............................................. 16,000
-----------
Total deferred income tax liabilities.................. $ 372,400
===========
</TABLE>
The Company establishes valuation allowances in accordance with the
provisions of SFAS No. 109. The Company continually reviews the adequacy of the
valuation allowance and is recognizing these benefits only as reassessment
indicates that it is more likely than not that the benefits will be realized.
In connection with the initial public offering, the Company entered into a
tax indemnity agreement with each of its current stockholders which provides,
among other things, that the Company will indemnify such
F-10
<PAGE> 55
stockholders against additional income taxes resulting from adjustments made (as
a result of a final determination made by a competent tax authority) to the
taxable income reported by the Company as an S corporation for periods prior to
the initial public offering, but only to the extent those adjustments result in
a decrease in income taxes otherwise payable by the Company as a C corporation
for periods after the initial public offering.
NOTE 5 -- LINES OF CREDIT AND LONG-TERM DEBT
As of December 31, 1996, the Company had line of credit agreements that
allowed for maximum borrowings of $2,500,000 and were limited based upon a
percentage of eligible accounts receivable, as defined. Interest was at the
applicable bank's prime rate. Borrowings were collateralized by certain assets
including accounts receivable. One agreement provided for maximum borrowings of
$2,000,000 and expired in May, 1997. Another line of credit agreement which
provided for maximum borrowings of $500,000 was canceled in May, 1997. At
December 31, 1996, borrowings outstanding were $1,300,000.
In June, 1997, the Company entered into a loan agreement which provides for
a revolving loan facility and a term loan facility. The revolving loan facility
allows for maximum borrowings of the lesser of (a) $2,000,000 less the undrawn
face amount of letters of credit or (b) the borrowing base, as defined, less the
undrawn face amount of letters of credit. Interest on revolving loans is at the
bank's prime rate (8.5% at December 31, 1997). The revolving loan matures in
March, 1998. The term loan facility provided for maximum borrowings of
$2,000,000 for use for certain purposes and was canceled upon consummation of
the Initial Public Offering in October 1997. Interest on the term loan was
payable quarterly at the prime rate plus 1% (9.5% at December 31, 1997). The
Company paid off borrowings under these facilities using proceeds from the
offering. As of December 31, 1997 there are no loans outstanding and the Company
may borrow $1,900,000 under the revolving loan facility.
Substantially all assets of the Company are collateral for borrowings under
the agreement. The loan agreement contains certain restrictions, prohibiting,
among other things, additional indebtedness without the lender's consent. The
loan agreement also contains certain covenants including, among others, a
requirement of a cash flow coverage ratio of not less than 1.10 to 1.0. As of
December 31, 1997 the Company was in compliance with all loan covenants. Fair
value of debt approximates book value at the balance sheet dates.
Long-term and related party debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1996 1997
-------- -------
<S> <C> <C>
Note payable to stockholder, unsecured, due August, 1997,
payable in monthly installments of $80,000 plus interest
at 6.75%.................................................. $641,266 $ --
Term note payable, due December 31, 2000, payable in monthly
installments of $5,190, including interest at 9%,
collateralized by certain accounts receivable and other
assets.................................................... 216,005 --
Capital lease obligations, collateralized by certain
equipment, personally guaranteed by a stockholder,
interest rates ranging from 7.75% to 8%................... 99,283 35,187
-------- -------
Total long-term debt........................................ 956,554 35,187
Less -- current maturities.................................. 750,327 26,604
-------- -------
$206,227 $ 8,583
======== =======
</TABLE>
The aggregate maturities of long-term and related party debt are as follows:
<TABLE>
<S> <C>
1998........................................................ $26,604
1999........................................................ 8,583
-------
Total long term-debt........................................ $35,187
=======
</TABLE>
F-11
<PAGE> 56
NOTE 6 -- LEASE AGREEMENTS
The Company leases its office facilities under operating lease agreements
which expire at various times through 2004. In addition, the Company leases
certain equipment under operating lease agreements.
In addition to the minimum future rental payments, the Company is obligated
to pay certain operating expenses relating to its leased properties and
equipment. Total expense under operating leases was $187,666, $420,043, and
$684,414 for the years ended December 31, 1995, 1996 and 1997, respectively.
The following is a schedule of minimum future rental payments required
under the operating leases:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998........................................................ $ 592,611
1999........................................................ 584,634
2000........................................................ 604,400
2001........................................................ 552,138
2002........................................................ 328,659
Thereafter.................................................. 327,627
----------
Total minimum payments required............................. $2,990,069
==========
</TABLE>
NOTE 7 -- 401(K) PROFIT-SHARING PLAN
The Company has a contributory 401(k) profit-sharing plan (the Plan)
covering substantially all full-time employees with a service period greater
than 90 days. The Plan allows participants to contribute up to 15% of their
total compensation on a pretax basis, up to a specified amount. The Company is
required to contribute annually one-fourth of the first $2,000 of the
participants' contribution, up to a maximum of $500 per participant. The total
Company contribution was approximately $27,202, $66,865 and $126,461 for the
years ended December 31, 1995, 1996 and 1997, respectively.
NOTE 8 -- LICENSE AGREEMENT
In October, 1995, the Company entered into a nonexclusive agreement with an
unaffiliated technical services company operating in New York and other markets
where the Company is not currently doing business, whereby the Company licenses
its Century Date Compliance methodology. In contracts involving Century Date
Compliance in which the unaffiliated company is the prime contractor and the
engagement is not handled as a joint venture, the unaffiliated company is
obligated to pay SPR Inc. a license fee ranging from 4% to 9% of revenues. For
the year ended December 31, 1996 and 1997, the Company was paid approximately
$18,000 and $51,000, respectively in license fees.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
Letter of Credit -- The Company had letters of credit of $119,500 and
$100,000 at December 31, 1996 and 1997 as security for a lease agreement. The
letter of credit is renewable each year.
Litigation -- In the ordinary course of conducting its business the Company
becomes involved in various lawsuits related to its business. The Company does
not believe that the ultimate resolution of these matters will be material to
its business, financial position or results of operations.
Employment Contracts -- During 1997, the Company entered into employment
contracts with certain employees. The employment contracts provide that in the
event of a change in control, the employee is entitled to a sum equal to (i) one
year of the employee's effective annual base compensation immediately prior to
the termination date plus (ii) the prior year's cash bonus plus (iii) cash value
in the health plan. If a change in control had occurred, as defined, at December
31, 1997, the Company's total commitment under the employment contracts would
have been approximately $2,300,000.
F-12
<PAGE> 57
NOTE 10 -- BUSINESS COMBINATION
During October 1996, SPR Inc. acquired by merger all the common stock of
Systems & Programming Resources of Tulsa, Inc. in exchange for 1,206,259 shares
of SPR Inc.'s common stock. This company provided information technology
services to clients in a variety of industry groups. The transaction was
accounted for as a pooling of interests, and accordingly, the financial
statements for all periods presented have been restated to include the accounts
of this company.
Revenues and net income, net of intercompany elimination's of the separate
companies for the periods preceding the acquisition were:
<TABLE>
<CAPTION>
SPR INC. INCLUDING
SYSTEMS AND PROGRAMMING SYSTEMS &
RESOURCES, INC., SPR-WISCONSIN, INC., PROGRAMMING
SPR CHICAGO INC. AND DATAFLEX RESOURCES OF TULSA, INC.
------------------------------------- ------------------------
<S> <C> <C>
Ten months ended October 31, 1996
Revenues............................... $ 18,447,117 $8,128,336
Net income (loss), net of intercompany
elimination's....................... (11,265,184) 541,651
Year ended December 31, 1995
Revenues............................... 16,097,512 6,810,416
Net income (loss), net of intercompany
elimination's....................... (26,042,094) 748,211
</TABLE>
NOTE 11 -- STOCK-BASED COMPENSATION
Systems and Programming Resources, Inc. entered into a series of
transactions with stockholders/employees from January 1994 through October 1996.
Certain assets and certain liabilities were transferred to SPR Chicago Inc. and
SPR-Wisconsin, Inc. during 1994 that were subsequently transferred to SPR Inc.
in 1996. Because the transactions were among family members within a control
group, the stockholders of SPR Chicago Inc. and SPR-Wisconsin, Inc. were
effectively granted a variable compensation arrangement that is measured by the
increase in the estimated value of these companies (as determined by management)
since 1994. Compensation expense was calculated as follows: (1) multiply the
number of shares of Common Stock owned by the former stockholders of SPR Chicago
Inc. and SPR-Wisconsin, Inc. by the estimated market value per share of the
Company's stock (which was estimated at $15.00 per share in 1995 and $14.00 per
share in 1996), (2) then subtract the payments made by SPR Chicago Inc. and
SPR-Wisconsin, Inc. to the Company on the original acquisition notes, (3) then
subtract the value of the shares received by the stockholders of SPR Chicago
Inc. and SPR-Wisconsin, Inc. attributable to such stockholders' interests in
Consulting Acquisition, Inc. and Systems and Programming Resources, Inc.
Compensation expense was allocated to each period presented based on the
increase in the estimated market values of SPR Chicago Inc. and SPR-Wisconsin.
Inc. which was determined primarily based on revenue growth of each of the
respective companies. The estimated increase in value of SPR-Wisconsin, Inc.
from 1995 to 1996 was 26.25%. The estimated increase in value of SPR Chicago
Inc. from 1995 to 1996 was 32.76%. The final measurement occurred when the
relative ownership interests in SPR Inc. were determined in October 1996. The
ownership interests of the former stockholders of SPR Chicago Inc. and
SPR-Wisconsin, Inc. was collectively 63.99% of the Company as of October 1996.
Compensation expense relating to this arrangement is recorded in the
accompanying statements of operations as stock-based compensation with the
corresponding credit included in additional paid-in-capital.
NOTE 12 -- STOCK PLANS
DESCRIPTION
In November, 1996, the Company adopted an Employee Stock Purchase Plan and
a Combined Incentive and Non-statutory Stock Option Plan. 476,029 additional
shares of common stock are reserved for issuance
F-13
<PAGE> 58
under the Employee Stock Purchase Plan and 1,044,252 shares of common stock are
reserved for issuance under the Combined Incentive and Non-statutory Stock
Option Plan.
On December 31, 1996, options to purchase an aggregate of 461,559 shares of
common stock were granted at an exercise price of $13.41 per share. On March 5,
1997 the Company canceled all the 461,559 outstanding options that were granted
on December 31, 1996 at an exercise price of $13.41 per share and granted
options to purchase an aggregate of 461,559 shares of common stock at an
exercise price of $11.49 per share. On June 2, 1997 the Company canceled the
options to purchase an aggregate of 461,559 shares of Common Stock that were
granted on March 5, 1997. The Company granted options to purchase 819,216 shares
of common stock at an exercise price of $7.66 per share to certain employees and
directors on June 2, 1997. Of these options, 276,725 are non-statutory stock
options which are presently exercisable and 537,792 are non-statutory stock
options which generally vest over a five-year period at a rate of 20% per year.
The Company cancelled options to purchase 4,699 shares during 1997. The Company
determined that the exercise price of $7.66 was $1.34 per share below the fair
market value of the common stock on June 2, 1997. As a result, the Company
recognized non-cash compensation expense of $458,886, which is included in
general and administrative expenses in the accompanying statements of operations
for the year ended December 31, 1997. Over the next five years, as the remaining
537,792 options vest, the Company will recognize additional non-cash
compensation expense of up to approximately $639,000 (or up to approximately
$150,000 per year).
The Employee Stock Purchase Plan permits eligible employees who customarily
work more than twenty hours per week and more than five months in any calendar
year to purchase common stock through payroll deductions of up to 20% of their
total cash compensation provided that no employee may purchase more than $25,000
worth of stock in any calendar year. The purchase price is the lesser of 85% of
the market value of the common stock on the first or last day of the offering
period, as defined.
The Combined Incentive and Non-statutory Stock Option Plan provides that
awards may be granted to employees, officers and directors of the Company.
Awards may consist of non-statutory stock options and incentive stock options to
purchase shares of common stock and stock appreciation rights (SARs). Incentive
stock options (ISOs) generally vest over a five-year period at the rate of 20%
per year. The exercise price per share of common stock may not be less than 85%
(100% in the case of an ISO) of the fair market value of the common stock on the
date the option is granted. Options and SARs granted under the option plan must
generally be exercised within fifteen years from the date of grant (ten years in
the case of ISOs). In the case of any eligible employee who owns stock
possessing more than 10% of the voting power of stock, the exercise price of any
ISOs granted may not be less than 110% of the fair market value of the common
stock on the date of grant and the exercise period may not exceed five years
from the date of grant.
F-14
<PAGE> 59
ACTIVITY
Stock option activity for the Company's Combined Incentive and
Non-statutory Stock Option Plan for the years ended December 31, 1996 and 1997
is as follows:
<TABLE>
<CAPTION>
INCENTIVE STOCK WEIGHTED NON-STATUTORY WEIGHTED
OPTIONS AVERAGE STOCK OPTIONS AVERAGE
----------------- EXERCISE ---------------- EXERCISE
SHARES PRICE PRICE SHARES PRICE PRICE
-------- ------ -------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding as of December 31,
1995.............................. -- $ -- $ -- -- $ -- $ --
Granted........................... 430,232 13.41 13.41 31,327 13.41 13.41
Outstanding as of December 31,
1996.............................. 430,232 13.41 13.41 31,327 13.41 13.41
-------- -------
Stock options exercisable at
December 31, 1996................. -- 31,327
-------- -------
Canceled.......................... (430,232) $13.41 13.41 (31,327) $13.41 13.41
Granted........................... 430,232 11.49 11.49 31,327 11.49 11.49
Canceled.......................... (430,232) 11.49 11.49 (31,327) 11.49 11.49
Granted........................... -- -- -- 819,216 7.66 7.66
Canceled.......................... -- -- -- (4,699) 7.66 7.66
-------- ------ ------ ------- ------ ------
Outstanding as of December 31,
1997.............................. -- $ -- $ -- 814,517 $ 7.66 $ 7.66
======== ====== ====== ======= ====== ======
Stock options exercisable at
December 31, 1997................. -- $ -- $ -- 276,725 $ 7.66 $ 7.66
======== ====== ====== ======= ====== ======
</TABLE>
ACCOUNTING
The Company currently utilizes Accounting Principles Board Opinion No. 25
in its accounting for stock options. In October, 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123
("Statement 123"), "Accounting for Stock-based Compensation." The accounting
method as provided in the pronouncement is not required to be adopted; however,
it is encouraged. The Company is not adopting the accounting provisions of
Statement 123. Had the Company accounted for its stock options in accordance
with Statement 123 historical net income (loss) would have been approximately
$3,678,857 and $(11,315,377) for the years ended December 31, 1997 and 1996,
respectively. The Company's pro forma for Statement 123 historical basic net
income per share and pro forma for Statement 123 historical diluted net income
per share would have been $0.54 and $0.52 per share for the year ended December
31, 1997, respectively. The Company's pro forma for Statement 123 historical and
diluted net loss per share would have been $(1.75) per share for the year ended
December 31, 1996. The pro forma disclosure is not likely to be indicative of
pro forma results which may be expected in future years because of the fact that
options vest over several years. Compensation expense is recognized as the
options vest and additional awards may also be granted.
For purposes of determining the pro forma effect of these options, the fair
value of each option is estimated on the date of grant based on the
Black-Scholes option pricing model assuming among other things, no dividend
yield, expected volatility of 41%, risk free interest rates between 6.11% and
6.52% and expected life of 5.0 years.
The weighted average fair value of options granted under the Company's
Non-statutory and Incentive Stock Option Plans for the year ended 1997 and 1996
was $4.71 and $6.54, respectively. As of December 31, 1997 the remaining
contractual life of all options was approximately ten to fifteen years.
NOTE 13 -- EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128 "Earnings Per Share". SFAS No.
128 changed the methodology of calculating earnings per share and renamed the
two calculations to basic earnings per share and diluted earnings per share.
F-15
<PAGE> 60
The Company adopted SFAS No. 128 in December 1997 and has retroactively restated
all periods presented. Basic earnings per common share are based on the average
quarterly weighted average number of shares of common stock outstanding. Diluted
earnings per common share are adjusted for the assumed exercise of dilutive
stock options. Under the requirements of SFAS No. 128, the Company's basic and
diluted per share amounts for the years ending December 31, 1995, 1996, and 1997
would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------------------ ------------------------------------
PER SHARE PER SHARE
HISTORICAL INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- ------------ --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BASIC EPS
Income(loss) available to Common
stockholders...................... $(25,293,883) 6,467,400 $(3.91) $(11,197,657) 6,467,400 $(1.73)
EFFECT OF DILUTIVE SECURITIES
Stock options...................... -- -- -- -- -- --
------------ --------- ------ ------------ --------- ------
HISTORICAL DILUTED EPS
Income(loss) available to Common
stockholders Plus assumed
exercises......................... $(25,293,883) 6,467,400 $(3.91) $(11,197,657) 6,467,400 $(1.73)
============ ========= ====== ============ ========= ======
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------------------
PER SHARE
HISTORICAL INCOME SHARES AMOUNT
---------- ---------- --------- ---------
<S> <C> <C> <C>
HISTORICAL BASIC EPS
Income(loss) available to Common
stockholders...................... $4,638,196 6,870,688 $0.68
EFFECT OF DILUTIVE SECURITIES
Stock options...................... -- 242,026 --
---------- --------- -----
HISTORICAL DILUTED EPS
Income(loss) available to Common
stockholders Plus assumed
exercises......................... $4,638,196 7,112,714 $0.65
========== ========= =====
</TABLE>
NOTE 14 -- RELATED PARTY TRANSACTION
The Company paid approximately $56,000, $80,000, and $480,000 during 1995,
1996 and 1997, respectively, in fees to a law firm having a partner who is a
stockholder of the Company and who is a brother of certain executive officers of
the Company. A portion of the fees paid in 1997 related to services performed by
such firm in connection with the 1996 mergers and the 1997 offerings.
NOTE 15 -- STOCK SPLIT
On September 26, 1997 the Company's Board of Directors approved a
1.044-to-1 split of the Company's common stock in the form of a stock dividend.
All common stock and per share amounts have been adjusted retroactively to give
effect to this stock split.
NOTE 16 -- UNAUDITED QUARTERLY INFORMATION
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE>
<S> <C> <C> <C>
Revenue................................. $16,519
Gross Profit............................ 6,461
Operating income........................ 2,216
Net income.............................. 905
Net income per share --
assuming dilution....................... $ 0.11
Pro forma net income per share --
assuming dilution and excluding a one-
time deferred tax charge................ $ 0.17
</TABLE>
F-16
<PAGE> 61
INSIDE BACK COVER OF PROSPECTUS
The inside back cover is a multicolor graphic and text layout. The following
text appears at the top of the page:
"SPR Service Offerings"
The following text appears above SPR's service offerings diagram:
"SPR's IT services blends three levels of consulting support into four
Outsourcing Services."
The following text appears above a graphic of the United States:
"SPR Inc. services the Midwest with offices located in:"
[Graphic consists of map of the United States with star bursts emanating from
Milwaukee, Wisconsin; Chicago, Illinois; Tulsa, Oklahoma; and Dallas, Texas;
the four cities in which SPR offices are currently located.]
The following text, preceded by an arrow, appears at the bottom of the page:
"For more information, visit SPR's website at www.sprinc.com."
To the left of the text and graphics is a graphic in the shape of a half
circle.
[Graphic is a photo collage that consists of a text book, a woman sitting
behind an overhead projector and computer terminology.]
<PAGE> 62
======================================================
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 IN CONNECTION WITH THE OFFER CONTAINED HEREIN, 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 OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Forward-Looking Statements............ 11
The Company........................... 12
Use of Proceeds....................... 12
Price Range of Common Stock........... 12
Dividend Policy....................... 13
Capitalization........................ 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 21
Management............................ 29
Certain Transactions.................. 35
Principal and Selling Stockholders.... 36
Description of Capital Stock.......... 37
Shares Eligible for Future Sale....... 39
Underwriting.......................... 40
Legal Matters......................... 41
Experts............................... 41
Change in Accountants................. 41
Additional Information................ 42
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
2,200,000 SHARES
SPR INC.
COMMON STOCK
SPR LOGO
------------
PROSPECTUS
, 1998
------------
SALOMON SMITH BARNEY
ROBERT W. BAIRD & CO.
INCORPORATED
VOLPE BROWN WHELAN & COMPANY
======================================================
<PAGE> 63
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 23,464
Legal fees and expenses..................................... 80,000*
Accountants' fees and expenses.............................. 75,000*
Printing expenses........................................... 100,000*
Nasdaq National Market listing fee.......................... 32,000*
NASD filing fee............................................. 8,455
Miscellaneous expenses...................................... 81,081*
--------
Total.................................................. $400,000
========
</TABLE>
- -------------------------
* Estimated
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant, being incorporated under the General Corporation Law of the
State of Delaware (the "DGCL"), is empowered by Section 145 of the DGCL, subject
to the procedures and limitations stated therein, to indemnify any person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him or her in connection with
any threatened, pending or completed action, suit or proceeding to which such
person is made a party or threatened to be made a party by reason of the fact
that he or she is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise. Section 145 provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation and By-laws contain provisions
that require the Company to indemnify its directors and officers to the fullest
extent permitted by Delaware law.
Article Ninth of the Registrant's Certificate of Incorporation eliminates,
to the fullest extent permitted by paragraph (7) of subsection (b) of Section
102 of the DGCL, as the same may be amended or supplemented, or any
corresponding provision of the DGCL, the personal liability of directors. That
paragraph allows corporations incorporated under the DGCL to eliminate the
personal liability of a director to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty as a director. However, that
paragraph does not allow corporations to limit the liability of a director: (i)
for any breach of his or her duty of loyalty to the corporation or its
stockholders, (ii) for acts or omission not in good faith or which involve
intentional misconduct or a knowing violations of law, (iii) for unlawful
payment of a dividend or unlawful stock purchase or redemption or (iv) for any
transaction for which the director derived an improper personal benefit.
The Company is in the process of procuring liability insurance for its
directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information as to securities of the Registrant and its
predecessors issued or sold by the Registrant and its predecessors since January
1, 1994 that were not registered under the Securities Act of 1933, as amended
(the "Securities Act"). No underwriters were involved, and there were no
underwriting discounts or commissions. The share numbers set forth below do not
reflect the 1.044-to-1 split of the Common Stock which was effected immediately
prior to consummation of the initial public offering.
II-1
<PAGE> 64
Upon the Registrant's formation on October 29, 1996, each of Robert
Figliulo and David Figliulo received 100 shares of the Registrant's Common Stock
for nominal consideration. These issuances were pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
On October 30, 1996, in connection with the Merger of SPR Chicago into the
Registrant as described in the Registration Statement, 1,476,914 shares of
Common Stock of the Registrant were issued to each of Robert Figliulo and David
Figliulo in exchange for all their shares of SPR Chicago common stock. On
October 31, 1996, in connection with the Mergers of Systems Inc., Consulting
Acquisition, Inc., SPR Wisconsin and SPR Tulsa as described in the Registration
Statement, 3,239,306 shares of Common Stock of the Registrant were issued to
nine members of the Figliulo family, Michael Cymbala, Michael Fletcher and Rene
Potter in exchange for all their shares of Common Stock of each of the merged
entities. All of these issuances were pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement of Merger dated October 30, 1996 between the
Registrant and SPR Chicago Inc.(1)
2.2 Agreement of Merger dated October 31, 1996 among the
Registrant, Consulting Acquisition, Inc. and Systems and
Programming Resources, Inc.(1)
2.3 Agreement of Merger dated October 31, 1996 between the
Registrant and Systems and Programming Resources of Tulsa,
Inc.(1)
2.4 Agreement of Merger dated October 31, 1996 between the
Registrant and SPR-Wisconsin, Inc.(1)
3.1 Certificate of Incorporation of the Registrant.(1)
3.1.1 Certificate of Amendment of Certificate of Incorporation.(1)
3.2 By-laws of the Registrant.(1)
4.1 Description of specimen stock certificate representing
Common Stock.(1)
5.1 Opinion of Wildman, Harrold, Allen & Dixon.
10.1.1 Management Employment Agreement dated as of June 2, 1997
between the Registrant and Robert M. Figliulo.(1)
10.1.2 Management Employment Agreement dated as of June 2, 1997
between the Registrant and David A. Figliulo.(1)
10.1.3 Management Employment Agreement dated as of June 2, 1997
between the Registrant and Stephen J. Tober.(1)
10.1.4 Management Employment Agreement dated as of June 2, 1997
between the Registrant and Stephen T. Gambill.(1)
10.1.5 Management Employment Agreement dated as of June 2, 1997
between the Registrant and Michael J. Fletcher.(1)
10.4 Amended and Restated Combined Incentive and Non-statutory
Stock Option Plan.(1)
10.5 Revised form of Employee Stock Purchase Plan.(1)
10.6 Lease for 2015 Spring Road, Oak Brook, Illinois.(1)
10.7 Lease for 400 Mid-Continent Tower, Tulsa, Oklahoma.(1)
10.7.1 Third Amendment to Lease for 400 Mid-Continent Tower, Tulsa,
Oklahoma.(1)
10.8 Lease for 100 East Wisconsin Avenue, Milwaukee,
Wisconsin.(1)
10.9 Sublease for 815 Commerce Drive, Oak Brook, Illinois.(1)
10.11 Form of Tax Indemnity Agreement.(1)
</TABLE>
II-2
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.12 Fourth Amendment to Lease for 400 Mid-Continental Tower,
Tulsa, Oklahoma.(2)
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Wildman, Harrold, Allen & Dixon (contained in its
opinion filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney (included on the signature page hereto).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
(1) Incorporated by reference to SPR Inc.'s Registration Statement on Form S-1
(No. 333-32735), which was declared effective by the Securities Exchange
Commission on October 1, 1997.
(2) Incorporated by reference to SPR Inc.'s Form 10-K, for the year ending
December 31, 1997.
(b) Financial Statement Schedule:
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter had been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(2) That, for purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) of
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) That, for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 66
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in Chicago, Illinois on April 9, 1998.
SPR INC.
By: /s/ ROBERT M. FIGLIULO
------------------------------------
Robert M. Figliulo
Chief Executive Officer
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Robert M. Figliulo and Stephen J. Tober,
and each of them singly, as his true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities to sign the Registration Statement
filed herewith and any or all amendments to said Registration Statement
(including Post-Effective Amendments and Registration Statements filed pursuant
to Rule 462(b) under the Securities Act of 1933, and any or all amendments
thereto), and therewith, with the Securities and Exchange Commission granting
unto said attorneys-in-fact and agents the full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the foregoing, as full to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or her substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been duly signed by the following persons in the
capacities indicated on _____________ ____ , _______ .
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Chief Executive Officer and Chairman of the Board of
- --------------------------------------------- Directors (Principal Executive Officer)
Robert M. Figliulo
Executive Vice President, Finance and Business
- --------------------------------------------- Administration (Principal Financial Officer)
Stephen J. Tober
Chief Financial Officer (Principal Accounting
- --------------------------------------------- Officer)
Stephen T. Gambill
Director of Professional Development -- Tulsa and
- --------------------------------------------- Director
Michael J. Fletcher
</TABLE>
II-4
<PAGE> 67
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Executive Vice President and Director
- ---------------------------------------------
David A. Figliulo
Director
- ---------------------------------------------
Ronald L. Taylor
Director
- ---------------------------------------------
Sydnor W. Thrift, Jr.
Director
- ---------------------------------------------
David P. Yeager
</TABLE>
II-5
<PAGE> 68
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement of Merger dated October 30, 1996 between the
Registrant and SPR Chicago Inc.(1)
2.2 Agreement of Merger dated October 31, 1996 among the
Registrant, Consulting Acquisition, Inc. and Systems and
Programming Resources, Inc.(1)
2.3 Agreement of Merger dated October 31, 1996 between the
Registrant and Systems and Programming Resources of Tulsa,
Inc.(1)
2.4 Agreement of Merger dated October 31, 1996 between the
Registrant and SPR-Wisconsin, Inc.(1)
3.1 Certificate of Incorporation of the Registrant.(1)
3.1.1 Certificate of Amendment of Certificate of Incorporation.(1)
3.2 By-laws of the Registrant.(1)
4.1 Description of specimen stock certificate representing
Common Stock.(1)
5.1 Opinion of Wildman, Harrold, Allen & Dixon.
10.1.1 Management Employment Agreement dated as of June 2, 1997
between the Registrant and Robert M. Figliulo.(1)
10.1.2 Management Employment Agreement dated as of June 2, 1997
between the Registrant and David A. Figliulo.(1)
10.1.3 Management Employment Agreement dated as of June 2, 1997
between the Registrant and Stephen J. Tober.(1)
10.1.4 Management Employment Agreement dated as of June 2, 1997
between the Registrant and Stephen T. Gambill.(1)
10.1.5 Management Employment Agreement dated as of June 2, 1997
between the Registrant and Michael J. Fletcher.(1)
10.4 Amended and Restated Combined Incentive and Non-statutory
Stock Option Plan.(1)
10.5 Revised form of Employee Stock Purchase Plan.(1)
10.6 Lease for 2015 Spring Road, Oak Brook, Illinois.(1)
10.7 Lease for 400 Mid-Continent Tower, Tulsa, Oklahoma.(1)
10.7.1 Third Amendment to Lease for 400 Mid-Continent Tower, Tulsa,
Oklahoma.(1)
10.8 Lease for 100 East Wisconsin Avenue, Milwaukee,
Wisconsin.(1)
10.9 Sublease for 815 Commerce Drive, Oak Brook, Illinois.(1)
10.11 Form of Tax Indemnity Agreement.(1)
10.12 Fourth Amendment to Lease for 400 Mid-Continental Tower,
Tulsa, Oklahoma(2)
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Wildman, Harrold, Allen & Dixon (contained in its
opinion filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney (included on the signature page hereto).
27.1 Financial Data Schedule.
</TABLE>
- -------------------------
(1) Incorporated by reference to SPR Inc.'s Registration Statement on Form S-1
(No. 333-32735), which was declared effective by the Securities Exchange
Commission on October 1, 1997.
(2) Incorporated by reference to SPR Inc.'s Form 10-K for the year ending
December 31, 1997.
<PAGE> 69
(b) Financial Statement Schedule:
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore have
been omitted.
<PAGE> 1
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT
2,200,000 SHARES
SPR INC.
COMMON STOCK
UNDERWRITING AGREEMENT
May ___, 1998
SMITH BARNEY INC.
ROBERT W. BAIRD & CO. INCORPORATED
VOLPE BROWN WHELAN & COMPANY, LLC
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
SPR Inc., a Delaware corporation (the "Company"), proposes to issue and
sell an aggregate of 900,000 shares of its common stock, $0.01 par value per
share, to the several Underwriters named in Schedule II hereto (the
"Underwriters"), and the persons named in Part A of Schedule I hereto (the
"Selling Stockholders") propose to sell to the several Underwriters an
aggregate of 1,300,000 shares of common stock of the Company. The Company and
the Selling Stockholders are hereinafter sometimes referred to as the
"Sellers." The Company's common stock, $0.01 par value, is hereinafter
referred to as the "Common Stock" and the 900,000 shares of Common Stock to be
issued and sold to the Underwriters by the Company and the 1,300,000 shares of
Common Stock to be sold to the Underwriters by the Selling Stockholders are
hereinafter referred to as the "Firm Shares." The Selling Stockholders listed
in Part B of Schedule I hereto also propose to sell to the Underwriters, upon
the terms and conditions set forth in Section 2 hereof, up to an additional
330,000 shares (the "Additional Shares") of Common Stock. The Firm Shares and
the Additional Shares are hereinafter collectively referred to as the "Shares."
All references to the "Company" refer to SPR Inc. or its predecessors, SPR
Chicago, Inc., SPR-Wisconsin, Inc., Systems and Programming Resources of Tulsa,
Inc., Systems and Programming Resources, Inc. and Consulting Acquisition, Inc.
d/b/a Data Flex, Inc., as appropriate (collectively, the "Constituent
Corporations").
The Company and the Selling Stockholders wish to confirm as follows their
respective agreements with you (the "Representatives") and the other several
Underwriters on whose behalf you are acting, in connection with the several
purchases of the Shares by the Underwriters.
<PAGE> 2
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 (Reg. No. 333-_____) under the Act (the
"Registration Statement"), including a prospectus subject to completion
relating to the Shares. The term "Registration Statement" as used in this
Agreement means the registration statement (including all financial schedules,
if any, and exhibits), as amended at the time it becomes effective, or, if the
registration statement became effective prior to the execution of this
Agreement, as supplemented or amended prior to the execution of this Agreement.
If it is contemplated, at the time this Agreement is executed, that a
post-effective amendment to the registration statement will be filed and must
be declared effective before the offering of the Shares may commence, the term
"Registration Statement" as used in this Agreement means the registration
statement as amended by said post-effective amendment. If an abbreviated
registration statement is prepared and filed with the Commission in accordance
with Rule 462(b) under the Act (an "Abbreviated Registration Statement"), the
term "Registration Statement" as used in this Agreement includes the
Abbreviated Registration Statement. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement, or, if the prospectus included in the Registration Statement omits
information in reliance on Rule 430A under the Act and such information is
included in a prospectus filed with the Commission pursuant to Rule 424(b)
under the Act, the term "Prospectus" as used in this Agreement means the
prospectus in the form included in the Registration Statement, as supplemented
by the addition of the Rule 430A information contained in the prospectus filed
with the Commission pursuant to Rule 424(b). The term "Prepricing Prospectus"
as used in this Agreement means the prospectus subject to completion in the
form included in the registration statement at the time of the initial filing
of the registration statement with the Commission, and as such prospectus shall
have been amended from time to time prior to the date of the Prospectus.
2. Agreements to Sell and Purchase. Subject to such adjustments as you may
determine in order to avoid fractional shares, the Company hereby agrees,
subject to all the terms and conditions set forth herein, to issue and sell to
each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from the Company, at a purchase
price of $_______ per Share (the "purchase price per share"), the number of
Firm Shares which bears the same proportion to the aggregate number of Firm
Shares to be issued and sold by the Company as the number of Firm
- 2 -
<PAGE> 3
Shares set forth opposite the name of such Underwriter in Schedule II hereto
(or such number of Firm Shares increased as set forth in Section 12 hereof)
bears to the aggregate number of Firm Shares to be sold by the Company and the
Selling Stockholders.
Subject to such adjustments as you may determine in order to avoid fractional
shares, each Selling Stockholder agrees, subject to all the terms and
conditions set forth herein, to sell to each Underwriter and, upon the basis of
the representations, warranties and agreements of the Company and the Selling
Stockholders herein contained and subject to all the terms and conditions set
forth herein, each Underwriter, severally and not jointly, agrees to purchase
from each Selling Stockholder at the purchase price per share that number of
Firm Shares which bears the same proportion to the number of Firm Shares set
forth opposite the name of such Selling Stockholder in Schedule I hereto as the
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule II hereto (or such number of Firm Shares increased as set forth in
Section 12 hereof) bears to the aggregate number of Firm Shares to be sold by
the Company and the Selling Stockholders.
Those Selling Stockholders identified in Part B of Schedule I hereto also
agree, subject to all the terms and conditions set forth herein, to sell to the
Underwriters, and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Stockholders herein contained and
subject to all the terms and conditions set forth herein, the Underwriters
shall have the right to purchase from such Selling Stockholders identified in
Part B of Schedule I hereto, at the purchase price per share, pursuant to a
one-time option (the "over-allotment option") which may be exercised at any
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a
holiday, on the next business day thereafter when the New York Stock Exchange
is open for trading), up to an aggregate of 330,000 Additional Shares (the
maximum number of Additional Shares which each such Selling Stockholder agrees
to sell upon the exercise by the Underwriters of the over-allotment option is
set forth opposite their respective names in Part B of Schedule I). Additional
Shares may be purchased only for the purpose of covering over-allotments made
in connection with the offering of the Firm Shares. The number of Additional
Shares which the Underwriters elect to purchase upon exercise of the
over-allotment option shall be provided by each Selling Stockholder who has
agreed to sell Additional Shares in proportion to the respective maximum
numbers of Additional Shares which each such Selling Stockholder has agreed to
sell. Upon exercise of the over-allotment option, each Underwriter, severally
and not jointly, agrees to purchase from each Selling Stockholder who has
agreed to sell Additional Shares that number of Additional Shares (subject to
- 3 -
<PAGE> 4
such adjustments as you may determine in order to avoid fractional shares)
which bears the same proportion to the number of Additional Shares to be sold
by such Selling Stockholder as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule II hereto (or such number of Firm Shares
increased as set forth in Section 12 hereof) bears to the aggregate number of
Firm Shares to be sold by the Company and the Selling Stockholders.
Certificates in transferable form for the Shares (including any Additional
Shares) which each of the Selling Stockholders agrees, severally and solely
with respect to the Shares to be sold by such Selling Stockholder hereunder, to
sell pursuant to this Agreement have been placed in custody with First Chicago
Trust Company of New York (the "Custodian") for delivery under this Agreement
pursuant to a Custody Agreement and Power of Attorney (the "Custody Agreement")
executed by each of the Selling Stockholders appointing Robert M. Figliulo and
David A. Figliulo as agents and attorneys-in-fact (the "Attorneys-in-Fact").
Each Selling Stockholder so agrees that (i) the Shares represented by the
certificates held in custody pursuant to the Custody Agreement are subject to
the interests of the Underwriters, the Company and each other Selling
Stockholder, (ii) the arrangements made by the Selling Stockholders for such
custody are, except as specifically provided in the Custody Agreement,
irrevocable, and (iii) the obligations of the Selling Stockholders hereunder
and under the Custody Agreement shall not be terminated by any act of such
Selling Stockholder or by operation of law, whether by the death or incapacity
of any Selling Stockholder or the occurrence of any other event. If any
Selling Stockholder shall die or be incapacitated or if any other event shall
occur before the delivery of the Shares hereunder, certificates for the Shares
of such Selling Stockholder shall be delivered to the Underwriters by the
Attorneys-in-Fact in accordance with the terms and conditions of this Agreement
and the Custody Agreement as if such death or incapacity or other event had not
occurred, regardless of whether or not the Attorneys-in-Fact or any Underwriter
shall have received notice of such death, incapacity or other event. Each
Attorney-in-Fact is authorized, on behalf of each of the Selling Stockholders,
to execute this Agreement and any other documents necessary or desirable in
connection with the sale of the Shares to be sold hereunder by such Selling
Stockholder, to make delivery of the certificates for such Shares, to receive
the proceeds of the sale of such Shares, to give receipts for such proceeds, to
pay therefrom any expenses to be borne by such Selling Stockholder in
connection with the sale and public offering of such Shares, to distribute the
balance thereof to such Selling Stockholder, and to take such other action as
may be necessary or desirable in connection with the transactions contemplated
by this Agreement.
- 4 -
<PAGE> 5
Each Attorney-in-Fact agrees to perform his duties under the Custody Agreement.
3. Terms of Public Offering. The Sellers have been advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery of the Shares and Payment Therefor. Delivery to the Underwriters
of and payment for the Firm Shares shall be made at the offices of Wildman,
Harrold, Allen & Dixon, 225 West Wacker Drive, Suite 3000, Chicago, Illinois
60606-1229, at 9:00 A.M., Chicago time, on May ___, 1998 (the "Closing Date").
The place of closing for the Firm Shares and the Closing Date may be varied by
agreement among you, the Company and the Attorneys-in-Fact.
Delivery to the Underwriters of and payment for any Additional Shares to be
purchased by the Underwriters shall be made at the aforementioned office of
Wildman, Harrold, Allen & Dixon at such time on such date (the "Option Closing
Date"), which may be the same as the Closing Date but shall in no event be
earlier than the Closing Date nor earlier than two nor later than ten business
days after the giving of the notice hereinafter referred to, as shall be
specified in a written notice from you on behalf of the Underwriters to the
Company and the Attorneys-in-Fact of the Underwriters' determination to
purchase a number, specified in such notice, of Additional Shares. The place
of closing for any Additional Shares and the Option Closing Date for such
Shares may be varied by agreement among you, the Company and the
Attorneys-in-Fact.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 9:30 A.M., New York City time, on the second
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you in New York City on
the Closing Date or the Option Closing Date, as the case may be, against
payment of the purchase price therefor in immediately available funds.
- 5 -
<PAGE> 6
5. Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement, a post-effective amendment thereto or
any Abbreviated Registration Statement to be declared effective before the
offering of the Shares may commence, the Company will endeavor to cause the
Registration Statement, or such post-effective amendment or Abbreviated
Registration Statement, to become effective as soon as possible and will advise
you promptly and, if requested by you, will confirm such advice in writing,
when the Registration Statement, or such post-effective amendment or
Abbreviated Registration Statement has become effective.
(b) The Company will advise you promptly and, if requested by you, will
confirm such advice in writing: (i) of any request by the Commission for
amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or 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 purpose; and (iii) within the period of time referred to in paragraph
(f) below, of any change, or any development involving a prospective change, in
the Company's condition (financial or other), business, properties, net worth
or results of operations, or of the happening of any event, which makes any
statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the
making of any additions to or changes in the Registration Statement or the
Prospectus (as then amended or supplemented) in order to state a material fact
required by the Act or the regulations thereunder to be stated therein or
necessary in order to make the statements therein not misleading, or of the
necessity to amend or supplement the Prospectus (as then amended or
supplemented) to comply with the Act or any other law. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible time.
(c) The Company will furnish to you, without charge, three signed copies
of the Registration Statement as originally filed with the Commission and of
each amendment thereto, including financial statements and all exhibits
thereto, and will also furnish to you, without charge, such number of conformed
copies of the Registration Statement as originally filed and of each amendment
thereto, but without exhibits, as you may request.
- 6 -
<PAGE> 7
(d) The Company will not (i) file any amendment to the Registration
Statement or 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 or (ii) so long as, in the opinion of counsel for the
Underwriters, a Prospectus is required to be delivered in connection with sales
by any Underwriter or dealer, file any information, documents or reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), without delivering a copy of such information, documents or reports to
you, as Representatives of the Underwriters, prior to or concurrently with such
filing.
(e) Prior to the execution and delivery of this Agreement, the Company has
delivered to you, without charge, in such quantities as you have requested,
copies of each form of the Prepricing Prospectus. The Company consents to the
use, in accordance with the provisions of the Act and with the securities or
Blue Sky laws of the jurisdictions in which the Shares are offered by the
several Underwriters and by dealers, prior to the date of the Prospectus, of
each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement as possible
and thereafter from time to time for such period as in the opinion of counsel
for the Underwriters a prospectus is required by the Act to be delivered in
connection with sales by any Underwriter or dealer, the Company will
expeditiously deliver to each Underwriter and each dealer, without charge, as
many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request; provided, however, that in the event any Underwriter is
required to deliver a Prospectus in connection with sales of any of the Shares
at any time nine months or more after the date of the Prospectus, the Company
will expeditiously deliver to such Underwriter, upon request of such
Underwriter but at such Underwriter's expense, as many copies of the Prospectus
(and of any amendment or supplement thereto) as such Underwriter may request.
The Company consents to the use of the Prospectus (and of any amendment or
supplement thereto) in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are
offered by the several Underwriters and by all dealers to whom Shares may be
sold, both in connection with the offering and sale of the Shares and for such
period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during
such period of time any event shall occur that, in the opinion of counsel for
the Underwriters and counsel for the Company, is required to be set forth in
the Prospectus (as then amended or supplemented) or should be set forth therein
in order to make the statements therein, in
- 7 -
<PAGE> 8
the light of the circumstances under which they were made, not misleading, or
if it is necessary to supplement or amend the Prospectus to comply with the Act
or any other law, the Company will forthwith prepare and, subject to the
provisions of paragraph (d) above, file with the Commission an appropriate
supplement or amendment thereto, and will expeditiously furnish to the
Underwriters and dealers a reasonable number of copies thereof, subject to the
proviso to the first sentence of this Section 5(f). In the event that the
Company and you, as Representatives of the several Underwriters, agree that the
Prospectus should be amended or supplemented, the Company, if requested by you,
will promptly issue a press release announcing or disclosing the matters to be
covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided
that in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action which
would subject it to service of process in suits, other than those arising out
of the offering or sale of the Shares, in any jurisdiction where it is not now
so subject.
(h) The Company will make generally available to its security holders a
consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as
practicable after the end of such period, which consolidated earnings statement
shall satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will furnish to
you (i) as soon as available, a copy of each report of the Company mailed to
stockholders or filed with the Commission, and (ii) from time to time such
other information concerning the Company as you may request.
(j) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (otherwise than pursuant to the
second paragraph of Section 12 hereof or by notice given by you, as
Representatives of the several Underwriters, terminating this Agreement
pursuant to Section 12 or Section 13 hereof), or if this Agreement shall be
terminated by the Underwriters because of any failure or refusal on the part of
the Company or the Selling Stockholders to comply with the terms or
- 8 -
<PAGE> 9
fulfill any of the conditions of this Agreement, the Company agrees to
reimburse the Representatives for all reasonable out-of-pocket expenses
(including fees and expenses of counsel for the Underwriters) incurred by you
in connection herewith. In no event following termination of this Agreement
for any reason will the Underwriters seek to recover lost profits or
consequential damages from the Sellers, or any of them.
(k) The Company will apply the net proceeds from the sale of the Shares
to be sold by it hereunder substantially in accordance with the description set
forth in the Prospectus.
(l) If Rule 430A of the Act is employed, the Company will timely file the
Prospectus pursuant to Rule 424(b) under the Act and will advise you of the
time and manner of such filing.
(m) Except as provided in this Agreement, the Company will not, sell,
contract to sell or otherwise dispose of any Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or grant any
options, warrants or any other instrument convertible, exchangeable or granting
any right to purchase Common Stock, for a period of 90 days after the date of
the Prospectus, without the prior written consent of Smith Barney Inc.;
provided, however, that the Company may grant options under its Combined
Incentive and Non-Statutory Stock Option Plan (and may issue shares of Common
Stock, in accordance with the terms of such Plan and applicable option
agreements executed in connection therewith, upon exercise of any such options)
and sell shares of Common Stock under the Employee Stock Purchase Plan, in each
case as described in the Prospectus.
(n) The Company has furnished or will furnish to you "lock-up" letters as
described in Section 6(d) hereof, in the form previously delivered by you (the
"Lock-Up Letter"), signed by each of its current executive officers and
directors and each Selling Stockholder.
(o) Except as stated in this Agreement and in the Prepricing Prospectus
and Prospectus, the Company has not taken, nor will it take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
6. Agreements of the Selling Stockholders. Each of the Selling Stockholders
agrees, severally and solely with respect to such Selling Stockholder and the
Shares to be sold by such Selling Stockholder, with the several Underwriters as
follows:
- 9 -
<PAGE> 10
(a) Such Selling Stockholder will cooperate to the extent necessary to
cause the Registration Statement or any post-effective amendment thereto or any
Abbreviated Registration Statement to become effective at the earliest possible
time.
(b) Such Selling Stockholder will pay all Federal and other taxes, if any
on the transfer or sale of the Shares being sold by the Selling Stockholder to
the Underwriters.
(c) Such Selling Stockholder will do or perform all things required to be
done or performed by the Selling Stockholder prior to the Closing Date or any
Option Closing Date, as the case may be, to satisfy all conditions precedent to
the delivery of the Shares pursuant to this Agreement.
(d) Such Selling Stockholder has executed or will execute a Lock-Up Letter
agreeing not to sell, contract to sell or otherwise dispose of any Common
Stock, except for the sale of Shares to the Underwriters pursuant to this
Agreement and as otherwise provided in the Lock-Up Letter, prior to the
expiration of 90 days after the date of the Prospectus, without the prior
written consent of Smith Barney Inc.
(e) Except as stated in this Agreement and in the Prepricing Prospectus
and the Prospectus, such Selling Stockholder will not take, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Stockholder will advise you promptly, and if requested by
you, will confirm such advice in writing, within the period of time referred to
in Section 5(f) hereof, of (i) any change, or any development involving a
prospective change, in the Company's condition (financial or other), business,
properties, net worth or results of operations, or in information contained in
the Prospectus, or any amendment or supplement thereto, relating to the
Company, which comes to the attention of such Selling Stockholder, or (ii) any
new information relating to the Company, or relating to any matter stated in
the Prospectus or any amendment or supplement thereto, which comes to the
attention of such Selling Stockholder, or (iii) any change in information
contained in the Prospectus, or any amendment or supplement thereto, under the
heading "Principal and Selling Stockholders" relating to such Selling
Stockholder, any of which suggests that any statement made in the Registration
Statement or the Prospectus (as then amended or supplemented, if
- 10 -
<PAGE> 11
amended or supplemented) is or may be untrue in any material respect or that
the Registration Statement or Prospectus (as then amended or supplemented, if
amended or supplemented) omits or may omit to state a material fact or a fact
necessary to be stated therein in order to make the statements therein not
misleading in any material respect, or of the necessity to amend or supplement
the Prospectus (as then amended or supplemented, if amended or supplemented) in
order to comply with the Act or any other law.
7. Representations and Warranties of the Company. The Company represents and
warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the Registration
Statement as originally filed or as part of any amendment or supplement
thereto, or filed pursuant to Rule 424 under the Act, complied as to form when
so filed in all material respects with the provisions of the Act. The
Commission has not issued any order preventing or suspending the use of any
Prepricing Prospectus.
(b) The Registration Statement in the form in which it became or becomes
effective and also in such form as it may be when any post-effective amendment
thereto or any Abbreviated Registration Statement shall become effective and
the Prospectus and any supplement or amendment thereto when filed with the
Commission under Rule 424(b) under the Act, complied or will comply in all
material respects with the provisions of the Act and did not or will not at any
such times 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 not misleading, except that this representation and warranty does not
apply to statements in or omissions from the Registration Statement or the
Prospectus made in reliance upon and in conformity with information relating to
any Underwriter furnished to the Company in writing by or on behalf of any
Underwriter through you expressly for use therein.
(c) All the outstanding shares of Common Stock of the Company (including
the Shares to be sold by the Selling Stockholders) have been duly authorized
and validly issued, are fully paid and nonassessable and are free of any
preemptive or similar rights; 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 in accordance with the terms hereof, will be validly
issued, fully paid and nonassessable and free of any preemptive or similar
rights; and the capital stock of the Company conforms to the description
thereof in the Registration Statement and the Prospectus.
- 11 -
<PAGE> 12
(d) The Company is a corporation duly organized and validly existing in
good standing under the laws of the State of Delaware with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as described in the Registration Statement and the Prospectus, and is
duly registered and qualified to conduct its business and is in good standing
in each jurisdiction or place where the nature of its properties or the conduct
of its business requires such registration or qualification, except where the
failure so to register or qualify does not have a material adverse effect on
the condition (financial or other), business, properties, net worth or results
of operations of the Company. The Company does not own or control, directly or
indirectly, any subsidiary (as defined in the rules and regulations promulgated
under the Act).
(e) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened, against the Company or to which the
Company or any of its properties is subject, that are required to be described
in the Registration Statement or the Prospectus but are not described as
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
the Prospectus or to be filed as an exhibit to the Registration Statement that
are not described or filed as required by the Act.
(f) The Company is not (i) in violation of its certificate of
incorporation or by-laws, or other organizational documents, (ii) in violation
of any law, ordinance, administrative or governmental rule or regulation
applicable to the Company, or of any decree of any court or governmental agency
or body having jurisdiction over the Company, except any such violation(s)
that, individually or in the aggregate, could not have a material adverse
effect on the condition (financial or other), business, net worth or results of
operations of the Company, or (iii) in default in any material respect in the
performance of any obligation, agreement or condition contained in any bond,
debenture, note or any other evidence of indebtedness or in any material
agreement, indenture, lease or other instrument to which it is a party or by
which the Company or any of its properties may be bound.
(g) Neither the issuance and sale of the Shares, the execution, delivery
or performance of this Agreement by the Company nor the consummation by the
Company of the transactions contemplated hereby (A) requires any consent,
approval, authorization or other order of or registration or filing with, any
court, regulatory body, administrative agency or other governmental body,
agency or official (except such as have been obtained under the Act and
compliance with the securities or Blue Sky laws of
- 12 -
<PAGE> 13
various jurisdictions) or conflicts or will conflict with or constitutes or
will constitute a breach of, or a default under, the certificate of
incorporation or bylaws, or other organizational documents, of the Company or
(B) conflicts or will conflict with or constitutes or will constitute a breach
of, or a default under, any agreement, indenture, lease or other instrument to
which the Company is a party or by which its properties may be bound, or (C)
violates or will violate any statute, law, rule, regulation, judgment,
injunction, order or decree applicable to the Company or any of its properties,
or will result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to the terms of any
agreement or instrument to which it is a party or by which it may be bound, or
to which any of its property or assets is subject, except any such violations
that, individually or in the aggregate, could not have a material adverse
effect on the condition (financial or other), business, net worth or results of
operations of the Company.
(h) The accountants, Arthur Andersen LLP, who have certified the Company's
balance sheets as of December 31, 1996 and 1997 and the related statements of
operations, stockholders' equity and cash flow for each of the three fiscal
years in the period ending on December 31, 1997 (which include the financial
statements of the Constituent Corporations), and any related supplementary
schedule, included in the Registration Statement and the Prospectus (or any
amendment or supplement thereto), are independent public accountants as
required by the Act.
(i) The financial statements (including the pro forma data included
therein) (whether for a full fiscal year or any interim period thereof),
together with the related notes and any schedules, included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto) comply
as to form in all material respects with the requirements of the Act. Such
financial statements, together with the related notes and any schedules, (i)
present fairly the financial position, results of operations and changes in
financial position of the Company on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which they
apply and (ii) have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein. The pro forma data included in the financial
statements (A) have been prepared on a basis consistent with such historical
financial statements, except for the pro forma adjustments specified therein,
and (B) give effect to the pro forma adjustments specified therein, which
adjustments are based on reasonable assumptions and have been properly applied
to the historical financial statements. The other financial and statistical
information and data included in the Registration
- 13 -
<PAGE> 14
Statement and the Prospectus (and any amendment or supplement thereto),
historical and pro forma, 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.
(j) The execution and delivery of, and the performance by the Company of
its obligations under, this Agreement have been duly and validly authorized by
the Company, and this Agreement has been duly executed and delivered by the
Company and constitutes the valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that enforceability thereof may be limited by applicable bankruptcy,
insolvency or other similar laws relating to or affecting creditors' rights and
remedies generally and except to the extent that rights to indemnity and
contribution under this Agreement may be limited by federal or state securities
laws or by general equitable principles.
(k) Except as disclosed in the Registration Statement and the Prospectus
(or any amendment or supplement thereto), subsequent to the respective dates as
of which such information is given in the Registration Statement and the
Prospectus (or any amendment or supplement thereto), (i) the Company has not
incurred any liability or obligation, direct or contingent, or entered into any
transaction, not in the ordinary course of business, that in any of such cases
is material, individually or in the aggregate, to the Company, and (ii) there
has not been any change in the capital stock, or material increase in the
short-term debt or long-term debt, of the Company, or any material adverse
change, or any development involving or which may involve, a prospective
material adverse change, in the condition (financial or other), business, net
worth or results of operations of the Company.
(l) The Company owns no real property. The Company has good and
marketable title to all personal property described in the Prospectus as being
owned by it, free and clear of all liens, claims, security interests or other
encumbrances, except the following: (i) the Company's line of credit as
described in the Prospectus, which is secured by substantially all of the
Company's assets, (ii) office furniture leased by the Company, as described in
the Notes to the audited Financial Statements contained in the Prospectus,
(iii) such liens, claims, security interests or other encumbrances that are
described in the Registration Statement and the Prospectus, or in any document
filed as an exhibit to the Registration Statement, (iv) liens for taxes not yet
due and payable, or (v) any liens, claims, security interests or other
encumbrances that, individually or in the aggregate, could not have a material
adverse effect on the condition (financial or other), business, net worth or
results of operations of the Company. All
- 14 -
<PAGE> 15
of the property described in the Prospectus as being held under lease by the
Company is held by it under leases that are valid, subsisting and enforceable
against the Company, except to the extent that enforceability thereof may be
limited by applicable bankruptcy, insolvency or other similar laws relating to
or affecting creditors' rights and remedies generally or by general equitable
principles, and, to the best knowledge of the Company, are valid, subsisting
and enforceable against the other parties thereto.
(m) The Company has not distributed and, prior to the later to occur of
(i) the Closing Date and (ii) completion of the distribution of the Shares,
will not distribute any offering material in connection with the offering and
sale of the Shares other than the Registration Statement, the Prepricing
Prospectus, the Prospectus or other materials, if any, permitted by the Act.
(n) The Company has such permits, licenses, franchises and authorizations
of governmental or regulatory authorities ("permits") as are necessary to own
its respective properties and to conduct its business in the manner described
in the Prospectus, subject to such qualifications as may be set forth in the
Prospectus and except such permits the lack of which, individually or in the
aggregate, could not have a material adverse effect on the condition (financial
or other), business, net worth or results of operations of the Company; the
Company has fulfilled and performed all its material obligations with respect
to such permits and no event has occurred which allows, or after notice or
lapse of time would allow, revocation or termination thereof or results in any
other material impairment of the rights of the holder of any such permit,
subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, none of such permits
contains any restriction that is materially burdensome to the Company.
(o) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(p) To the Company's knowledge, neither the Company nor any of its
employees or agents has made any payment of funds of the
- 15 -
<PAGE> 16
Company or received or retained any funds in violation of any law, rule or
regulation, which payment, receipt or retention of funds is of a character
required to be disclosed in the Prospectus.
(q) The Company has filed all tax returns required to be filed, which
returns are complete and correct in all material respects, and the Company has
paid all taxes required to be paid by it.
(r) No holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the Company (i)
because of the filing of the Registration Statement or consummation of the
transactions contemplated by this Agreement or (ii) subsequent to the
consummation of the transactions contemplated by this Agreement.
(s) The Company owns or possesses rights to use all patents, trademarks,
trademark registrations, service marks, service mark registrations, trade
names, copyrights, licenses, inventions, trade secrets and rights (i) described
in the Prospectus as being owned or possessed by it or (ii) necessary for the
conduct of its business, except any of such rights the lack of which,
individually or in the aggregate, could not have a material adverse effect on
the condition (financial or other), business, net worth or results of
operations of the Company, and the Company is not aware of any claim to the
contrary or any challenge by any other person to the rights of the Company with
respect to the foregoing.
(t) The Company is not now, and after sale of the Shares to be sold by it
hereunder and application of the net proceeds from such sale as described in
the Prospectus under the caption "Use of Proceeds" will not be, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(u) The Company has complied with all provisions of Section 1 of Laws of
Florida, Chapter 92-198, An Act Relating to Disclosure of Doing Business with
Cuba.
8. Representations and Warranties of the Selling Stockholders. Each Selling
Stockholder severally represents and warrants to each Underwriter, and in each
case solely with respect to such Selling Stockholder and the Shares to be sold
by such Selling Stockholder hereunder, that:
(a) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, valid and marketable title to the Shares to be
sold by such Selling Stockholder, free and clear of any lien, claim, community
property right, voting
- 16 -
<PAGE> 17
trust agreement, security interest or other encumbrance, including, without
limitation, any restriction on transfer.
(b) Such Selling Stockholder now has, and on the Closing Date and any
Option Closing Date will have, full legal right, power and authorization, and
any approval required by law, to sell, assign, transfer and deliver such Shares
in the manner provided in this Agreement, and upon delivery of and payment for
such Shares hereunder, the several Underwriters will acquire valid and
marketable title to such Shares, free and clear of any lien, claim, community
property right, voting trust agreement, security interest, or other
encumbrance.
(c) This Agreement and the Custody Agreement have been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and are the
valid and binding agreements of such Selling Stockholder enforceable against
such Selling Stockholder in accordance with their terms, except to the extent
that enforceability may be limited by applicable bankruptcy, insolvency or
other similar laws relating to or affecting creditors' rights and remedies
generally and except to the extent that rights to indemnity and contribution
under this Agreement may be limited by federal or state securities laws or by
principles of public policy.
(d) Neither the execution and delivery of this Agreement or the Custody
Agreement by or on behalf of such Selling Stockholder nor the consummation of
the transactions herein or therein contemplated by or on behalf of such Selling
Stockholder (i) requires any consent, approval, authorization or order of, or
filing or registration with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
under the Act or such as may be required under state securities or Blue Sky
laws governing the purchase and distribution of the Shares) or (ii) conflicts
or will conflict with or constitutes or will constitute a breach of, or default
under, or violates or will violate (A) any agreement, indenture or other
instrument to which such Selling Stockholder is a party, by which such Selling
Stockholder is or may be bound or to which any of such Selling Stockholder's
property or assets is subject, or (B) any statute, law, rule, regulation,
ruling, judgment, injunction, order or decree applicable to such Selling
Stockholder or to any property or assets of such Selling Stockholder, except
any such statutes, laws, rules, regulations, rulings, judgments, injunctions,
orders or decrees the violation of which, individually or in the aggregate,
could not (1) have a material adverse effect on such Selling Stockholder's
ability to consummate the transactions contemplated in this Agreement or in the
Custody Agreement or (2) result in the breach by such Selling
- 17 -
<PAGE> 18
Stockholder of any representation or warranty contained herein or therein.
(e) The Registration Statement and the Prospectus, insofar as they relate
to such Selling Stockholder, do not and will not contain an 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 not misleading.
(f) Although such Selling Stockholder has not undertaken (and has no duty
to undertake) to determine independently, and does not assume any
responsibility for information contained in the Registration Statement or the
Prospectus (except for information contained therein under the heading
"Principal and Selling Stockholders" relating to such Selling Stockholder),
nothing has come to the attention of such Selling Stockholder that has caused
such Selling Stockholder to believe, and such Selling Stockholder does not have
any knowledge or any reason to believe, that the Registration Statement or the
Prospectus (or any amendment or supplement thereto) contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(g) The representations and warranties of such Selling Stockholder in the
Custody Agreement are, and on the Closing Date and any Option Closing Date will
be, true and correct in all material respects.
(h) Such Selling Stockholder has not taken, directly or indirectly, any
action designed to or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares, except for the lock-up arrangements described
in the Prospectus.
9. Indemnification and Contribution.
(a) The Company and each Selling Stockholder, jointly and severally, agree
to indemnify and hold harmless each of you and each other Underwriter and each
person, if any, who controls any Underwriter within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act from and against any and all
losses, claims, damages, liabilities and expenses (including reasonable costs
of investigation and reasonable fees and disbursements of counsel) arising out
of or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Prepricing Prospectus or in the Registration Statement or
the Prospectus, or in any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact
- 18 -
<PAGE> 19
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities or
expenses arise out of or are based upon any untrue statement or omission or
alleged untrue statement or omission which has been made therein or omitted
therefrom in reliance upon and in conformity with the information relating to
such Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of
any such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the
Company has delivered the Prospectus to the several Underwriters in requisite
quantity on a timely basis to permit such delivery or sending. The foregoing
indemnity agreement shall be in addition to any liability which the Company or
any Selling Stockholder may otherwise have.
(b) If any action, suit or proceeding shall be brought against any
Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Selling Stockholder, such
Underwriter or such controlling person shall promptly notify the parties
against whom indemnification is being sought (the "indemnifying parties"), and
such indemnifying parties shall assume the defense thereof, including the
employment of counsel and payment of all fees and expenses. Such Underwriter
or any such controlling person shall have the right to employ separate counsel
in any such action, suit or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Underwriter or such controlling person unless (i) the indemnifying parties
have agreed in writing to pay such fees and expenses, (ii) the indemnifying
parties have failed to assume the defense and employ counsel, or (iii) the
named parties to any such action, suit or proceeding (including any impleaded
parties) include both such Underwriter or such controlling person and the
indemnifying parties and such Underwriter or such controlling person shall have
been advised in writing by its counsel that representation of such indemnified
party and any indemnifying party by the same counsel would be inappropriate
under applicable standards of professional conduct (whether or not such
representation by the same counsel has been proposed) due to actual or
potential differing interests
- 19 -
<PAGE> 20
between them (in which case the indemnifying party shall not have the right to
assume the defense of such action, suit or proceeding on behalf of such
Underwriter or such controlling person). It is understood, however, that the
indemnifying parties shall, in connection with any one such action, suit or
proceeding, or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
only one separate firm of attorneys (in addition to any local counsel) at any
time for all such Underwriters and controlling persons, which firm shall be
designated in writing by Smith Barney Inc., and that all such reasonable fees
and expenses shall be reimbursed as they are incurred. The indemnifying
parties shall not be liable for any settlement of any such action, suit or
proceeding effected without their written consent, but if settled with such
written consent, or if there be a final judgment for the plaintiff in any such
action, suit or proceeding, the indemnifying parties agree to indemnify and
hold harmless any Underwriter, to the extent provided in the preceding
paragraph, and any such controlling person from and against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
(c) The aggregate liability of each Selling Stockholder under this
Agreement, including with respect to the indemnification and contribution
provisions contained in Section 9, shall be limited to the aggregate proceeds
received by such Selling Stockholder from the Underwriters for the sale of the
Shares sold by such Selling Stockholder hereunder.
(d) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the
Registration Statement, each Selling Stockholder, and any person who controls
the Company or any Selling Stockholder within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company and the Selling Stockholders to each Underwriter,
but only with respect to information relating to such Underwriter furnished in
writing by or on behalf of such Underwriter through you expressly for use in
the Registration Statement, the Prospectus or any Prepricing Prospectus, or any
amendment or supplement thereto. If any action, suit or proceeding shall be
brought against the Company, any of its directors, any such officer, any
Selling Stockholder, or any such controlling person based on the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto, and in respect of which indemnity may be sought against any
Underwriter pursuant to this paragraph (d), such Underwriter shall have the
rights and duties given to the Company by paragraph (b) above
- 20 -
<PAGE> 21
(except that if the Company shall have assumed the defense thereof such
Underwriter shall not be required to do so, but may employ separate counsel
therein and participate in the defense thereof, but the fees and expenses of
such counsel shall be at such Underwriter's expense), and the Company, its
directors, any such officer, the Selling Stockholder, and any such controlling
person shall have the rights and duties given to the Underwriters by paragraph
(b) above. The foregoing indemnity agreement shall be in addition to any
liability which any Underwriter may otherwise have.
(e) If the indemnification provided for in this Section 9 is unavailable
to an indemnified party under paragraphs (a) or (d) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
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, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Stockholders 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
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Stockholders
on the one hand and the Underwriters on the other in connection with the
statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholders on the one hand and the Underwriters on the other shall be deemed
to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page
of the Prospectus; provided that, in the event that the Underwriters shall have
purchased any Additional Shares hereunder, any determination of the relative
benefits received by the Company, the Selling Stockholders or the Underwriters
from the offering of the Shares shall include the net proceeds (before
deducting expenses) received by the Company and the Selling Stockholders, and
the underwriting discounts and commissions received by the Underwriters, from
the sale of such Additional Shares, in each case computed on the basis of the
respective amounts set forth in the notes to the table on the cover page of the
Prospectus. The relative fault of the Company and the Selling Stockholders 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
- 21 -
<PAGE> 22
omission to state a material fact relates to information supplied by the
Company or the Selling Stockholders on the one hand or by 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.
(f) The Company, the Selling Stockholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 9
were determined by a pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in paragraph (e)
above. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages, liabilities and expenses referred to in paragraph (e)
above shall be deemed to include, subject to the limitations set forth above,
any legal or other expenses reasonably incurred by such indemnified party in
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed 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 9 are several in proportion to the respective numbers of Firm
Shares set forth opposite their names in Schedule II hereto (or such numbers of
Firm Shares increased as set forth in Section 12 hereof) and not joint.
(g) No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or could have
been a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such action, suit or proceeding.
(h) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 9 shall be paid by the indemnifying party to the indemnified party as
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
- 22 -
<PAGE> 23
representations and warranties of the Company and the Selling Stockholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or the Selling Stockholders or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 9.
10. Conditions of Underwriters' Obligations. The several obligations of the
Underwriters to purchase the Firm Shares hereunder are subject to the following
conditions:
(a) If, at the time this Agreement is executed and delivered, it is
necessary for the Registration Statement or a post-effective amendment thereto
(or an Abbreviated Registration Statement) to be declared effective before the
offering of the Shares may commence, the Registration Statement or such
post-effective amendment or Abbreviated Registration Statement shall have
become effective not later than 5:30 P.M., New York City time, on the date
hereof, or at such later date and time as shall be consented to in writing by
you; all filings, if any, required by Rules 424 and 430A under the Act shall
have been timely made; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that
purpose shall have been instituted or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission
for additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to your reasonable
satisfaction.
(b) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, net worth, or results of operations of the Company not contemplated
by the Prospectus, which in your reasonable opinion, as Representatives of the
several Underwriters, would materially, adversely affect the market for the
Shares, or (ii) any event or development relating to or involving the Company
or any officer or director of the Company or any Selling Stockholder which
makes any statement made in the Prospectus untrue or which, in the reasonable
opinion of the Company and its counsel or the Underwriters and their counsel,
requires the making of any addition to or change in the Prospectus in order to
state a material fact required by the Act or any other
- 23 -
<PAGE> 24
law to be stated therein or necessary in order to make the statements therein
not misleading, if amending or supplementing the Prospectus to reflect such
event or development, in your reasonable opinion, as Representatives of the
several Underwriters, would materially adversely affect the market for the
Shares.
(c) You shall have received on the Closing Date, an opinion of Wildman,
Harrold, Allen & Dixon, counsel for the Company and the Selling Stockholders,
dated the Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly registered
and qualified to conduct its business and is in good standing in each
jurisdiction or place where the nature of its properties or the conduct of its
business requires such registration or qualification, except where the failure
so to register or qualify does not have a material adverse effect on the
condition (financial or other), business, properties, net worth or results of
operations of the Company. The Company does not own or control, directly or
indirectly, any subsidiary (as defined in Rule 405 promulgated under the Act).
(ii) The authorized and outstanding capital stock of the Company is
as set forth under the caption "Capitalization" in the Prospectus; and the
authorized capital stock of the Company conforms in all material respects as to
legal matters to the description thereof contained in the Prospectus under the
caption "Description of Capital Stock."
(iii) All the shares of capital stock of the Company outstanding prior
to the issuance of the Shares to be issued and sold by the Company hereunder,
have been duly authorized and validly issued, and are fully paid and
nonassessable.
(iv) The Shares to be issued and sold to the Underwriters by the
Company hereunder have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable and the Underwriters will
acquire good and marketable title to such Shares free and clear of any adverse
claim, assuming the each Underwriter purchases such Shares in good faith
without notice of any adverse claim.
- 24 -
<PAGE> 25
(v) The form of certificates for the Shares conforms to the
requirements of the Delaware General Corporation Law.
(vi) The Registration Statement and all post-effective amendments, if
any, have become effective under the Act and, to the best knowledge of such
counsel, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose are pending
before or contemplated by the Commission; and any required filing of the
Prospectus pursuant to Rule 424(b) has been made in accordance with Rule
424(b).
(vii) The Company has corporate power and authority to enter into this
Agreement and to issue, sell and deliver the Shares to be sold by it to the
Underwriters as provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and is a valid, legal and binding
agreement of the Company, enforceable against the Company in accordance with
its terms, except as enforcement of rights to indemnity and contribution
hereunder may be limited by Federal or state securities laws or principles of
public policy and subject to the qualification that the enforceability of the
Company's obligations hereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium, and other laws relating to
or affecting creditors' rights generally or by general equitable principles.
(viii) The Company is not in violation of its certificate of incorporation
or bylaws, or other organizational documents, or to the best knowledge of such
counsel, is not in default in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note or other evidence
of indebtedness, except as may be disclosed in the Prospectus.
(ix) None of the offer, sale or delivery of the Shares by the Company,
the execution, delivery or performance of this Agreement, compliance by the
Company with the provisions hereof, or consummation by the Company of the
transactions contemplated hereby (A) conflicts with or constitutes a breach of,
or a default under, the certificate of incorporation or bylaws, or other
organizational documents, of the Company, or any agreement, indenture, lease or
other instrument to which the Company is a party or by which it or any of its
properties is bound that is an exhibit to the Registration Statement, or that
is material and that is known to such counsel, (B) will result in the creation
or imposition of any lien, charge or encumbrance upon any property or assets of
the Company under any agreement, indenture, lease or other instrument to which
the Company is a party or by which it or
- 25 -
<PAGE> 26
any of its properties is bound that is an exhibit to the Registration
Statement, or that is material and that is known to such counsel, or (C) will
result in any violation of any existing law, regulation, ruling (assuming
compliance with all applicable state securities and Blue Sky laws), judgment,
injunction, order or decree known to such counsel, applicable to the Company or
any of its properties, except for any violation which, individually or in the
aggregate, would not have a material adverse effect on the condition (financial
or other), business, net worth or results of operations of the Company.
(x) No consent, approval, authorization or other order of, or registration
or filing with, any court, regulatory body, administrative agency or other
governmental body, agency, or official is required on the part of the Company
(except as have been obtained under the Act or such as may be required under
state securities or Blue Sky laws governing the purchase and distribution of
the Shares) for the valid issuance and sale of the Shares by the Company to the
Underwriters as contemplated by this Agreement.
(xi) The Registration Statement and the Prospectus and any supplements or
amendments thereto (except for the financial statements and the notes thereto
and any schedules and other financial data included therein, as to which such
counsel need not express any opinion) comply as to form in all material
respects with the requirements of the Act.
(xii) To the best knowledge of such counsel, (A) other than as described or
contemplated in the Prospectus (or any supplement thereto), there are no legal
or governmental proceedings pending or threatened against the Company, or to
which the Company or any of its property, is subject, which are required to be
described in the Registration Statement or Prospectus (or any amendment or
supplement thereto) and (B) there are no agreements, contracts, indentures,
leases or other instruments, that are required to be described in the
Registration Statement or the Prospectus (or any amendment or supplement
thereto) or to be filed as an exhibit to the Registration Statement that are
not described or filed as required, as the case may be.
(xiii) To the best knowledge of such counsel, the Company is not in violation
of any law, ordinance, administrative or governmental rule or regulation
applicable to the Company or of any decree of any court or governmental agency
or body having jurisdiction over the Company, except for any violation which,
individually or in the aggregate, would not have a material adverse effect on
the condition (financial or other), business, net worth or results of
operations of the Company.
- 26 -
<PAGE> 27
(xiv) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of contracts, agreements or other legal
documents, or refer to statements of law or legal conclusions, are accurate and
present fairly the information required to be shown.
(xv) This Agreement and the Custody Agreement have each been duly
executed and delivered by or on behalf of each of the Selling Stockholders and
are valid and binding agreements of each Selling Stockholder enforceable
against each Selling Stockholder in accordance with their terms, except to the
extent that enforceability may be limited by applicable bankruptcy, insolvency
or other similar laws relating to or affecting creditors' rights and remedies
generally or by general equitable principles and except as enforcement of
rights to indemnity and contribution hereunder may be limited by Federal or
state securities laws or by principles of public policy.
(xvi) Each Selling Stockholder has full legal right, power and
authorization, and any approval required by law (except as may be required
under state securities or Blue Sky laws governing the purchase and distribution
of the Shares), to sell, assign, transfer and deliver valid and clear title to
the Shares which such Selling Stockholder has agreed to sell pursuant to this
Agreement.
(xvii) The execution and delivery of this Agreement and the Custody
Agreement by the Selling Stockholders and the consummation of the transactions
contemplated hereby and thereby will not conflict with, violate, result in a
breach of or constitute a default under the terms or provisions of any
agreement, indenture, mortgage or other instrument known to such counsel to
which any Selling Stockholder is a party or by which any of them or any of
their assets or property is bound, or any court order or decree known to such
counsel, or any law, rule, or regulation applicable to any Selling Stockholder
or to any of the property or assets of any Selling Stockholder.
(xviii) Upon delivery of the Shares to be sold by the Selling
Stockholders pursuant to this Agreement against payment therefor as
contemplated herein the Underwriters will acquire good and marketable title to
such Shares free and clear of any adverse claim, assuming that each Underwriter
purchases such Shares in good faith without notice of any adverse claim.
(xix) Such counsel shall further state that, based upon such counsel's
participation in the preparation of the Registration Statement and the
Prospectus, and any amendment or supplement thereto, and upon such counsel's
review and discussion
- 27 -
<PAGE> 28
of the contents thereof, but without independent check or verification or the
accuracy or completeness thereof except as specified, nothing has come to the
attention of such counsel that has caused them to believe that the Registration
Statement at the time the Registration Statement became effective, or the
Prospectus, as of its date and as of the Closing Date or the Option Closing
Date, as the case may be (except for financial statements and the notes thereto
and any schedules and other financial data included therein), contained an
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 or that any amendment or supplement to the Prospectus (except for
financial statements and the notes thereto and any schedules and other
financial data included therein), as of its respective date, and as of the
Closing Date or the Option Closing Date, as the case may be, contained any
untrue statement of a material fact or omitted 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.
In rendering their opinion as aforesaid, counsel may rely upon an opinion or
opinions, each dated the Closing Date, of other counsel retained by them or the
Company as to laws of any jurisdiction other than the United States or the
States of Illinois, Delaware or Wisconsin, provided that (1) each such local
counsel is acceptable to the Representatives, (2) such reliance is expressly
authorized by each opinion so relied upon and a copy of each such opinion is
delivered to the Representatives and is, in form and substance, satisfactory to
them and their counsel, and (3) counsel shall state in their opinion that they
believe that they and the Underwriters are justified in relying thereon.
(d) You shall have received on the Closing Date an opinion of Neal, Gerber
& Eisenberg, counsel for the Underwriters, dated the Closing Date and addressed
to you, as Representatives of the several Underwriters, with respect to the
matters referred to in clauses (iv), (vi), (vii), (xi) and (xix) of the
foregoing paragraph (c) and such other related matters as you may request.
(e) You shall have received letters addressed to you, as Representatives
of the several Underwriters, and dated the date hereof and the Closing Date,
from Arthur Andersen LLP, independent certified public accountants,
substantially in the forms heretofore approved by you. If (i) the letter from
Arthur Andersen LLP dated the date hereof discloses any material adverse
decreases or increases, as the case may be, in the specified items that are not
disclosed in the Prospectus, or (ii) the letter from Arthur Andersen LLP dated
the Closing Date discloses any material adverse decreases or increases, as the
case may be, in the specified items
- 28 -
<PAGE> 29
from its letter dated the date hereof or that are not disclosed in the
Prospectus, then the Company shall explain and substantiate such decreases or
increases to the reasonable satisfaction of the Underwriters. If, in the
reasonable judgment of the Underwriters, such increases or decreases make it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares on the terms and in the manner contemplated by the
Prospectus, the Representatives may terminate this Agreement.
(f) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission at or prior to the Closing Date; (ii) there shall not have been any
change in the capital stock of the Company nor any material increase in the
short-term or long-term debt of the Company (other than in the ordinary course
of business) from that set forth or contemplated in the Registration Statement
or the Prospectus (or any amendment or Supplement thereto); (iii) there shall
not have been, since the respective dates as of which information is given in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto), except as may otherwise be stated in the Registration Statement and
Prospectus (or any amendment or supplement thereto), any material adverse
change in the condition (financial or other), business, properties, net worth
or results of operations of the Company; (iv) the Company shall not have any
liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company, other than
those reflected in the Registration Statement or the Prospectus (or any
amendment or supplement thereto); and (v) all the representations and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the date hereof and on and as of the
Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by the chief
executive officer and the chief financial officer of the Company (or such other
officers as are acceptable to you), to the effect set forth in this Section
10(f) and in Section 10(g) hereof.
(g) The Company shall not have failed at or prior to the Closing Date to
have performed or complied, in all material respects, with any of its
agreements herein contained and required to be performed or complied with by it
hereunder at or prior to the Closing Date.
(h) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct in all material respects
on and as of the date hereof and on and as of the Closing Date as if made on
and as of the Closing
- 29 -
<PAGE> 30
Date, and you shall have received a certificate, dated the Closing Date and
signed by or on behalf of the Selling Stockholders to the effect set forth in
this Section 10(h) and in Section 10(i) hereof.
(i) The Selling Stockholders shall not have failed at or prior to the
Closing Date to have performed or complied, in all material respects, with any
of their agreements herein contained and required to be performed or complied
with by them hereunder at or prior to the Closing Date.
(j) You shall have received a Lock-Up Letter executed by each of the
current executive officers and directors of the Company and by the Selling
Stockholders.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company or any
Attorney-in-Fact or any Selling Stockholder and delivered to you, as
Representatives of the Underwriters, or to counsel for the Underwriters, shall
be deemed a representation and warranty by the Company, the Selling
Stockholders or the particular Selling Stockholder, as the case may be, to each
Underwriter as to the statements made therein.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the satisfaction on and as of any Option Closing Date
of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (i) shall be dated the Option
Closing Date in question and the opinions called for by paragraphs (c), (d) and
(e) shall be revised to reflect the sale of Additional Shares.
11. Expenses. The Company agrees to pay the following costs and expenses
and all other costs and expenses incident to the performance by it of its
obligations hereunder: (i) the preparation, printing or reproduction, and
filing with the Commission of the Registration Statement (including financial
statements and exhibits thereto), each Prepricing Prospectus, the Prospectus,
and each amendment or supplement to any of them; (ii) the printing (or
reproduction) and delivery (including postage, air freight charges and charges
for counting and packaging) of such copies of the Registration Statement, each
Prepricing Prospectus, the Prospectus, and all amendments or supplements to any
of them as may be reasonably requested for use in connection with the offering
and sale of the Shares, subject to the nine month limitation set forth in the
first sentence of
- 30 -
<PAGE> 31
Section 5(f) hereof; (iii) the preparation, printing, authentication, issuance
and delivery of certificates for the Shares, including any stamp taxes in
connection with the original issuance and sale of the Shares; (iv) the printing
(or reproduction) and delivery of this Agreement, the preliminary and
supplemental Blue Sky Memoranda and all other agreements or documents printed
(or reproduced) and delivered in connection with the offering of the Shares;
(v) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the several states as provided in Section
5(g) hereof (including the reasonable fees, expenses and disbursements of
counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vi) the filing fees and
the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc.; (vii) the transportation and other expenses incurred by or on
behalf of Company representatives in connection with presentations to
prospective purchasers of the Shares; and (viii) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Company and the Selling Stockholders. Except as
otherwise provided elsewhere in this Agreement, the Underwriters will pay their
own costs and expenses in connection with the offering contemplated hereby,
including fees and disbursements of their counsel, travel and entertainment
expenses, stock transfer taxes payable on resale of any of the Shares by them
and any advertising expenses connected with any offers they may make,
including, but not limited to, the "tombstone" advertisement and expenses
associated with the preparation of prospectus memorabilia, if any.
12. Effective Date of Agreement. This Agreement shall become effective upon
the execution and delivery hereof by the parties hereto; provided, however,
that if, at the time this Agreement is executed and delivered, it is necessary
for the Registration Statement, or a post-effective amendment thereto, or an
Abbreviated Registration Statement to be declared effective before the offering
of the Shares may commence, then the effectiveness of this Agreement shall be
delayed until (a) notification of the effectiveness of the Registration
Statement or such post-effective amendment has been released by the Commission,
or (b) confirmation has been received that the Abbreviated Registration
Statement was transmitted to and accepted by the Commission. Until such time
as this Agreement shall have become effective, it may be terminated by (i) the
Company, by notifying you, or (ii) by you, as Representatives of the several
Underwriters, by notifying the Company and the Selling Stockholders.
- 31 -
<PAGE> 32
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing
Date, and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Underwriters are
obligated to purchase on the Closing Date, each non-defaulting Underwriter
shall be obligated, severally, in the proportion which the number of Firm
Shares set forth opposite its name in Schedule II hereto bears to the aggregate
number of Firm Shares set forth opposite the names of all non-defaulting
Underwriters or in such other proportion as you may specify in accordance with
Section 20 of the Master Agreement Among Underwriters of Smith Barney Inc., to
purchase the Shares which such defaulting Underwriter or Underwriters are
obligated, but fail or refuse, to purchase. If any one or more of the
Underwriters shall fail or refuse to purchase Shares which it or they are
obligated to purchase on the Closing Date and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares which the Underwriters are obligated to purchase on
the Closing Date and arrangements satisfactory to you and the Company for the
purchase of such Shares by one or more non- defaulting Underwriters or other
party or parties approved by you and the Company are not made within 36 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Underwriter, the Company or any Selling Stockholder. In
any such case which does not result in termination of this Agreement, either
you or the Company 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. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any such
default of any such Underwriter under this Agreement. The term "Underwriter"
as used in this Agreement includes, for all purposes of this Agreement, any
party not listed in Schedule II hereto who, with your approval and the approval
of the Company, purchases Shares which a defaulting Underwriter is obligated,
but fails or refuses, to purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13. Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any Selling Stockholder (and without liability on
the part of the Company or any Selling Stockholder to any Underwriter), by
notice
- 32 -
<PAGE> 33
to the Company, if prior to the Closing Date or any Option Closing Date (if
different from the Closing Date and then only as to the Additional Shares), as
the case may be, (i) trading in securities generally on the New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market shall have been
suspended or materially limited, (ii) a general moratorium on commercial
banking activities in New York or Illinois shall have been declared by either
federal or state authorities, or (iii) there shall have occurred any outbreak
or escalation of hostilities or other international or domestic calamity,
crisis or change in political, financial or economic conditions, the effect of
which on the financial markets of the United States is such as to make it, in
your reasonable judgment, impracticable or inadvisable to commence or continue
the offering of the Shares at the offering price to the public set forth on the
cover page of the Prospectus or to enforce contracts for the resale of the
Shares by the Underwriters. Notice of such termination may be given to the
Company by telegram, telecopy or telephone and shall be subsequently confirmed
by letter.
14. Information Furnished by the Underwriters. The statements set forth in
the last paragraph on the cover page, the stabilization and passive market
making legends on the inside cover page, and the statements in the first, third
and final two paragraphs under the caption "Underwriting" in any Prepricing
Prospectus and in the Prospectus, constitute the only information furnished by
or on behalf of the Underwriters through you as such information is referred to
in Sections 7(b) and 9 hereof.
15. Miscellaneous. Except as otherwise provided in Sections 5, 12 and 13
hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at 2015 Spring Road, Suite 750, Oak Brook, Illinois 60523-1874,
Attention: Robert M. Figliulo, Chief Executive Officer; or (ii) if to the
Selling Stockholders, to Robert M. Figliulo, as Attorney-in-Fact, at the office
of the Company at 2015 Spring Road, Suite 750, Oak Brook, Illinois 60523-1874,
or (iii) if to you, as Representatives of the several Underwriters, care of
Smith Barney Inc., 388 Greenwich Street, New York, New York 10013, Attention:
Manager, Investment Banking Division.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof and their respective
successors and assigns, to the extent provided herein, and no other person
shall acquire or have any right under or by virtue of this Agreement. Neither
the term "successor" nor the term "successors and assigns" as used in this
Agreement shall
- 33 -
<PAGE> 34
include a purchaser from any Underwriter of any of the Shares in his status as
such purchaser.
16. Applicable Law; Counterparts. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois applicable to
contracts made and to be performed within the State of Illinois.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 34 -
<PAGE> 35
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
SPR Inc.
By:__________________________________
Robert M. Figliulo,
Chief Executive Officer
Each of the Selling Stockholders
named in Schedule I hereto
By:__________________________________
Robert M. Figliulo, as
Attorney-in-Fact
By:_________________________________
David A. Figliulo, as
Attorney-in-Fact
Confirmed as of the date first
above mentioned on behalf of
themselves and the other several
Underwriters named in Schedule II
hereto.
SMITH BARNEY INC.
ROBERT W. BAIRD & CO. INCORPORATED
VOLPE BROWN WHELAN & COMPANY, LLC
As Representatives of the Several Underwriters
By: SMITH BARNEY INC.
By:____________________________
Kevin J. Ventrudo,
Managing Director
- 35 -
<PAGE> 1
EXHIBIT 5.1
April 8, 1998
SPR Inc.
2015 Spring Road
Suite 750
Oak Brook, Illinois 60523-1874
Re: Registration of 2,530,000 shares of Common Stock
$.01 par value per share
Ladies and Gentlemen:
We have acted as counsel to SPR Inc., a Delaware corporation (the
"Company"), in connection with the preparation of a Registration Statement on
Form S-1, filed by the Company with the Securities and Exchange Commission (the
"Commission") on April 9, 1998 (the "Registration Statement"). The Registration
Statement relates to the proposed sale of up to 2,530,000 shares of the
Company's Common Stock, $.01 par value per share (the "Shares") pursuant to an
underwriting agreement (the "Underwriting Agreement") to be entered into among
the Company, certain selling stockholders and the underwriters as described in
the Registration Statement.
We have examined such documents and corporate and other records as we
deemed necessary for the purpose of rendering this opinion, including the
Company's Certificate of Incorporation, the Company's By-Laws, the Registration
Statement pursuant to which the Shares are to be registered under the Securities
Act of 1933, as amended (the "Act"), and records of corporate proceedings.
Based upon the foregoing, it is our opinion that upon the execution and
delivery of the Underwriting Agreement by the Company and the selling
stockholders, (i) the 900,000 shares to be offered and sold by the Company, when
sold and delivered against payment as provided in the Underwriting Agreement,
will be duly authorized, validly issued, fully paid and non-assessable, and (ii)
the 1,630,000 Shares to be offered and sold by certain selling stockholders of
the Company pursuant to the Underwriting Agreement have been duly authorized and
validly issued, and are fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
an exhibit to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.
Very truly yours,
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 23, 1998 (and to all references to our Firm) included in or made
a part of this Registration Statement on Form S-1.
Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
April 8, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,133
<SECURITIES> 19,025
<RECEIVABLES> 8,677
<ALLOWANCES> 844
<INVENTORY> 0
<CURRENT-ASSETS> 29,486
<PP&E> 2,970
<DEPRECIATION> 696
<TOTAL-ASSETS> 31,943
<CURRENT-LIABILITIES> 6,389
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 25,449
<TOTAL-LIABILITY-AND-EQUITY> 31,943
<SALES> 0
<TOTAL-REVENUES> 53,422
<CGS> 0
<TOTAL-COSTS> 32,377
<OTHER-EXPENSES> 14,901
<LOSS-PROVISION> 853
<INTEREST-EXPENSE> 179
<INCOME-PRETAX> 6,191
<INCOME-TAX> 1,552
<INCOME-CONTINUING> 4,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,638
<EPS-PRIMARY> .68
<EPS-DILUTED> .65
</TABLE>
