<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DA CONSULTING GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
TEXAS 7389 76-0418488
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
5847 SAN FELIPE ROAD, SUITE 3700
HOUSTON, TEXAS 77057
(713) 361-3000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
MICHAEL J. MACKEY
CHIEF FINANCIAL OFFICER
DA CONSULTING GROUP, INC.
5847 SAN FELIPE ROAD, SUITE 3700
HOUSTON, TEXAS 77057
(713) 361-3000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
BARRY M. ABELSON, ESQUIRE GARY W. ORLOFF, ESQUIRE
PEPPER HAMILTON LLP BRACEWELL & PATTERSON, L.L.P.
3000 TWO LOGAN SQUARE 711 LOUISIANA STREET, SUITE 2900
EIGHTEENTH AND ARCH STREETS SOUTH TOWER, PENNZOIL PLACE
PHILADELPHIA, PA 19103-2799 HOUSTON, TX 77002-2781
(215) 981-4000 (713) 223-2900
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 424(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.01................. 2,875,000 Shares $13.00 $37,375,000 $11,026
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 375,000 shares of Common Stock subject to the over-allotment
option granted by the Company and the Selling Shareholders to the
Underwriters.
(2) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457(a) under the Securities Act of 1933.
---------------
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 SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 9, 1998
PROSPECTUS
2,500,000 SHARES
LOGO
[LOGO OF DA CONSULTING GROUP, INC. APPEARS HERE]
COMMON STOCK
Of the 2,500,000 shares of Common Stock offered hereby, 1,700,000 are being
sold by DA Consulting Group, Inc. ("DACG" or the "Company") and 800,000 are
being sold by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently anticipated that the initial public offering
price will be between $11.00 and $13.00 per share. See "Underwriting" for
information relating to the determination of the initial public offering price.
Application has been made to list the Common Stock on the Nasdaq National
Market under the symbol "DACG."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON
STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2)(3) SHAREHOLDERS(3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................... $ $ $ $
Total(3).................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $1,000,000.
(3) The Company and certain Selling Shareholders of the Company have granted to
the Underwriters a 30-day option to purchase up to an aggregate of 375,000
additional shares of Common Stock solely to cover over-allotments, if any.
See "Underwriting." If all such shares are purchased, the total Price to
Public, Underwriting Discount, Proceeds to Company, and Proceeds to Selling
Shareholders will be $ , $ , $ , and $ , respectively. The
Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholders.
The shares of Common Stock are offered by the several Underwriters when, as
and if delivered to and accepted by them and subject to their right to reject
orders in whole or in part. It is expected that delivery of the certificates
for the shares of Common Stock will be made on or about , 1998.
WILLIAM BLAIR & COMPANY
ROBERT W. BAIRD & CO.
INCORPORATED
PENNSYLVANIA MERCHANT GROUP LTD
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
[LOGO OF DA CONSULTING GROUP, INC.]
[Photograph with the following caption
appears here:
Our mission is to ensure maximized return
on our clients' long term IT investments by
continuously improving the performance of their
people as they work with technology. Our end-user
support solutions are designed to ensure that
education, communication and performance support
enable the end-user to truly harness the power
of corporate IT investments.]
SOLUTIONS FOR PEOPLE AND TECHNOLOGY(TM)
The Company intends to furnish to its shareholders annual reports containing
audited financial statements and to make available quarterly reports
containing unaudited financial statements for the first three quarters of each
year.
DA Foundation(R) and DA Team Teach(R) are registered trademarks and/or
service marks of the Company. The Company also claims common law trademark
rights in DA Consulting Group(TM), DA(TM), and the DACG logo, for which the
Company has filed applications for federal registration in the United States
Patent and Trademark Office. Furthermore, the Company claims common law
trademark rights in various other marks, including, without limitation, DA
Cornerstone(TM), DA PASS(TM), and the slogan Solutions for People and
Technology(TM). All other trademarks or service marks appearing in this
Prospectus are trademarks or service marks of the companies that utilize them.
CERTAIN PERSONS PARTICIPATING IN THIS 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 THE
COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS DURING AND AFTER THE OFFERING.
SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Consolidated Financial Statements and related Notes thereto appearing elsewhere
in this Prospectus. Unless indicated otherwise, all information contained in
this Prospectus (i) assumes that the Underwriters' over-allotment option is not
exercised and (ii) reflects a 4.2-for-1 split of the shares of Common Stock to
be effected prior to the date of this Prospectus. See "Underwriting" and
"Description of Capital Stock." Unless the context otherwise indicates, all
references to the "Company" or "DACG" mean DA Consulting Group, Inc., its
predecessors, and its subsidiaries.
THE COMPANY
DA Consulting Group, Inc. is a leading international provider of end-user
support solutions to companies which are implementing enterprise resource
planning ("ERP") software systems. Through its more than 545 employees in 15
offices worldwide, the Company provides customized change communications,
education, and performance support services to its clients. Since 1988, the
Company has provided services to over 275 clients, including 49 of the Fortune
Global 500 and three of the Fortune Global 10. The number of clients served by
the Company has increased from 25 in 1992 to 115 in the 12 months ended
September 30, 1997. The Company's clients in 1997 included Bristol-Myers Squibb
Company, Cadbury-Schweppes PLC, Compaq Computer Corporation, Hercules, Inc.,
Hewlett Packard Company, and Shell Petroleum, Inc. The Company's client base is
diversified, with no single client representing more than 10% of the Company's
revenue in 1996 or in the nine month period ended September 30, 1997.
Recognizing the global nature of the ERP software market and the importance of
being able to serve multi-national clients, the Company has built a substantial
international presence. In addition to its four offices in the U.S., the
Company also has 10 offices in Canada, Mexico, the United Kingdom, France,
South Africa, Australia, and Singapore.
ERP software systems, including those offered by SAP AG ("SAP"), J.D. Edwards
& Company ("J.D. Edwards"), BAAN Company B.V. ("BAAN"), and Oracle Corporation
("Oracle"), are being implemented around the world by large and mid-size
companies that are re-engineering their businesses and enhancing their
information technology systems to remain competitive. Industry sources estimate
that the worldwide market for ERP software license fees was $5.2 billion in
1996 and is expected to grow at a compound annual rate of 30.0% through 2001 to
$19.0 billion. The Company believes that approximately three times the amount
of license fees is spent on systems integration and implementation services,
including end-user training and tools. In order for companies to maximize their
returns on these substantial investments, it is critical that the end-users of
these new ERP applications, whose job functions and work patterns are often
substantially changed as a result of the new technology, are provided with the
necessary training and tools to utilize these systems effectively. SAP has
recommended that 12% of the expenses budgeted by its clients for systems
integration and implementation services be dedicated to end-user training and
tools.
The Company was founded in 1984 in Houston, Texas as an end-user support
company providing documentation services to the oil and gas industry. In 1988,
the Company expanded its end-user support services to include training by
providing a support solution in connection with one of the first major English
language installations of SAP software in the world. SAP is a major
international software company and the leading vendor of ERP software for
business applications. In 1996, it is estimated that SAP represented
approximately 34% of the $5.2 billion market for ERP software applications.
Because of the substantial market opportunity represented by SAP, by 1990, the
Company had made SAP end-user support its primary focus. In the nine months
ended September 30, 1997, revenue from clients implementing SAP software
represented 86% of the Company's billed consulting revenue. By focusing on end-
user support, the Company has been successful in
3
<PAGE>
institutionalizing its knowledge base and has developed proprietary content and
reference materials, the DA Foundation(R), that are applied in developing
customized solutions for each client. The Company has also developed DA
Cornerstone(TM), its methodology for delivering consistently high quality
service to its clients. More recently, the Company has broadened its complement
of end-user support services by also providing change communications consulting
and on-line help tools and by expanding its ERP capabilities to include
applications such as J.D. Edwards, BAAN, and Oracle.
The Company's staff has grown from 51 as of December 31, 1992 to over 545 as
of September 30, 1997. When opening new offices, the Company uses core groups
of existing senior Company consultants in order to transfer its strong
corporate culture and its commitment to high quality service to new personnel
in geographically and culturally disparate locations. In addition, DACG has
developed a comprehensive series of training programs covering technical
skills, project methodologies, and management and sales techniques to
accelerate the development of its professional staff, expand their skills, and
permit them to attain increasing levels of responsibility within the
organization. The Company has experienced annual turnover of less than 20% for
the last three years, which it believes is the result of providing its
employees with a challenging and fulfilling work environment, a competitive
compensation structure, and broad-based equity ownership. Upon completion of
this offering, 256 employees (representing approximately one-half of the
Company's employees as of September 30, 1997) will own, in the aggregate,
approximately 20% of the post-offering, fully diluted equity of the Company.
Capitalizing on the rapid growth of ERP implementations, the Company has
increased its revenue from $3.3 million in 1992 to $26.2 million in 1996. For
the nine months ended September 30, 1997, the Company generated $30.1 million
of revenue, a 57.9% increase over the same period in 1996. Demand for the
Company's services has expanded rapidly and the Company believes that, as
companies around the world implement ERP systems and continue to enhance their
technology to remain competitive, these companies will continue to require end-
user support services. The Company's growth strategy includes (i) continued
international expansion to maximize global market share and to serve multi-
national clients, (ii) further development of relationships with leading ERP
vendors, (iii) leveraging its large blue-chip client base, (iv) continued
expansion of its consulting and sales organizations, and (v) extensions of its
service offerings.
The Company is a Texas corporation. Its executive offices are located at 5847
San Felipe Road, Suite 3700, Houston, Texas 77057 and its telephone number is
(713) 361-3000. The Company's address on the world wide web is www.dacg.com.
THE OFFERING
<TABLE>
<S> <C>
Shares Offered by the Company............. 1,700,000 shares
Shares Offered by the Selling
Shareholders............................. 800,000 shares
Shares Outstanding Immediately After the
Offering................................. 6,509,378 shares (1)
Use of Proceeds........................... To repay approximately $2.6 million
in debt and for general corporate
purposes, including working capital
and possible acquisitions
Proposed Nasdaq National Market Symbol.... DACG
</TABLE>
- --------
(1) Includes 362,208 shares of Common Stock sold by the Company in December
1997. Excludes 448,589 shares of Common Stock reserved for issuance upon
the exercise of outstanding stock options at a weighted average exercise
price of $5.91 per share and 210,000 shares of Common Stock reserved for
issuance upon the exercise of stock options which will be granted as of the
date of this Prospectus at the initial public offering price per share. See
"Management--Executive Compensation" and "Management--Employee Benefit
Plans--1997 Stock Option Plan."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $3,316 $4,179 $7,501 $14,618 $26,202 $ 19,039 $ 30,056
Cost of revenue........ 1,956 2,484 4,028 7,661 14,190 10,219 16,702
------ ------ ------ ------- ------- -------- --------
Gross profit........... 1,360 1,695 3,473 6,957 12,012 8,820 13,354
Selling and marketing
expense............... 7 84 450 1,072 1,953 1,328 2,578
Development expense.... -- -- -- 707 1,250 926 836
General and
administrative
expense............... 1,250 1,482 2,629 4,014 6,597 4,621 8,362
Employee stock-related
charge(1)............. -- -- -- -- 1,858 898 --
------ ------ ------ ------- ------- -------- --------
Operating income....... 103 129 394 1,164 354 1,047 1,578
Other income (expense),
net................... (58) (22) (77) (84) 95 64 (63)
------ ------ ------ ------- ------- -------- --------
Income before taxes.... 45 107 317 1,080 449 1,111 1,515
Provision for income
taxes................. 27 44 119 417 141 398 575
------ ------ ------ ------- ------- -------- --------
Net income............. $ 18 $ 63 $ 198 $ 663 $ 308 $ 713 $ 940
====== ====== ====== ======= ======= ======== ========
Net income per share... $ 0.07 $ 0.17 $ 0.19
Weighted average shares
outstanding........... 4,463 4,274 5,054
OPERATING DATA:
Number of
employees(2).......... 51 65 140 257 353 357 548
Number of clients
served................ 25 31 52 64 98 73 109
Total offices(2)....... 2 2 3 3 10 10 14
Offices outside of the
U.S.(2)............... 1 1 2 2 8 8 10
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 683 $16,512
Working capital......................................... 2,100 20,575
Total assets............................................ 14,070 29,683
Total debt.............................................. 2,646 --
Shareholders' equity.................................... 4,602 23,077
</TABLE>
- --------
(1) Represents a charge for stock awarded to employees and payments in lieu
thereof. Exclusive of this charge, operating income, net income, and net
income per share would have been $2,212,000, $1,460,000, and $0.33,
respectively, in the year ended December 31, 1996, and $1,945,000,
$1,270,000, and $0.30, respectively, in the nine month period ended
September 30, 1996.
(2) At period end.
(3) Adjusted to give effect to the sale of the shares of Common Stock offered
by the Company hereby (at an assumed initial public offering price of
$12.00 per share), the application of the estimated net proceeds therefrom,
and the repayment to the Company of outstanding shareholder notes of
$503,000, upon completion of this offering. See "Use of Proceeds" and
"Certain Relationships and Related Transactions."
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby. This Prospectus contains certain
forward-looking statements that involve substantial risks and uncertainties.
When used in this Prospectus, the words "anticipate," "believe," "estimate,"
"expect," and similar expressions as they relate to the Company or its
management are intended to identify such forward-looking statements. From time
to time, the Company or its representatives have made or may make forward-
looking statements, orally or in writing. Such forward-looking statements may
be included in various filings of the Company with the Securities and Exchange
Commission (the "Commission"), or in press releases or oral statements made by
or with the approval of an authorized executive officer of the Company. The
Company's actual results, performance or achievements may differ materially
from those expressed or implied by these forward-looking statements as a
result of certain factors, including those set forth below and elsewhere in
this Prospectus.
Dependence on SAP and the ERP Software Market. A substantial portion of the
Company's revenue is derived from the provision of end-user support services
in connection with ERP software implementations by the Company's clients.
Revenue from providing end-user support services to clients implementing SAP
software represented 80%, 83%, and 86% of the Company's billed consulting
revenue during the years ended December 31, 1995 and 1996 and the first nine
months of 1997, respectively. The Company's future success in its SAP-related
services depends largely on its continued relationships with and
authorizations from SAP. These relationships and authorizations are generally
subject to termination by SAP on short notice. In addition, SAP could further
modify its software in order to make the implementation cycles for its new
releases shorter and less complicated, thereby possibly reducing the need for
customized end-user support, or SAP could increase its provision of end-user
support services for its software applications. SAP could also cease referring
the Company to its customers as a provider of end-user support services. Any
one or more of these circumstances could have a material adverse effect on the
Company. The Company is therefore dependent on the continued growth of the ERP
software market and, in particular, the continued market acceptance of SAP
software. Any deterioration in such market or market acceptance would have a
material adverse effect on the Company. The Company believes that the "Year
2000" problem has accelerated ERP implementations as many companies are
upgrading their technology in lieu of incurring the substantial costs
associated with modifying legacy computer code. There can be no assurance that
the rate of ERP implementations will continue at the same pace after January
1, 2000. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business--Market."
Management of a Geographically-Dispersed Organization. The Company currently
operates offices in seven countries on five continents. The successful
operation of such geographically dispersed offices requires considerable
management and financial resources and results in significant ongoing expense.
Additionally, expansion into new geographic regions requires significant
start-up costs which may negatively impact the Company's results of operations
during periods of such expansion. International operations and the provision
of services in foreign markets are subject to risks involving currency
exchange rate fluctuations, trade barriers, exchange controls, national and
regional labor strikes, civil disturbances and war, and increases in duties,
taxes, and governmental royalties, as well as changes in laws and policies
governing operations of foreign-based companies. There can be no assurance
that such factors will not have a material adverse effect on the Company. The
Company's growth strategy includes continued expansion of its international
operations through the addition of new offices. There can be no assurance that
the Company will be successful in opening or managing such new offices. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Business Strategy."
Fluctuating Quarterly Results; Project Risks. The Company's operating
results have fluctuated from period to period in the past and may fluctuate
significantly in future periods. These variations result from a number of
factors, such as the number and nature of client projects commenced or
completed during a period, the timing of new office openings, the expansion of
service offerings to include support solutions for new ERP software vendors,
the utilization rates of the Company's professional staff, and the number of
business days in a
6
<PAGE>
particular period. It is difficult to forecast the timing of revenue because
project cycles depend on factors such as the size and scope of assignments and
circumstances specific to particular clients or industries. The Company could
fail to complete a project under the guaranteed "not-to-exceed" or fixed fee
price set forth in certain of the Company's contracts, exposing the Company to
unrecoverable budget overruns, which could materially adversely affect the
Company. Additionally, client engagements are generally terminable with little
or no notice or penalty, and the Company's failure to meet a client's
expectations could damage its relationship with that client and cause the
client to terminate the Company's engagement. A client's unanticipated
decision to terminate or postpone a project may result in higher than expected
numbers of unassigned Company professionals or severance costs, which could
materially adversely affect the Company's results of operations and could also
result in damage to the Company's reputation, thereby adversely affecting its
ability to attract business from new or existing clients. Typically, the
Company's expenses relating to a new office will exceed for a period of time
the revenues attributable to that office. In addition, the expansion of the
Company's service offerings to include support solutions for new ERP software
vendors or upgrades of existing software requires significant up front
expenses. Accordingly, the timing and frequency of office openings and service
expansions could adversely affect the Company's results of operations. The
Company's most significant expenses relate to salaries and benefits for its
professional staff. Since these expenses are generally fixed, the Company's
results of operations in a particular period may be materially adversely
affected if revenue falls below expectations. Staff utilization rates vary
from period to period due not only to changes in the Company's volume of
business, but also to the timing of employee vacations, hiring and training,
and project terminations or postponements. In the past, the Company has
experienced some seasonality in its business, with somewhat lower levels of
revenue and profitability in the first and fourth quarters of the year. This
trend has resulted from the timing of project start-ups and completions, as
well as from reduced staff utilization due to holidays and vacations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Need to Attract and Retain Professional Employees. The Company's continued
success and future growth will depend upon its ability to attract, develop and
retain a sufficient number of highly skilled, motivated professional
employees. Competition for personnel qualified to deliver most of the
Company's services is intense, and many of the companies with which the
Company competes for qualified professionals have substantially greater
financial and other resources than the Company. Competition for qualified
personnel can be expected to increase as competition in the Company's service
offerings increases. There can be no assurance that the Company will be able
to recruit, develop, and retain a sufficient number of highly skilled,
motivated professionals to compete successfully. In addition, competition for
qualified personnel may also lead to increased costs for such personnel which
the Company may not be able to offset by increases in billing rates. The loss
of a significant number of professional personnel is likely to have a material
adverse effect on the Company, particularly its ability to complete existing
projects or secure new projects. See "Business--Recruiting and Personnel
Development."
Substantial Competition. The market for the Company's services is highly
competitive and is subject to low barriers to entry and rapid change. The
Company faces competition for client assignments from a number of companies
having significantly greater financial, technical, and marketing resources and
greater name recognition than the Company. Principal competitors for the
Company's services include the consulting practices of the large international
accounting firms, the in-house service units of the ERP vendors, the
professional services groups of many large technology and management
consulting companies, and smaller niche service providers. Many of these
companies have substantially greater resources than the Company and also
provide implementation services needed by clients. There can be no assurance
that such competitors will not focus more on providing end-user support
services in the future. Clients may also elect to use their internal resources
to satisfy their needs for the services the Company provides. There can be no
assurance that the Company will compete successfully with existing or new
competitors or with potential clients' internal resources. The Company may
also face competition as a result of the increasing acceptance in the
workplace of computer-based training, an approach which the Company, through a
relationship with CBT Systems, Ltd. ("CBT Systems"), currently uses as one
basis for providing educational support to its clients' end-users. As
computer-based training becomes more accepted in the workplace, and the
related technology is further developed, this training approach may replace
some or all
7
<PAGE>
of the non-computer-based training support provided by the Company to its
clients. In addition, the growth of computer-based training usage may
encourage other competitors to enter the market for the Company's services.
One or more of these circumstances, or the termination of the Company's
relationship with CBT Systems, could have a material adverse effect on the
Company. See "Business--Competition."
Dependence on Key Personnel. The success of the Company is highly dependent
upon the efforts and abilities of Nicholas H. Marriner, its Chief Executive
Officer, Patrick J. Newton, its Chief Operating Officer, and Michael J.
Mackey, its Chief Financial Officer, as well as on its other key employees.
Each of the Company's executive officers is party to an employment agreement
with the Company containing customary noncompetition, nondisclosure, and
nonsolicitation covenants. There can be no assurance that these agreements
will prevent the loss of any of these individuals or Company business. The
loss of the services of any of these key executives could have a material
adverse effect on the Company. See "Management."
Management of Growth. The Company's rapid growth has placed significant
demands on the Company's management, administrative, operating and financial
resources, particularly given the geographically-dispersed nature of the
Company's operations. The Company's ability to manage future growth will
require the Company to continue to enhance its operating, financial, and
management information systems and to expand, develop, motivate, and manage
effectively its professional and administrative work force. If the Company is
unable to manage growth effectively, the quality of the Company's services,
its ability to retain key personnel, and its results of operations are likely
to be materially adversely affected. Should the Company acquire businesses in
the future, there can be no assurance that it will be successful in
integrating the acquired businesses into the Company's infrastructure or
retaining their key personnel. The Company's growth could be adversely
affected by client dissatisfaction, reductions in clients' spending
allocations for services the Company provides, increased competition, pricing
or labor cost pressures, and general economic trends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Business Strategy."
Rapid Technological Change. The Company's future success will depend on its
ability to gain expertise in technological advances, such as the latest
releases from ERP software vendors, and to respond quickly to evolving
industry trends and client needs. The Company's efforts to gain technological
expertise and to develop new technologies require the Company to incur
significant expense. There can be no assurance that the Company will be
successful in adapting to these advances in technology or in addressing
changing client needs on a timely basis. In addition, there can be no
assurance that the services or technologies developed by others will not
significantly reduce demand for the Company's services or render the Company's
services obsolete. See "Business--Research and Development."
Limited Protection of Proprietary Expertise, Methodologies and Software. To
protect its proprietary rights, the Company relies only on a combination of
trade secret laws, employee nondisclosure policies, and third party
confidentiality agreements. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to prevent
misappropriation of such rights or that third parties will not independently
develop functionally equivalent or superior methodologies or software.
Moreover, there can be no assurance that third parties will not assert
infringement claims against the Company in the future that would result in
costly litigation or license arrangements regardless of the merits of such
claims. Additionally, because the Company's engagements are typically work-
for-hire based, the Company assigns ownership of, or grants a royalty-free
license to use, the materials the Company develops specifically for its
clients to those clients upon project completion. See "Business--Intellectual
Property and Other Proprietary Rights."
Effect of Anti-Takeover Provisions. The Company's Board of Directors has the
authority to issue preferred stock and to determine the price, rights,
conversion ratios, preferences, and privileges of that stock without further
vote or action by the holders of the Common Stock. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the
rights, including economic rights, of the holders of any shares of preferred
stock issued in the future. Any such issuance may discourage third parties
from attempting to acquire control of the Company. Furthermore, the Company is
subject to the Business Combination Law of the Texas
8
<PAGE>
Business Corporation Act ("TBCA"), which prohibits the Company from engaging
in a "business combination" with an "interested shareholder" for a period of
three years after the date of the transaction in which the person first
becomes an "interested shareholder," unless the business combination is
approved in a prescribed manner. The application of these statutes and certain
other provisions of the Company's Restated Articles of Incorporation and
Restated Bylaws could have the effect of discouraging, delaying or preventing
a change of control of the Company not approved by the Board of Directors,
which could adversely affect the market price of the Company's Common Stock.
See "Description of Capital Stock."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding 6,509,378 shares of Common Stock. The shares of
Common Stock sold in this offering (other than shares, if any, purchased by
affiliates of the Company) will be freely tradeable. Substantially all of the
shares to be outstanding upon completion of this offering (other than the
2,500,000 shares being offered hereby) are subject to the lock-up agreements
described below. Of the shares to be outstanding upon completion of this
offering, 4,009,378 shares are "restricted," as that term is defined in the
Securities Act of 1933, as amended (the "Securities Act"). Of these restricted
shares, 3,629,740 have been held for more than one year and, as such, will be
salable upon expiration of the lock-up agreements described below, subject to
certain volume and manner of sale restrictions imposed by Rule 144 of the
Securities Act. See "Shares Eligible for Future Sale." Sales of a substantial
number of shares of Common Stock in the public market following this offering,
or the perception that such sales could occur, could adversely affect the
market price for the Company's Common Stock.
All directors, executive officers, and principal shareholders, and certain
other employees, of the Company who hold in the aggregate approximately
shares of Common Stock have agreed, subject to certain exceptions, not to sell
or otherwise dispose of any of their shares or options for a period of 180
days after the date of this Prospectus without the prior written consent of
William Blair & Company, L.L.C. The Company has also agreed not to issue,
sell, or otherwise dispose of any of its shares or grant any options (other
than options granted or shares issued in connection with the Company's 1997
Stock Option Plan or unregistered shares issued in connection with any
acquisition) during such 180 day period. William Blair & Company, L.L.C. may,
however, in its sole discretion and at any time without notice, release for
public sale all or any portion of the shares subject to such lock-up
agreements. See "Underwriting."
No Prior Market for Common Stock; Possible Volatility of Stock Price. Prior
to this offering, there was no public market for the Common Stock, and there
can be no assurance that an active public market for the Common Stock will
develop or be sustained after this offering. Accordingly, purchasers of the
Common Stock may experience difficulty selling or otherwise disposing of their
shares. The initial public offering price was determined by negotiations among
the Company and the Representatives of the Underwriters and may not be
indicative of market prices of the Common Stock after this offering. See
"Underwriting." The market price for the Common Stock following the offering
may be highly volatile. Prices for the Common Stock will be determined by the
marketplace and may be influenced by many factors, including the depth and
liquidity of the trading market, investor perception of the Company, and
general economic and market conditions and trends. In addition, factors such
as the Company's financial results, quarterly variations in the Company's
financial results, changes in earnings estimates by analysts, reported
earnings that vary from such estimates, press releases by the Company or
others, and developments affecting the Company, its competitors or its
industry generally may have a significant impact on the market price of the
Common Stock. Stock markets have, on occasion, experienced extreme price and
volume fluctuations which have often been unrelated to the operating
performance of the affected companies.
Dilution. Persons participating in this offering will incur immediate and
substantial dilution in the net tangible book value of their shares. To the
extent that currently outstanding options to purchase Common Stock are
exercised, there will be further dilution. See "Dilution."
Significant Unallocated Net Proceeds. A substantial portion of the
anticipated net proceeds of this offering has not been designated for specific
uses. Therefore, the Company will have broad discretion with respect to the
use of the net proceeds of this offering. See "Use of Proceeds."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,700,000 shares of
Common Stock being offered hereby by the Company are estimated to be
approximately $18.0 million ($19.3 million if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$12.00 per share, after deducting the underwriting discount and estimated
offering expenses. The Company will use a portion of the net proceeds of the
offering to repay debt of the Company, approximately $2.6 million of which was
outstanding on September 30, 1997, which bears interest at an annual rate
equal to the prime rate of interest plus 0.5% (or 9.0% as of the date of this
Prospectus) and matures in November 1998. The Company will use the remaining
net proceeds (together with $503,000 in proceeds from the repayment to the
Company of outstanding shareholder notes) for working capital to support the
planned growth of its business and for other general corporate purposes, which
may include acquisitions of complementary businesses. From time to time, the
Company evaluates possible acquisitions, but it is not currently considering
any specific acquisition. The Company intends to invest the net proceeds from
this offering in short-term, interest-bearing, investment-grade obligations
pending application thereof in the manner described above. The Company will
not receive any proceeds from the sale of shares of Common Stock by the
Selling Shareholders.
DIVIDEND POLICY
Following this offering, the Company does not intend to pay cash dividends
as it intends to retain all earnings to support its planned growth. Any
payment of future dividends will depend upon the Company's results of
operations, financial condition, cash requirements, contractual restrictions
with respect to dividends, and other factors deemed relevant by the Board of
Directors of the Company.
10
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and total capitalization
of the Company as of September 30, 1997, on an actual basis and as adjusted to
reflect (i) the sale of the 1,700,000 shares of Common Stock offered hereby by
the Company (at an assumed initial public offering price of $12.00 per share)
and application of the net proceeds therefrom, after deducting the
underwriting discount and estimated offering expenses, and (ii) the proceeds
of the repayment of outstanding shareholder notes. This table should be read
in conjunction with the Company's Consolidated Financial Statements and
related Notes thereto and other financial information appearing elsewhere in
this Prospectus. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt:
Revolving line of credit................................. $2,646 $ --
------ -------
Total short-term debt.................................. $2,646 $ --
====== =======
Long-term debt............................................. $ -- $ --
Shareholders' equity:
Preferred stock, $0.01 par value; 10,000,000 shares
authorized; no shares issued actual or as adjusted...... -- --
Common stock, $0.01 par value; 40,000,000 shares
authorized; 4,447,170 shares outstanding, actual;
6,147,170 shares outstanding, as adjusted(1)............ 45 62
Additional paid-in capital............................... 2,853 20,808
Retained earnings........................................ 2,409 2,409
Treasury stock, at cost; 19,803 shares................... (85) (85)
Notes receivable from shareholders....................... (503) --
Cumulative foreign currency translation adjustment....... (117) (117)
------ -------
Total shareholders' equity............................. 4,602 23,077
------ -------
Total capitalization................................. $4,602 $23,077
====== =======
</TABLE>
- --------
(1) Excludes 448,589 shares of Common Stock reserved for issuance upon the
exercise of outstanding stock options at a weighted average exercise price
of $5.91 per share, 210,000 shares of Common Stock reserved for issuance
upon the exercise of stock options which will be granted effective as of
the date of this Prospectus at the initial public offering price per
share, and 601,411 shares of Common Stock reserved for future grants under
the 1997 Stock Option Plan. Also excludes 362,208 shares of Common Stock
sold by the Company in December 1997. See "Management--Executive
Compensation" and "Management--Employee Benefit Plans--1997 Stock Option
Plan."
11
<PAGE>
DILUTION
At September 30, 1997, the net tangible book value of the Company was $4.6
million, or $1.03 per share of Common Stock. Net tangible book value per share
represents the amount of the Company's total tangible assets minus its total
liabilities, divided by the number of outstanding shares of Common Stock.
After giving effect to (i) the sale by the Company of the 1,700,000 shares of
Common Stock offered hereby by the Company (assuming an initial public
offering price of $12.00 per share) and after deducting the underwriting
discount and estimated offering expenses, and (ii) the repayment of
outstanding shareholder notes, the net tangible book value of the Company at
September 30, 1997 would have been $23.1 million, or $3.75 per share. This
represents an immediate increase in net tangible book value to existing
shareholders of $2.72 per share and an immediate dilution to purchasers of
Common Stock in the offering of $8.25 per share. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $12.00
Net tangible book value before this offering.................... 1.03
Increase attributable to this offering.......................... 2.72
----
Net tangible book value after this offering..................... 3.75
------
Dilution per share to new shareholders.......................... $ 8.25
======
</TABLE>
The following table summarizes, as of September 30, 1997, the number of
shares of Common Stock purchased from the Company, the total consideration
paid and the average price paid per share by current shareholders and by the
purchasers of Common Stock in this offering, assuming an initial public
offering price of $12.00 per share, before deducting the underwriting discount
and estimated offering expenses:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........ 4,447,170 72.3% $ 2,813,000 12.1% $0.63
New shareholders............. 1,700,000 27.7 20,400,000 87.9 12.00
--------- ----- ----------- -----
Total...................... 6,147,170 100.0% $23,213,000 100.0%
========= ===== =========== =====
</TABLE>
The foregoing tables assume no exercise of options outstanding as of
September 30, 1997 to purchase an additional 448,589 shares of Common Stock at
a weighted average exercise price of $5.91 per share. To the extent these
options are exercised, there will be further dilution to new shareholders in
the net tangible book value of their shares. See "Management--Employee Benefit
Plans--1997 Stock Option Plan." In addition, the second table does not reflect
the sale of 800,000 shares by Selling Shareholders in this offering. Such
sales will reduce the number of shares held by existing shareholders as of
September 30, 1997 to 3,647,170, or approximately 59.3% of the total shares of
Common Stock to be outstanding after this offering, and will increase the
number of shares to be purchased by the new shareholders to 2,500,000, or
40.7% of the total shares of Common Stock to be outstanding after this
offering. See "Principal and Selling Shareholders."
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's Consolidated Financial Statements and related notes
thereto, and other financial information included elsewhere in this
Prospectus. The balance sheet and income statement data at and for the nine
months ended September 30, 1996 and 1997 have been derived from unaudited
financial statements of the Company which, in the opinion of management,
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial condition and results of operations
of the Company. The results of operations for the nine months ended September
30, 1997 are not necessarily indicative of the results that may be expected
for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $3,316 $4,179 $7,501 $14,618 $26,202 $ 19,039 $ 30,056
Cost of revenue........ 1,956 2,484 4,028 7,661 14,190 10,219 16,702
------ ------ ------ ------- ------- -------- --------
Gross profit........... 1,360 1,695 3,473 6,957 12,012 8,820 13,354
Selling and marketing
expense............... 7 84 450 1,072 1,953 1,328 2,578
Development expense.... -- -- -- 707 1,250 926 836
General and
administrative
expense............... 1,250 1,482 2,629 4,014 6,597 4,621 8,362
Employee stock-related
charge(1)............. -- -- -- -- 1,858 898 --
------ ------ ------ ------- ------- -------- --------
Operating income....... 103 129 394 1,164 354 1,047 1,578
Other income (expense),
net................... (58) (22) (77) (84) 95 64 (63)
------ ------ ------ ------- ------- -------- --------
Income before taxes.... 45 107 317 1,080 449 1,111 1,515
Provision for income
taxes................. 27 44 119 417 141 398 575
------ ------ ------ ------- ------- -------- --------
Net income............. $ 18 $ 63 $ 198 $ 663 $ 308 $ 713 $ 940
====== ====== ====== ======= ======= ======== ========
Net income per share... $ 0.07 $ 0.17 $ 0.19
Weighted average shares
outstanding........... 4,463 4,274 5,054
BALANCE SHEET DATA (AT
PERIOD END):
Cash and cash
equivalents........... $ 284 $ 366 $ 104 $ 592 $ 2,199 $ 1,708 $ 683
Working capital........ 130 201 313 761 1,629 2,239 2,100
Total assets........... 1,113 1,667 1,784 4,675 8,058 7,065 14,070
Total debt............. 274 305 205 562 731 504 2,646
Shareholders' equity... 250 314 503 1,126 2,580 2,992 4,602
</TABLE>
- --------
(1) Represents a charge for stock awarded to employees and payments in lieu
thereof. Exclusive of this charge, operating income, net income, and net
income per share would have been $2,212,000, $1,460,000, and $0.33
respectively, in the year ended December 31, 1996, and $1,945,000,
$1,270,000 and $0.30, respectively, in the nine month period ended
September 30, 1996.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company is a leading international provider of end-user support
solutions to companies which are implementing ERP software systems. The
Company addresses the growing needs of clients implementing ERP systems by
providing their employees with the necessary training and tools to utilize
these systems effectively. Since 1988, the Company has provided services to
over 275 clients in their implementations of ERP software applications.
The Company's revenue has increased from $3.3 million in 1992 to $26.2
million in 1996. In the nine month period ended September 30, 1997, revenue
was $30.1 million, a 57.9% increase over the same period in 1996. This growth
is attributable to various factors, including expansion of the Company's
international presence through new office openings, increases in the number of
projects completed by the Company for existing and new clients, expansion of
the array of end-user support services provided by the Company to its clients,
and broadening of the number of ERP vendors whose software implementations can
be serviced by the Company (including BAAN, J.D. Edwards, and Oracle), as well
as rapid growth in the ERP market, which has accelerated as a result of the
"Year 2000" problem. Since 1992, the Company has increased its geographic
presence from one office in the United States and one office in the United
Kingdom to 15 offices located in seven countries on five continents. The
Company is currently organized into three divisions: the Americas Division
which includes its North, South, and Central America operations; the EMEA
Division which includes its Europe, Middle East, and Africa operations; and
the Asia Pacific Division which includes its Australia, New Zealand, and Asia
operations. In the nine months ended September 30, 1997, the Americas, EMEA,
and Asia Pacific Divisions represented 65.0%, 26.1%, and 8.9% of revenue,
respectively. The number of clients served by the Company has increased
substantially from 25 in 1992 to 115 in the 12 months ended September 30,
1997. The Company's client base is diversified, with no single client
representing more than 20% of revenues in 1996 or the nine month period ended
September 30, 1997. To support its rapid growth, the Company has expanded its
staff from 51 as of December 31, 1992 to 548 as of September 30, 1997.
The Company derives a substantial portion of its revenue from fees for
professional services related to supporting end-users in the implementation of
ERP systems. Revenue from clients implementing SAP software represented 86% of
billed consulting revenue for the nine months ended September 30, 1997. The
majority of the Company's projects involve from three to 10 consultants, are
generally completed in three months to two years, and result in revenue from
$200,000 to $1.5 million. The Company often performs multiple projects for a
client in support of a phased implementation of the ERP software. The
Company's services are generally provided pursuant to written contracts which
can be terminated by the client with limited advance notice. The Company
generally bills its clients monthly for the services provided by its
consultants at agreed upon rates. Where permitted, clients also are billed for
reimbursement of expenses incurred by the Company on the client's behalf. The
Company provides services to its clients primarily on a time and materials
basis, although many of its contracts contain "not-to-exceed" provisions and
Company performance obligations. The remainder of the Company's contracts are
on a fixed-price basis, representing approximately 15% of the Company's total
revenue for the nine months ended September 30, 1997. Revenue from time and
materials engagements is recognized as services are performed while revenue
from fixed price contracts is recognized using the percentage-of-completion
method. The Company also receives a small percentage of total revenue from
license fees related to computer-based training products and other software
products that are developed independently or co-developed by the Company. The
Company believes that such license fees, which are not currently material, may
increase in the future as the ERP middle market grows.
Cost of revenue includes compensation and benefits paid to the Company's
professional staff and all direct expenses of performing project work. The
Company's financial performance is highly dependent upon
14
<PAGE>
professional staff billing rates, costs, and utilization rates. The Company
manages these parameters by establishing and monitoring project budgets and
timetables and tracking staffing requirements for projects in progress and
anticipated projects. Project terminations, completions, and scheduling delays
may result in periods when consultants are not fully utilized. An
unanticipated termination of a significant project could cause the Company to
experience lower staff utilization resulting in a higher than expected number
of unassigned consultants. In addition, the establishment of new services or
new offices, employee vacations and training, and increases in the hiring of
consultants may result in periods of lower staff utilization and downward
pressure on gross margins. The Company's professional staff are generally
employed on a full-time basis, and therefore the Company incurs substantially
all of its staff-related costs even during periods of low utilization. In the
past, the Company has experienced some seasonality in its business, with
somewhat lower levels of revenue and profitability in the first and fourth
quarters of the year. This trend has resulted from the timing of project
start-ups and completions, as well as reduced utilization due to holidays and
vacations.
Selling and marketing expense relates principally to compensation and
benefits paid to the Company's dedicated sales and marketing staff and all
direct costs associated with the sales process, including the costs of travel,
trade shows, marketing materials, and public relations. Development expense
consists principally of compensation costs for the Company's in-house research
and development and information technology and consulting services support
teams. These personnel focus on development of methodologies and applications
of new technologies in the end-user environment, including development of
computer-based training courseware and performance support software and
content. Development expense also includes personnel who provide technical
support for the Company's professional staff in the field. General and
administrative expense consists principally of salaries and benefits for
executive management and for accounting, administrative, human resources, and
recruiting and training staff, as well as compensation for the senior
management in each of the Company's divisions.
15
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items from
the Company's statements of income expressed as a percentage of revenue and
the percentage change in such items for the years ended December 31, 1995 and
1996 and the nine months ended September 30, 1997 compared to the prior
period. The trends illustrated in the following table are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-----------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30, PERCENTAGE INCREASE (DECREASE)
------------------- -------------- --------------------------------------
NINE MONTHS
1994 1995 1996 1996 1997 1994 TO 1995 1995 TO 1996 1996 TO 1997
----- ----- ----- ------ ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 94.9% 79.2% 57.9%
Cost of revenue......... 53.7 52.4 54.2 53.7 55.6 90.2 85.2 63.4
----- ----- ----- ------ ------
Gross profit............ 46.3 47.6 45.8 46.3 44.4 100.3 72.7 51.4
Selling and marketing
expense................ 6.0 7.3 7.5 6.9 8.6 138.2 82.2 94.1
Development expense..... 0.0 4.8 4.8 4.9 2.8 -- 76.8 (9.7)
General and
administrative
expense................ 35.0 27.5 25.2 24.3 27.8 52.7 64.3 81.0
Employee stock-related
charge(1).............. 0.0 0.0 7.1 4.7 0.0 -- nmf nmf
----- ----- ----- ------ ------
Operating income........ 5.3 8.0 1.2 5.5 5.2 195.4 (69.6) 50.7
Other income (expense),
net.................... (1.1) (0.6) 0.5 0.3 (0.2) 9.1 (213.1) (198.4)
----- ----- ----- ------ ------
Income before taxes..... 4.2 7.4 1.7 5.8 5.0 240.7 (58.4) 36.4
Provision for income
taxes.................. 1.6 2.9 0.5 2.1 1.9 250.4 (66.2) 44.5
----- ----- ----- ------ ------
Net income.............. 2.6% 4.5% 1.2% 3.7% 3.1% 234.8% (53.5)% 31.8%
===== ===== ===== ====== ======
</TABLE>
- --------
(1) Represents a charge of $1,858,000 in the year ended December 31, 1996 and
$898,000 in the nine month period ended September 30, 1996 for stock
awarded to employees and payments in lieu thereof. Exclusive of this
charge, operating income, and net income would have increased 90.0% and
120.2%, respectively, in the year ended December 31, 1996 over the year
ended December 31, 1995, and decreased by 18.9% and 26.0%, respectively,
in the nine month period ended September 30, 1997 over the nine month
period ended September 30, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
Revenue. Revenue increased by $11.0 million, or 57.9%, from $19.0 million
for the nine months ended September 30, 1996 to $30.1 million for the nine
months ended September 30, 1997. The Company experienced growth in each of its
three divisions. Revenues from the Americas Division increased by 70.8% from
$11.4 million to $19.5 million; revenue from the EMEA Division increased by
23.3% from $6.4 million to $7.8 million; and revenue from the Asia Pacific
Division increased by 117.1% from $1.2 million to $2.7 million. The Company
ended the 1997 period with 548 total employees, up from 353 employees at the
beginning of the period. In addition, the Company opened four new offices
during the period, increasing the total number of offices to 15.
Gross profit. Gross profit increased by $4.5 million, or 51.4%, from $8.8
million for the nine months ended September 30, 1996 to $13.4 million for the
nine months ended September 30, 1997, and decreased as a percentage of revenue
from 46.3% in the nine months ended September 30, 1996 to 44.4% in the nine
months ended September 30, 1997. Gross margin was negatively impacted by
reduced staff utilization rates in the EMEA Division caused by the
postponement of a number of large projects in South Africa early in 1997, as
well as lower than expected revenue in Europe. In addition, the decrease in
gross margin resulted from increased overtime expenses, principally in the
second quarter of 1997, as a result of a shortage in professional staff to
service increased consulting opportunities in the Americas Division, partially
offset by increased billing rates in that division.
16
<PAGE>
Selling and marketing expense. Selling and marketing expense increased by
$1.3 million, or 94.1%, from $1.3 million for the nine months ended September
30, 1996 to $2.6 million for the nine months ended September 30, 1997, and
increased as a percentage of revenue from 7.0% in the nine months ended
September 30, 1996 to 8.6% in the nine months ended September 30, 1997. The
increases were primarily attributable to a substantial increase in the
Company's sales and marketing staff from 13 employees at December 31, 1996 to
24 at September 30, 1997.
Development expense. Development expense decreased by $90,000, or 9.7%, from
$926,000 for the nine months ended September 30, 1996 to $836,000 for the nine
months ended September 30, 1997, and decreased as a percentage of revenue from
4.9% in the nine months ended September 30, 1996 to 2.8% in the nine months
ended September 30, 1997. The decreases were primarily attributable to certain
expenditures related to in-house software development incurred in 1996 which
were eliminated in 1997 as a result of the Company's relationship with CBT
Systems. The Company expects that development expense will increase both in
dollars spent and as a percent of revenue in the future as the Company
continues to extend its service offerings. See "Business--Business Strategy."
General and administrative expense. General and administrative expense
increased by $3.7 million, or 81.0%, from $4.6 million for the nine months
ended September 30, 1996 to $8.4 million for the nine months ended September
30, 1997, and increased as a percentage of revenue from 24.3% in the nine
months ended September 30, 1996 to 27.8% in the nine months ended September
30, 1997. The increases were primarily attributable to substantial
expenditures in building the administrative infrastructure of the Company to
support future growth. These expenditures related principally to increases in
the Company's management and administrative staff (including the hiring of a
chief financial officer, corporate controller, and executive vice president
for human resources and the appointment of an executive vice president for
research and development and five members of senior divisional management),
information technology infrastructure investments, and increased occupancy
costs related to the expansion of existing office space and the establishment
of new offices.
Employee stock-related charge. In the nine months ended September 30, 1996,
the Company incurred a charge of $898,000 related to stock awarded to
employees and payments in lieu thereof.
Operating income. Operating income increased by $531,000, or 50.7%, from
$1.0 million for the nine months ended September 30, 1996 to $1.6 million for
the nine months ended September 30, 1997. Exclusive of the non-recurring
compensation charge related to the employee stock issuances, operating income
decreased by $367,000, or 18.9%, from $1.9 million for the nine months ended
September 30, 1996 to $1.6 million for the nine months ended September 30,
1997 and decreased as a percentage of revenue from 10.2% for the nine months
ended September 30, 1996 to 5.3% for the nine months ended September 30, 1997.
Other income (expense), net. Other income (expense) decreased from income of
$64,000 for the nine months ended September 30, 1996 to expense of $63,000 for
the nine months ended September 30, 1997. This change reflects increased
borrowings to support the Company's growth in the 1997 period.
Provision for income taxes. The Company's effective tax rate increased from
35.8% in the nine months ended September 30, 1996 to 38.0% in the nine months
ended September 30, 1997, primarily due to the increase in the proportion of
U.S.-based income, which is taxed at a higher statutory rate. Such proportion
was higher in the 1997 period than in the 1996 period partly because the 1996
period included the $898,000 employee stock-related charge. Exclusive of the
employee stock-related charge, the effective tax rate would have been 36.8% in
the nine months ended September 30, 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Revenue increased by $11.6 million, or 79.2%, to $26.2 million for
1996 compared to $14.6 million for 1995. The Company experienced growth in
each of its three divisions. Revenue from the Americas Division increased by
74.4% from $8.9 million to $15.6 million; revenue from the EMEA Division
increased by 64.9% from $5.4 million to $8.9 million; and revenue from the
Asia Pacific Division increased by 494.8% from $291,000 to $1.7 million. The
Company ended 1996 with 353 total employees, up from 257 employees at the
beginning of 1996. In addition, the Company opened seven new offices during
1996, increasing the total number of offices to 10.
17
<PAGE>
Gross profit. Gross profit increased by $5.1 million, or 72.7%, from $7.0
million for 1995 to $12.0 million for 1996 and decreased as a percentage of
revenue from 47.6% in 1995 to 45.8% in 1996. The decrease in gross margin
related to increases in compensation to the Company's professional staff,
partially offset by higher billing rates on new business.
Selling and marketing expense. Selling and marketing expense increased by
$881,000, or 82.2%, from $1.1 million in 1995 to $2.0 million for 1996 and
increased as a percentage of revenue from 7.3% in 1995 to 7.5% in 1996. The
growth in these expenses was primarily attributable to an increase in the
Company's sales and marketing staff.
Development expense. Development expense increased by $543,000, or 76.8%,
from $707,000 for 1995 to $1.3 million for 1996 and remained constant as a
percentage of revenue at 4.8%. The increase in these expenses was related
principally to increases in the Company's development staff and related
expenses.
General and administrative expense. General and administrative expense
increased by $2.6 million, or 64.3%, from $4.0 million for 1995 to $6.6
million for 1996, and decreased as a percentage of revenue from 27.5% in 1995
to 25.2% in 1996. The growth in these expenses was primarily attributable to
increased administrative staff, including additions to human resources,
recruiting, and training personnel. The decreases in these expenditures as a
percentage of revenue reflected spreading these costs over a larger base of
revenue.
Employee stock-related charge. In 1996, the Company incurred a charge of
$1.9 million related to stock awarded to employees and payments in lieu
thereof.
Operating income. Operating income decreased by $810,000, or 69.6%, from
$1.2 million for 1995 to $354,000 for 1996. Exclusive of the non-recurring
compensation charge, operating income increased by $1.0 million, or 90.0%,
from $1.2 million for 1995 to $2.2 million for 1996, and increased as a
percentage of revenue from 8.0% for 1995 to 8.4% for 1996.
Other income (expense), net. Other income (expense) increased from expense
of $84,000 for 1995 to income of $95,000 for 1996, as a result of
miscellaneous nonoperational charges such as interest income.
Provision for income taxes. The Company's effective tax rate declined from
38.6% for the year ended December 31, 1995 to 31.4% for the year ended
December 31, 1996, due to the decrease in the proportion of U.S.-based income,
which is taxed at a higher statutory rate. Such proportion was lower in 1996
primarily due to the $1,858,000 employee stock-related charge. Exclusive of
the employee stock-related charge, the effective tax rate would have been
36.7% in 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenue. Revenue increased by $7.1 million, or 94.9%, to $14.6 million for
1995 compared to $7.5 million for 1994. The Company experienced growth in each
of its three divisions. Revenue from the Americas Division increased by 120.4%
from $4.1 million to $8.9 million; revenue from the EMEA Division increased by
56.5% from $3.5 million to $5.4 million; and revenue from the Asia Pacific
Division was $291,000 in its first year of operations. The Company ended 1995
with 257 total employees, up from 140 employees at the beginning of 1995. The
Company opened no new offices during 1995.
Gross profit. Gross profit increased by $3.5 million, or 100.3%, from $3.5
million for 1994 to $7.0 million for 1995, and increased as a percentage of
revenue from 46.3% in 1994 to 47.6% in 1995. The increase in gross margin
related to higher billing rates.
Selling and marketing expense. Selling and marketing expense increased by
$622,000, or 138.2%, from $450,000 for 1994 to $1.1 million for 1995, and
increased as a percentage of revenue from 6.0% in 1994 to 7.3% in 1995. The
increase was primarily attributable to a substantial increase in the Company's
sales and marketing staff.
Development expense. Development expense was $707,000, or 4.8% of revenue,
in 1995, the first year that the Company established a formal research and
development group.
18
<PAGE>
General and administrative expense. General and administrative expense
increased by $1.4 million, or 52.7%, from $2.6 million for 1994 to $4.0
million for 1995, and decreased as a percentage of revenue from 35.0% in 1994
to 27.5% in 1995. The growth in these expenses was primarily attributable to
increased administrative staff. The decreases as a percentage of revenues
reflected the spreading of these expenses over the larger base of revenues.
Operating income. Operating income increased by $770,000, or 195.4%, from
$394,000 in 1994 to $1.2 million in 1995, and increased as a percentage of
revenue from 5.3% in 1994 to 8.0% in 1995.
Other income (expense), net. Other income (expense) increased from expense
of $77,000 for 1994 to expense of $84,000 for 1995 as a result of
miscellaneous nonoperational charges.
Provision for income taxes. The Company's effective tax rate increased from
37.5% for 1994 to 38.6% for 1995, due to the increase in U.S. income, which is
taxed at a higher statutory rate.
19
<PAGE>
QUARTERLY OPERATING RESULTS
The following tables set forth unaudited income statement data for each of
the seven quarters in the period beginning January 1, 1996 and ending
September 30, 1997, as well as the percentage of the Company's total revenue
represented by each item. In management's opinion, this unaudited information
has been prepared on a basis consistent with the Company's audited annual
financial statements and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information
for the quarters presented, when read in conjunction with the Financial
Statements and related Notes thereto included elsewhere in this Prospectus.
The operating results for any quarter are not necessarily indicative of
results for any future period. See "Risk Factors--Fluctuating Quarterly
Results; Project Risks."
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED
--------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue................ $5,677 $6,363 $6,999 $7,163 $8,084 $9,897 $12,075
Cost of revenue........ 3,218 3,335 3,666 3,971 4,553 5,609 6,540
------ ------ ------ ------ ------ ------ -------
Gross profit........... 2,459 3,028 3,333 3,192 3,531 4,288 5,535
Selling and marketing
expense............... 234 501 593 625 724 898 956
Development expense.... 182 353 391 324 245 250 341
General and
administrative
expense............... 1,331 1,514 1,776 1,976 2,354 2,558 3,450
Employee stock-related
charge(1)............. -- -- 898 960 -- -- --
------ ------ ------ ------ ------ ------ -------
Operating income....... 712 660 (325) (693) 208 582 788
Other income (expense),
net................... (24) 37 51 31 (2) (33) (28)
------ ------ ------ ------ ------ ------ -------
Income before taxes.... 688 697 (274) (662) 206 549 760
Provision for income
taxes................. 250 257 (109) (257) 78 209 288
------ ------ ------ ------ ------ ------ -------
Net income............. $ 438 $ 440 $ (165) $ (405) $ 128 $ 340 $ 472
====== ====== ====== ====== ====== ====== =======
Net income per share... $(0.08) $ 0.03 $ 0.07 $ 0.09
Weighted average shares
outstanding........... 5,033 5,054 5,054 5,054
<CAPTION>
AS A PERCENTAGE OF REVENUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenue........ 56.7 52.4 52.4 55.4 56.3 56.7 54.2
------ ------ ------ ------ ------ ------ -------
Gross profit........... 43.3 47.6 47.6 44.6 43.7 43.3 45.8
Selling and marketing
expense............... 4.1 7.9 8.5 8.8 9.0 9.1 7.9
Development expense.... 3.2 5.5 5.6 4.5 3.0 2.5 2.8
General and
administrative
expense............... 23.5 23.8 25.3 27.6 29.1 25.8 28.6
Employee stock-related
charge................ -- -- 12.8 13.4 0.0 0.0 0.0
------ ------ ------ ------ ------ ------ -------
Operating income....... 12.5 10.4 (4.6) (9.7) 2.6 5.9 6.5
Other income (expense),
net................... (0.4) 0.6 0.7 0.5 0.0 (0.3) (0.2)
------ ------ ------ ------ ------ ------ -------
Income before taxes.... 12.1 11.0 (3.9) (9.2) 2.6 5.6 6.3
Provision for income
taxes................. 4.4 4.1 (1.5) (3.5) 1.0 2.1 2.4
------ ------ ------ ------ ------ ------ -------
Net income............. 7.7% 6.9% (2.4)% (5.7)% 1.6% 3.5% 3.9%
====== ====== ====== ====== ====== ====== =======
</TABLE>
- --------
(1) Represents a charge for stock awarded to employees and payments in lieu
thereof. Exclusive of this charge, operating income and net income would
have been $573,000 and $392,000, respectively, for the three month period
ended September 30, 1996, and $267,000 and $190,000, respectively, for
the three month period ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations and growth with
cash flow from operations, supplemented by the issuance of Common Stock and by
short-term borrowings under its revolving bank line of credit and from
shareholders.
The Company's cash and marketable securities was $104,000 at December 31,
1994, $592,000 at December 31, 1995, $2.2 million at December 31, 1996 and
$683,000 at September 30, 1997. The Company's working capital was $313,000 at
December 31, 1994, $761,000 at December 31, 1995, $1.6 million at December 31,
1996 and $2.1 million at September 30, 1997.
20
<PAGE>
The Company's operating activities used cash of $2.8 million for the nine
months ended September 30, 1997, compared with cash provided of $1.5 million
for the same period in 1996. The lower levels of cash from operations in the
nine months ended September 30, 1997 primarily resulted from an increase in
receivables. The Company's operating activities provided cash of $1.9 million
in 1996 compared to $443,000 in 1995 and a use of cash of $11,000 in 1994.
These increases in cash provided by operations resulted from higher net income
and an increase in the Company's payables.
The Company's investing activities used cash of $1.5 million for the nine
months ended September 30, 1997, compared with a use of $477,000 for the same
period in 1996. The Company's investing activities used cash of $709,000 in
1996 compared to $264,000 in 1995 and $172,000 in 1994. These increases in the
use of cash from investing activities resulted from increased purchases of
computer and office equipment and leasehold improvements related to expansion
of the Company's business and the support of new office openings.
The Company's financing activities provided cash of $2.9 million for the
nine months ended September 30, 1997, compared with using cash of $12,000 for
the same period in 1996. The increase in cash from financing activities in the
nine months ended September 30, 1997 resulted from a private placement of
shares of Common Stock in February 1997 and borrowings from the revolving line
of credit. The Company's financing activities generated cash of $372,000 in
1996 and $350,000 in 1995 and a use of cash of $97,000 in 1994. The cash
generated from financing activities resulted from funds borrowed from
shareholders and under the revolving line of credit and the issuance of stock,
while cash used in financing activities resulted from payments under the
revolving line of credit.
The Company has a $5.0 million revolving line of credit with a commercial
bank, which bears interest at the prime rate of interest plus 0.5% and is
secured by the Company's accounts receivable generated from its North American
operations. The Company's credit agreement contains customary financial and
other covenants with which the Company is currently in compliance. The Company
utilizes this line of credit, which matures in November 1998, to finance a
portion of its working capital needs. There was a $2.6 million outstanding
balance on September 30, 1997. It is anticipated that a portion of the net
proceeds of this offering will be used to repay the outstanding balance on the
revolving line of credit as of the date of the completion of this offering.
During 1998, the Company expects to make approximately $2.0 million in
capital expenditures primarily for office furniture, computer and office
equipment, and leasehold improvements to support the anticipated growth in its
professional and administrative staff. Capital expenditures in the nine months
ending September 30, 1997 were $1.5 million.
The Company believes the net proceeds from this offering, together with its
current cash balances, cash provided by future operations, and its revolving
line of credit, will be sufficient to meet the Company's working capital and
cash needs for at least the next 12 months.
The Company capitalizes software development costs beginning when product
technological feasibility is established and concluding when the product is
ready for general release. At such time, software development costs are
amortized on the straight-line basis over a maximum of three years or the
expected life of the product, whichever is less. The Company capitalized
approximately $238,000 of software development costs relating to computer-
based training software development and its commencement of the development of
packaged consulting applications during the nine months ended September 30,
1997, and did not recognize any associated amortization expense during the
period. Research costs related to software development are expensed as
incurred.
Because the Company has been and is currently able to match the local
currency component of client engagements to the amount of operating costs
transacted in local currency, the Company has not needed to and does not
currently hedge against currency fluctuations.
21
<PAGE>
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's business during
the past three years. The Company cannot predict what effect, if any,
inflation may have on its future results of operations.
22
<PAGE>
BUSINESS
The Company is a leading international provider of end-user support
solutions to companies which are implementing ERP software systems. Through
its more than 545 employees in 15 offices worldwide, the Company provides
customized change communications, education, and performance support services
to clients. Since 1988, the Company has provided services to over 275 clients,
including 49 of the Fortune Global 500 and three of the Fortune Global 10. The
number of clients served by the Company has increased from 25 in 1992 to 115
in the 12 months ended September 30, 1997. The Company's clients in 1997
included Bristol-Myers Squibb Company, Cadbury-Schweppes PLC, Compaq Computer
Corporation, Hercules, Inc., Hewlett Packard Company, and Shell Petroleum,
Inc. The Company's client base is diversified, with no single client
representing more than 10% of the Company's revenues in 1996 or in the nine
month period ended September 30, 1997. Recognizing the global nature of the
ERP software market and the importance of being able to serve multi-national
clients, the Company has built a substantial international presence. In
addition to its four offices in the U.S., the Company also has 11 offices in
Canada, the United Kingdom, France, South Africa, Australia, and Singapore.
The Company was founded in 1984 in Houston, Texas as an end-user support
company providing documentation services to the oil and gas industry. In 1988,
the Company expanded its end-user support services to include training by
providing a support solution in connection with one of the first major English
language installations of SAP software in the world. Because of the
substantial market opportunity represented by SAP, by 1990, the Company had
made SAP end-user support its primary focus. In the nine months ended
September 30, 1997, revenue from clients implementing SAP software represented
86% of the Company's billed consulting revenue. By focusing on end-user
support, the Company has been successful in institutionalizing its knowledge
base, and has developed content and reference materials, the DA Foundation,
that are applied in developing customized solutions for each client. The
Company has also developed DA Cornerstone, the Company's methodology for
delivering consistently high quality service to its clients. More recently,
the Company has broadened its complement of end-user support services by also
providing change communications consulting and on-line help tools and by
expanding its ERP capabilities to include applications such as J.D. Edwards,
BAAN, and Oracle.
MARKET
Many large and mid-sized businesses face a rapidly changing business
environment, intense global competition, and accelerating technological
change. To remain competitive, such businesses continually seek to improve the
quality of products and services, lower costs, enhance employee efficiency,
and increase value to customers. Businesses are implementing and utilizing
advanced information technology solutions that enable them to redesign their
business processes in such areas as product development, service delivery,
manufacturing, human resources, finance, and accounting. A central element of
this redesigning process for many companies is the replacement of legacy
systems with ERP software applications which offer the increased functionality
and flexibility which is critical to the competitive needs of businesses.
These information technology conversions are being further accelerated by the
"Year 2000" problem, which is causing many companies, as well as governmental
agencies, educational institutions, and non-profit organizations, to upgrade
their technology in lieu of incurring the substantial cost associated with
modifying legacy computer code. As a result of these factors, the market for
ERP software applications is experiencing rapid growth.
Industry sources estimate that the worldwide market for ERP software license
fees was $5.2 billion in 1996 and is expected to grow at a compound annual
rate of 30.0% through 2001 to $19.0 billion. The ERP software market leader is
SAP, a German company with a 1996 market share estimated to have been
approximately 34%. The next largest ERP software providers are Oracle, J.D.
Edwards, Peoplesoft, Inc. and BAAN, which, combined, had a 1996 market share
estimated to have been approximately 28%. In addition to the expenditures for
software license fees, it is estimated by industry sources that an additional
three times that amount is spent on systems integration and implementation
services. In certain cases, these services are provided by the ERP software
developers, but in most cases they are provided by third party service
providers, including information technology consulting firms and the large
international accounting firms.
23
<PAGE>
Because of the substantial effect technology changes have on workers' job
functions, companies are increasingly recognizing the importance of providing
their end-users, which include personnel and management across all business
functions, with the training and tools necessary to utilize these newly
implemented systems effectively. While it is a relatively small cost component
of the overall ERP implementation, such training and tools are critical
factors in companies achieving the expected returns on these substantial
information technology investments. SAP has recommended that 12% of the
expenses budgeted by its clients for systems integration and implementation
services be dedicated to end-user training and tools. The Company believes
that the percentage of expenditures is moving closer over time to the level
recommended by SAP as clients increasingly recognize the importance of end-
user support.
The global market for end-user performance support services for ERP
implementations is large and highly fragmented. Providers include large
international systems integrators which are focused principally on systems
integration and implementation, but also provide end-user support as a
secondary service. In addition, there are a large number of smaller
organizations which specialize in ERP support services, generally serving a
limited geographic area and having a smaller base of technical and managerial
resources. The Company believes that as companies implementing ERP software
increasingly recognize the importance of end-user performance support services
to the success of their ERP implementations, service providers having the
dedicated resources and specialized skills to deliver these services
effectively and consistently across a broad geographic area will be well
positioned to gain an increasing share of this large and growing market.
BUSINESS STRATEGY
The Company's goal is to be the worldwide leader in ERP end-user support
solutions by providing services to clients in all major countries and
languages. The Company's business strategy to achieve this goal includes the
following key components:
Focus Exclusively on End-user Support Services for ERP
Implementations. Since 1988, the Company has provided end-user support
services in connection with ERP software implementations for over 275 clients
in more than 30 countries. With more than 400 professional staff operating
from 14 offices on five continents, the Company believes that it is the
largest international company exclusively focused on providing such services.
The Company believes that end-user performance is the single most important
factor enabling a business enterprise to realize the benefits of the
substantial investments made in ERP software. The Company believes that its
substantial expertise, experience, and exclusive focus on providing these
services enhance its competitive position and will allow it to continue to
benefit from the rapid growth in the market for its services.
Expand Extensive International Presence. Since 1992, when the Company had
one office in the United States and one office in the United Kingdom, the
Company has expanded its presence to 15 offices located in seven countries
across North America, Australia, Asia, Europe, and Africa. The Company
initially enters a new geographic market using its mobile consulting staff to
serve the specific needs of a current client. When justified by ongoing market
demand, the Company will establish a new office which it builds predominantly
with DACG-trained local professionals after initially using senior Company
consultants. The Company believes that its ability to provide consistently
high-quality support services internationally is an important factor in
attracting multinational clients with requirements for the Company's services
across diverse geographic locations. The Company intends to continue to open
new offices in strategically important locations with particular near-term
focus on expanding its presence in the United States, Latin America, and Asia.
See "--Company Organization and Project Management and Methodology" and "--
Facilities."
Maintain and Establish Strong Relationships with ERP Software Vendors. In
1988, the Company provided performance support services for one of the first
English language implementations of SAP software in the world. Since that
time, the Company has provided support solutions to more than 180 clients
installing SAP, while expanding its range of services to support
implementations of several of the other leading ERP applications
24
<PAGE>
developers, including J.D. Edwards (1996), Oracle (1996), and BAAN (1997).
Because the quality of end-user performance support can substantially impact
the success of an ERP installation, SAP has developed its own list of a
limited number of preferred or qualified service providers. DACG is recognized
by SAP as a National Implementation Partner in the United States, Australia,
New Zealand, and South Africa. The Company believes that this status is
important in enabling it to receive referrals from SAP for new business
opportunities. The Company intends to continue to expand and develop new and
existing relationships with ERP application vendors and to develop its service
capabilities to support additional ERP applications. See "--Sales and
Marketing."
Leverage Large, Diversified, Blue-Chip Client Base. Since 1993, the Company
has provided services to 49 of the Fortune Global 500 companies (including
three of the top 10) as well as many other large companies worldwide. This
blue-chip client base provides the Company with substantial credibility when
soliciting business from potential new customers and has proven to be an
important source of referrals. In addition, these customers often have
geographically dispersed organizations with large numbers of end-users
requiring performance support services and staged multi-year ERP
implementation cycles, thereby providing the Company with a source of follow-
on revenue opportunities. The Company's client base is diversified in that the
10 largest clients, in the aggregate, accounted for approximately 53% and 38%
of the Company's revenue in 1996 and the first nine months of 1997,
respectively. No single client accounted for more than 10% of the Company's
revenue in either of these periods. See "--Clients."
Expand Consulting and Sales Organizations. The Company's professional staff
has grown from 40 as of December 31, 1992 to over 400 as of September 30, 1997
and full-time its sales staff has grown from two as of December 31, 1992 to 20
as of September 30, 1997. The Company intends to continue to expand and refine
its recruiting process to attract the best available consulting and sales
staff. When opening new offices, the Company uses core groups of existing
senior Company consultants in order to transfer its strong corporate culture
and its commitment to high quality service to new personnel in geographically
and culturally disparate locations. In addition, DACG has developed a
comprehensive series of training programs covering technical skills, project
methodologies, and management and sales techniques to accelerate the
development of its professional staff, expand their skills, and permit them to
attain increasing levels of responsibility within the organization. The
Company believes that its success in providing its employees with a
challenging and fulfilling work environment, a competitive compensation
structure, and broad-based equity ownership has resulted in annual turnover of
less than 10% per year for the last three years. See "--Recruiting and
Personnel Development."
Extend Service Offerings. The Company has a significant commitment to
continual expansion of its service offerings. Research and development are
focused on three main areas: (1) the development of technology-based solutions
that allow the Company's consultants to generate improved efficiencies as they
develop end-user support solutions for clients; (2) the development of tools
and content specific to the ERP applications produced by all of the major ERP
vendors; and (3) the development of service solutions for areas complementary
to existing businesses such as the development of intranet-based solutions for
the delivery of end-user support services that support the Company's clients'
needs for education and performance support beyond their ERP systems. The
Company considers that its proprietary toolset and its relationship with CBT
Systems to develop computer-based training titles are important means of
gaining market share in the growing ERP middle market.
SERVICES
The Company delivers end-user support solutions designed to maximize the
return on clients' ERP investments while taking into account each client's
individual needs, resources, and requirements. ERP software has a significant
direct impact on the working patterns of a corporation which must be managed
in relation to both implementation of the software and support of that
software over time. The Company performs a thorough review of the procedures
and jobs which ERP end-users will need to perform and uses this information to
develop the requisite end-user support solution for the client. Such solutions
utilize the Company's proprietary methodology, DA Cornerstone, in the delivery
of services consisting of change communications, education, and performance
support programs developed by the Company.
25
<PAGE>
From an initial focus on SAP end-user support, DACG has applied its skill
set to other ERP technologies such as J.D. Edwards, BAAN, and Oracle,
resulting in a portable cross industry, cross technology expertise. See "--
Company Organization and Project Management and Methodology."
Change Communications
Clients managing their business on ERP systems commit themselves to long-
term change. Client end-users are affected by this change, seeing it on the
desktop in the form of new software functionality and in day-to-day business
activities in the form of new procedures and policies. Typical approaches to
managing this change focus on establishing executive management support. The
Company believes, however, that the key to successful ERP implementations is
ensuring the support of end-users because their effective utilization of
technology is critical to the success of ERP investments. Accordingly, the
Company's change communications programs are focused on the end-user. Common
change communications deliverables provided by the Company to its clients
include kick-off meetings and speeches, facilitated collaborative work groups,
multimedia presentations, video presentations, and newsletters. These
deliverables, in addition to providing critical information, also serve to
minimize a client's business disruption by preparing end-users for the impact
of ERP-related changes.
The business goals that drive the implementation of ERP software as
identified by client executive management are used as the starting point for
the development of change communications programs. An analysis is conducted
that determines how the enterprise-wide issues presented by client management
will impact each end-user's daily work routine. These issues are identified
through the Company's use of facilitated collaborative workshops where the
Company's staff work with client end-users to identify areas of greatest
concern. Based on this review, a specific change communications program is
developed for each segment of the end-user audience. This program ensures the
progressive delivery of messages that start with the basic corporate message
and then address issues that are specific to segments (such as the accounts
receivable department) of the client's organization.
Education
The Company develops educational programs specific to each client's needs,
taking into account the client's infrastructure and resources, the scope of
the client's ERP system, and the client's language and cultural needs. In
order to influence the way an end-user works and optimizes his or her
utilization of a new system, educational programs are developed that focus on
specific end-user job responsibilities, as well as on the overall business
processes that impact the end-user. In developing educational content for a
client, the Company utilizes its DA Foundation library which contains training
content that addresses job roles and processes common to ERP software.
The Company consults with the client to determine the appropriate media to
use for delivering the educational content: instructor-led training; computer-
based training; and/or distance learning. Virtually all the Company's clients
utilize instructor-led training courses, which the Company customizes to meet
the particular client's specifications and needs.
Many companies, particularly those with large and geographically dispersed
operations, find computer-based training to be an effective education delivery
method from the standpoint of both cost and time. The Company believes that an
integrated curriculum of instructor-led and computer-based training courses
represents the optimal end-user education solution. The Company offers both
custom and standardized computer-based training modules, utilizing the
resources of the DA Foundation library. The Company has developed the
standardized courseware under a co-development agreement with CBT Systems, one
of the largest companies specializing in computer-based training development
and distribution worldwide. Under the agreement, the Company and CBT Systems
are jointly developing, in conjunction with SAP, a series of 20 computer-based
training courses. As of December 31, 1997, 12 of these titles had been
released; the remaining eight are scheduled to be released over the next six
months. The Company considers the development of computer-based
26
<PAGE>
training titles to be an important means of gaining market share in the
growing ERP middle market as standardized computer-based courses represent a
less expensive means of training for clients that do not require a customized
solution.
The Company also uses distance learning as a method to distribute
educational content within client organizations. Distance learning solutions
are most often utilized by companies with large remote user audiences and
significant information technology infrastructures because they involve
distributing content by using wide area networks, corporate intranets, and
video conferencing technology.
Performance Support
A critical component of the Company's end-user support solution is the
documentation of ERP processes which affect end-users. This documentation is
designed to assist workers in performing their jobs following training. In
utilizing a new system, end-users of technology frequently encounter
situations in which they require assistance. In order to limit workers'
downtime and provide workers with easy access to assistance, paper-based and
on-line references containing relevant policies, processes, and procedures are
often the most effective aids. In coordination with the design of educational
programs, the Company works with each client to assess the ongoing
documentation and performance support needs of the particular audience of end-
users. Utilizing the DA Foundation, the Company then develops support content
for the client, creating a clearly defined set of policies, processes, and
procedures relating the particular ERP software application.
Based upon the client's information technology infrastructure, budget, and
timing needs, the appropriate media for performance support is determined.
Hard copy performance support can be delivered by quick reference guides and
printed documentation. This type of performance support solution is most often
used by those clients who have limited time frames in which to develop an end-
user support solution. These clients can migrate to a more technologically
advanced solution at a later date. More sophisticated performance support
solutions can be delivered through the client's corporate intranet, where DACG
will design and maintain a repository of the end-user support deliverables.
DACG's most sophisticated performance support solution is an electronic
performance support system ("EPSS") which provides comprehensive end-user
support on demand at the desktop so that end-users can minimize interruptions
in seeking help or information relating to a job task. End-users can access
the EPSS from their own desktop and find the answers to the questions they
have about a particular task. Building a comprehensive EPSS solution can be
challenging and costly. To simplify its development, the Company has created a
proprietary software technology, DA PASS. DA PASS is context sensitive, which
means it can track the location of the client end-users in the client's ERP
system, in order to provide support based on the particular application being
run, thereby allowing the Company to create customized ERP end-user support
accessible at a transactional or task level. The Company can link system task,
business procedure, training, and computer-based training files to ERP
transactions using the DA PASS technology, providing sophisticated support to
end-users. A DA PASS solution is typically recommended to those clients that
already have existing corporate intranets, although the Company can consult
with a client to construct a corporate intranet site if required.
The support content ultimately developed for each of the Company's clients
is used to regularly update and expand the DA Foundation library. For example,
although the Company currently utilizes DA PASS on SAP applications only, as
it expands its service offerings to include support for other ERP vendors'
software, it will be able to utilize the DA Foundation library as the basis
for expanding DA PASS to provide performance support content for such other
software applications.
Representative Engagements
While each client project is different, the following case studies
illustrate the range of support solution services the Company has provided to
its clients.
27
<PAGE>
Cadbury-Schweppes PLC ("Cadbury"). United Kingdom-based Cadbury, the third
largest soft drink vendor in the world, decided to replace its legacy computer
systems with "Year 2000" compliant SAP ERP software. Starting with an initial
engagement with Cadbury's subsidiary, Mott's Inc., the Company utilized 10
consultants over the course of eight months to develop a full suite of change
communication, education, and performance support deliverables for Mott's
Canadian SAP roll-out. Following successful delivery of this solution, the
Company was retained by Mott's to deliver end-user support services for Mott's
United States SAP roll-out. These engagements were supported by the Company's
North America Mobile Group. During this period, Cadbury acquired Dr
Pepper/Seven Up, Inc. and began to implement SAP within this organization from
Dr Pepper's base in Dallas. DACG was again retained to deliver end-user
support services for this SAP installation. This engagement was supported by
the Company's Dallas branch and its North America Mobile Group.
Hercules, Incorporated ("Hercules"). DACG was initially engaged in 1993 by
Hercules, a U.S.-based global manufacturer of chemical and pharmaceutical
products, to deliver an end-user support solution in support of Hercules'
implementation of SAP. Hercules had more than 2,000 employees entering
transactions and accessing data on its SAP system. As part of its investment
in technology, Hercules planned to utilize intranet and internet sites to
provide it with a competitive advantage. On the basis of the Company's
understanding of web technologies and Hercules' business, DACG was selected to
assist Hercules in assessing tangible benefits it could derive from
internet/intranet technology. DACG analyzed the means by which Hercules could
deploy web technology through the internet and a corporate intranet to
facilitate employee communication, improve information management, and enhance
product marketing. The Company then provided its consulting services to assist
in the design and implementation of Hercules' intranet and internet sites.
Both the internet and intranet sites were functional within four to five
months from the project start date and Hercules successfully achieved its
objectives. This project demonstrated DACG's ability to capitalize on its
expertise in ERP software applications to provide ERP-related intranet
services.
Cultor Food Science ("Cultor"). A subsidiary of Finland-based Cultor Ltd.,
U.S.-based Cultor Food Science is a worldwide leader in providing food
processors with innovative food ingredients, bulking agents, flavorings, and
food protectants. In order to support its aggressive growth plans and customer
support initiatives, Cultor purchased SAP R/3 applications. Because of the
urgency of its needs, Cultor agreed to become a pilot client for Accelerated
SAP ("ASAP"), allotting only six months to have the new systems operational.
With only three months remaining before implementation, Cultor recognized its
need for outside expertise in training. Using its existing content and its
consulting tool set, DACG successfully developed an end-user support solution
that met the requirements of SAP's ASAP methodology and Cultor's need for
rapid delivery of end-user support. The Company's consultants provided
education and performance support deliverables to cover a wide range of Cultor
business processes, including financial accounting and control, materials
management, sales and distribution, production planning, plant maintenance,
asset management, and quality management. The Company's DA Cornerstone
methodology facilitated a smooth and efficient implementation of the SAP
applications within the client's deadline.
Cabletron Systems, Incorporated ("Cabletron"). U.S.-based Cabletron is a
worldwide leader in providing high performance intranet and internet
solutions, including LAN and WAN switches, and network management software.
DACG was engaged by Cabletron in 1996 to support Cabletron's implementation of
SAP software. The Company developed an end-user support solution covering a
wide range of Cabletron processes, including financial accounting, purchasing,
inventory management, production planning, and sales and delivery processing.
The Company was responsible for the development of an end-user support
solution for 1,100 end-users located across the United States. Delivery of
change communications to Cabletron's staff was a critical component in
preparing end-users for use of the SAP system as all 1,100 end-users were
trained in a one month period prior to Cabletron's commencing use of the
system.
PetroFina SA ("PetroFina"). Brussels-based PetroFina is a leading
international oil and petrochemical firm employing over 13,000 people. Having
worked on the development of an R/2 end-user support solution for
28
<PAGE>
PetroFina since 1994, DACG was selected to provide end-user support services
to PetroFina for its R/3 roll out in 1996. The Company developed an end-user
support solution that covered a wide range of PetroFina's business processes,
supported over 50 end-user job profiles, and was delivered in a number of
languages. Through the delivery of a train-the-trainer program, the design of
all training curricula, the building of an on-line performance support
solution, and the delivery of the foregoing in multiple languages, the Company
ensured the successful roll-out of PetroFina's information technology
investment across Europe. DACG was retained by PetroFina on the basis of its
solid European presence, its proven ability to deliver international end-user
support solutions, and its multi-cultural and multilingual consulting
capabilities.
CLIENTS
The Company provides its support solution services around the world to large
and mid-sized companies, many of which have information intensive,
multinational operations. The Company has provided services to more than 200
clients, including many of the world's leading corporations, in a broad range
of industries such as oil and gas, technology, pharmaceutical and chemicals,
utilities, and telecommunications, consumer products, and manufacturing. The
following is a representative list of the Company's clients served during the
nine months ended September 30, 1997.
Adgas Compaq Computer Corporation Occidental Chemical
Corporation
AlliedSignal Inc. Dealer Solutions LLC PetroFina SA
Amerada Hess Corporation Deere & Company Public Service Electric
& Gas (PSEG)
AMP Inc. Exxon Company South Africa Post
Office
Berlex Laboratories, Hercules, Inc. Service Corporation
Inc. International
Bristol-Myers Squibb Hewlett-Packard Company Shell Petroleum Inc.
Company
Browning-Ferris Kimball International Solvay America Inc.
Industries
Cabletron Systems, Inc. M/A-COM Swift & Co.
Cadbury-Schweppes PLC Mobil Oil Corporation Tenneco Packaging, Inc.
Chiron Diagnostics Montell USA Inc. Woodside Offshore
Petroleum
The Company's ten largest clients, in the aggregate, accounted for
approximately 59%, 53%, and 38% of its revenue in 1995, 1996, and the first
nine months of 1997, respectively. No single client of the Company accounted
for more than 10% of the Company's revenues in 1996 and the first nine months
of 1997. In 1995, one client, for which the Company provided services on
multiple projects for numerous client subsidiaries, represented 17.7% of the
Company's revenue for that year.
COMPANY ORGANIZATION AND PROJECT MANAGEMENT AND METHODOLOGY
Organization
The Company divides its organization into three operating divisions: the
Americas Division, which includes its North, South, and Central America
operations (comprised of a total of six offices as of September 30, 1997); the
EMEA Division, which includes its Europe, Middle East, and Africa operations
(comprised of a total of five offices as of September 30, 1997); and the Asia
Pacific Division, which includes its Australia, New Zealand and Asia
operations (comprised of a total of four offices as of September 30, 1997).
Each division is headed by a member of the Company's management and is further
divided into regions which are generally headed by a
29
<PAGE>
Company vice president. Regions are divided into branches, with each branch
generally organized into five tiers: consultants; project leaders; project
managers; operations managers; and branch managers.
Specifically defined responsibilities, communicated through formal training
programs and review processes, exist at each level, providing the Company's
employees with clearly defined roles and accountability for implementing and
effectuating end-user support solutions world-wide. The operations manager, a
designated senior individual with extensive project management experience, has
primary responsibility for defining the scope of the engagement and satisfying
client expectations regarding this scope. The operations manager also has
responsibility for managing resource availability of staff from within the
Company's organization and for managing project costs. The project manager has
responsibility for the execution of the planned project and the production of
all deliverables within budget and on-time. The project manager oversees
project staffing and works with the operations manager to locate additional
Company resources if required. Company-wide executive management, strategic
planning, and financial administration are conducted from the Company's
corporate headquarters in Houston, Texas.
Project Methodology and Management
The Company's DA Cornerstone project management methodology is a key
component in its delivery of quality end-user support solutions to its
clients. DA Cornerstone is DACG's comprehensive six phase, end-user support
methodology that addresses key end-user support program deliverables,
activities, and milestones throughout the life cycle of an ERP implementation.
Each phase has associated tools that facilitate the completion of that phase's
activities and deliverables.
DA Cornerstone phases include:
Analyze: The operations manager, together with the project manager or
leader, analyzes the client needs, resources, and
requirements. Once this process is complete, the Company
submits to the client an end-user support strategy document
comprised of change communication, education, and performance
support strategies and deliverables for its approval.
Prototype Once the change communication, education, and performance
and Design: support strategies are approved, the project manager or
leader, with the support of the operations manager, designs
deliverables and sets up appropriate development strategies
for the support solution. The client must approve the end-user
support program design.
Develop: The entire project team executes the change communications,
education, and performance support development strategies, and
submits all deliverables for frequent internal and client
review.
Implement: The entire project team delivers the change communication,
education program, and performance support to the end-users.
Evaluate: The operations manager and the project manager evaluate the
effectiveness of the end-user support program using
appropriate tools.
Support: The operations manager and the project manager set up the post
implementation, long- term maintenance strategy for the end-
user support program.
The Company's project staff develops each end-user support component through
an iterative draft and review process that directly involves client end-users
in the development of content specific to their needs. This review process
typically consists of three stages and has quality control steps embedded in
each stage as formal checkpoints. These checkpoints are intended to ensure
that the client is satisfied with the deliverables, that the content is
accurate and adheres to the Company's own standards, and that the project is
delivered in a cost-effective and timely manner. The success of a given
project engagement from a cost, time, and client satisfaction standpoint is
the responsibility of the assigned operations and project managers.
30
<PAGE>
SALES AND MARKETING
The Company generates business through a field sales force which sells
directly and pursues client and vendor referrals and trade show leads. In
addition, the Company co-markets, in the form of joint sales calls and
marketing materials, with ERP vendors and CBT Systems.
The Company's direct sales efforts are performed worldwide by its 20 full-
time sales personnel, each of whom has either a branch territory or regional
focus. The sales personnel generate leads from several sources, including
referrals from the Company's existing clients and from attendance at industry
trade shows. Among its sales and marketing efforts, the Company's sales force
has presented the Company's expertise at SAPPHIRE, the annual SAP America
conference for SAP service providers and end-users. Other shows at which the
Company participates and has an opportunity to demonstrate its expertise
include: SAP conferences in the United States (ASUG, the Americas SAP User
Group), South Africa (SAPHILA), Latin America (SAP Universe), Europe,
Australia, and Singapore; J.D. Edwards conferences (Focus and User Group); and
BAAN world conferences. The Company also uses internet-based marketing, direct
mail, advertising in trade magazines, road show events, and networking through
regional business communities to generate potential sources for new business.
The Company's strategic business alliances, including those which the
Company maintains with SAP, J.D. Edwards, and CBT Systems, are a source of
generating new business. DACG is recognized by each of SAP, Oracle, and J.D.
Edwards as a preferred or qualified provider of end-user support services. As
part of its overall relations with SAP, the Company has SAP National
Implementation Partner status in the United States, Australia, New Zealand,
and South Africa. This status allows for participation in SAP's partner
program and exhibitor attendance at SAP conferences. In addition, the Company
develops and delivers to potential clients joint proposals with certain of
these business alliance partners, with the proposals covering software
applications, software implementation services, and end-user support
solutions. The Company has been successful in obtaining new business through
these joint proposals.
The Company's services require a substantial financial commitment by clients
and, therefore, typically involve a long sales cycle. Once a lead is
generated, the Company endeavors to understand quickly the potential client's
business needs and objectives in order to develop the appropriate solution and
bid accordingly. The Company's operations and project managers are involved
throughout the sales cycle to ensure mutual understanding of client goals,
including time to completion and technological requirements. Sales cycles for
end-user support solution projects typically range from one to six months from
the time the Company initially meets with a prospective client until the
client decides whether to authorize commencement of an engagement. The
retention of the Company typically occurs at the beginning of the
design/prototype stage of the software implementation.
RECRUITING AND PERSONNEL DEVELOPMENT
As of September 30, 1997, DACG's personnel consisted of 548 employees, 408
of which were professional staff, 24 of which were sales and marketing staff,
19 of which were research and development staff, and 97 of which are
administrative staff. The Company believes that its success depends in large
part on its attracting, retaining, and motivating talented, creative, and
professional employees at all levels. The Company seeks to hire personnel with
prior consulting experience in ERP end-user education programs, education
professionals with a background in information technology, and information
technology professionals with experience with education or communication
programs. Strong project management, analytical and communications skills and
meaningful international experience are also considered. Recruiting is
coordinated company-wide through the Company's human resources department.
Training and mentoring are integral parts of the Company's staff development
program. The Company's training programs ensure that its professional staff
understands the impact of technology on people, is able to communicate
effectively at all levels within a client organization, and has the ability to
communicate with its
31
<PAGE>
clients' technical, business, and management staff in order to gain an
understanding of client end-user support requirements. Ongoing training
includes a blend of in-house and external training. In-house training includes
basic ERP training, more detailed ERP software education, project management,
consultancy skills, and leadership training. The use of DA Foundation
materials and the application of performance support technologies such as DA
PASS are also covered. In addition, all consultants are required to attend a
DA Cornerstone methodology training program, and to be approved for its use
before being assigned to any consulting project. External training programs
focus on project and time management skills.
The Company believes that its culture is central to its ability to attract
and retain highly skilled and motivated professionals. Extensive technical,
management, and sales training enable DACG professionals to expand their
skills and attain increasing levels of responsibility within the organization.
The Company attracts and motivates its professional and administrative staff
by offering competitive packages of base and incentive compensation and
benefits. All professional staff members are eligible for bonuses. The Company
appreciates the importance of recognition and a promotion track for its
administrative staff and fully integrates this staff into the conduct of its
business. The Company has experienced staff retention rates in excess of 80%
over each of the past three years. Further, all of the Company's employees are
eligible to receive stock options. After the completion of this offering, 256
employees (representing approximately one-half of the Company's employees as
of September 30, 1997) will own, in the aggregate, approximately 20% of the
post-offering, fully diluted equity of the Company. See "Management--1997
Stock Option Plan."
RESEARCH AND DEVELOPMENT
DACG established a research and development department in 1995 to support
and maintain its end-user support content and consulting methodologies. The
division, which consisted of 19 persons as of September 30, 1997, is
responsible for developing and maintaining DA PASS, DA Foundation, and the
Company's consulting methodologies, including the development of the Company's
proprietary toolset used for the rapid deployment of end-user support
solutions. The division is also responsible for developing computer-based
training in cooperation with CBT Systems.
The Company's research and development department continually applies
technology developments to the Company's content and tools. As technology has
advanced, DACG has kept pace with this development, expanding its deliverables
from traditional hard copy materials and instructor led training to include
on-line documentation, multimedia training, EPSS, and web-based education and
performance support solutions. The division works directly with the Company's
human resources department to ensure that the Company's consultants are
trained to support each new release of the consulting methodologies. The
Company considers research and development as a key to the expansion of its
service offerings and plans to increase its expenditures in this area in 1998.
COMPETITION
The global market for end-user performance support services for ERP
implementations is large and highly fragmented and is subject to low barriers
to entry and rapid change. Providers include large international systems
integrators, such as the consulting practices of the large international
accounting firms, which are focused principally on systems integration and
implementation but also provide end-user support as a secondary service. In
addition, the Company competes with the professional services groups of many
large technology and management consulting companies and a large number of
smaller organizations which specialize in ERP support services, generally
serving a limited geographic area and having a smaller base of technical and
managerial resources. In addition, clients may elect to use internal resources
to satisfy their needs for the services the Company provides. The Company
faces competition for client assignments from a number of companies having
significantly greater financial, technical, and marketing resources and
greater name recognition than the
32
<PAGE>
Company. The Company believes that the key competitive factors forming the
basis upon which these companies compete are experience, reputation, industry
focus, international presence, service offerings, and price relative to the
value of the services provided. The Company believes that it competes
effectively and will continue to compete effectively with respect to each of
these factors both in the United States and internationally.
FACILITIES
Currently, the Company maintains 15 offices on five continents. The
Company's headquarters is at 5847 San Felipe Road, Suite 3700, Houston, Texas,
where it leases approximately 20,000 square feet of space. This lease expires
in June 2004. The Company also maintains domestic offices in the metropolitan
areas of Boston, Dallas, and Philadelphia, and foreign offices in Toronto,
Mexico City, London, Paris, Singapore, Melbourne, Sydney, Brisbane, Durban,
Johannesburg, and Cape Town. Each of these offices is located near one or more
significant clients of the Company, and, except for Durban, have terms which
will expire in between one and seven years (exclusive of renewal options
exercisable by the Company). The Company's strategy is to locate offices in
areas where it has significant client work. All of the Company's offices are
electronically linked together and have access to all of the Company's
capabilities and core consulting tools. From time to time, the Company uses
office space provided at client sites to facilitate performance of its
services and maximize client contact. Where the Company operates in a country
without an established office, operations are handled on a mobile basis with
corporate support being delivered from one of its regional centers in Houston,
London, Sydney, or Johannesburg. The Company believes that its facilities are
adequate for its current needs and that additional facilities can be leased to
meet future needs.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies upon a combination of nondisclosure and other contractual
arrangements and trade secret laws to protect its proprietary rights. The
Company generally enters into confidentiality agreements with its key
employees and clients, thereby seeking to limit distribution of proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use of and
take appropriate steps to enforce its intellectual property rights. Software
developed and other materials prepared by the Company in connection with
client engagements are usually assigned to the Company's clients following the
termination of the engagement. The Company retains the right to use the
general know-how developed by the Company in the course of the engagement, and
this accumulated knowledge is the basis for the DA Foundation. The Company
also retains all rights to certain of its proprietary methodologies and
software (such as DA PASS and computer-based training software), the benefit
of which the Company provides to the client by royalty-free license.
DA Foundation and DA Team Teach are registered trademarks and/or service
marks of the Company. The Company also claims common law trademark rights in
DA Consulting Group, DA, and the DA logo, for which the Company has filed
applications for federal registration in the United States Patent and
Trademark Office. Furthermore, the Company claims common law trademark rights
in various other marks, including DA Cornerstone, DA PASS, and the slogan
Solutions for People and Technology, but has not decided at present to file
applications for trademark registration for any of these other marks. The
Company holds no patents. The Company has registered the copyright in the
computer programs titled "DA Basic Skills Training for SAP R/3" and "DA Basic
Skills Training for SAP R/3 v2.0 US." The Company also claims the copyright in
numerous other works and may elect to register such copyrights on a case-by-
case basis.
LEGAL PROCEEDINGS
From time to time, the Company is a party to routine litigation in the
ordinary course of business. The Company is not currently a party to any
material pending legal proceedings.
33
<PAGE>
MANAGEMENT
The following table sets forth information regarding the executive officers
and directors of the Company:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS: AGE POSITION
- --------------------------------- --- --------
<S> <C> <C>
Nicholas H. Marriner...... 55 President, Chief Executive Officer, and Director
Patrick J. Newton......... 31 Chief Operating Officer
Michael J. Mackey......... 40 Chief Financial Officer, Executive Vice
President, Finance and Administration,
Treasurer, and Secretary
Lisa L. Costello.......... 28 Executive Vice President, Research and
Development
Eric J. Fernette.......... 40 Executive Vice President, Human Resources
Virginia L. Pierpont...... 55 Director and Chair of the Board
Nigel W.E. Curlet......... 52 Director
Gunther E.A. Fritze....... 61 Director
Richard W. Thatcher, Jr... 58 Director
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
Nicholas H. Marriner joined the Company in 1991 as its Financial Director
and in 1993 became the Company's Chief Executive Officer. Until June 1996, Mr.
Marriner was also a partner in Clark Whitehill Joselyn, an accounting firm
which until December 1997 provided accounting services to the Company. See
"Certain Relationships and Related Transactions." Mr. Marriner attended Leeds
University and is a Fellow of the Institute for Chartered Accountants in the
United Kingdom. Mr. Marriner is married to Ms. Pierpont.
Patrick J. Newton joined DACG in London in 1991 as a consultant. He was
promoted to Branch Manager of the Mobile Group in July 1995, to Vice President
of the Mobile Group in January 1996, to President of the Americas Division in
July 1996, and to Chief Operating Officer in January 1997. As Chief Operating
Officer, he is responsible for the worldwide operations of the Company. Mr.
Newton received his B.A. from Oxford University.
Michael J. Mackey joined the Company in February 1997 as its Chief Financial
Officer and is primarily responsible for the finance and administrative
functions of the Company. Prior to joining the Company, from 1990 to 1996, Mr.
Mackey was employed by Global Software, Inc., a technology company with
consulting and products divisions, most recently as its Chief Financial
Officer. Mr. Mackey received his B.S. from the University of Florida and his
MBA from the University of Central Florida and is a Certified Public
Accountant.
Lisa L. Costello joined DACG as a consultant in February 1993. She assumed
the position of Operations Manager of the Americas Division Mobile Group in
January 1996, and in July 1996 she was promoted to Director of Research and
Development for DACG's Americas Division. In January 1997, she was promoted to
Vice President and, in August 1997, to Executive Vice President, Research and
Development, with responsibility for research and development worldwide. Prior
to joining the Company, from June 1991 to January 1993, Ms. Costello was a
technical writer with Software Interfaces, Inc. Ms. Costello received her B.A.
from the University of St. Thomas, Houston.
Eric J. Fernette joined the Company as Executive Vice President, Human
Resources in July 1997. Prior to joining the Company, from 1987 to 1996, Mr.
Fernette was employed by Compaq North America in various capacities, most
recently as Director of Human Resources, North America Division. From 1979 to
1987, Mr. Fernette was a Human Resources Manager with ITT. Mr. Fernette
received his B.S. from Arizona State University.
Virginia L. Pierpont founded DACG as a sole proprietorship in 1984,
incorporated the business in 1987, and opened its United Kingdom operation in
1988. Ms. Pierpont was the Chief Executive Officer of the Company from 1984 to
1993 and has been Chair of the Board since December 1996. Ms. Pierpont
received her B.A. from Boston University. Ms. Pierpont is married to Mr.
Marriner.
34
<PAGE>
Nigel W.E. Curlet has served as a director since December 1996. Since 1976,
he has been employed in various capacities by Shell Chemical Company and is
currently its Manager of Business Process Design. Mr. Curlet's prior
management roles at Shell were in its information technology, research and
development, and operations and strategic planning departments. He received
his B.S. from Birmingham University and his S.C.D. from Massachusetts
Institute of Technology.
Gunther E.A. Fritze has served as a director since December 1996. Since
1962, he has been employed in various capacities by Bank of Boston and is
currently its Manager, Finance Companies. He received his B.A. from Harvard
College and his MBA from Harvard Business School.
Richard W. Thatcher, Jr. has served as a director since December 1996. Since
1992, he has been Senior Vice President in the investment banking department
of Pennsylvania Merchant Group Ltd, one of the Representatives of the
Underwriters. He received his B.S. in engineering and his MBA from Cornell
University.
The Restated Articles provide for the Board of Directors to be divided into
three classes serving staggered three-year terms. The term of office of the
first class of directors, consisting of Messrs. Curlet and Fritze, will expire
at the 1999 annual meeting of shareholders, the term of office of the second
class, consisting of Ms. Pierpont and Mr. Thatcher, will expire at the 2000
annual meeting of shareholders, and the term of office of the third class,
consisting of Mr. Marriner, will expire at the 2001 annual meeting of
shareholders. At each annual meeting of shareholders, the class of directors
to be elected at such meeting will be elected for a three-year term, and the
directors in the two other classes will continue in office.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid a fee of $1,250 for
each board and committee meeting attended in person and all directors are
reimbursed for travel expenses as incurred.
BOARD COMMITTEES
Promptly after the completion of this offering, the Board of Directors will
establish an Audit Committee, the initial members of which will be Messrs.
Curlet, Fritze, and Thatcher, and a Compensation Committee, the initial
members of which will be Ms. Pierpont and Messrs. Curlet and Fritze. The Audit
Committee will review the qualifications of the Company's independent
auditors, make recommendations to the Board of Directors regarding the
selection of independent auditors, review the scope, fees and results of any
audit, and review non-audit services and related fees provided by the
independent auditors.
The Compensation Committee will be responsible for determining compensation
for the executive officers of the Company, including bonuses and benefits, and
will administer the Company's compensation programs, including the Company's
1997 Stock Option Plan.
The Board of Directors does not have a nominating committee. The selection
of nominees for the Board of Directors is made by the entire Board of
Directors. The Board of Directors may from time to time establish other
committees to facilitate the management of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Prior to this offering, the Company has had no separate Compensation
Committee or other committee performing equivalent functions. As a result,
compensation matters were performed by the Board of Directors or senior
management of the Company. A majority of the directors expected to serve on
the Compensation Committee will be non-employee directors of the Company. No
director or executive officer of the Company is a director or executive
officer of any other corporation that has a director or executive officer who
is also a director of the Company.
35
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth, as to the Chief Executive Officer and the
only other executive officers whose annual salary and bonus exceeded $100,000
in 1997 (collectively, the "Named Executive Officers"), information with
respect to annual and long-term compensation earned during the last three
fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
------------
NUMBER OF
ANNUAL COMPENSATION(1) SHARES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(2) BONUS OPTIONS COMPENSATION(3)
- --------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Nicholas H. Marriner...... 1997 $270,000 $180,000 -- $ 7,919
President and Chief 1996 $180,000 $129,600 -- $ 9,885
Executive Officer 1995 $149,386 $ 38,820 -- $ 9,772
Patrick J. Newton......... 1997 $210,000 $140,000 8,400 --
Chief Operating Officer 1996 $125,000 $125,000 -- $291,960
1995 $ 78,209 -- -- --
Michael J. Mackey(4)...... 1997 $142,083 $ 40,000 63,000 $ 4,354
Chief Financial Officer, 1996 -- -- --
Executive Vice President, 1995 -- -- -- --
Finance and --
Administration,
Treasurer, and Secretary
Lisa L. Costello.......... 1997 $136,343 $ 56,000 21,000 $ 7,657
Executive Vice President, 1996 $ 97,200 $ 32,500 -- $ 300
Research and Development 1995 $ 50,630 -- -- $ 2,100
Eric J. Fernette(5)....... 1997 $ 47,917 $ 20,000 25,200 --
Executive Vice President, 1996 -- -- -- --
Human Resources 1995 -- -- -- --
</TABLE>
- --------
(1) All figures converted to U.S. dollars based upon the exchange rate at the
end of the applicable fiscal year.
(2) Salary includes amounts deferred, if any, pursuant to the Company's 401(k)
plan.
(3) Amounts include compensation expense attributed to employee stock grants,
employer 401(k) contributions and Company perquisites.
(4) Mr. Mackey became Chief Financial Officer on February 1, 1997 at a base
annual salary of $155,000. Options with respect to 63,000 shares of Common
Stock were granted to Mr. Mackey on February 1, 1997.
(5) Mr. Fernette became Executive Vice President, Human Resources on July 28,
1997 at a base annual salary of $115,000. Options with respect to 25,200
shares of Common Stock were granted to Mr. Fernette on August 1, 1997.
Employment Agreements
The Company has entered into employment agreements with the Named Executive
Officers effective January 1, 1998, the initial terms of which expire on
December 31, 1998. The initial base annual salaries under the employment
agreements of the Named Executive Officers are $432,000 for Mr. Marriner,
$306,000 for Mr. Newton, $169,200 for Mr. Mackey, $144,000 for Ms. Costello,
and $144,000 for Mr. Fernette. The base annual salary of each of the Named
Executive Officers is subject to increases periodically at the discretion of
the Board of Directors, and each Named Executive Officer may receive an annual
bonus as determined by the Board of Directors. Each of the employment
agreements provides for customary benefits, including life, health and
disability insurance and 401(k) plan participation. Each of the employment
agreements further provides that if
36
<PAGE>
the employee is terminated without cause, such employee is entitled to
severance pay of up to one year's base salary, bonus, and benefits. In the
event such employee is terminated in connection with a change in control (as
defined therein), Mr. Fernette and Ms. Costello would be entitled to receive
one year's base salary and benefits and 100% of any bonus paid with respect to
the calendar year immediately preceding termination, and Messrs. Mariner,
Newton, and Mackey would be entitled to receive two years' base salary and
benefits and 200% of any bonus paid with respect to the calendar year
immediately preceding termination.
Key Man Insurance
Messrs. Marriner, Newton, and Mackey are key employees of the Company and
the contribution of each of them to the Company has been and will continue to
be a significant factor in the Company's future success. The loss of any of
them could adversely affect the Company's business and results of operations.
The Company maintains, and is the beneficiary of, "key man" life insurance
policies on the lives of Messrs. Marriner, Newton, and Mackey each in the face
amount of $1.0 million.
Option Grants
The following table sets forth information regarding options to purchase
shares of Common Stock granted to the Named Executive Officers during 1997.
OPTION GRANTS DURING 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZED
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(2)
------------------------------------------------- -------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED EXERCISE PRICE EXPIRATION
NAME GRANTED TO EMPLOYEES PER SHARE(1) DATE 5% 10%
- ---- ---------- ------------ -------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nicholas H. Marriner.... -- -- -- -- -- --
Patrick J. Newton....... 8,400 1.7% $5.71 1/31/2007 $116,193 $ 213,449
Michael J. Mackey....... 63,000 13.2 5.71 1/31/2007 871,444 1,600,869
Lisa L. Costello........ 21,000 4.4 5.71 1/31/2007 290,481 533,623
Eric J. Fernette........ 25,200 5.2 6.55 7/31/2007 327,578 619,348
</TABLE>
- --------
(1) The exercise price equaled the fair market value of a share of Common
Stock on the date of grant as determined by the Board of Directors. The
exercise price is payable in cash or by delivery of shares of Common Stock
having a fair market value equal to the exercise price of the options
exercised. All options vest in one-third installments on the second,
third, and fourth anniversaries of the date of grant.
(2) The assumed annual rates of appreciation of 5% and 10% would result in the
price of a share of Common Stock increasing to $19.55 and $31.12,
respectively, from the assumed initial public offering price of $12.00 per
share, during the 10 year term of the options. The vesting of unvested
options may be accelerated at any time by the Company. The 5% and 10%
assumed annual rates of stock price appreciation used to calculate
potential gains to optionees are mandated by the rules of the Commission.
The potential realizable value does not represent the Company's prediction
of its stock price performance. There can be no assurance that the stock
price will actually appreciate over the 10 year option term at the assumed
5% and 10% levels or at any other level.
37
<PAGE>
Option Exercises and Holdings
The following table sets forth information concerning the number and value
of unexercised options to purchase shares of Common Stock held by the Named
Executive Officers as of December 31, 1997. No Named Executive Officer
exercised any options to purchase shares of Common Stock during 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES EXERCISABLE/ IN-THE-
ACQUIRED UNEXERCISABLE MONEY
UPON VALUE OPTIONS AT OPTIONS AT
NAME EXERCISE REALIZED YEAR-END(1) YEAR-END(2)
- ---- -------- -------- ------------- -----------
<S> <C> <C> <C> <C>
Nicholas H. Marriner................ -- -- -- --
Patrick J. Newton................... -- -- 8,400 $ 52,800
Michael J. Mackey................... -- -- 63,000 396,000
Lisa L. Costello.................... -- -- 21,000 132,000
Eric J. Fernette.................... -- -- 25,200 137,400
</TABLE>
- --------
(1) All options were unexercisable on December 31, 1997.
(2) Value is based on the $12.00 per share assumed initial public offering
price less the per share exercise price.
EMPLOYEE BENEFIT PLANS
1997 Stock Option Plan
The Company adopted its 1997 Stock Option Plan (the "Stock Option Plan")
effective February 1, 1997. The Company believes that the Stock Option Plan
will promote the long-term growth and profitability of the Company by
providing key people associated with the Company with incentives to improve
shareholder value and to contribute to the growth and financial success of the
Company. Moreover, the Company believes that the Stock Option Plan will help
the Company to attract, retain, and reward the best available persons for
positions of substantial responsibility.
The Stock Option Plan has been administered by the Board of Directors and
will be administered by the Board's Compensation Committee after the
completion of this offering. The Board of Directors has exclusive authority:
(i) to grant Awards (as defined below) under the Stock Option Plan; (ii) to
make all interpretations and determinations affecting the Stock Option Plan;
and (iii) to determine the individuals to whom Awards are granted, the amount
of such Awards, any applicable vesting schedule, and any other terms of an
Award.
Participation in the Stock Option Plan is limited to employees and members
of the Board of Directors of the Company or any of its subsidiaries, as well
as independent contractors and consultants of the Company (the
"Participants"). Awards under the Stock Option Plan may be in the form of
incentive stock options ("ISOs") that meet the requirements of Section 422 of
the Internal Revenue Code or "nonqualified" stock options ("NQSOs")
(collectively, "Awards"). ISOs may only be granted to individuals who are
employees of the Company at the date of grant. All options vest in one-third
installments on the second, third and fourth anniversaries of the date of
grant, unless otherwise specified in the terms of an individual Award. Awards
under the Stock Option Plan are not transferable by the Participants, except
upon death. If any Award issued under the Stock Option Plan expires or becomes
unexercisable for any reason without having been exercised in full, or if
shares issued pursuant to an Award are subsequently repurchased by the
Company, the unpurchased or repurchased shares will again become available for
future Awards under the Stock Option Plan.
The Stock Option Plan provides for the grant of stock options to purchase up
to an aggregate of 1,260,000 shares of Common Stock. In the event of any stock
split, reverse stock split, stock dividend, recapitalization,
reclassification, merger, consolidation, exchange of shares, offering of
rights to purchase shares of Common
38
<PAGE>
Stock at a price substantially below fair market value, or other similar
event, appropriate proportional adjustments may be made to the number of
shares reserved for issuance under the Stock Option Plan and the number, kind,
and price of shares covered by outstanding Awards. The Stock Option Plan also
provides for the ability of the Board or the Compensation Committee to
accelerate the vesting of all unvested options, to accelerate the expiration
date of all options, whether or not vested, or to take certain other actions
upon the occurrence of a "Change of Control," as such term is defined in the
Stock Option Plan. Stock options may not be exercised more than 10 years after
the date of grant (five years after the date of grant with respect to an ISO
granted to any person who owns stock of the Company possessing 10% or more of
the total voting power of all the Company's stock at the time of the grant).
The Board has the discretion to award stock options to Participants as
either ISOs (employees only) or as NQSOs. Stock options awarded to
Participants who are not employees will be NQSOs. The exercise price of an ISO
must be not less than the fair market value of the Common Stock on the date
the option is granted (110% of fair market value with respect to an ISO
granted to any person who owns stock of the Company possessing 10% or more of
the total voting power of all the Company's stock at the time of the grant),
and is payable upon the exercise of the option. Although the exercise price of
an NQSO may be less than the fair market value of the Common Stock on the date
the option is granted, the Board does not intend to grant NQSOs at less than
fair market value. The number of shares covered by ISOs granted to any
optionee is limited such that the aggregate fair market value of stock
(determined as of the date of the grant) with respect to which ISOs are
exercisable for the first time by such optionee in any calendar year may not
exceed $100,000. The excess options, if any, will be treated as NQSOs.
If an optionee's service with the Company ceases for any reason other than
death, disability, or termination for cause, unless otherwise specified in the
terms of an individual option agreement, any option exercisable on the date of
such termination generally may be exercised for a period of three months from
the date of such termination or until the expiration of the stated term of the
option, whichever period is shorter. In the event of termination of service by
reason of death or disability, unless otherwise specified in the terms of an
individual option agreement, any option exercisable at the date of such
termination generally may be exercised for a period of one year from the date
of termination or until the expiration of the stated term of the option,
whichever period is shorter. If an optionee's service is terminated for cause,
any option not exercised prior to the date of such termination shall be
forfeited.
As of September 30, 1997, options to purchase an aggregate of 448,589 shares
of Common Stock were outstanding under the Stock Option Plan at a weighted
average exercise price of $5.91 per share, including options to purchase the
following number of shares held by the following directors and executive
officers: Mr. Newton (8,400 shares); Mr. Mackey (63,000 shares); Ms. Costello
(21,000 shares); Mr. Fernette (25,200 shares); Mr. Curlet (12,600 shares); Mr.
Fritze (12,600 shares); and Mr. Thatcher (12,600 shares). In addition, the
Company expects to grant to employees, as of the date of this Prospectus,
options to purchase an aggregate of 210,000 shares of Common Stock under the
Stock Option Plan at an exercise price equal to the initial public offering
price per share, including options to purchase the following number of shares
to the following executive officers: Mr. Newton (10,000 shares); Mr. Mackey
(10,000 shares); and Ms. Costello (5,000 shares).
401(k) Plan
The Company sponsors a 401(k) profit sharing plan (the "401(k) Plan") which
covers substantially all of its U.S. employees. Employees are eligible to
participate after completing three months of service. The 401(k) Plan provides
for elective contributions by employees up to the maximum limit allowed by the
Internal Revenue Code. The Company currently matches 50% of the amount
deferred by participants, on deferral amounts up to 7.5% of compensation.
Although the Company has not made any profit sharing contributions, the 401(k)
Plan permits the Company to make a discretionary profit sharing contribution
which, if made, is allocated to the accounts of participants who have been
credited with 1,000 hours of service during a plan year and who are employed
on the last day of a plan year. The Company made matching contributions equal
to $0.06, $0.06, and
39
<PAGE>
$0.50 for each dollar contributed to the 401(k) Plan, subject to the limits
noted above, by employees during 1994, 1995, and 1996, respectively. An
employee is fully vested in the matching contributions after six years of
employment, or earlier upon attainment of appropriate retirement age, upon
retirement due to disability, or upon death. The Company made contributions to
the 401(k) Plan aggregating approximately $2,000, $9,000, and $92,000 during
the years ended December 31, 1994, 1995, and 1996, respectively. Payment of
benefits is generally made in the form of a single lump sum or in installments.
Incentive Compensation and Profit Sharing Policies
The Company has implemented incentive compensation and profit sharing
policies which cover substantially all salaried employees. Employees in
positions at project manager or below, as well as administrative staff, are
eligible for discretionary profit sharing payments. Each employee's profit
sharing payment is based on a formula and is contingent upon his or her level
of salary and length of service. Employees in positions at project manager or
above are eligible for incentive compensation payments based on satisfaction of
applicable performance criteria. The Company approved and recognized incentive
compensation and profit sharing payments aggregating $190,000, $650,000, and
$1,258,000 for the years ended December 31, 1994, 1995, and 1996, respectively.
Prior Plan and Awards
The Company adopted a stock plan in 1996 which allowed certain employees to
purchase shares of Common Stock at fair market value on such date. An aggregate
of 123,753 shares were purchased pursuant to this plan. No additional shares
will be granted or sold under this plan. In addition, the Company awarded
464,848 shares of Common Stock to certain key employees in 1996. No cash
consideration was paid for such shares. See "Certain Relationships and Related
Transactions."
40
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1995, 1996, and the nine months ended September 30, 1997, the Company
paid $160,000, $100,000, and $100,000, respectively, for accounting services
provided by Clark Whitehill Joselyn, an accounting firm of which Nicholas H.
Marriner, the President and Chief Executive Officer of the Company, was a
partner until June 1996.
In October 1997, the Company entered into a contract with Richard W.
Thatcher, Jr., a director of the Company and Senior Vice President in the
investment banking department of Pennsylvania Merchant Group Ltd, one of the
Representatives of the Underwriters, pursuant to which Mr. Thatcher provides
certain financial advisory services to the Company in exchange for a monthly
retainer of $5,000 and payment of certain fees in the event of the successful
completion of an acquisition or merger. The Company believes that these
consulting services, which will continue through December 1998, are being
provided by Mr. Thatcher at a fair market rate.
As of January 1, 1995, the Company owed Mr. Marriner and Virginia L.
Pierpont, Chair of the Board of Directors of the Company, approximately
$280,000 in respect of loans and other advances from Mr. Marriner and Ms.
Pierpont to the Company. During 1995, additional loans and other advances were
made. These amounts were payable on demand and interest was accrued at a
discretionary variable rate (approximately 16%). As of December 31, 1995 and
1996, the Company's indebtedness to these principals amounted to $312,000 and
$356,000, respectively. Interest expense related to the Company's indebtedness
to these principals amounted to $45,000 and $53,000 for the years ended
December 31, 1995 and 1996, respectively, In March 1997, the Company repaid
the outstanding balance of this indebtedness.
In June 1996, the Company loaned Cynthia Gibson, a Selling Shareholder, and
a trust for the benefit of Piero Granelli, another Selling Shareholder, an
aggregate of $413,000, all of the proceeds of which such Selling Shareholders
used in connection with their purchase of 361,200 shares of Common Stock for
an aggregate purchase price of $459,000. In July 1997, the Company loaned
Michael J. Mackey, the Chief Financial Officer of the Company, $89,640, all of
the proceeds of which Mr. Mackey used in connection with his purchase of
17,430 shares of Common Stock for a purchase price of $99,600. Mr. Mackey's
loan bears interest at the prime rate of interest plus 0.25% per annum and
matures June 30, 2001, subject to mandatory prepayment upon the completion of
this offering. In December 1997, Mr. Mackey purchased 7,560 shares of Common
Stock for $49,500. All of the foregoing loans will be repaid to the Company
upon completion of this offering.
In June 1996, Ms. Pierpont contributed 1,170,448 shares of Common Stock to
the capital of the Company at cost, a portion of which shares were issued by
the Company to employees. In September 1996, the Company awarded 158,760
shares of Common Stock to Patrick J. Newton, Chief Operating Officer of the
Company, and in December 1997, Mr. Newton purchased 7,560 shares of Common
Stock for $49,500. In January 1997, Mr. Thatcher purchased 42,000 shares of
Common Stock of the Company for $240,000, and in December 1997, Mr. Thatcher
purchased 15,120 shares of Common Stock for $99,000. In January 1997, Gunther
E.A. Fritze, a director of the Company, purchased 6,300 shares of Common Stock
for $36,000, and in December, 1997 Mr. Fritze purchased 21,000 shares of
Common Stock for $137,500. In December 1997, Eric J. Fernette, the Executive
Vice President, Human Resources of the Company, purchased 30,240 shares of
Common Stock for $198,000. In January 1997, Margaret Rather Curlet, wife of
Nigel W.E. Curlet, a director of the Company, purchased 3,570 shares of Common
Stock for $20,400, and on December 1997, Ms. Curlet purchased 7,560 shares of
Common Stock for $49,500. The price paid for the above-mentioned purchases
represented the fair value of the purchased shares as of the dates of each
such purchase.
In June 1994, Ms. Pierpont, Mr. Marriner, and two trusts (the beneficiaries
of which include Ms. Pierpont and members of her family) purchased 42, 42, and
41,916 shares, respectively, of Common Stock of the Company in exchange for
cash payments of $1, $1, and $998, respectively. In July 1995, Ms. Pierpont,
Mr. Marriner, the two trusts, and Ms. Pierpont's mother acquired 1,816,038,
166,614, 1,260,126, and 630 shares, respectively, of Common Stock of the
Company in exchange for shares (with a weighted average value of $0.95
41
<PAGE>
per share) of companies which are now subsidiaries of the Company. In January
1996, Mr. Marriner acquired 235,200 shares of Common Stock of the Company in
exchange for shares (valued at $0.01 per share) of a company which is now a
subsidiary of the Company. Ms. Pierpont and Mr. Marriner may be considered
promoters of the Company. See "Management" and "Principal and Selling
Shareholders."
The Company leases a facility in Leeds, England from Mr. Marriner, and
office space in Johannesburg, South Africa from an entity of which Mr.
Marriner and Mr. Granelli are owners. The aggregate rental paid by the Company
for these properties was $38,000 for the year ended December 31, 1995, $38,000
for the year ended December 31, 1996, and approximately $28,000 for the nine
months ended September 30, 1997, which the Company believes reflect a fair
market rental rate.
42
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth information, as of the date of this
Prospectus, with respect to the beneficial ownership of the Common Stock
(including shares issuable upon the exercise of outstanding options that are
exercisable as of the date of this Prospectus or within 60 days hereafter) by:
(i) each person who owns beneficially more than 5% of the Common Stock; (ii)
each director of the Company; (iii) the Chief Executive Officer and each of
the Named Executive Officers of the Company; (iv) all directors and executive
officers as a group; and (v) the Selling Shareholders. Unless otherwise
indicated, each named person exercises sole voting and investment power.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
OF COMMON STOCK OF COMMON STOCK
PRIOR TO THIS OFFERING NUMBER OF AFTER THIS OFFERING
-------------------------SHARES BEING -----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT
- ------------------------ ------------- ----------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS
Nicholas H.
Marriner(1)............ 401,814 8.4% -- 401,814 6.2%
Patrick J. Newton....... 158,760 3.3% 60,480 98,280 1.5%
Michael J. Mackey(1).... 24,990 * -- 24,990 *
Lisa L. Costello........ 4,200 * -- 4,200 *
Eric J. Fernette........ 30,240 * -- 30,240 *
Nigel W.E. Curlet(2).... 11,130 * -- 11,130 *
Gunther E.A. Fritze..... 27,300 * -- 27,300 *
Richard W. Thatcher,
Jr..................... 57,120 1.2% -- 57,120 *
Virginia L. Pierpont.... 551,321 11.5% 131,321 420,000 6.5%
OTHER SHAREHOLDERS
Amicable Discretionary
Trust(3)(4)(6)......... 956,592 19.9% 133,392 823,200 12.6%
Worcester Discretionary
Trust(1)(3)(5)(6)...... 631,092 13.1% 132,132 498,960 7.7%
Woodbourne Discretionary
Trust(1)(3)(5)(6)...... 629,034 13.1% 34,442 594,592 9.1%
Piero Granelli
(1)(3)(7).............. 217,048 4.5% 80,438 136,610 2.1%
Alison Smith(1)......... 189,000 3.9% 147,000 42,000 *
Cynthia Gibson.......... 176,400 3.7% 80,795 95,605 1.5%
All directors and
executive officers as a
group
(9 individuals)........ 1,266,875 26.3% 191,801 1,075,074 16.5%
</TABLE>
- -------
* Less than 1%
(1) Does not include shares of Common Stock which may be sold pursuant to the
Underwriters' over-allotment option. If the Underwriters' over-allotment
option is exercised in full, Mr. Marriner, Worcester Discretionary Trust,
Woodbourne Discretionary Trust, Ms. Smith, Mr. Mackey, and a trust of
which Mr. Granelli is the sole beneficiary intend to sell 23,814, 43,152,
57,834, 37,800, 4,200, and 88,200 shares of Common Stock, respectively,
pursuant thereto.
(2) Consists of shares (as to which Mr. Curlet disclaims beneficial ownership)
owned by Mr. Curlet's spouse.
(3) John Andrew Cowan and Roger Geoffrey Barrs are the co-trustees of each of
these trusts. Messrs. Cowan and Barrs are also trustees of the David
Michael Payne Settlement (which beneficially owns 184,800 shares of Common
Stock), the sole beneficiary of which is Piero Granelli, a former employee
of the Company and a Selling Shareholder.
(4) The beneficiaries under this trust include Ms. Pierpont, her children and
grandchildren, the spouses and children of any of the beneficiaries, and
any other persons or class of persons named by the trustees.
(5) The beneficiaries under these trusts include Ms. Pierpont, her children,
the spouses and children of any of the beneficiaries, and any other
persons or class of persons named by the trustees.
(6) The trustees of each of these trusts have the authority to appoint all or
any part of the capital and income of the trust for one or more of the
beneficiaries and in such names and proportions and at such time as such
trustees shall determine.
(7) Includes 184,800 shares owned by the David Michael Payne Settlement, a
trust the sole beneficiary of which is Mr. Granelli.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of the date of this Prospectus, the authorized capital stock of the
Company consists of 40,000,000 shares of Common Stock, par value $0.01 per
share, of which 6,509,378 shares will be outstanding immediately following
this offering, and 10,000,000 shares of Preferred Stock, par value $0.01 per
share (the "Preferred Stock"), of which no shares will be outstanding
immediately following this offering. The following summary of the Company's
capital stock is qualified in its entirety by reference to the Company's
Amended and Restated Articles of Incorporation (the "Restated Articles") and
its Restated Bylaws (the "Bylaws"), each of which is filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Voting Rights. Holders of Common Stock are entitled to one vote for each
share on all matters on which shareholders generally are entitled to vote,
including elections of directors. The Restated Articles provide that there
shall be no cumulative voting for the election of directors. Holders of Common
Stock have no preemptive subscription, redemption, or conversion rights.
Dividends. Subject to the preferential rights of any outstanding Preferred
Stock that may be created by the Board of Directors under the Restated
Articles, dividends may be paid to holders of Common Stock when, as and if
declared by the Board of Directors out of funds legally available for such
purpose. The declaration and payment of dividends on Common Stock could be
restricted by the terms of any Preferred Stock issued or any credit agreements
to which the Company may become a party. Under the TBCA, dividends may be paid
by the Company out of "surplus" (as defined under Article 1.02 of the TBCA)
or, if there is no surplus, out of net profits for the fiscal year in which
the dividends are declared and/or the preceding fiscal year. The Company does
not intend to pay dividends at the present time. See "Dividend Policy."
Liquidation. In the event of the dissolution or winding up of the Company,
after payment or provision for payment of debts and other liabilities of the
Company and any other series or class of the Company's stock hereafter issued
that ranks senior as to liquidation rights to the Common Stock, the holders of
Common Stock will be entitled to receive pro rata all remaining assets of the
Company available to such holders. All outstanding shares of Common Stock are,
and the shares of Common Stock to be sold by the Company in this offering will
be, duly and validly issued, fully paid, and nonassessable.
PREFERRED STOCK
The Board of Directors may from time to time authorize the issuance of one
or more classes or series of Preferred Stock without shareholder approval.
Subject to the provisions of the Restated Articles and limitations prescribed
by law, the Board of Directors is authorized to adopt resolutions to issue the
shares, establish the number of shares, change the number of shares
constituting any series, and provide or change the voting powers,
designations, preferences, and relative, participating, optional or other
special rights, qualifications, limitations or restrictions on shares of
Preferred Stock, including dividend rights (including whether dividends are
cumulative), dividend rates, terms of redemption (including sinking fund
provisions), redemption prices, conversion rights, and liquidation
preferences, in each case without any action or vote by the shareholders. The
Company has no current plans to issue any shares of Preferred Stock of any
class or series.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to discourage an attempt to obtain control of the Company
by means of a tender offer, proxy contest, merger or otherwise, and thereby
protect 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
44
<PAGE>
preference or both, may have full or limited voting rights, and may be
convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the trading price of the Common Stock.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Under the Restated Articles, upon completion of this offering (assuming the
Underwriters' over-allotment option is not exercised and excluding an
aggregate of 1,260,000 shares reserved for issuance under the Stock Option
Plan), there will be 33,490,622 shares of Common Stock and 10,000,000 shares
of Preferred Stock available for future issuance without shareholder approval.
These additional shares may be utilized for a variety of corporate purposes,
including future public offerings to raise additional capital or facilitate
acquisitions. The Company does not currently have any plans to issue
additional shares of Common Stock or Preferred Stock (other than shares of
Common Stock issuable under the Stock Option Plan).
SPECIAL PROVISIONS OF THE RESTATED ARTICLES, THE BYLAWS AND TEXAS LAW
The Texas Miscellaneous Corporation Laws Act (the "Texas Miscellaneous
Laws") authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their shareholders for monetary damages for
breach of their fiduciary duty as directors except for liability of a director
resulting from (i) a breach of such director's duty of loyalty to the
corporation or its shareholders, (ii) an act or omission that is not in good
faith or that involves intentional misconduct or a knowing violation of laws,
(iii) a transaction from which the director received an improper personal
benefit, or (iv) an act or omission for which the liability of the director is
expressly provided by an applicable statute. The Restated Articles limit the
liability of directors of the Company (in their capacity as directors but not
in their capacity as officers) to the Company or its shareholders to the
fullest extent permitted by the Texas Miscellaneous Laws. The inclusion of
this provision in the Restated Articles may reduce the likelihood of
derivative litigation against directors and may discourage or deter
shareholders from suing directors for breach of their duty of care, even
though such an action, if successful, might otherwise benefit the Company and
its shareholders. The inclusion of such provisions in the Restated Articles
together with a provision requiring the Company to indemnify its directors,
officers, and certain other individuals against certain liabilities, is
intended to enable the Company to attract qualified persons to serve as
directors who might otherwise be reluctant to do so. The Commission has taken
the position that personal liability of directors for violations of the
federal securities laws cannot be limited and that indemnification by the
issuer for such violations is unenforceable.
Under the TBCA, the board of directors of a corporation has the power to
amend and repeal the corporation's bylaws unless the corporation's articles of
incorporation reserve the power exclusively to the shareholders or a
particular bylaw expressly provides that the board of directors may not amend
or repeal the bylaw. The Restated Articles give the Board of Directors the
power to amend and repeal the Company's Bylaws. The Company's Bylaws also
provide that the number of directors shall be fixed from time to time by
resolution of the Board of Directors. These provisions, in addition to the
existence of authorized but unissued capital stock, may have the effect,
either alone or in combination with each other, of discouraging an acquisition
of the Company deemed undesirable by the Board of Directors.
STATUTORY BUSINESS COMBINATION PROVISION
The Company is subject to Part 13 of the TBCA ("Part 13") which, with
certain exceptions, prohibits a Texas corporation from engaging in a "business
combination" (as defined in Part 13) with any shareholder who is a beneficial
owner of 20% or more of the corporation's outstanding stock for a period of
three years after such shareholder's acquisition of a 20% ownership, unless
(i) the board of directors of the corporation approves the transaction or the
shareholder's acquisition of shares prior to the acquisition or (ii) two-
thirds of the unaffiliated shareholders of the corporation approve the
transaction at a shareholders' meeting. Shares that are issuable, but have not
yet been issued, pursuant to options, conversion or exchange rights, or other
agreements are not considered outstanding for purposes of Part 13.
45
<PAGE>
CLASSIFIED BOARD OF DIRECTORS
The Restated Articles provide for the Board of Directors to be divided into
three classes serving staggered three-year terms. The term of office of the
first class of directors will expire at the 1999 annual meeting of
shareholders, the term of office of the second class will expire at the 2000
annual meeting of shareholders, and the term of office of the third class will
expire at the 2001 annual meeting of shareholders. At each annual meeting of
shareholders, the class of directors to be elected at such meeting will be
elected for a three-year term, and the directors in the other two classes will
continue in office. The staggered terms for directors may affect the
shareholders' ability to change control of the Company even if a change of
control were in the shareholders' interests.
SHAREHOLDER ACTION
If provided for in the articles of incorporation, the TBCA permits
shareholder action without a meeting, without prior notice, and without a
vote, upon the written consent of less than all of the holders of outstanding
stock. The Restated Articles allow shareholder action without a meeting in
accordance with the TBCA. The Bylaws provide that special meetings of the
shareholders may be called only by the President, Chairman of the Board, a
majority of the Board of Directors, or the holders of at least 50% of all
shares entitled to vote at the proposed meeting. This provision of the Bylaws
could have the effect of delaying, deferring, or preventing a change of
control of the Company even if a change of control were in the shareholders'
interests.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
46
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
6,509,378 shares of Common Stock (6,629,378 shares if the Underwriters'
overallotment option is exercised in full). Sales of a substantial number of
shares of Common Stock in the public market following this offering, or the
perception that such sales could occur, could adversely affect the market
price for the Company's Common Stock. Of the shares to be outstanding upon
completion of this offering, shares are subject to the lock-up agreements
described below.
The 448,589 shares reserved for issuance upon exercise of options
outstanding on September 30, 1997, the 210,000 shares to be reserved for
issuance upon options expected to be granted upon completion of this offering,
and the 601,411 shares reserved for issuance upon exercise of future grants
under the Company's Stock Option Plan will be registered under the Securities
Act after 90 days from the completion of this offering. Other than shares
subject to the lock-up agreements, shares registered under the Securities Act
will be freely transferable upon issuance unless acquired by affiliates of the
Company. See "Management--Employee Benefit Plans."
All directors, executive officers, and principal shareholders, and certain
other employees, of the Company who hold in the aggregate shares of Common
Stock have agreed not to sell, offer to sell, contract to sell, or otherwise
dispose of or transfer any of their shares or options (except in the case of
bona fide gifts to immediate family members of such persons who agree to be
bound by such restrictions, or to trusts for the benefit thereof, the trustees
of which agree to be so bound) for a period of 180 days after the date of this
Prospectus without the prior written consent of William Blair & Company,
L.L.C. The Company has also agreed not to issue, sell, offer to sell, contract
to sell, or otherwise dispose of or transfer any of its shares or grant any
options (other than options granted or shares issued in connection with the
Stock Option Plan or unregistered shares issued in connection with any
acquisition) during such 180 day period. William Blair & Company, L.L.C. may,
however, in its sole discretion and at any time without notice, release for
public sale all or any portion of these shares subject to such lock-up
agreements. See "Underwriting."
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) is entitled to sell restricted shares if at least
one year has passed since the later of the time such shares were acquired from
the Company or any affiliate of the Company. Rule 144 provides, however, that
within any three-month period such person may only sell up to the greater of:
(i) 1% of the then outstanding shares of the Common Stock (approximately
65,100 shares immediately following this offering); or (ii) the average weekly
reported trading volume in the Common Stock during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Commission. Sales under Rule 144 are also subject to certain manner-of-sale
provisions and notice requirements and to the availability of current public
information about the Company. All shares held by persons who are deemed to be
affiliates of the Company are subject to the volume limitations and other
requirements of Rule 144 regardless of how long the shares have been owned or
how they were acquired. Restricted shares held by non-affiliates of the
Company for more than two years can be sold without limitation under Rule 144.
Of the shares to be outstanding upon completion of this offering, 4,009,378
shares are "restricted," as that term is defined in the Securities Act. Of
these restricted shares, 3,629,740 have been held for more than one year and,
as such, will be salable upon expiration of the lock-up agreements described
above, subject to certain volume and manner of sale restrictions under Rule
144 of the Securities Act.
Prior to this offering, there was no public market for the Common Stock, and
no prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of shares of Common Stock for future sale
will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock following this offering, or
the perception that such sales could occur, could adversely affect prevailing
market prices of the Common Stock as well as impair the Company's ability to
raise capital through an offering of its equity securities.
47
<PAGE>
UNDERWRITING
The several Underwriters named below (the "Underwriters"), for which William
Blair & Company, L.L.C., Robert W. Baird & Co. Incorporated, and Pennsylvania
Merchant Group Ltd are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions set forth in the
Underwriting Agreement by and among the Company and the Underwriters (the
"Underwriting Agreement"), to purchase from the Company, and the Company has
agreed to sell to each of the Underwriters, the respective number of shares of
Common Stock set forth opposite each Underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
William Blair & Company, L.L.C. ......................................
Robert W. Baird & Co. Incorporated....................................
Pennsylvania Merchant Group Ltd.......................................
---------
Total............................................................... 2,500,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the Common Stock
being sold pursuant to the Underwriting Agreement if any of the Common Stock
being sold pursuant to the Underwriting Agreement (excluding shares covered by
the over-allotment option granted therein) is purchased. In the event of a
default by any Underwriter, the Underwriting Agreement provides that, in
certain circumstances, the purchase commitments of the non-defaulting
Underwriters shall be increased or the Underwriting Agreement may be
terminated.
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock to the public initially at the public offering price
set forth on the cover page of this Prospectus and to selected dealers at such
price less a concession of not more than $ per share. The Underwriters may
allow, and such dealers may re-allow, a concession not in excess of $ per
share to certain other dealers. After commencement of the initial public
offering, the public offering price, and other selling terms may be changed by
the Representatives.
The Company, certain of the Selling Shareholders, and certain other
shareholders of the Company have granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up
to an aggregate of 375,000 additional shares of Common Stock (120,000 from the
Company and 255,000 from such shareholders), to cover over-allotments, at the
same price per share to be paid by the Underwriters for the other shares
offered hereby. If the Underwriters purchase any such additional shares
pursuant to this option, each of the Underwriters will be committed to
purchase such additional shares in approximately the same proportion as set
forth in the table above. If less than all of such additional shares are
purchased, the Underwriters will purchase such shares from the Company and the
shareholders, pro rata. The Underwriters may exercise the option only for the
purpose of covering over-allotments, if any, made in connection with the
distribution of the shares of Common Stock offered hereby.
All directors, executive officers, and principal shareholders, and certain
other employees, of the Company who hold in the aggregate shares of Common
Stock and the Company have agreed that for a period of 180 days after the date
of this Prospectus, without the prior written consent of William Blair &
Company, L.L.C., they will not, directly or indirectly, offer, sell, contract
to sell, grant any option to purchase, or otherwise dispose of or transfer any
Common Stock or securities convertible or exchangeable into, or exercisable
for, Common Stock (except in the case of bona fide gifts to immediate family
members of such persons who agree to be bound by such restrictions, or to
trusts for the benefit thereof, the trustees of which agree to be so bound).
However, the Company may grant options and issue Common Stock under the Stock
Option Plan and issue unregistered shares in connection with any acquisition
during the lock-up period. The Company also has agreed not to file or cause to
be filed any registration statement with the Commission related to shares
issuable under the Stock Option Plan for a period of 90 days after completion
of this offering.
48
<PAGE>
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
the Underwriters may be required to make in respect thereof.
The Representatives have informed the Company that the Underwriters will not
confirm, without client authorization, sales to their client accounts as to
which they have discretionary authority.
Prior to this offering, there was no public market for the Common Stock of
the Company. Consequently, the initial public offering price for the Common
Stock was determined by negotiations among the Company and the
Representatives. Among the factors which were considered in such negotiations
were the prevailing market conditions, the results of operations of the
Company in recent periods, the market capitalizations and stages of
development, and recent market prices of securities, of other companies which
the Company and the Representatives believed to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development, the general condition of the securities markets at the
time of this offering, and other factors which were deemed relevant. There can
be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to
this offering at or above the initial public offering price.
During and after this offering, the Underwriters may purchase and sell the
Common Stock in the open market in order to facilitate this offering.
Specifically, the Underwriters may over-allot or otherwise create a short
position in the Common Stock for their own account by selling more shares of
Common Stock than have been sold to them by the Company and the Selling
Shareholder pursuant to the Underwriting Agreement. The Underwriters may elect
to cover any such short position by purchasing shares of Common Stock in the
open market or by exercising the over-allotment option granted to them by the
Company and the Selling Shareholders. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of shares of Common Stock sold in this offering for
their account may be reclaimed by the syndicate if such shares are repurchased
by the syndicate in stabilizing or covering transactions.
The activities described above may stabilize, maintain, or otherwise affect
the market price of the Common Stock and make such price higher than it might
otherwise be in the open market. The imposition of a penalty bid may also
affect the price of the Common Stock to the extent that it discourages resales
thereof. These activities, if commenced, may be discontinued at any time
without notice and may be effected on the Nasdaq Stock Market or otherwise.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to whether the Underwriters will engage in such transactions or
choose to discontinue any transactions engaged in or the direction or
magnitude of any effect that such transactions may have on the price of the
Common Stock.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Pepper Hamilton LLP. Certain matters will be passed
upon for the Underwriters by Bracewell & Patterson, L.L.P.
EXPERTS
The consolidated balance sheets as of December 31, 1995 and 1996 and the
consolidated statements of income, shareholders' equity, and cash flows for
each of the three years ended in the period ended December 31, 1996 of the
Company, included in this Prospectus, have been included in reliance on the
report of Coopers & Lybrand L.L.P. ("Coopers & Lybrand"), independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
Melton & Melton L.L.P. ("Melton & Melton") served as the independent
accountants for the Company for the year ended December 31, 1995. The Company
elected to engage Coopers & Lybrand to audit the
49
<PAGE>
Consolidated Financial Statements of the Company for the year ended December
31, 1996 and, accordingly, effective November 4, 1996 the engagement of Melton
& Melton as the independent accounting firm for the Company was discontinued.
Neither the report of Melton & Melton on the consolidated financial statements
of the Company as of December 31, 1995 and the year then ended nor the report
of Coopers & Lybrand on the consolidated financial statements of the Company
as of December 31, 1995 and 1996 and for the three years in the period ended
December 31, 1996 contained an adverse opinion or a disclaimer of opinion, and
neither was qualified or modified as to uncertainty, audit scope or accounting
principle. In the Company's opinion, there did not occur, during the year
ended December 31, 1995 or any subsequent interim period prior to November 4,
1996, any "reportable events" between the Company and Melton & Melton within
the meaning of the rules promulgated by the Commission. In addition, during
the years ended December 31, 1995 and 1996 and during any subsequent interim
period prior to November 4, 1996, there were no disagreements between the
Company and Melton & Melton on any matters of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
The Company has received a letter from Melton & Melton stating that it
agrees with the statements made by the Company in the second and third
paragraphs of this "Experts" section.
During the years ended December 31, 1995 and during any subsequent interim
period prior to November 4, 1996, Coopers & Lybrand was not consulted by the
Company on the application of accounting principles to a specified
transaction, either completed or proposed, or on the type of audit opinion
that might be rendered on the financial statements of the Company.
ADDITIONAL INFORMATION
The Company is not currently subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result
of this offering, the Company will be required to file reports and other
information with the Commission pursuant to the informational requirements of
the Exchange Act.
The Company has filed with the Commission, in Washington, D.C., a
Registration Statement on Form S-1 (which term encompasses any and all
amendments thereto) under the Securities Act with respect to the shares of
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock offered hereby, reference is made to the Registration Statement
and the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or any other document referred
to are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. A copy of the Registration Statement, and the exhibits and
schedules thereto, may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located
at Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661, and copies of all or
any part of the Registration Statement may be obtained from the Commission
upon payment of a prescribed fee. This information is also available from the
Commission's Internet web site at http://www.sec.gov. The Registration
Statement, including all exhibits thereto and amendments thereof, will be
filed with the Commission through EDGAR.
50
<PAGE>
DA CONSULTING GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September
30, 1997 (unaudited)..................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1996 and 1997
(unaudited).............................................................. F-4
Consolidated Statements of Changes in Shareholders' Equity for the years
ended December 31, 1994, 1995 and 1996 and the nine months ended
September 30, 1997 (unaudited)........................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1996 and 1997
(unaudited).............................................................. F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
After the anticipated stock split discussed in Note 16 to the Financial
Statements is effected, we will be in a position to render the following
report.
COOPERS & LYBRAND L.L.P.
Houston, Texas
January 8, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
DA Consulting Group, Inc.
We have audited the accompanying consolidated balance sheets of DA
Consulting Group, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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 consolidated financial position of DA Consulting
Group, Inc. as of December 31, 1995 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Houston, Texas
March 28, 1997, except with
respect to Note 16, as to
which the date is January 8,
1998
F-2
<PAGE>
DA CONSULTING GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
ASSETS
------ (UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 592 $2,199 $ 683
Accounts receivable:
Trade............................................. 3,616 4,444 9,299
Other............................................. 30 63 189
Unbilled revenue.................................... -- -- 982
Prepaid expenses and other current assets........... 72 401 415
------ ------ -------
Total current assets............................ 4,310 7,107 11,568
Property and equipment, net......................... 365 951 2,273
Other assets........................................ -- -- 229
------ ------ -------
Total assets.................................. $4,675 $8,058 $14,070
====== ====== =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Revolving line of credit............................ $ 250 $ 375 $ 2,646
Notes payable to shareholders....................... 312 356 --
Accounts payable.................................... 843 1,741 1,624
Accrued expenses.................................... 1,515 2,534 3,907
Deferred income..................................... -- -- 509
Income taxes payable................................ 278 261 260
Deferred income taxes............................... 351 211 522
------ ------ -------
Total current liabilities....................... 3,549 5,478 9,468
------ ------ -------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.01 par value: 10,000,000 shares
authorized......................................... -- -- --
Common stock, $0.01 par value: 40,000,000 shares
authorized; 4,200,000, 4,435,200, and 4,466,973
shares issued and 4,200,000, 4,214,553, and
4,447,170 shares outstanding....................... 42 44 45
Additional paid-in capital.......................... -- 1,518 2,853
Retained earnings................................... 1,161 1,469 2,409
Treasury stock, at cost: zero, 220,647, and 19,803
shares............................................. -- (5) (85)
Notes receivable from shareholders.................. -- (413) (503)
Cumulative foreign currency translation adjustment.. (77) (33) (117)
------ ------ -------
Total shareholders' equity...................... 1,126 2,580 4,602
------ ------ -------
Total liabilities and shareholders' equity.... $4,675 $8,058 $14,070
====== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
DA CONSULTING GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED SEPTEMBER
31, 30,
------------------------ ----------------
1994 1995 1996 1996 1997
------ ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue........................... $7,501 $14,618 $26,202 $19,039 $30,056
Cost of revenue................... 4,028 7,661 14,190 10,219 16,702
------ ------- ------- ------- -------
Gross profit.................... 3,473 6,957 12,012 8,820 13,354
Selling and marketing expense..... 450 1,072 1,953 1,328 2,578
Development expense............... -- 707 1,250 926 836
General and administrative
expense.......................... 2,629 4,014 6,597 4,621 8,362
Employee stock-related charge..... -- -- 1,858 898 --
------ ------- ------- ------- -------
Operating income................ 394 1,164 354 1,047 1,578
Interest income (expense) net..... (34) (58) (37) (16) 33
Other income (expense) net........ (43) (26) 132 80 (96)
------ ------- ------- ------- -------
Income before taxes............. 317 1,080 449 1,111 1,515
------ ------- ------- ------- -------
Provision for income taxes:
Current......................... 44 217 281 210 264
Deferred provision (benefit).... 75 200 (140) 188 311
------ ------- ------- ------- -------
Provision for income taxes.... 119 417 141 398 575
------ ------- ------- ------- -------
Net income.................... $ 198 $ 663 $ 308 $ 713 $ 940
====== ======= ======= ======= =======
Net income per share.............. $ 0.05 $ 0.17 $ 0.07 $ 0.17 $ 0.19
Weighted average shares
outstanding...................... 3,869 3,869 4,463 4,274 5,054
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
DA CONSULTING GROUP, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON TREASURY NOTES FOREIGN
STOCK ADDITIONAL STOCK RECEIVABLE CURRENCY TOTAL
---------- PAID-IN RETAINED ------------ FROM TRANSLATION SHAREHOLDERS'
NUMBER PAR CAPITAL EARNINGS NUMBER COST STOCKHOLDERS ADJUSTMENT EQUITY
------ --- ---------- -------- ------ ---- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF JANUARY 1,
1994................... 580 $ 4 -- $ 318 -- -- -- $ 3 $ 325
Cash dividends paid.... -- -- -- (10) -- -- -- -- (10)
Net income............. -- -- -- 198 -- -- -- -- 198
Foreign currency
translation
adjustment............ -- -- -- -- -- -- -- (39) (39)
----- --- ------ ------ ----- ---- ----- ----- ------
BALANCE AS OF DECEMBER
31, 1994............... 580 4 -- 506 -- -- -- (36) 474
Initial capitalization
of DA International,
Inc................... 3,620 38 -- -- -- -- -- -- 38
Cash dividends paid.... -- -- -- (8) -- -- -- -- (8)
Net income............. -- -- -- 663 -- -- -- -- 663
Foreign currency
translation
adjustment............ -- -- -- -- -- -- -- (41) (41)
----- --- ------ ------ ----- ---- ----- ----- ------
BALANCE AS OF DECEMBER
31, 1995............... 4,200 42 -- 1,161 -- -- -- (77) 1,126
Stock contribution..... -- -- $ 28 -- 1,170 $(28) -- -- --
Issuance of common
stock................. 235 2 1,490 -- (949) 23 $(413) -- 1,102
Net income............. -- -- -- 308 -- -- -- -- 308
Foreign currency
translation
adjustment............ -- -- -- -- -- -- -- 44 44
----- --- ------ ------ ----- ---- ----- ----- ------
BALANCE AS OF DECEMBER
31, 1996............... 4,435 44 1,518 1,469 221 (5) (413) (33) 2,580
Issuance of common
stock................. 32 1 1,335 -- (221) 5 (90) -- 1,251
Employee stock
repurchases........... -- -- -- -- 20 (85) -- -- (85)
Net income............. -- -- -- 940 -- -- -- -- 940
Foreign currency
translation
adjustment............ -- -- -- -- -- -- -- (84) (84)
----- --- ------ ------ ----- ---- ----- ----- ------
BALANCE AS OF SEPTEMBER
30, 1997 (UNAUDITED)... 4,467 $45 $2,853 $2,409 20 $(85) $(503) $(117) $4,602
===== === ====== ====== ===== ==== ===== ===== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
DA CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -----------------
1994 1995 1996 1996 1997
---- ------ ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $198 $ 663 $ 308 $ 713 $ 940
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 91 89 121 90 208
Deferred income taxes............ 75 200 (140) 188 311
Stock awarded to employees....... -- -- 898 898 --
Changes in operating assets and
liabilities:
Increase in accounts
receivable.................... (342) (2,200) (861) (821) (5,963)
Increase in prepaid expenses
and other current assets...... (37) (28) (328) (66) (14)
Increase in other assets....... -- -- -- -- (13)
Increase (decrease) in accounts
payable and accrued
liabilities................... (15) 1,478 1,919 511 1,256
Increase in deferred income.... -- -- -- -- 509
Increase (decrease) in income
taxes payable................. 19 241 (17) 28 (1)
---- ------ ------ -------- --------
Total adjustments............ (209) (220) 1,592 828 (3,707)
---- ------ ------ -------- --------
Net cash provided by (used
in) operating activities.... (11) 443 1,900 1,541 (2,767)
---- ------ ------ -------- --------
Cash flows from investing activities:
Proceeds from sale of property and
equipment......................... -- -- 17 10 --
Purchases of property and
equipment......................... (172) (264) (726) (487) (1,530)
---- ------ ------ -------- --------
Net cash used in investing
activities.................. (172) (264) (709) (477) (1,530)
---- ------ ------ -------- --------
Cash flows from financing activities:
Net proceeds from (repayments of)
revolving line of credit.......... (192) 150 125 (115) 2,271
Net proceeds from (repayments of)
notes payable to shareholders..... 105 208 43 57 (356)
Issuance of stock.................. -- -- 204 46 1,251
Employee stock repurchases......... -- -- -- -- (85)
Dividends paid..................... (10) (8) -- -- --
Deferred offering costs............ -- -- -- -- (216)
---- ------ ------ -------- --------
Net cash provided by (used
in) financing activities.... (97) 350 372 (12) 2,865
---- ------ ------ -------- --------
Effect of changes in foreign currency
exchange rate on cash............... (39) (41) 44 64 (84)
---- ------ ------ -------- --------
Increase (decrease) in cash
and cash equivalents........ (319) 488 1,607 1,116 (1,516)
Cash and cash equivalents at
beginning of year................... 423 104 592 592 2,199
---- ------ ------ -------- --------
Cash and cash equivalents at end of
year................................ $104 $ 592 $2,199 $ 1,708 $ 683
==== ====== ====== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
DA Consulting Group, Inc. (the "Company") is a leading international
provider of end-user support solutions to companies which are implementing
enterprise resource planning software systems.
In December 1997, the Company's name was changed from DA International, Inc.
to DA Consulting Group, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany balances and
transactions have been eliminated.
Management 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.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Expenditures for substantial
renewals and betterments are capitalized, while repairs and maintenance are
charged to expense as incurred. Assets are depreciated or amortized using the
straight-line method for financial reporting purposes and accelerated methods
for tax purposes over their estimated useful lives ranging from three to seven
years. Gains or losses from disposals of property and equipment are reflected
in income.
Software Development Costs
The Company capitalizes software development costs beginning when product
technological feasibility is established and concluding when the product is
ready for general release. At such time, software development costs are
amortized on the straight-line basis over a maximum of three years or the
expected life of the product, whichever is less. The Company capitalized
software development costs amounting to $238,000 during the nine months ended
September 30, 1997, which have been included in property and equipment, net.
Research costs related to software development are expensed as incurred.
Deferred Offering Costs
Deferred offering costs primarily represent professional fees incurred
through September 30, 1997 in conjunction with the Company's planned initial
public offering ("IPO") of shares of its common stock and, for financial
reporting purposes, will be netted against the offering proceeds upon
completion of the IPO. As of September 30, 1997, $216,000 of deferred offering
costs have been included in other assets.
F-7
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Company recognizes deferred income taxes for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred income taxes are determined based on
the difference between the financial statement carrying amounts and tax basis
of assets and liabilities using enacted tax rates in effect in the years in
which the differences are expected to reverse.
Prior to January 1, 1997, the Company recognized income for U.S. federal
income tax purposes on a cash basis.
Foreign Currency Translation
For the Company's foreign subsidiaries, the local currency is the functional
currency. Assets and liabilities are translated at year-end exchange rates,
and related revenue and expenses are translated at the average exchange rates
in effect during the period. Resulting translation adjustments are recorded as
a separate component in shareholders' equity.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents, and trade
accounts receivable. The Company maintains cash deposits with several major
financial institutions, which from time to time, may exceed federally insured
limits. Management periodically assesses the financial condition of the
financial institutions and believes that any possible credit risk is minimal.
The Company performs ongoing credit evaluations of its clients and generally
does not require collateral for services. Bad debts have not been significant
in relation to the volume of revenue.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, accounts receivable,
revolving line of credit, notes payable to shareholders and accounts payable
approximate fair values due to the short-term nature of these instruments. The
estimated fair values of these instruments have been determined by the Company
using available market information.
Revenue Recognition
The Company recognizes service revenue as services are rendered. The
Company's revenue is generated primarily from arrangements with clients based
on time and expenses incurred. Service revenue includes reimbursable expenses
directly incurred in providing services to clients. Revenue attributable to
reimbursable expenses amounted to $327,000, $343,000, $1,664,000, $1,054,000,
and $2,401,000 for the years ended December 31, 1994, 1995, 1996 and for the
nine months ended September 30, 1996 and 1997, respectively. The Company
recognizes product revenue upon shipment of the product to the client.
Significant Clients
No individual client accounted for more than 10% of consolidated revenue for
any period presented, except that one client, for which the Company provided
services on multiple projects for numerous client subsidiaries, accounted for
18% of consolidated revenue in 1995.
Interim Financial Statements
The balance sheet as of September 30, 1997 and the related statements of
income, changes in shareholders' equity and cash flows for the nine months
ended September 30, 1996 and 1997 are unaudited. In management's opinion, such
financial statements include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such financial statements.
Interim results are not necessarily indicative of results for a full year.
F-8
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Segment Information
The Company operates within one industry segment.
Per Share Information
Per share information has been computed based on the weighted average number
of common shares outstanding during the applicable period. Common share
equivalents have been included in periods in which their effect is dilutive.
Common share equivalents include the number of shares issuable upon exercise
of stock options, less the number of shares that could have been repurchased
with the exercise proceeds, using the treasury stock method. Additionally,
common stock issued within a one-year period prior to the registration
statement related to the IPO has been treated as outstanding for all periods
presented. Fully diluted net income per share information has not been
presented as these are the same as primary net income per share and weighted
average shares outstanding.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS No.
128"), SFAS No. 128, which is effective for periods ending after December 15,
1997, including interim periods, simplifies the standards for computing
earnings per share and replaces the presentation of primary earnings per share
with a presentation of basic earnings per share. Initial adoption of this
standard is not expected to have a material impact on the Company's earnings
per share. Early adoption is not permitted.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
No. 130"), SFAS No. 130 establishes standards for reporting and presentation
of comprehensive income and its components. Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources and
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. SFAS No. 130 is effective
for both interim and annual periods beginning after December 15, 1997.
Accounting for Stock Options
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which sets forth accounting and disclosure requirements for
stock option and other stock-based compensation plans. The new statement
encourages, but does not require, companies to record stock-based compensation
expense using a fair-value method, rather than the intrinsic-value method
prescribed by Accounting Principles Board ("APB") Opinion No. 25. The Company
has adopted only the disclosure requirements of SFAS No. 123 and has elected
to continue to record stock-based compensation expense using the intrinsic-
value approach prescribed by APB No. 25. Accordingly, the Company computes
compensation cost as the amount by which the fair market price of the
Company's common stock exceeds the exercise price on the date of grant. The
amount of compensation cost, if any, is charged to income over the vesting
period.
Reclassifications
Certain amounts previously reported have been reclassified to conform to
current period presentation with no effect on the Company's financial position
or results of operations.
F-9
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. PROPERTY AND EQUIPMENT, NET
The components of property and equipment were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
----- ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment and software................... $ 380 $1,031 $1,896
Automobiles....................................... 135 120 115
Furniture and fixtures............................ 92 156 787
Leasehold improvements............................ -- -- 34
----- ------ ------
Property and equipment.......................... 607 1,307 2,832
Less accumulated depreciation and amortization.... (242) (356) (559)
----- ------ ------
Property and equipment, net..................... $ 365 $ 951 $2,273
===== ====== ======
</TABLE>
4. REVOLVING LINE OF CREDIT
During 1996, the Company entered into a credit facility with a financial
institution with a maximum credit limit of $1,000,000, which expired in March
1997. In March 1997 and September 1997, the Company amended and renewed the
credit facility increasing the available line from $1,000,000 to $3,500,000
(see Note 16). Interest is payable monthly at prime plus 0.5% per year (9.5%
as of September 30, 1997). The credit facility matures in June 1998 and is
collateralized by accounts receivable of the Company's North American
operations.
As of December 31, 1995, the Company had $250,000 outstanding on a $500,000
credit facility with a financial institution, which expired in May 1996.
Interest expense for the years ended December 31, 1994, 1995, 1996 and the
nine months ended September 30, 1996 and 1997 amounted to $17,000, $26,000,
$22,000, $17,000 and $99,000, respectively.
5. NOTES PAYABLE TO SHAREHOLDERS
During 1995, the Company executed several notes payable agreements with two
shareholders of the Company. These notes are payable on demand and interest is
accrued at a discretionary variable rate (approximately 16%). As of December
31, 1995 and 1996, notes payable to shareholders amounted to $312,000 and
$356,000, respectively. Interest expense related to these notes amounted to
$45,000 and $53,000 for the years ended December 31, 1995 and 1996,
respectively. In March 1997, the Company repaid the outstanding balances of
the notes payable to shareholders.
6. ACCRUED EXPENSES
The components of accrued expenses were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------- SEPTEMBER 30,
1995 1996 1997
------ ------ -------------
(UNAUDITED)
<S> <C> <C> <C>
Compensation and related expenses................... $1,317 $2,204 $2,623
Vacation............................................ 69 75 320
Professional fees................................... 30 66 288
Other taxes......................................... -- -- 257
Other............................................... 99 189 419
------ ------ ------
Accrued expenses.................................. $1,515 $2,534 $3,907
====== ====== ======
</TABLE>
F-10
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. INCOME TAXES
The following is a summary of the significant components of the Company's
deferred income taxes (in thousands):
<TABLE>
<CAPTION>
DECEMBER
31,
--------- SEPTEMBER 30,
1995 1996 1997
---- ---- -------------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards...................... -- $645 --
Other................................................. $ 24 -- $ 51
---- ---- ----
Net deferred tax assets............................. 24 645 51
---- ---- ----
Deferred tax liabilities:
Cash to accrual timing differences.................... 361 728 357
Foreign liabilities................................... -- 96 125
Property, plant and equipment......................... 14 32 91
---- ---- ----
Deferred tax liabilities............................ 375 856 573
---- ---- ----
Deferred income taxes............................... $351 $211 $522
==== ==== ====
</TABLE>
The components of the Company's provision for income taxes were as follows
(in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------- -----------
1994 1995 1996 1996 1997
------- ------- -------- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
United States federal and state:
Current............................... -- $ 46 -- -- $ 152
Deferred provision (benefit).......... $ 73 226 $ (260) $ 87 282
------- ------- -------- ----- -----
73 272 (260) 87 434
------- ------- -------- ----- -----
Foreign:
Current............................... 44 171 281 210 112
Deferred provision (benefit).......... 2 (26) 120 101 29
------- ------- -------- ----- -----
46 145 401 311 141
------- ------- -------- ----- -----
Provision for income taxes.......... $ 119 $ 417 $ 141 $ 398 $ 575
======= ======= ======== ===== =====
</TABLE>
The difference between the effective federal income tax rate reflected in
the provision for income taxes, and the federal income tax rate are summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ------------------
1994 1995 1996 1996 1997
---- ---- ---- -------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
U.S. statutory rate....................... 34.0% 34.0% 34.0% 34.0% 34.0%
State and local........................... 3.2 3.0 2.9 4.0 4.0
Foreign................................... (3.5) 0.1 (8.5) (2.6) --
Other..................................... 3.8 1.5 3.0 0.4 --
---- ---- ---- -------- --------
Effective tax rate...................... 37.5% 38.6% 31.4% 35.8% 38.0%
==== ==== ==== ======== ========
</TABLE>
The Company's effective tax rate declined from 38.6% for the year ended
December 31, 1995 to 31.4% for the year ended December 31, 1996, due to the
decrease in the proportion of U.S.-based income, which is taxed at a higher
statutory rate. Such proportion was lower for the year ended December 31, 1996
primarily due to the $1,858,000 employee stock-related charge.
F-11
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of December 31, 1996, the Company has U.S. net operating loss
carryforwards of approximately $1.7 million generated in 1996, which expire in
2010. As of September 30, 1997, such net operating loss carryforwards were
fully utilized.
Applicable U.S. income taxes have not been provided on $1,189,000 of
undistributed earnings of the Company's foreign subsidiaries as of September
30, 1997. The Company considers such earnings to be permanently invested
outside the U.S. The earnings could be subject to U.S. income tax if
distributed to the Company as dividends or otherwise. The Company anticipates
that foreign tax credits would substantially reduce the amount of U.S. income
tax payable if these earnings were repatriated.
8. STOCK-BASED COMPENSATION PLANS
Stock Options
Effective February 1997, the Company adopted its 1997 Stock Option Plan (the
"Option Plan"), a stock-based incentive compensation plan which is described
below. Under the Option Plan, the Company is authorized to issue 1,260,000
shares of common stock pursuant to "awards" granted in the form of incentive
stock options (intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended) and non-qualified stock options not intended to
qualify under Section 422. Awards may be granted to selected employees,
directors, independent contractors, and consultants of the Company or any
subsidiary. Stock options granted have contractual terms of 10 years. All
options vest on a graded schedule, 33% per year for 3 years, beginning on the
second anniversary of the date of grant. Options granted under the Option Plan
are at prices equal to the fair market value of the stock on the date of the
grant, as determined by stock sales to outside third parties or independent
appraisals.
The following table sets forth pertinent information regarding stock option
transactions and stock option prices during the nine months ended September
30, 1997 (unaudited).
<TABLE>
<CAPTION>
NUMBER OF SHARES OF WEIGHTED AVERAGE
UNDERLYING OPTIONS EXERCISE PRICES
------------------- ----------------
<S> <C> <C>
Outstanding as of December 31, 1996...... -- --
Granted.................................. 501,866 $5.90
Forfeited................................ 53,277 5.82
------- -----
Outstanding as of September 30, 1997..... 448,589 $5.91
======= =====
Exercisable as of September 30, 1997..... -- --
======= =====
Weighted average fair value of options
granted during the nine months ended
September 30, 1997...................... $1.51
=====
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the minimum value method of option pricing with the following
weighted-average assumptions: dividend yield of 0%; risk-free interest rates
ranging from 6.03% and 6.27%; and expected life of 5 years. In determining the
"minimum value" SFAS No. 123 does not require the volatility of the Company's
common stock underlying the options to be calculated or considered because the
Company is not publicly-traded.
As of September 30, 1997, 448,589 options were outstanding with a remaining
weighted-average contractual term of 9.46 years.
F-12
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pro Forma Net Income and Net Income Per Share
Had the compensation cost for the Company's stock-based compensation plan
been determined consistent with SFAS No. 123, the Company's net income and net
income per share as of September 30, 1997 would approximate the pro forma
amounts below (unaudited):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
-------------------- -------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
SFAS No. 123 charge.......... -- $ 90
Net income................... $ 940 $ 893
Net income per share......... $ 0.19 $ 0.18
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
9. SHAREHOLDERS' EQUITY
The following table sets forth pertinent information regarding shareholders'
equity transactions during the years ended December 31, 1995 and 1996 and the
nine months ended September 30, 1997 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------- SEPTEMBER 30,
SHARES 1995 1996 1997
------ ------------- -------------
<S> <C> <C> <C> <C>
Initial capitalization of DA International,
Inc....................................... 3,620 $38 -- --
Stock contribution to the Company.......... 1,170 -- -- --
Issuance of stock to controlling
shareholder............................... 235 -- -- --
Employee stock purchases................... 123 -- $ 158 --
Sale of common stock....................... 361 -- 46 --
Stock awards to employees.................. 465 -- 898 --
Private placement of shares................ 235 -- -- $1,241
Employee stock purchases................... 18 -- -- 10
Employee stock repurchases................. 20 -- -- (85)
---- ------- ------
$38 $1,102 $1,166
==== ======= ======
</TABLE>
Reduction in Par Value and Increase in Number of Authorized Shares
On May 16, 1996, the shareholders approved an amendment to the Articles of
Incorporation reducing the par value of the Company's common stock from $0.10
per share to $0.01 per share, and increasing the number of authorized shares
of common stock from 100,000 to 5,000,000. Simultaneous with the reduction in
par value, the shareholders declared a ten-for-one common stock split to
shareholders of record at the close of business January 19, 1996. All
references in the financial statements to number of shares, per share amounts
and stock option data of the Company's common stock have been restated to
reflect the stock split and the change in par value of the Company's common
stock and the contemplated 4.2-for-one common stock split in connection with
the Company's planned IPO.
Initial Capitalization of DA International, Inc.
In June 1995, the Company issued an aggregate of 4,200,000 shares of common
stock in exchange for all of the outstanding shares of affiliated companies
which are now subsidiaries of the Company. As the majority owners of the
Company were also the majority owners of the affiliated companies, there was
no change in control and the net assets were transferred at historical cost.
Stock Contribution to the Company
In June 1996, one controlling shareholder contributed 1,170,448 shares of
common stock to the Company. These shares have been recorded by the Company as
treasury stock at the shareholders' original cost of $0.10 per common share.
F-13
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Issuance of Stock to Controlling Shareholder
In July 1996, the Company issued 235,200 shares of common stock to a
controlling shareholder in exchange for all of the outstanding stock of a
company which is now a subsidiary of the Company.
Employee Stock Purchases
In February 1996, the Company established a plan which allowed certain
employees to purchase shares of common stock at fair market value on such
date. An aggregate of 123,753 shares were purchased pursuant to this plan, at
$1.27 per share. No additional shares will be sold under this plan. During the
nine months ended September 30, 1997, the Company repurchased 19,803 shares of
common stock at fair value from former employees.
Sale of Common Stock
In June 1996, the Company sold 361,200 shares of common stock to employees,
at $1.27 per share, representing the fair value at the date of sale. The
Company received consideration of $46,000 and executed note receivable
agreements in the amount of $413,000.
In February 1997, the Company sold an additional 17,430 shares of common
stock to an employee, at the then fair value of $5.71 per share. The Company
received consideration of $10,000 and executed a note receivable agreement in
the amount $90,000.
Stock Awards to Employees
The Company awarded 464,848 shares of common stock to certain key employees
in September 1996. No cash consideration was paid for such shares. For the
year ended December 31, 1996, the Company recognized compensation expense of
$898,000 representing the fair market value of these shares on the date
awarded and $960,000 of cash payments to a former employee in lieu of the
issuance of such shares.
Private Placement of Shares
In January 1997, the Company sold 234,990 shares of common stock at $5.71
per share, representing the fair value at the date of sale. Proceeds to the
Company, net of offering costs, amounted to $1,238,000.
10. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1996, the Company paid $27,000, $160,000, $100,000, and
$100,000 for accounting services provided by an accountancy practice in which
the Company's chief executive officer was a partner until June 30, 1996.
The Company leases two properties from its chief executive officer and/or an
affiliate of the chief executive officer and paid $38,000 annually in rent
expense for the years ended December 31, 1994, 1995 and 1996. Rent expense for
the nine months ended September 30, 1996 and 1997 amounted to $28,000.
11. COMMITMENTS AND CONTINGENCIES
The Company leases various office facilities under noncancelable operating
lease agreements. Rent expense amounted to $51,000, $112,000, $150,000,
$145,000 and $321,000 for the years ended December 31, 1994, 1995 and 1996,
and the nine months ended September 30, 1996 and 1997, respectively.
F-14
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company leases apartments and housing facilities for certain employees,
and also leases office facilities in foreign cities. The terms of these leases
are less than one year.
As of September 30, 1997, future lease payments under noncancelable leases
with terms of more than one year are as follows (unaudited):
<TABLE>
<S> <C>
1998.............................. $ 856,000
1999.............................. 851,000
2000.............................. 717,000
2001.............................. 404,000
2002.............................. 358,000
thereafter........................ 537,000
----------
$3,723,000
==========
</TABLE>
The Company has employment agreements with certain officers and key members
of management of the Company, the terms of which expire on December 31, 1998.
The agreements provide for minimum salary levels, incentive bonuses at the
discretion of the Company's Board of Directors, customary benefits including
insurance coverage. In addition, the employment agreements further provide for
severance pay ranging from six months to two year's base salary, bonus, and
benefits, depending on the cause of termination and in the event of a change
in corporate control.
From time to time, the Company is a party to routine litigation in the
ordinary course of business. The Company is not currently a party to any
material pending legal proceedings.
12. EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company sponsors a 401(k) profit sharing plan (the "401(k) Plan") which
covers substantially all of its employees. Employees are eligible to
participate after completing three months of service. The 401(k) Plan provides
for elective contributions by employees up to the maximum limit allowed by the
Internal Revenue Code. The Company currently matches 50% of the amount
deferred by participants, on deferral amounts up to 7.5% of compensation.
Although the Company has not made any profit sharing contributions, the 401(k)
Plan permits the Company to make a discretionary profit sharing contribution
which, if made, is allocated to the accounts of participants who have been
credited with 1,000 hours of service during a plan year and who are employed
on the last day of a plan year. The Company made matching contributions equal
to $.06, $.06, $.50 for each dollar contributed to the 401(k) Plan, subject to
the limits noted above, by employees during 1994, 1995 and 1996, respectively
and $.50 and $.50 during the nine months ended September 30, 1996 and 1997.
These amounts have been included in general and administrative expenses on the
consolidated statements of income. An employee is fully vested in the matching
contributions after five years of employment, or earlier upon attainment of
appropriate retirement age, upon retirement due to disability, or upon death.
The Company made contributions to the 401(k) Plan aggregating approximately
$2,000, $9,000, $92,000, $69,000 and $241,000 during the years ended December
31, 1994, 1995 and 1996, and the nine months ended September 30, 1996 and
1997, respectively. Payment of benefits is generally made in the form of a
single lump sum or in installments.
Incentive Compensation and Profit Sharing Policies
The Company has implemented incentive compensation and profit sharing
policies which cover substantially all salaried employees. Employees in
positions at project manager or below, as well as
F-15
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
administrative staff, are eligible for discretionary profit sharing payments.
Each employee's profit sharing payment is based on a formula and is contingent
upon his or her level of salary and length of service. Employees in positions
at project manager or above are eligible for incentive compensation payments
based on satisfaction of applicable performance criteria. The Company approved
and recognized incentive compensation and profit sharing payments aggregating
approximately $190,000, $650,000, $1,258,000, $944,000 and $1,994,000 for the
years ended December 31, 1994, 1995 and 1996, and the nine months ended
September 30, 1996 and 1997, respectively, which are included in general and
administrative expense.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest and income taxes (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- -----------------
1994 1995 1996 1996 1997
---- ---- ---- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest................................ $40 $56 $79 $ 59 $ 104
Income taxes............................ 17 210 355 266 400
</TABLE>
Non-cash financing activities (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Stock contribution to the Company.. $(28) --
Common stock issued for notes
receivable........................ 413 $90
Issuance of stock awards to key
employees......................... 898 --
</TABLE>
F-16
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. GEOGRAPHIC FINANCIAL DATA
The following table sets forth certain information with respect to the
Company (in thousands):
<TABLE>
<CAPTION>
EUROPE,
MIDDLE EAST
CORPORATE AMERICAS AND AFRICA ASIA/PACIFIC TOTAL
--------- -------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED
SEPTEMBER 30, 1997
(UNAUDITED):
Revenues.............. -- $19,535 $7,849 $2,672 $30,056
Operating income
(loss)............... $(1,364) 2,162 503 277 1,578
Total assets.......... 329 9,535 3,176 1,030 14,070
YEAR ENDED DECEMBER 31,
1996:
Revenues.............. -- $15,565 $8,906 $1,731 $26,202
Operating income
(loss)............... $(1,643)(1) 1,168 519 310 354
Total assets.......... -- 4,307 3,016 735 8,058
NINE MONTHS ENDED
SEPTEMBER 30, 1996
(UNAUDITED):
Revenues.............. -- $11,440 $6,368 $1,231 $19,039
Operating income
(loss)............... $ (761)(1) 1,052 461 295 1,047
Total assets.......... -- 3,669 2,795 601 7,065
YEAR ENDED DECEMBER 31,
1995:
Revenues.............. -- $ 8,926 $5,401 $ 291 $14,618
Operating income
(loss)............... $ 87 750 351 (24) 1,164
Total assets.......... -- 2,389 2,164 122 4,675
YEAR ENDED DECEMBER 31,
1994:
Revenues.............. -- $ 4,050 $3,451 -- $ 7,501
Operating income
(loss)............... $ (90) 192 292 -- 394
Total assets.......... -- 1,130 654 -- 1,784
</TABLE>
- --------
(1) Includes a charge for stock awarded to employees and payments in lieu
thereof of $1,858,000 in the year ended December 31, 1996 and $898,000 in
the nine month period ended September 30, 1996.
F-17
<PAGE>
DA CONSULTING GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for the nine months ended September 30,
1997 and the year ended December 31, 1996 is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED):
Revenues................................... $8,084 $9,897 $12,075 --
Operating income........................... 208 582 788 --
Net income................................. 128 340 472 --
Net income per share....................... $ 0.03 $ 0.07 $ 0.09 --
Weighted average shares outstanding........ 5,054 5,054 5,054 --
YEAR ENDED DECEMBER 31, 1996:
Revenues................................... $5,677 $6,363 $ 6,999 $7,163
Operating income (loss).................... 712 660 (325) (693)
Net income (loss).......................... 438 440 (165) (405)
Net income (loss) per share................ $ 0.11 $ 0.11 $ (0.04) $(0.08)
Weighted average shares outstanding........ 4,104 4,189 4,528 5,033
</TABLE>
16. SUBSEQUENT EVENTS
Initial Public Offering
The Company is in the process of completing an IPO of shares of its common
stock. In connection with the IPO, the Company's Board of Directors approved a
4.2-for-one stock split of the common stock will be effected. Accordingly, all
references in the financial statements to number of shares, per share amounts
and stock option data of the Company's common stock have been restated to
reflect the anticipated stock split. In connection with the stock split, the
Company's authorized capital will be increased to 40,000,000 shares of common
stock, $0.01 par value per share, and 10,000,000 shares of Preferred Stock,
$0.01 par value per share.
Private Placement of Shares
In December 1997, the Company sold 362,208 shares of common stock at $6.55
per share, representing the fair value at the date of sale. Total proceeds to
the Company amounted to approximately $2.4 million.
Credit Facility Renewal
Subsequent to September 30, 1997, the Company amended its existing credit
facility (Note 4) increasing the available line from $3,500,000 to $5,000,000.
F-18
<PAGE>
A graphic, depicting a Greek-style temple covering the world, appears here with
the following language appearing inside such graphic:
END-USER SUPPORT
CHANGE EDUCATION PERFORMANCE
COMMUNICATION SUPPORT
Multimedia Distance Learning DA PASS(TM)
Videos CBT Intranet
Newsletters ILT Documentation
DA Cornerstone(TM)
DA FOUNDATION(TM)
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OF-
FER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE IN-
FORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 10
Dividend Policy.......................................................... 10
Capitalization........................................................... 11
Dilution................................................................. 12
Selected Consolidated Financial Data..................................... 13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 14
Business................................................................. 23
Management............................................................... 34
Certain Relationships and Related Transactions........................... 41
Principal and Selling Shareholders....................................... 43
Description of Capital Stock............................................. 44
Shares Eligible for Future Sale.......................................... 47
Underwriting............................................................. 48
Legal Matters............................................................ 49
Experts.................................................................. 49
Additional Information................................................... 50
Index to Financial Statements............................................ F-1
</TABLE>
---------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,500,000 SHARES
LOGO
[LOGO OF DA CONSULTING GROUP, INC. APPEARS HERE]
COMMON STOCK
-------------
PROSPECTUS
, 1998
-------------
WILLIAM BLAIR & COMPANY
ROBERT W. BAIRD & CO.
INCORPORATED
PENNSYLVANIA MERCHANT GROUP LTD
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemized statement of expenses, other than
underwriting discounts and commissions, all of which will be paid by the
Company, in connection with the issuance and distribution of the securities
being registered. All amounts are estimates except for the fees payable to the
Commission and the NASD and the Nasdaq listing fee:
<TABLE>
<CAPTION>
NATURE OF EXPENSE AMOUNT
----------------- ----------
<S> <C>
Commission registration fee...................................... $ 11,026
NASD filing fee.................................................. 4,238
Nasdaq National Market listing fee............................... *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Blue Sky filing fees and expenses................................ *
Transfer agent and registrar fees................................ *
Director & Officer liability insurance........................... *
Miscellaneous.................................................... *
----------
Total.......................................................... $1,000,000
==========
</TABLE>
- --------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 2.02-1 of the TBCA generally provides that a corporation may
indemnify any director or officer who was, is or is threatened to be made a
named defendant or respondent in a proceeding because he is or was a director
or officer, provided that the director or officer (i) conducted himself in
good faith, (ii) reasonably believed (a) in the case of conduct in his
official capacity, that his conduct was in the corporation's best interests or
(b) in all other cases, that his conduct was at least not opposed to the
corporation's best interests and (iii) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. Subject to
certain exceptions, a director or officer may not be indemnified if the person
is found liable to the corporation or if the person is found liable on the
basis that he improperly received a personal benefit. Under the TBCA,
reasonable expenses incurred by a director or officer may be paid or
reimbursed by the corporation in advance of a final disposition of the
proceeding after the corporation receives a written affirmation by the
director or officer of his good faith belief that he has met the standard of
conduct necessary for indemnification and a written undertaking by or on
behalf of the director or officer to repay the amount if it is ultimately
determined that the director or officer is not entitled to indemnification by
the corporation. The TBCA also requires a corporation to indemnify an officer
or director against reasonable expenses incurred in connection with the
proceeding in which he is named defendant or respondent because he is or was a
director or officer if he is wholly successful in defense of the proceeding.
The TBCA also permits a corporation to purchase and maintain insurance or
another arrangement on behalf of any person who is or was a director or
officer against any liability asserted against him and incurred by him in such
a capacity or arising out of his status as such a person, whether or not the
corporation would have the power to indemnify him against that liability under
Article 2.02-1.
The Company's Restated Articles and its Bylaws both provide for the
indemnification of its officers and directors, and the advancement to them of
expenses in connection with proceedings and claims, to the fullest extent
permitted by the TBCA. In addition, the Company intends to maintain directors'
and officers' liability insurance policies for its directors and officers. In
addition, the Company's Restated Articles of Incorporation
II-1
<PAGE>
provide that a director of the Company will not be liable to the corporation
or its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except in the case of (i) a breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) an act
or omission not in good faith that involves intentional misconduct or a
knowing violation of the law, (iii) a transaction from which a director
received an improper benefit, whether or not the benefit resulted from an
action taken within the scope of the director's office, (iv) an act or
omission for which the liability of the director is expressly provided by
statute, or (v) an act related to an unlawful stock repurchase or payment of a
dividend.
The above discussion of Article 2.02-1 of the TBCA and of the Company's
Restated Articles and Bylaws is not intended to be exhaustive and is
respectively qualified in its entirety by such statute and the Company's
Restated Articles and Bylaws.
Reference is made to Item 17 of this Registration Statement for additional
information regarding indemnification of directors and officers.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the underwriters of the Company, its directors, and its officers who signed
the Registration Statement in the offering of the Common Stock registered
hereby, and each person, if any, who controls the Company, for certain
liabilities, including liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In July 1995, the Company issued 4,200,000 shares of Common Stock to the
founder, two trusts for the benefit of the founder's family, a member of the
founder's family, an employee and the Chief Executive Officer of the Company
in exchange for shares (with a weighted average value of $0.95 per share) of
companies which are now subsidiaries of the Company. The foregoing described
issuances of securities were, to the extent within the jurisdictional scope of
the Securities Act, exempt from registration under the Securities Act by
virtue of the exemption provided by Section 4(2) thereof for transactions not
involving a public offering.
In January 1996, the Company issued 235,200 shares of Common Stock to the
CEO of the Company in exchange for shares (valued at $0.01 per share) of a
company which is now a subsidiary of the Company. The foregoing described
issuance of securities was not within the jurisdictional scope of the
Securities Act.
In June 1996, the Company sold 438,509 shares of Common Stock to one trust
for the benefit of a South African employee, 21 U.S. employees of the Company,
nine foreign employees of the Company, and one foreign company owned by a
foreign employee for an aggregate consideration of $556,489. The foregoing
described issuances of securities were, to the extent within the
jurisdictional scope of the Securities Act, exempt from registration under the
Securities Act by virtue of the exemption provided by Section 4(2) thereof for
transactions not involving any public offering.
In July 1996, the Company sold 33,844 shares of Common Stock to 10 foreign
employees of the Company for an aggregate consideration of $42,949. The
foregoing described issuances of securities were not within the jurisdictional
scope of the Securities Act.
In September 1996, the Company awarded an aggregate of 464,848 shares of
Common Stock to two U.S. employees and two foreign employees of the Company.
The foregoing described issuances of securities were, to the extent within the
jurisdictional scope of the Securities Act, exempt from registration under the
Securities Act by virtue of the exemption provided by Section 4(2) thereof for
transactions not involving any public offering.
In December 1996, the Company sold 12,600 shares of Common Stock to four
U.S. employees for an aggregate consideration of $24,330. The foregoing
described issuances of securities were exempt from registration under the
Securities Act by virtue of the exemption provided by Section 4(2) thereof for
transactions not involving any public offering.
II-2
<PAGE>
In January 1997, the Company sold 234,990 shares of Common Stock to 10
accredited investors and one foreign investor for an aggregate consideration
of $1,342,800. The foregoing described issuances of securities were, to the
extent within the jurisdictional scope of the Securities Act, exempt from
registration under the Securities Act by virtue of the exemption provided by
Section 4(2) thereof for transactions not involving any public offering.
In February and August 1997, the Company granted options to employees to
purchase an aggregate of 448,589 shares of Common Stock. The foregoing
described issuance of securities was exempt from registration under the
Securities Act by virtue of the exemption provided by Section 4(2) thereof for
transactions not involving any public offering and Rule 701 promulgated under
the Securities Act.
In July 1997, the Company sold 17,430 shares of Common Stock to one U.S.
employee for a consideration of $99,600. The foregoing described issuance of
securities was exempt from registration under the Securities Act by virtue of
the exemption provided by Section 4(2) thereof for transactions not involving
any public offering.
In December 1997, the Company sold 362,208 shares of Common Stock to 23
accredited investors and six foreign investors for an aggregate consideration
of $2,371,600. The foregoing described issuances of securities were, to the
extent within the jurisdictional scope of the Securities Act, exempt from
registration under the Securities Act by virtue of the safe harbor exemption
provided by Section 4(2) thereof for transactions not involving any public
offering.
The foregoing described issuances of securities did not involve
underwriters. The above information reflects a 10-for-1 split of the shares of
Common Stock on January 19, 1996 and a 4.2-for-1 split of the shares of Common
Stock to be effected prior to the date of this offering.
ITEM 16. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement by and among the Company, the
Underwriters and the Selling Shareholders
3.1 --Form of Amended and Restated Articles of Incorporation of the
Company
3.2 --Form of Restated By-Laws of the Company
4.1 --Specimen Stock Certificate*
5.1 --Opinion of Pepper Hamilton LLP*
10.1 --1997 Stock Option Plan (including form of option agreements)*
10.2 --Employment Agreement between the Company and Nick Marriner*
10.3 --Employment Agreement between the Company and Patrick J. Newton*
10.4 --Employment Agreement between the Company and Michael J. Mackey*
10.5 --Employment Agreement between the Company and Lisa L. Costello*
10.6 --Employment Agreement between the Company and Eric J. Fernette*
10.7 --Form of Consulting Agreement dated October 27, 1997, between the
Company and Richard W. Thatcher, Jr.
10.8 --Letter Loan Agreement dated March 18, 1996 between Documentation
Associates, Inc. (now known as DA Consulting Group (USA), Inc.) and
Southwest Bank of Texas, N.A.
10.9 --First Amendment to Letter Loan Agreement, dated November, 1996,
between D.A. Consulting Group, Inc. (now known as DA Consulting Group
(USA), Inc.) and Southwest Bank of Texas, N.A.
10.10 --Second Amendment to Letter Loan Agreement, dated May 18, 1997,
between D.A. Consulting Group, Inc. (now known as DA Consulting Group
(USA), Inc.) and Southwest Bank of Texas, N.A.
10.11 --Third Amendment to Letter Loan Agreement, dated effective May 1997,
between D.A. Consulting Group, Inc. (now known as DA Consulting Group
(USA), Inc.) and Southwest Bank of Texas, N.A.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.12 --Fourth Amendment to Letter Loan Agreement, dated effective November
26, 1997, between D.A. Consulting Group, Inc. (now known as DA
Consulting Group (USA), Inc.) and Southwest Bank of Texas, N.A.
10.13 --Continuing Guaranty, dated May 27, 1997, of DA International, Inc.
(now known as DA Consulting Group, Inc.) in favor of Southwest Bank
of Texas, N.A.
10.14 --Promissory Note, dated October 7, 1997, of D.A. Consulting Group,
Inc. (now known as DA Consulting Group (USA), Inc.) payable to Heller
Financial, Inc.
10.15 --Security Agreement, dated October 7, 1997, between D.A. Consulting
Group, Inc. (now known as DA Consulting Group (USA), Inc.) and Heller
Financial, Inc.
10.16 --Promissory Note dated August 8, 1997 from Michael J. Mackey to the
Company in the original principal amount of $89,640
11.1 --Computation of Net Income per Share
16.1 --Letter re change in certifying accountants
21.1 --Subsidiaries
23.1 --Consent of Coopers & Lybrand L.L.P. (included on page II-5 of the
Registration Statement)
23.2 --Consent of Pepper Hamilton LLP (included in Exhibit 5.1)*
24 --Power of Attorney (included on Signature Pages)
27 --Financial Data Schedule
</TABLE>
- --------
* To be filed by Amendment.
(b) Consolidated Financial Statement Schedules:
All schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial Statements
or the notes thereto.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the Closing specified in the underwriting agreement,
certificates in such denomination and registered in such names or required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
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 Commission such indemnification is
against public policy as expressed in the Securities 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 has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities 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) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities 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-4
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated March 28, 1997, except with respect to Note 16, as to which
the date is January 8, 1998, on our audits of the consolidated financial
statements of DA Consulting Group, Inc. as of December 31, 1995 and 1996 and
for each of the three years in the period ended December 31, 1996. We also
consent to the reference to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Houston, Texas
January 9, 1998
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON,
STATE OF TEXAS, ON THE 8TH DAY OF JANUARY, 1998.
DA Consulting Group, Inc.
/s/ Nicholas H. Marriner
By: _________________________________
Nicholas H. Marriner
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Nicholas H. Marriner, Patrick J. Newton, and
Michael J. Mackey, and each or any of them, such individual's 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 this Registration Statement and any and all amendments
(including post-effective amendments) to this Registration Statement,
including for an increase in shares of Common Stock to be registered pursuant
to Rule 462, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such individual might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their, his or her substitutes or substitute, may lawfully do or cause
to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
SIGNATURE TITLE DATE
/s/ Nicholas H. Marriner Chief Executive January 8, 1998
- ------------------------------------- Officer and
NICHOLAS H. MARRINER President
(principal
executive officer)
/s/ Michael J. Mackey Vice President, January 8, 1998
- ------------------------------------- Chief Financial
MICHAEL J. MACKEY Officer, (principal
financial officer
and principal
accounting officer)
II-6
<PAGE>
/s/ Virginia L. Pierpont Director January 8, 1998
- -------------------------------------
VIRGINIA L. PIERPONT
/s/ Nigel Curlet Director January 8, 1998
- -------------------------------------
NIGEL CURLET
/s/ Gunther Fritze Director January 8, 1998
- -------------------------------------
GUNTHER FRITZE
/s/ Richard Thatcher Director January 8, 1998
- -------------------------------------
RICHARD THATCHER
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
1.1 --Form of Underwriting Agreement by and among the Company, the
Underwriters and the Selling Shareholders.....................
3.1 --Form of Amended and Restated Articles of Incorporation of the
Company.......................................................
3.2 --Form of Restated By-Laws of the Company......................
4.1 --Specimen Stock Certificate*..................................
5.1 --Opinion of Pepper Hamilton LLP*..............................
10.1 --1997 Stock Option Plan (including form of option
agreements)*..................................................
10.2 --Employment Agreement between the Company and Nick Marriner*..
10.3 --Employment Agreement between the Company and Patrick J.
Newton*.......................................................
10.4 --Employment Agreement between the Company and Michael J.
Mackey*.......................................................
10.5 --Employment Agreement between the Company and Lisa L.
Costello*.....................................................
10.6 --Employment Agreement between the Company and Eric J.
Fernette*.....................................................
10.7 --Form of Consulting Agreement dated October 27, 1997, between
the Company and Richard W. Thatcher, Jr.......................
10.8 --Letter Loan Agreement dated March 18, 1996 between
Documentation Associates, Inc. (now known as DA Consulting
Group (USA), Inc.) and Southwest Bank of Texas, N.A. .........
10.9 --First Amendment to Letter Loan Agreement, dated November,
1996, between D.A. Consulting Group, Inc. (now known as DA
Consulting Group (USA), Inc.) and Southwest Bank of Texas,
N.A...........................................................
10.10 --Second Amendment to Letter Loan Agreement, dated May 18,
1997, between D.A. Consulting Group, Inc. (now known as DA
Consulting Group (USA), Inc.) and Southwest Bank of Texas,
N.A...........................................................
10.11 --Third Amendment to Letter Loan Agreement, dated effective May
1997, between D.A. Consulting Group, Inc. (now known as DA
Consulting Group (USA), Inc.) and Southwest Bank of Texas,
N.A...........................................................
10.12 --Fourth Amendment to Letter Loan Agreement, dated effective
November 26, 1997, between D.A. Consulting Group, Inc. (now
known as DA Consulting Group (USA), Inc.) and Southwest Bank
of Texas, N.A.................................................
10.13 --Continuing Guaranty, dated May 27, 1997, of DA International,
Inc. (now known as DA Consulting Group, Inc.) in favor of
Southwest Bank of Texas, N.A..................................
10.14 --Promissory Note, dated October 7, 1997, of D.A. Consulting
Group, Inc. (now known as DA Consulting Group (USA), Inc.)
payable to Heller Financial, Inc. ............................
10.15 --Security Agreement, dated October 7, 1997, between D.A.
Consulting Group, Inc. (now known as DA Consulting Group
(USA), Inc.) and Heller Financial, Inc. ......................
10.16 --Promissory Note dated August 8, 1997 from Michael J. Mackey
to the Company in the original principal amount of $89,640....
11.1 --Computation of Net Income per Share..........................
16.1 --Letter re change in certifying accountants...................
21.1 --Subsidiaries.................................................
23.1 --Consent of Coopers & Lybrand L.L.P. (included on page II-5 of
the Registration Statement)...................................
23.2 --Consent of Pepper Hamilton LLP (included in Exhibit 5.1)*....
24 --Power of Attorney (included on Signature Pages)..............
27 --Financial Data Schedule......................................
</TABLE>
- --------
* To be filed by Amendment.
<PAGE>
EXHIBIT 1.1
DA CONSULTING GROUP, INC.
2,500,000 SHARES OF COMMON STOCK
UNDERWRITING AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
Section 1. Introductory.............................................................................................. 1
Section 2. Representations and Warranties of the Company............................................................. 2
Section 3. Representations, Warranties and Covenants of the Selling Shareholders..................................... 8
Section 4. Information Supplied by the Underwriters.................................................................. 10
Section 5. Purchase, Sale and Delivery of Shares..................................................................... 11
Section 6. Covenants of the Company.................................................................................. 12
Section 7. Payment of Expenses....................................................................................... 15
Section 8. Conditions of the Obligations of the Underwriters......................................................... 16
Section 9. Reimbursement of Underwriters' Expenses................................................................... 24
Section 10. Effectiveness of Registration Statement................................................................... 24
Section 11. Indemnification........................................................................................... 24
Section 12. Default of Underwriters................................................................................... 28
Section 13. Effective Date............................................................................................ 29
Section 14. Termination............................................................................................... 29
Section 15. Representations and Indemnities to Survive Delivery....................................................... 29
Section 16. Notices................................................................................................... 30
Section 17. Successors................................................................................................ 30
Section 18. Representation of Underwriters............................................................................ 30
Section 19. Partial Unenforceability.................................................................................. 30
Section 20. Counterparts.............................................................................................. 30
Section 21. Applicable Law............................................................................................ 30
Schedule A
Schedule B
Schedule C
Schedule D
Exhibit A
</TABLE>
-i-
<PAGE>
DA CONSULTING GROUP, INC.
2,500,000 Shares of Common Stock/1/
UNDERWRITING AGREEMENT
_____________, 1998
William Blair & Company, L.L.C.
Robert W. Baird & Co. Incorporated
Pennsylvania Merchant Group Ltd.
As Representatives of the Several
Underwriters Named in Schedule A
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
SECTION 1. Introductory. DA Consulting Group, Inc. (the "Company") a
Texas corporation, has an authorized capital stock consisting of _____ shares of
Preferred Stock, $_____ par value, of which ________ shares were outstanding as
of _________, 19___ and __________ shares, $_________ par value, of Common Stock
(the "Common Stock"), of which ________ shares were outstanding as of such date.
The Company proposes to issue and sell 1,700,000 shares of its authorized but
unissued Common Stock, and certain shareholders of the Company (collectively
referred to as the "Selling Shareholders" and named in Schedule B) propose to
sell 800,000 shares of the Company's issued and outstanding Common Stock to the
several underwriters named in Schedule A as it may be amended by the Pricing
Agreement hereinafter defined (the "Underwriters"), who are acting severally and
not jointly. Collectively, such total of 2,500,000 shares of Common Stock
proposed to be sold by the Company and the Selling Shareholders is hereinafter
referred to as the "Firm Shares." In addition, the Company and the Selling
Shareholders propose to grant to the Underwriters an option to purchase up to
375,000 additional shares of Common Stock (the "Option Shares") as provided in
Section 5 hereof. The Firm Shares and, to the extent such option is exercised,
the Option Shares, are hereinafter collectively referred to as the "Shares."
You have advised the Company and the Selling Shareholders that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon as you deem advisable after the registration statement
hereinafter referred to becomes effective, if it has not yet become effective,
and the Pricing Agreement hereinafter defined has been executed and delivered.
Prior to the purchase and public offering of the Shares by the several
Underwriters, the Company, the Selling Shareholders and the Representatives,
acting on behalf of the several
- -------------------
/1/ Plus an option to acquire up to 375,000 additional shares to cover over-
allotments.
-1-
<PAGE>
Underwriters, shall enter into an agreement substantially in the form of Exhibit
A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of
an exchange of any standard form of written telecommunication between the
Company, the Selling Shareholders and the Representatives and shall specify such
applicable information as is indicated in Exhibit A hereto. The offering of the
Shares will be governed by this Agreement, as supplemented by the Pricing
Agreement. From and after the date of the execution and delivery of the Pricing
Agreement, this Agreement shall be deemed to incorporate the Pricing Agreement.
The Company and each of the Selling Shareholders hereby confirm their
agreements with the Underwriters as follows:
SECTION 2. Representations and Warranties of the Company. The Company
represents and warrants to the several Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-_____) and a
related preliminary prospectus with respect to the Shares have been
prepared and filed with the Securities and Exchange Commission (the
"Commission") by the Company in conformity with the requirements of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "1933 Act;" unless indicated to
the contrary, all references herein to specific rules are rules promulgated
under the 1933 Act); and the Company has so prepared and has filed such
amendments thereto, if any, and such amended preliminary prospectuses as
may have been required to the date hereof and will file such additional
amendments thereto and such amended prospectuses as may hereafter be
required. There have been or will promptly be delivered to you three
signed copies of such registration statement and amendments, including
signed copies of all consents and certificates of experts, three copies of
each exhibit filed therewith, three copies of the registration statement
and each amendment thereto as filed pursuant to the Commission's Electronic
Data Gathering and Retrieval System ("EDGAR") and the related confirmation
of acceptances of filing, and conformed copies of such registration
statement and amendments (but without exhibits) and of the related
preliminary prospectus or prospectuses and final forms of prospectus for
each of the Underwriters.
Such registration statement (as amended, if applicable) at the time it
becomes effective and the prospectus constituting a part thereof (including
the information, if any, deemed to be part thereof pursuant to Rule 430A(b)
and/or Rule 434), as from time to time amended or supplemented, are
hereinafter referred to as the "Registration Statement," and the
"Prospectus," respectively, except that if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection with the
offering of the Shares which differs from the Prospectus on file at the
Commission at the time the Registration Statement became or becomes
effective (whether or not such revised prospectus is required to be filed
by the Company pursuant to Rule 424(b)), the term Prospectus shall refer to
such revised prospectus from and after the time it was provided to the
Underwriters for such use. If the Company elects to rely on Rule 434 of
the 1933 Act, all references to "Prospectus" shall be deemed to include,
without limitation, the form of prospectus and the term sheet, if any,
-2-
<PAGE>
taken together, provided to the Underwriters by the Company in accordance
with Rule 434 of the 1933 Act (the "Rule 434 Prospectus"). Any registration
statement (including any amendment or supplement thereto or information
which is deemed part thereof) filed by the Company under Rule 462(b) (the
"Rule 462(b) Registration Statement") shall be deemed to be part of the
"Registration Statement" as defined herein, and any prospectus (including
any amendment or supplement thereto or information which is deemed part
thereof) included in such registration statement shall be deemed to be part
of the "Prospectus," as defined herein, as appropriate. The Securities
Exchange Act of 1934, as amended, and the rules and regulations of the
Commission thereunder are hereinafter collectively referred to as the
"Exchange Act."
(b) The Commission has not issued any order preventing or suspending
the use of any preliminary prospectus, and each preliminary prospectus has
conformed in all material respects with the requirements of the 1933 Act
and, as of its date, has not included any untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein not misleading; and when the Registration Statement became or
becomes effective, and at all times subsequent thereto, up to the First
Closing Date or the Second Closing Date hereinafter defined, as the case
may be, the Registration Statement, including the information deemed to be
part of the Registration Statement at the time of effectiveness pursuant to
Rule 430A(b), if applicable, and the Prospectus and any amendments or
supplements thereto, contained or will contain all statements that are
required to be stated therein in accordance with the 1933 Act and in all
material respects conformed or will in all material respects conform to the
requirements of the 1933 Act, and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, included or will
include any untrue statement of a material fact or omitted or will omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that the Company
makes no representation or warranty as to information contained in or
omitted from any preliminary prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on
behalf of any Underwriter through the Representatives specifically for use
in the preparation thereof.
(c) The Company and its subsidiaries have been duly incorporated and
are validly existing as corporations in good standing under the laws of
their respective jurisdictions of incorporation, with corporate power and
authority to own their properties and conduct their business as described
in the Prospectus; the Company and each of its subsidiaries are duly
qualified to do business as foreign corporations under the law of, and are
in good standing as such in, each jurisdiction in which they own or lease
substantial properties, have an office, or in which substantial business is
conducted and such qualification is required except in any such case where
the failure to so qualify or be in good standing would not have a material
adverse effect upon the Company and its subsidiaries taken as a whole; and
no proceeding of which the Company has knowledge has been instituted in any
such jurisdiction, revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification.
-3-
<PAGE>
(d) The Company owns directly or indirectly 100 percent of the issued
and outstanding capital stock of each of its subsidiaries, free and clear
of any claims, liens, encumbrances or security interests and all of such
capital stock has been duly authorized and validly issued and is fully paid
and nonassessable. The only subsidiaries of the Company are the
subsidiaries listed on Exhibit 21 to the Registration Statement. Except
for the shares of capital stock or other equity interests of each of the
subsidiaries owned by the Company and such subsidiaries, neither the
Company nor any such subsidiary owns any shares of stock or any other
equity securities of any corporation or has any equity interest in any
firm, partnership, association or other entity.
(e) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. The issued and outstanding shares of
capital stock of the Company as set forth in the Prospectus have been duly
authorized and validly issued, are fully paid and nonassessable, conform to
the description thereof contained in the Prospectus and were not issued in
violation of the preemptive or other similar rights of any person or entity
or any securityholder of the Company or in violation of any agreement to
which the Company or any subsidiary is a party. There is outstanding no
security or other instrument that by its terms is convertible into or
exchangeable for capital stock of the Company or any of its subsidiaries
and there is no commitment, plan or arrangement to issue such a security or
instrument.
(f) The Shares to be sold by the Company have been duly authorized and
when issued, delivered and paid for pursuant to this Agreement, will be
validly issued, fully paid and nonassessable, will conform to the
description thereof contained in the Prospectus and will not have been
issued in violation of the preemptive or other similar rights of any person
or entity or any securityholder of the Company or in violation of any
agreement to which the Company or any subsidiary is a party.
(g) The making and performance by the Company of this Agreement and
the Pricing Agreement have been duly authorized by all necessary corporate
action and will not violate any provision of the Company's Amended and
Restated Articles of Incorporation or bylaws and will not result in the
breach, or be in contravention, of any provision of any agreement,
franchise, license, indenture, mortgage, deed of trust, or other instrument
to which the Company or any subsidiary is a party or by which the Company,
any subsidiary or the property of any of them may be bound or affected, or
any order, rule or regulation applicable to the Company or any subsidiary
of any court, arbitration or other alternative dispute resolution forum,
regulatory body, administrative agency or other governmental body, domestic
or foreign, having jurisdiction over the Company or any subsidiary or any
of their respective properties, or any order of any court or governmental
agency or authority entered in any proceeding to which the Company or any
subsidiary was or is now a party or by which it is bound. No filing with,
or consent, approval, authorization, license or qualification, decree or
order of, any court, regulatory body, administrative agency or other
governmental body, domestic or foreign, is required for the execution and
delivery of this Agreement or the Pricing Agreement or the consummation of
the transactions contemplated
-4-
<PAGE>
herein or therein, except for compliance with the 1933 Act and blue sky
laws applicable to the public offering of the Shares by the several
Underwriters and clearance of such offering with the National Association
of Securities Dealers, Inc. ("NASD"). This Agreement (including the
Pricing Agreement) has been duly authorized, executed and delivered by the
Company.
(h) The accountants who have expressed their opinions with respect to
certain of the financial statements and schedules included in the
Registration Statement are independent accountants as required by the 1933
Act.
(i) The consolidated financial statements and schedules of the
Company, including the notes thereto, included in the Registration
Statement present fairly the consolidated financial position of the Company
as of the respective dates of such financial statements, and the
consolidated results of operations and cash flows of the Company for the
respective periods covered thereby, all in conformity with generally
accepted accounting principles consistently applied throughout the periods
involved, except as disclosed in the Prospectus; and the supporting
schedules included in the Registration Statement present fairly the
information required to be stated therein. The financial information set
forth in the Prospectus under the captions "Summary Financial Data" and
"Selected Financial Data" has been compiled on a basis consistent with that
of the audited financial statements contained in the Prospectus and
presents fairly on the basis stated in the Prospectus, the information set
forth therein. The Company has adopted a system of internal accounting
controls for the Company and its subsidiaries 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.
(j) Neither the Company nor any subsidiary is in violation of its
charter or in default under any law, statute, ordinance, rule, regulation
or consent decree, or in default with respect to any material provision of
any lease, loan agreement, franchise, license, permit or other contract
obligation to which it is a party; and there does not exist any state of
facts which constitutes an event of default as defined in such documents or
which, with notice or lapse of time or both, would constitute such an event
of default, in each case, except for defaults which neither singly nor in
the aggregate are material to the Company and its subsidiaries taken as a
whole.
(k) There is no domestic or foreign action, suit, proceeding,
investigation or inquiry pending, or to the Company's knowledge,
threatened, against or affecting the Company or any subsidiary, or of which
material property owned or leased by the Company or any subsidiary is or
may be the subject, or which is related to environmental or
-5-
<PAGE>
discrimination matters, which are not disclosed in the Prospectus, or which
question the validity of this Agreement or the Pricing Agreement or any
action taken or to be taken pursuant hereto or thereto; and the aggregate
of all such pending proceedings could not have a material adverse effect on
the Company and its subsidiaries taken as a whole.
(l) There are no holders of securities of the Company having rights to
registration thereof except as disclosed in the Prospectus. Holders of
registration rights who are not Selling Shareholders have waived such
rights with respect to the offering being made by the Prospectus.
(m) The Company and each of its subsidiaries have good and marketable
title to all the properties and assets, real, personal or mixed, reflected
as owned in the financial statements hereinabove described (or elsewhere in
the Prospectus), subject to no lien, mortgage, pledge, restriction
(consensual or otherwise), charge or encumbrance of any kind except those,
if any, reflected in such financial statements (or elsewhere in the
Prospectus) or which are not material to the Company and its subsidiaries
taken as a whole. The Company and each of its subsidiaries hold their
respective leased properties under valid and binding leases.
(n) The Company has not taken and will not take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares.
(o) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as
contemplated by the Prospectus, (i) the Company and its subsidiaries, taken
as a whole, have not incurred any material liabilities or obligations,
direct or contingent, nor entered into any material transactions not in the
ordinary course of business, (ii) there has not been any material adverse
change in their condition (financial or otherwise), results of operations
or business prospects, nor any material change in their capital stock,
short-term debt or long-term debt, (iii) neither the Company nor any of its
subsidiaries has received notice (either formally or informally) of the
termination or anticipated termination of one or more customer projects or
customer or supplier or joint venture relationships currently maintained by
the Company or any of its subsidiaries which termination(s) could,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the Company and its subsidiaries taken as a whole, and
(iv) there has been no dividend or distribution of any kind declared or
made with respect to any class of capital stock of the Company.
(p) During a period of 180 days from the date of the Pricing
Agreement, the Company will not, without the prior written consent of
William Blair & Company, L.L.C., directly or indirectly, sell, offer to
sell, contract to sell, grant any option for the sale of, or otherwise
dispose of or transfer, any Common Stock or any securities convertible into
or exchangeable or exercisable for Common Stock or securities substantially
similar to
-6-
<PAGE>
Common Stock (except for Common Stock issued pursuant to this Agreement or
pursuant to employee benefit plans referred to in the Prospectus), or file
any registration statement under the 1933 Act with respect to any of the
foregoing. The Company has obtained similar agreements from each of the
individuals listed on Schedule B.
(q) There is no document of a character required to be described in
the Registration Statement or the Prospectus or to be filed as an exhibit
to the Registration Statement which is not described or filed as required.
No transaction has occurred between or among the Company and any of its
officers or directors or any affiliate or affiliates of any such officer or
director that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(r) The Company together with its subsidiaries owns and possesses all
right, title and interest in and to, or has duly licensed from third
parties, all patents, patent rights, licenses, trade secrets, inventions,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, trade names, copyrights, service marks and other proprietary
rights ("Trade Rights") employed in the business of the Company and each of
its subsidiaries. Neither the Company nor any of its subsidiaries has
received any notice of or is otherwise aware of any infringement,
misappropriation or conflict with asserted rights of any third party as to
such Trade Rights or of any facts or circumstances which could render any
such Trade Rights invalid or inadequate to protect the interest of the
Company and its subsidiaries therein; and neither the Company nor any of
its subsidiaries has infringed, misappropriated or otherwise conflicted
with Trade Rights of any third parties, which infringement,
misappropriation or conflict would have a material adverse effect upon the
condition (financial or otherwise) or results of operations of the Company
and its subsidiaries taken as a whole.
(s) The conduct of the business of the Company and each of its
subsidiaries is in compliance in all respects with applicable federal,
state, local and foreign laws and regulations, except where the failure to
be in compliance would not have a material adverse effect upon the
condition (financial or otherwise) or results of operations of the Company
and its subsidiaries taken as a whole.
(t) All offers and sales of the Company's capital stock prior to the
date hereof were at all relevant times exempt from the registration
requirements of the 1933 Act and were duly registered with or the subject
of an available exemption from the registration requirements of the
applicable state securities or blue sky laws.
(u) The Company and each of its subsidiaries have filed all necessary
federal, state, local and foreign income, franchise, value-added, sales and
use and similar tax returns and has paid all taxes shown as due thereon and
any related assessments, fines or penalties, and there is no tax deficiency
that has been, or to the knowledge of the Company might be, asserted
against the Company, its subsidiaries or any of their respective properties
or assets that would have a material adverse effect upon the condition
(financial or otherwise) or
-7-
<PAGE>
results of operations of the Company and its subsidiaries taken as a whole,
and adequate reserves have been provided for in the financial statements
referred to in Section 2(i) above for all federal, state, local and foreign
taxes for all periods as to which the tax liability of the Company or any
of its subsidiaries has not been determined or remains open.
(v) The Company and its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as is reasonable for the conduct of their businesses and the
value of their properties and as is customary in the businesses in which
they are engaged.
(w) The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act to register the Common Stock thereunder, and such
registration statement has become effective; and the Company has filed an
application to list the Shares on the Nasdaq National Market, and has
received notification that the listing has been approved, subject to notice
of issuance or sale of the Shares, as the case may be.
(x) The Company is not, and upon issuance and sale of the Shares as
herein contemplated and the application of the net proceeds therefrom as
described in the Prospectus under "Use of Proceeds" will not be, and does
not intend to conduct its business in a manner in which it would become, an
"investment company" or an entity "controlled by" an "investment company,"
as such terms are defined in Section 3(a) of the Investment Company Act of
1940, as amended (the "Investment Company Act").
SECTION 3. Representations, Warranties and Covenants of the Selling
Shareholders.
(a) Each Selling Shareholder severally represents and warrants to, and
agrees with, the Company and the Underwriters that:
(i) Such Selling Shareholder has, and on the First Closing Date
or the Second Closing Date hereinafter defined, as the case may be,
will have, valid marketable title to the Shares proposed to be sold by
such Selling Shareholder hereunder on such date and full right, power
and authority to enter into this Agreement, the Pricing Agreement and
the Power of Attorney and Custody Agreement hereinafter referred to,
and to sell, assign, transfer and deliver such Shares hereunder, free
and clear of all voting trust arrangements, liens, encumbrances,
equities, claims and community property rights; and upon delivery of
and payment for such Shares hereunder, the Underwriters will acquire
valid marketable title thereto, free and clear of all voting trust
arrangements, liens, encumbrances, equities, claims and community
property rights.
(ii) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which might be
reasonably expected to cause or result, under the Exchange Act or
otherwise, in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Shares.
-8-
<PAGE>
(iii) Such Selling Shareholder has executed and delivered a
Power of Attorney and Custody Agreement (the "Power of Attorney and
Custody Agreement") among the Selling Shareholder, __________,
_____________, and ___________ (the "Agents"), naming the Agents as
such Selling Shareholder's attorneys-in-fact (and, by the execution by
any Agent of this Agreement, such Agent hereby represents and warrants
that he has been duly appointed as attorney-in-fact by the Selling
Shareholders pursuant to the Power of Attorney and Custody Agreement)
for the purpose of entering into and carrying out this Agreement and
the Pricing Agreement, and the Power of Attorney and Custody Agreement
has been duly executed by such Selling Shareholder and a copy thereof
has been delivered to you.
(iv) Such Selling Shareholder has deposited in custody, under the
Power of Attorney and Custody Agreement with ___________________, as
custodian (the "Custodian"), certificates in negotiable form for the
Shares to be sold hereunder by such Selling Shareholder, for the
purpose of further delivery pursuant to this Agreement. The Shares to
be sold by such Selling Shareholder on deposit with the Custodian are
subject to the interests of the Company, the Underwriters and the
other Selling Shareholders, the arrangements made for such custody,
and the appointment of the Agents pursuant to the Power of Attorney
and Custody Agreement, are to that extent irrevocable, and the
obligations of such Selling Shareholder hereunder and under the Power
of Attorney and the Custody Agreement shall not be terminated except
as provided in this Agreement, the Power of Attorney or the Custody
Agreement by any act of such Selling Shareholder, by operation of law,
whether, in the case of an individual Selling Shareholder, by the
death or incapacity of such Selling Shareholder or, in the case of a
trust or estate, by the death of the trustee or trustees or the
executor or executors or the termination of such trust or estate, or,
in the case of a partnership or corporation, by the dissolution,
winding-up or other event affecting the legal life of such entity, or
by the occurrence of any other event. If any individual Selling
Shareholder, trustee or executor should die or become incapacitated,
or any such trust, estate, partnership or corporation should be
terminated, or if any other event should occur before the delivery of
the Shares hereunder, the documents evidencing Shares then on deposit
with the Custodian shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death,
incapacity, termination or other event had not occurred, regardless of
whether or not the Custodian, the Agents or any of them, shall have
received notice thereof. Each Agent has been authorized by such
Selling Shareholder to execute and deliver this Agreement and the
Pricing Agreement and the Custodian has been authorized to receive and
acknowledge receipt of the proceeds of sale of the Shares to be sold
by such Selling Shareholder against delivery thereof and otherwise act
on behalf of such Selling Shareholder.
(v) Each preliminary prospectus, insofar as it has related to
such Selling Shareholder and, to the knowledge of such Selling
Shareholder in all other respects, as of its date, has conformed in
all material respects with the requirements of the
-9-
<PAGE>
1933 Act and, as of its date, has not included any untrue statement of
a material fact or omitted to state a material fact necessary to make
the statements therein not misleading; and the Registration Statement
at the time of effectiveness, and at all times subsequent thereto, up
to the First Closing Date or the Second Closing Date hereinafter
defined, as the case may be, (1) such parts of the Registration
Statement and the Prospectus and any amendments or supplements thereto
as relate to such Selling Shareholder, and the Registration Statement
and the Prospectus and any amendments or supplements thereto, to the
knowledge of such Selling Shareholder in all other respects, contained
or will contain all statements that are required to be stated therein
in accordance with the 1933 Act and in all material respects conformed
or will in all material respects conform to the requirements of the
1933 Act, and (2) neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, as it relates to
such Selling Shareholder, and, to the knowledge of such Selling
Shareholder in all other respects, included or will include any untrue
statement of a material fact or omitted or will omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that neither clause (1)
nor (2) shall have any effect if information has been given by such
Selling Shareholder to the Company and the Representatives in writing
which would eliminate or remedy any such untrue statement or omission.
(vi) Such Selling Shareholder agrees with the Company and the
Underwriters not to, directly or indirectly, sell, offer to sell,
contract to sell, grant any option with respect to, or otherwise
dispose of or transfer any Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, for a period of
180 days after this Agreement becomes effective without the prior
written consent of William Blair & Company, L.L.C.
(b) In order to document the Underwriter's compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986,
as amended, with respect to the transactions herein contemplated, each of
the Selling Shareholders agrees to deliver to you prior to or on the First
Closing Date, as hereinafter defined, a properly completed and executed
United States Treasury Department Form W-8 or W-9 (or other applicable form
of statement specified by Treasury Department regulations in lieu thereof).
SECTION 4. Information Supplied by the Underwriters. The
Representatives, on behalf of the several Underwriters, hereby advise the
Company and the Selling Shareholders that the Representatives have furnished the
Company for use in the Prospectus (a) the last paragraph on the cover page of
the Prospectus, concerning the terms of the offering by the Underwriters; (b)
the last paragraph on page 2 of the Prospectus, concerning over-allotment,
stabilization and short covering by the Underwriters; (c) the third paragraph of
text under the caption "Underwriting" in the Prospectus, concerning the terms of
the offering by the Underwriters; and (d) the seventh paragraph under the
caption "Underwriting" in the Prospectus, concerning client accounts, which are
the only statements provided to the Company for use therein.
-10-
<PAGE>
SECTION 5. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders,
severally and not jointly, agree to sell to the Underwriters named in Schedule A
hereto, and the Underwriters agree, severally and not jointly, to purchase from
the Company and the Selling Shareholders, respectively, 1,700,000 Firm Shares
from the Company and the respective number of Firm Shares set forth opposite the
names of the Selling Shareholders in Schedule B hereto at the price per share
set forth in the Pricing Agreement. The obligation of each Underwriter to the
Company shall be to purchase from the Company that number of full shares which
(as nearly as practicable, as determined by you) bears to 1,700,000, the same
proportion as the number of Shares set forth opposite the name of such
Underwriter in Schedule A hereto bears to the total number of Firm Shares to be
purchased by all Underwriters under this Agreement. The obligation of each
Underwriter to each Selling Shareholder shall be to purchase from such Selling
Shareholder the number of full shares which (as nearly as practicable, as
determined by you) bears to that number of Firm Shares set forth opposite the
name of such Selling Shareholder in Schedule B hereto, the same proportion as
the number of Shares set forth opposite the name of such Underwriter in Schedule
A hereto bears to the total number of Firm Shares to be purchased by all
Underwriters under this Agreement. The initial public offering price and the
purchase price shall be set forth in the Pricing Agreement.
At 9:00 A.M., Chicago Time, on the fourth business day, if permitted under
Rule 15c6-1 under the Exchange Act, (or the third business day if required under
Rule 15c6-1 under the Exchange Act or unless postponed in accordance with the
provisions of Section 12) following the date the Registration Statement becomes
effective (or, if the Company has elected to rely upon Rule 430A, the fourth
business day, if permitted under Rule 15c6-1 under the Exchange Act, (or the
third business day if required under Rule 15c6-1 under the Exchange Act) after
execution of the Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Representatives and
the Company, the Company and the Custodian will deliver to you at the offices of
Bracewell & Patterson, L.L.P., counsel for the Underwriters, South Tower
Pennzoil Place, 711 Louisiana Street, Houston, Texas 77002, or through the
facilities of The Depository Trust Company for the accounts of the several
Underwriters, certificates representing the Firm Shares to be sold by them,
respectively, against payment of the purchase price therefor by delivery of
federal or other immediately available funds, by wire transfer or otherwise, to
the Company and the Custodian. Such time of delivery and payment is herein
referred to as the "First Closing Date." The certificates for the Firm Shares so
to be delivered will be in such denominations and registered in such names as
you request by notice to the Company and the Custodian prior to 10:00 A.M.,
Chicago Time, on the second business day preceding the First Closing Date, and
will be made available at the Company's expense for checking and packaging by
the Representatives at 10:00 A.M., Chicago Time, on the business day preceding
the First Closing Date. Payment for the Firm Shares so to be delivered shall be
made at the time and in the manner described above at the offices of counsel for
the Underwriters.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and certain of the Selling Shareholders hereby grant an option to the
several Underwriters to purchase, severally and not
-11-
<PAGE>
jointly, up to an aggregate of 375,000 Option Shares, at the same purchase price
per share to be paid for the Firm Shares, for use solely in covering any over-
allotments made by the Underwriters in the sale and distribution of the Firm
Shares. The option granted hereunder may be exercised at any time (but not more
than once) within 30 days after the date of the initial public offering upon
notice by you to the Company and the Agents setting forth the aggregate number
of Option Shares as to which the Underwriters are exercising the option, the
names and denominations in which the certificates for such shares are to be
registered and the time and place at which such certificates will be delivered.
Such time of delivery (which may not be earlier than the First Closing Date),
being herein referred to as the "Second Closing Date," shall be determined by
you, but if at any time other than the First Closing Date, shall not be earlier
than three nor later than 10 full business days after delivery of such notice of
exercise. The number of Option Shares to be purchased from the Company and each
such Selling Shareholder are set forth in Schedule B hereto. If less than all
Option Shares are to be purchased, the number of Option Shares to be purchased
from the Company and each Selling Shareholder will be reduced pro rata. The
number of Option Shares to be purchased by each Underwriter shall be determined
by multiplying the number of Option Shares to be sold by the Company and the
Selling Shareholders pursuant to such notice of exercise by a fraction, the
numerator of which is the number of Firm Shares to be purchased by such
Underwriter as set forth opposite its name in Schedule A and the denominator of
which is the total number of Firm Shares (subject to such adjustments to
eliminate any fractional share purchases as you in your absolute discretion may
make). Certificates for the Option Shares will be made available at the
Company's expense for checking and packaging at 10:00 A.M., Chicago Time, on the
business day preceding the Second Closing Date. The manner of payment for and
delivery of the Option Shares shall be the same as for the Firm Shares as
specified in the preceding paragraph.
You have advised the Company and the Selling Shareholders that each
Underwriter has authorized you to accept delivery of its Shares, to make payment
and to receipt therefor. You, individually and not as the Representatives of
the Underwriters, may make payment for any Shares to be purchased by any
Underwriter whose funds shall not have been received by you by the First Closing
Date or the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any
obligation hereunder.
SECTION 6. Covenants of the Company. The Company covenants and agrees
that:
(a) The Company will advise you and the Selling Shareholders promptly
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of any
proceedings for that purpose, or of any notification of the suspension of
qualification of the Shares for sale in any jurisdiction or the initiation
or threatening of any proceedings for that purpose, and will also advise
you and the Selling Shareholders promptly of any request of the Commission
for amendment or supplement of the Registration Statement, of any
preliminary prospectus or of the Prospectus, or for additional information.
The Company will use every reasonable effort to prevent the issuance of any
stop order and, if one is issued, to obtain the lifting thereof at the
earliest possible moment.
-12-
<PAGE>
(b) The Company will give you and the Selling Shareholders notice of
its intention to file or prepare any amendment to the Registration
Statement (including any post-effective amendment) or any Rule 462(b)
Registration Statement or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Shares which differs
from the prospectus on file at the Commission at the time the Registration
Statement became or becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) and any term
sheet as contemplated by Rule 434) and will furnish you and the Selling
Shareholders with copies of any such amendment or supplement a reasonable
amount of time prior to such proposed filing or use, as the case may be,
and will not file any such amendment or supplement or use any such
prospectus to which you or counsel for the Underwriters shall reasonably
object.
(c) If the Company elects to rely on Rule 434 of the 1933 Act, the
Company will prepare a term sheet that complies with the requirements of
Rule 434. If the Company elects not to rely on Rule 434, the Company will
provide the Underwriters with copies of the form of prospectus, in such
numbers as the Underwriters may reasonably request, and file with the
Commission such prospectus in accordance with Rule 424(b) of the 1933 Act
by the close of business in New York City on the second business day
immediately succeeding the date of the Pricing Agreement. If the Company
elects to rely on Rule 434, the Company will provide the Underwriters with
copies of the form of Rule 434 Prospectus, in such numbers as the
Underwriters may reasonably request, by the close of business in New York
on the business day immediately succeeding the date of the Pricing
Agreement.
(d) If at any time when a prospectus relating to the Shares is
required to be delivered under the 1933 Act any event occurs as a result of
which the Prospectus, including any amendments or supplements, would
include 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, in the light of the circumstances under which they were
made, not misleading, or if it is necessary at any time to amend the
Prospectus, including any amendments or supplements thereto and including
any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Shares which differs
from the prospectus on file with the Commission at the time of
effectiveness of the Registration Statement, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) to comply with
the 1933 Act, the Company, at its expense, promptly will advise you thereof
and will promptly prepare and file with the Commission an amendment or
supplement (in form and substance satisfactory to counsel for the
Underwriters) which will correct such statement or omission or an amendment
which will effect such compliance; provided, however, in case any
Underwriter is required to deliver a prospectus nine months or more after
the effective date of the Registration Statement, the Company upon request,
but at the expense of such Underwriter, will prepare promptly such
prospectus or prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the 1933 Act.
-13-
<PAGE>
(e) Neither the Company nor any of its subsidiaries will, prior to the
earlier of the Second Closing Date or termination or expiration of the
related option, incur any liability or obligation, direct or contingent, or
enter into any material transaction, other than in the ordinary course of
business, except as contemplated by the Prospectus.
(f) Neither the Company nor any of its subsidiaries will acquire any
capital stock of the Company prior to the earlier of the Second Closing
Date or termination or expiration of the related option nor will the
Company declare or pay any dividend or make any other distribution upon the
Common Stock payable to shareholders of record on a date prior to the
earlier of the Second Closing Date or termination or expiration of the
related option, except in either case as contemplated by the Prospectus.
(g) As soon as practicable, but not later than the Available Date (as
defined below) the Company will make generally available to its
securityholders an earnings statement (which need not be audited) covering
a period of at least 12 months beginning after the effective date of the
Registration Statement, which will satisfy the provisions of the last
paragraph of Section 11(a) of the 1933 Act. For the purpose of the
preceding sentence, "Available Date" means the 45th day after the end of
the fourth fiscal quarter following the fiscal quarter that includes the
date of this Agreement, except that, if such fourth fiscal quarter is the
last quarter of the Company's fiscal year, "Available Date" means the 90th
day after the end of such fourth fiscal quarter.
(h) During such period as a prospectus is required by law to be
delivered in connection with offers and sales of the Shares by an
Underwriter or dealer, the Company will furnish to you at its expense,
subject to the proviso of subsection (d) hereof, copies of the Registration
Statement, the Prospectus, each preliminary prospectus and all amendments
and supplements to any such documents in each case as soon as available and
in such quantities as you may reasonably request, for the purposes
contemplated by the 1933 Act.
(i) The Company will cooperate with the Underwriters in qualifying or
registering the Shares for sale under the blue sky laws of such
jurisdictions as you designate, and will continue such qualifications in
effect so long as reasonably required for the distribution of the Shares.
The Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process (other than those arising out
of the offering or sale of the Shares) in any such jurisdiction where it is
not currently qualified or where it would be subject to taxation as a
foreign corporation.
(j) During the period of five years hereafter, the Company will
furnish you and each of the other Underwriters with a copy (i) as soon as
practicable after the filing thereof, of each report filed by the Company
with the Commission, any securities exchange or the NASD; (ii) as soon as
practicable after the release thereof, of each material press release in
respect of the Company; and (iii) as soon as available, of each report of
the Company mailed to shareholders.
-14-
<PAGE>
(k) The Company will use the net proceeds received by it from the sale
of the Shares being sold by it in the manner specified in the Prospectus
under the caption "Use of Proceeds."
(l) If, at the time of effectiveness of the Registration Statement,
any information shall have been omitted therefrom in reliance upon Rule
430A and/or Rule 434, then immediately following the execution of the
Pricing Agreement, the Company will prepare, and file or transmit for
filing with the Commission in accordance with such Rule 430A, Rule 424(b)
and/or Rule 434, copies of an amended Prospectus, or, if required by such
Rule 430A and/or Rule 434, a post-effective Amendment to the Registration
Statement (including an amended Prospectus), containing all information so
omitted. If required, the Company will prepare and file, or transmit for
filing, a Rule 462(b) Registration Statement not later than the date of the
execution of the Pricing Agreement. If a Rule 462(b) Registration
Statement is filed, the Company shall make payment of, or arrange for
payment of, the additional registration fee owing to the Commission
required by Rule 111. The Company will use all efforts to cause any post-
effective amendment to be declared effective as promptly as practical.
(m) The Company will list the Common Stock with the Nasdaq National
Market and will comply with all registration, filing and reporting
requirements of the Exchange Act and the Nasdaq National Market. In its
first filing on Form 10-K or Form 10-Q after the date hereof, the Company
will report the Use of Proceeds from the sale of the Shares by the Company.
SECTION 7. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective as to
all of its provisions or is terminated, the Company agrees to pay (i) all costs,
fees and expenses (other than legal fees and disbursements of counsel for the
Underwriters and the expenses incurred by the Underwriters) incurred in
connection with the performance of the Company's obligations hereunder,
including without limiting the generality of the foregoing, all fees and
expenses of legal counsel for the Company and of the Company's independent
accountants and other advisors, all costs and expenses incurred in connection
with the preparation, printing, filing and distribution of the Registration
Statement, each preliminary prospectus and the Prospectus (including all
exhibits and financial statements) and all amendments and supplements provided
for herein, this Agreement, the Pricing Agreement and the blue sky memorandum,
(ii) all costs, fees and expenses (including reasonable legal fees and
disbursements of counsel for the Underwriters) incurred by the Underwriters (A)
in connection with qualifying or registering all or any part of the Shares for
offer and sale under state securities or blue sky laws, including the
preparation of a blue sky memorandum and any supplement thereto relating to the
Shares, and (B) incident to the review by the NASD of the terms of the offering
and clearance of such offering with the NASD; (iii) all fees and expenses of the
Company's transfer agent and registrar, printing of the certificates
representing the Common Stock, including the Shares, and all duties and transfer
taxes, if any, with respect to the sale and delivery of the Shares to the
several Underwriters; and (iv) all fees and expenses incurred in connection with
listing the Common Stock and the Shares on the Nasdaq National Market.
-15-
<PAGE>
The provisions of this Section shall not affect any agreement which the
Company and the Selling Shareholders may make for the allocation or sharing of
such expenses and costs.
SECTION 8. Conditions of the Obligations of the Underwriters. The
obligations of the several Underwriters to purchase and pay for the Firm Shares
on the First Closing Date and the Option Shares on the Second Closing Date shall
be subject to the accuracy of the representations and warranties on the part of
the Company and the Selling Shareholders herein set forth as of the date hereof
and as of the First Closing Date or the Second Closing Date, as the case may be,
to the accuracy of the statements of officers of the Company made pursuant to
the provisions hereof, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become effective either
prior to the execution of this Agreement or not later than 1:00 P.M.,
Chicago Time, on the first full business day after the date of this
Agreement, or such later time as shall have been consented to by you but in
no event later than 1:00 P.M., Chicago Time, on the third full business day
following the date hereof; and prior to the First Closing Date or the
Second Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending
or, to the knowledge of the Company, the Selling Shareholders or you, shall
be contemplated by the Commission. If the Company has elected to rely upon
Rule 430A and/or Rule 434, the information concerning the initial public
offering price of the Shares and price-related information shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) within the
prescribed period and the Company will provide evidence satisfactory to the
Representatives of such timely filing (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rules 430A and 424(b)). If a Rule
462(b) Registration Statement is required, such Registration Statement
shall have been transmitted to the Commission for filing and become
effective within the prescribed time period and, prior to the First Closing
Date, the Company shall have provided evidence of such filing and
effectiveness in accordance with Rule 462(b).
(b) The Shares shall have been qualified for sale under the state
securities or blue sky laws of such states as shall have been specified by
the Representatives.
(c) The legality and sufficiency of the authorization, issuance and
sale or transfer and sale of the Shares hereunder, the validity and form of
the certificates representing the Shares, the execution and delivery of
this Agreement and the Pricing Agreement, and all corporate proceedings and
other legal matters incident thereto, and the form of the Registration
Statement and the Prospectus (except financial statements) shall have been
approved by counsel for the Underwriters exercising reasonable judgment.
(d) You shall not have advised the Company that the Registration
Statement or the Prospectus or any amendment or supplement thereto,
contains an untrue statement of
-16-
<PAGE>
fact, which, in the opinion of counsel for the Underwriters, is material or
omits to state a fact which, in the opinion of such counsel, is material
and is required to be stated therein or necessary to make the statements
therein not misleading.
(e) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred any change, or any development involving a
prospective change, in or affecting particularly the business or properties
of the Company or its subsidiaries, whether or not arising in the ordinary
course of business, which, in the judgment of the Representatives, makes it
impractical or inadvisable to proceed with the public offering or purchase
of the Shares as contemplated hereby.
(f) The Shares shall have been approved for listing on the Nasdaq
National Market, subject only to official notice of issuance or sale, as
the case may be.
(g) At the time of execution of this Agreement, the Representatives
shall have received agreements substantially in the form of Exhibit B
signed by each of the individuals identified on Schedule C hereto.
(h) There shall have been furnished to you, as Representatives of the
Underwriters, on the First Closing Date or the Second Closing Date, as the
case may be, except as otherwise expressly provided below:
(i) An opinion of Pepper, Hamilton & Scheetz LLP, counsel for
the Company and for the Selling Shareholders, addressed to the
Underwriters and dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Texas, with corporate power and authority to own, lease
and operate its properties and conduct its business as described
in the Prospectus, and is duly qualified as a foreign corporation
to transact business, and is in good standing in, each
jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property, or the conduct of
its business, except where the failure so to qualify or to be in
good standing would not have a material adverse effect upon the
condition (financial or otherwise) or results of operations of the
Company and its subsidiaries taken as a whole;
(2) each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation,
with corporate power and authority to own, lease and operate its
properties and conduct its business as described in the
Prospectus, and is duly qualified as a foreign corporation to
transact business, and is in good standing in, each jurisdiction
in which such qualification is
-17-
<PAGE>
required, whether by reason of the ownership or leasing of
property or the conduct of its business, except where the failure
so to qualify or to be in good standing would not have a material
adverse effect on the condition (financial or otherwise) or
results of operations of the Company and its subsidiaries taken as
a whole;
(3) all of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized, validly issued
and is fully paid and nonassessable, and, the Company owns
directly or indirectly 100 percent of the outstanding capital
stock of each subsidiary, and to the best knowledge of such
counsel, such stock is owned free and clear of any claims, liens,
encumbrances or security interests;
(4) the authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Description of Capital Stock" (except for subsequent issuances,
if any, pursuant to stock options or other rights referred to in
the Prospectus), conforms as to legal matters in all material
respects to the description thereof in the Registration Statement
and Prospectus;
(5) the shares of issued and outstanding capital stock of
the Company have been duly authorized, are validly issued, are
fully paid and nonassessable and were not issued in violation of
the preemptive or other similar rights of any person or entity or
any securityholder of the Company or in violation of any agreement
to which the Company or any subsidiary is a party; and except as
disclosed in the Prospectus, there are no outstanding options,
warrants or other rights requiring the issuance of, and no
commitments or obligation to issue, any shares of capital stock of
the Company of any of its subsidiaries or any security convertible
into or exchangeable for capital stock of the Company or any of
its subsidiaries;
(6) the certificates for the Shares to be delivered
hereunder are in due and proper form, and when delivered to you or
upon your order against payment of the agreed consideration
therefor in accordance with the provisions of this Agreement and
the Pricing Agreement, the Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable and
free of any pledge, lien, encumbrance or claim; the Shares have
not been issued in violation of the preemptive or other similar
rights of any person or entity or any securityholder of the
Company or in violation of any agreement to which the Company or
any subsidiary is a party; and no holder of the Shares is subject
to personal liability for debts of the Company by reason of being
such a holder;
-18-
<PAGE>
(7) the Registration Statement has become effective under
the 1933 Act, the Prospectus has been filed pursuant to Rule
424(b) in the manner and within the time period required by Rule
424(b), 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 have been
instituted or are pending or contemplated under the 1933 Act, and
the Registration Statement (including the information deemed to be
part of the Registration Statement at the time of effectiveness
pursuant to Rule 430A(b) and/or Rule 434, if applicable), the
Prospectus and each amendment or supplement thereto (except for
the financial statements or financial data included therein as to
which such counsel need express no opinion) comply as to form in
all material respects with the requirements of the 1933 Act; such
counsel have no reason to believe that either the Registration
Statement (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to
Rule 430A(b) and/or Rule 434, if applicable) or the Prospectus, or
the Registration Statement or the Prospectus as amended or
supplemented (except as aforesaid), as of their respective
effective or issue dates, contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus as amended or supplemented, if
applicable, as of the First Closing Date or the Second Closing
Date, as the case may be, contained any untrue statement of a
material fact or omitted to state any material fact necessary to
make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(8) the statements in the Registration Statement and the
Prospectus summarizing statutes, rules and regulations are
accurate and fairly and correctly present in all material respects
the information required to be presented by the 1933 Act and such
counsel does not know of any statutes, rules and regulations
required to be described or referred to in the Registration
Statement or the Prospectus that are not described or referred to
therein as required; and such counsel does not know of any
contracts or documents of a character required to be described in
the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement which are not described or
filed, as required;
(9) the statements under the captions "Management--Executive
Compensation" and "--Employee Benefit Plans," "Certain
Transactions," "Description of Capital Stock" and "Shares Eligible
for Future Sale" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or matters
of law, are accurate summaries and fairly and correctly present,
in all material respects, the information called for with respect
to such documents and matters;
-19-
<PAGE>
(10) this Agreement and the Pricing Agreement and the
performance of the Company's obligations hereunder have been duly
authorized by all necessary corporate action and this Agreement
and the Pricing Agreement have been duly executed and delivered by
and on behalf of the Company, and are legal, valid and binding
agreements of the Company, except as enforceability of the same
may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights and
by the exercise of judicial discretion in accordance with general
principles applicable to equitable and similar remedies and except
as to those provisions relating to indemnities for liabilities
arising under the 1933 Act as to which no opinion need be
expressed;
(11) except as set forth and described as required in the
Prospectus to such counsel's knowledge, there is not pending or
threatened action, suit or proceeding before any court or
governmental agency or body, to which the Company or any of its
subsidiaries is a party, which might reasonably be expected to
result in a material adverse change in the condition, financial or
otherwise, or in the earnings or business affairs of the Company
and its subsidiaries taken as a whole or prevent or interfere with
the consummation of this Agreement and the Pricing Agreement or
the performance of its obligations hereunder or thereunder;
(12) no authorization, approval, consent or order of any
court or governmental authority or agency (other than under the
1933 Act and the rules of the NASD, which have been obtained, or
as may be required under the securities or blue sky laws of the
various states, as to which such counsel need express no opinion)
is required to be obtained by the Company for the due
authorization, execution and delivery of this Agreement and the
Pricing Agreement or for the offering, issuance or sale of the
Shares to the Underwriters; and the execution, delivery and
performance of this Agreement and the Pricing Agreement and the
consummation of the transactions contemplated herein and therein
and compliance by the Company with its obligations hereunder and
thereunder (including the use of the proceeds from the sale of the
Shares as described in the prospectus under the caption "Use of
Proceeds") will not, whether with or without the giving of notice
or lapse of time or both, conflict with or constitute a breach of
any indenture, mortgage, deed of trust, loan or credit agreement,
note or guaranty to which the Company or any subsidiary is a party
or by which any of their respective property is bound, or to such
counsel's knowledge, any other agreement or instrument to which
the Company or any subsidiary is a party or by which any of their
respective property is bound, nor will such action violate any
law, statute, order, rule or regulation of any court, arbitration
or other alternative dispute resolution forum, regulatory body or
governmental
-20-
<PAGE>
agency, domestic or foreign, having jurisdiction over the Company
or any of its subsidiaries of any of their properties, or result
in any violation of the provisions of the Amended and Restated
Articles of Incorporation or bylaws of the Company;
(13) there are no persons with registration or other similar
rights to have any securities registered pursuant to the
Registration Statement;
(14) the Company is not an "investment company" or any
entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act;
(15) all prior offers and sales of the Company's capital
stock were at all relevant times exempt from the registration
requirements of the 1933 Act and were duly registered or the
subject of an available exemption from the registration
requirements of the applicable state securities or blue sky laws;
(16) with respect to each Selling Shareholder, this
Agreement and the Pricing Agreement have been duly authorized,
executed and delivered by or on behalf of each such Selling
Shareholder; the Agents and the Custodian for each such Selling
Shareholder have been duly and validly authorized to carry out all
transactions contemplated herein on behalf of each such Selling
Shareholder; and the performance of this Agreement and the Pricing
Agreement and the consummation of the transactions herein
contemplated by such Selling Shareholders will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any indenture, mortgage,
deed of trust, loan or credit agreement, note or guaranty to which
any of such Selling Shareholders is a party or by which any are
bound or to which any of the property of any such Selling
Shareholders is subject, or to such counsel's knowledge, any other
agreement or instrument to which any of such Selling Shareholders
is a party or by which any are bound or to which any of the
property of any such Selling Shareholders is subject, or any
order, rule or regulation known to such counsel of any court or
governmental agency or body having jurisdiction over any of such
Selling Shareholders or any of their properties; and no consent,
approval, authorization or order of any court or governmental
agency or body is required for the consummation of the
transactions contemplated by this Agreement and the Pricing
Agreement in connection with the sale of Shares to be sold by such
Selling Shareholders hereunder, except such as have been obtained
under the 1933 Act and such as may be required under applicable
blue sky laws in connection with the purchase and distribution of
such Shares by the Underwriters and the clearance of such offering
with the NASD;
-21-
<PAGE>
(17) each Selling Shareholder has full right, power and
authority to enter into this Agreement and the Pricing Agreement
and to sell, transfer and deliver the Shares to be sold on the
First Closing Date or the Second Closing Date, as the case may be,
by such Selling Shareholder hereunder; and each Selling
Shareholder has good and marketable title to such Shares so sold,
free and clear of all voting trust arrangements, pledges, liens,
encumbrances, equities, claims and community property rights
whatsoever, and the Underwriters (who counsel may assume to be
bona fide purchasers) have acquired good and marketable and
unencumbered title to the Shares purchased by them from the
Selling Shareholders hereunder; and
(18) this Agreement and the Pricing Agreement are legal,
valid and binding agreements of each Selling Shareholder except as
enforceability of the same may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights and by the exercise of judicial
discretion in accordance with general principles applicable to
equitable and similar remedies and except with respect to those
provisions relating to indemnities for liabilities arising under
the 1933 Act, as to which no opinion need be expressed.
Such opinion shall also state that nothing has come to such
counsel's attention that would lead them to believe that the Registration
Statement (except for financial statements and schedules and other
financial data included therein, as to which such counsel need make no
statement), at the time it became effective, 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 no misleading or
that the Prospectus (except for financial statements and schedules and
other financial data included therein, as to which such counsel need make
no statement), on the date thereof or on the applicable Closing Date,
included or includes an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(ii) Such opinion or opinions of Bracewell & Patterson, L.L.P.,
counsel for the Underwriters, dated the First Closing Date or the
Second Closing Date, as the case may be, with respect to the
incorporation of the Company, the validity of the Shares to be sold by
the Company, the Registration Statement and the Prospectus and other
related matters as you may reasonably require, and the Company shall
have furnished to such counsel such documents and shall have exhibited
to them such papers and records as they request for the purpose of
enabling them to pass upon such matters.
(iii) A certificate of the president and chief executive officer
and the principal financial officer of the Company, dated the First
Closing Date or the Second Closing Date, as the case may be, to the
effect that:
-22-
<PAGE>
(1) the representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or the
Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to such
Closing Date; and
(2) the Commission has not issued an order preventing or
suspending the use of the Prospectus or any preliminary prospectus
filed as a part of the Registration Statement or any amendment
thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best knowledge
of the respective signers, no proceedings for that purpose have
been instituted or are pending or contemplated under the 1933 Act.
The delivery of the certificate provided for in this subparagraph
shall be and constitute a representation and warranty of the Company as to
the facts required in the immediately foregoing clauses (1) and (2) of this
subparagraph to be set forth in said certificate.
(iv) A certificate of each Selling Shareholder dated the First
Closing Date or the Second Closing Date, as the case may be, to the
effect that the representations and warranties of such Selling
Shareholder set forth in Section 3 of this Agreement are true and
correct as of such date and the Selling Shareholder has complied with
all the agreements and satisfied all the conditions on the part of
such Selling Shareholder to be performed or satisfied at or prior to
such date.
(v) At the time the Pricing Agreement is executed and also on
the First Closing Date or the Second Closing Date, as the case may be,
there shall be delivered to you a letter addressed to you, as
Representatives of the Underwriters, from Coopers & Lybrand L.L.P.,
independent accountants, the first one to be dated the date of the
Pricing Agreement, the second one to be dated the First Closing Date
and the third one (in the event of a second closing) to be dated the
Second Closing Date, to the effect set forth in Schedule D. There
shall not have been any change or decrease specified in the letters
referred to in this subparagraph which makes it impractical or
inadvisable in the judgment of the Representatives to proceed with the
public offering or purchase of the Shares as contemplated hereby.
(vi) Such further certificates and documents as you may
reasonably request.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Bracewell & Patterson, L.L.P., counsel for the Underwriters, which approval
shall not be unreasonably withheld. The Company shall
-23-
<PAGE>
furnish you with such number of manually signed and conformed copies of such
opinions, certificates, letters and documents as you request.
If any condition to the Underwriters' obligations hereunder to be satisfied
prior to or at the First Closing Date is not so satisfied, this Agreement at
your election will terminate upon notification to the Company and the Selling
Shareholders without liability on the part of any Underwriter or the Company or
any Selling Shareholder, except for the expenses to be paid or reimbursed by the
Company pursuant to Sections 7 and 9 hereof and except to the extent provided in
Section 11 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. If the sale to the
Underwriters of the Shares on the First Closing Date is not consummated because
any condition of the Underwriters' obligations hereunder is not satisfied or
because of any refusal, inability or failure on the part of the Company or the
Selling Shareholders to perform any agreement herein or to comply with any
provision hereof, unless such failure to satisfy such condition or to comply
with any provision hereof is due to the default or omission of any Underwriter,
the Company agrees to reimburse you and the other Underwriters upon demand for
all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been reasonably incurred by you and them in connection
with the proposed purchase and the sale of the Shares. Any such termination
shall be without liability of any party to any other party except that the
provisions of this Section, Section 7 and Section 11 shall at all times be
effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. You, the Company
and the Selling Shareholders will use your, its and their best efforts to cause
the Registration Statement to become effective, if it has not yet become
effective, and to prevent the issuance of any stop order suspending the
effectiveness of the Registration Statement and, if such stop order be issued,
to obtain as soon as possible the lifting thereof.
SECTION 11. Indemnification.
(a) The Company and each Selling Shareholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the 1933 Act or the
Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter or such controlling person may become
subject under the 1933 Act, the Exchange Act or other foreign, federal or
state statutory law or regulation, at common law or otherwise (including in
settlement of any litigation if such settlement is effected with the
written consent of the Company and/or such Selling Shareholders, as the
case may be), insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A
and/or Rule 434, if applicable, any preliminary prospectus, the Prospectus,
or any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be
-24-
<PAGE>
stated therein or necessary to make the statements therein not misleading;
and will reimburse each Underwriter and each such controlling person for
any legal or other expenses reasonably incurred by such Underwriter or such
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that neither
the Company nor any Selling Shareholder will be liable in any such case to
the extent that (i) any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use therein; or (ii) if such statement or
omission was contained or made in any preliminary prospectus and corrected
in the Prospectus and (1) any such loss, claim, damage or liability
suffered or incurred by any Underwriter (or any person who controls any
Underwriter) resulted from an action, claim or suit by any person who
purchased Shares which are the subject thereof from such Underwriter in the
offering and (2) such Underwriter failed to deliver or provide a copy of
the Prospectus to such person at or prior to the confirmation of the sale
of such Shares in any case where such delivery is required by the 1933 Act.
In addition to their other obligations under this Section 11(a), the
Company and the Selling Shareholders agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this Section 11(a), they will
reimburse the Underwriters on a monthly basis for all reasonable legal and
other expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the Company's and the Selling Shareholders'
obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by
a court of competent jurisdiction. This indemnity agreement will be in
addition to any liability which the Company and the Selling Shareholders
may otherwise have.
Without limiting the full extent of the Company's agreement to indemnify
each Underwriter, as herein provided, each Selling Shareholder shall be liable
under the indemnity agreements contained in paragraph (a) of this Section only
for an amount not exceeding the proceeds received by such Selling Shareholder
from the sale of Shares hereunder.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, and each Selling Shareholder and each person, if
any, who controls the Company within the meaning of the 1933 Act or the
Exchange Act, against any losses, claims, damages or liabilities to which
the Company, or any such director, officer, Selling Shareholder or
controlling person may become subject under the 1933 Act, the Exchange Act
or other foreign, federal or state statutory law or regulation, at common
law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter),
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are
-25-
<PAGE>
based upon any untrue or alleged untrue statement of any material fact
contained in the Registration Statement, any preliminary prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus, or any amendment or supplement thereto in
reliance upon and in conformity with Section 4 of this Agreement or any
other written information furnished to the Company by such Underwriter
through the Representatives specifically for use in the preparation
thereof; and will reimburse any legal or other expenses reasonably incurred
by the Company, or any such director, officer, Selling Shareholder or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability or action. In addition to their other
obligations under this Section 11(b), the Underwriters agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in this Section
11(b), they will reimburse the Company and the Selling Shareholders on a
monthly basis for all reasonable legal and other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company and the Selling
Shareholders for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction.
This indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified party
except to the extent that the indemnifying party was prejudiced by such
failure to notify. In case any such action is brought against any
indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with all other
indemnifying parties similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party; provided, however, if
the defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, or the indemnified and indemnifying
parties may have conflicting interests which would make it inappropriate
for the same counsel to represent both of them, the indemnified party or
parties shall have the right to select separate counsel to assume such
legal defense and otherwise to participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice from
the indemnifying party to such indemnified party of its election so to
assume the
-26-
<PAGE>
defense of such action and approval by the indemnified party of counsel,
the indemnifying party will not be liable to such indemnified party under
this Section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed such counsel in connection with the
assumption of legal defense in accordance with the proviso to the next
preceding sentence (it being understood, however, that the indemnifying
party shall not be liable for the expenses of more than one separate
counsel, approved by the Representatives in the case of paragraph (a)
representing all indemnified parties not having different or additional
defenses or potential conflicting interest among themselves who are parties
to such action), (ii) the indemnifying party shall not have employed
counsel satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action
or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. No
indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened
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 any unconditional release of such
indemnified party from all liability arising out of such proceeding.
(d) If the indemnification provided for in this Section is unavailable
to an indemnified party under paragraphs (a) or (b) hereof in respect of
any losses, claims, damages or liabilities referred to therein, then each
applicable 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 or liabilities (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company and the Selling Shareholders on the one hand and the
Underwriters on the other 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 Shareholders on the one hand and the Underwriters
on the other in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The respective relative benefits
received by the Company and the Selling Shareholders on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds of the offering (before deducting expenses)
received by the Company and the Selling Shareholders bear to the total
underwriting discount received by the Underwriters. The relative fault of
the Company and the Selling Shareholders and the Underwriters shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to sate a
material fact relates to information supplied by the Company or by the
Selling Shareholders or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by a party
as a result of the losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim.
-27-
<PAGE>
The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to
this Section were determined by pro rata allocation or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 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 are several in proportion to their
respective underwriting commitments and not joint.
(e) The provisions of this Section shall survive any termination of
this Agreement.
SECTION 12. Default of Underwriters. It shall be a condition to the
agreement and obligation of the Company and the Selling Shareholders to sell and
deliver the Shares hereunder, and of each Underwriter to purchase the Shares
hereunder, that, except as hereinafter in this paragraph provided, each of the
Underwriters shall purchase and pay for all Shares agreed to be purchased by
such Underwriter hereunder upon tender to the Representatives of all such Shares
in accordance with the terms hereof. If any Underwriter or Underwriters default
in their obligations to purchase Shares hereunder on the First Closing Date and
the aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed to purchase does not exceed 10 percent of the total number of
Shares which the Underwriters are obligated to purchase on the First Closing
Date, the Representatives may make arrangements satisfactory to the Company and
the Selling Shareholders for the purchase of such Shares by other persons,
including any of the Underwriters, but if no such arrangements are made by such
date the nondefaulting Underwriters shall be obligated severally, in proportion
to their respective commitments hereunder, to purchase the Shares which such
defaulting Underwriters agreed but failed to purchase on such date. If any
Underwriter or Underwriters so default and the aggregate number of Shares with
respect to which such default or defaults occur is more than the above
percentage and arrangements satisfactory to the Representatives and the Company
and the Selling Shareholders for the purchase of such Shares by other persons
are not made within 36 hours after such default, this Agreement will terminate
without liability on the part of any nondefaulting Underwriter or the Company or
the Selling Shareholders, except for the expenses to be paid by the Company
pursuant to Section 7 hereof and except to the extent provided in Section 11
hereof.
In the event that Shares to which a default relates are to be purchased by
the nondefaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First
Closing Date for not more than seven business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used in this Agreement, the
term "Underwriter" includes any
-28-
<PAGE>
person substituted for an Underwriter under this Section. Nothing herein will
relieve a defaulting Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
immediately as to Sections 7, 9, 11 and 14 and as to all other provisions at
10:00 A.M., Chicago Time, on the day following the date upon which the Pricing
Agreement is executed and delivered, unless such a day is a Saturday, Sunday or
holiday (and in that event this Agreement shall become effective at such hour on
the business day next succeeding such Saturday, Sunday or holiday); but this
Agreement shall nevertheless become effective at such earlier time after the
Pricing Agreement is executed and delivered as you may determine on and by
notice to the Company and the Selling Shareholders or by release of any Shares
for sale to the public. For the purposes of this Section, the Shares shall be
deemed to have been so released upon the release for publication of any
newspaper advertisement relating to the Shares or upon the release by you of
telegrams (i) advising Underwriters that the Shares are released for public
offering, or (ii) offering the Shares for sale to securities dealers, whichever
may occur first.
SECTION 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to
you and the Selling Shareholders or by you by notice to the Company and the
Selling Shareholders at any time prior to the time this Agreement shall
become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company or the Selling Shareholders
to any Underwriter (except for the expenses to be paid or reimbursed
pursuant to Section 7 hereof and except to the extent provided in Section
11 hereof) or of any Underwriter to the Company or the Selling
Shareholders.
(b) This Agreement may also be terminated by you prior to the First
Closing Date, and the option referred to in Section 5, if exercised, may be
cancelled at any time prior to the Second Closing Date, if (i) trading in
securities on the New York Stock Exchange shall have been suspended or
minimum prices shall have been established on such exchange, or (ii) a
banking moratorium shall have been declared by Illinois, New York, or
United States authorities, or (iii) there shall have been any change in
financial markets or in national or international political, economic or
financial conditions which, in the opinion of the Representatives, either
renders it impracticable or inadvisable to proceed with the offering any
sale of the Shares on the terms set forth in the Prospectus or materially
and adversely affects the market for the Shares, or (iv) there shall have
been an outbreak of major armed hostilities or an escalation thereof which
in the opinion of the Representatives makes it impractical or inadvisable
to offer or sell the Shares, or (v) there has been, since the effective
date of this Agreement or since the respective dates as of which
information is given in the Prospectus, any material adverse change in the
condition (financial or otherwise), or in the earnings, business affairs or
business prospects of the Company and its subsidiaries taken as a whole,
whether or not arising in the ordinary course of business. Any termination
pursuant to this paragraph (b) shall be without liability on the part of
any Underwriter to the Company or the Selling Shareholders or on the part
of the Company to any Underwriter or the Selling Shareholders (except for
expenses to be paid or reimbursed pursuant to Section 7 hereof and except
to the extent provided in Section 11 hereof).
-29-
<PAGE>
SECTION 15. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Shareholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
principals, members, officers or directors or any controlling person, or the
Selling Shareholders as the case may be, and will survive delivery of and
payment for the Shares sold.
SECTION 16. Notices. All communications hereunder will be in writing
and, if sent to the Underwriters will be mailed, delivered or telecopied and
confirmed to you c/o William Blair & Company, L.L.C., 222 West Adams Street,
Chicago, Illinois 60606, Attention: Kelley R. Drake (telecopier number: 312-368-
9418) with a copy to Bracewell & Patterson, L.L.P., South Tower Pennzoil Place,
711 Louisiana Street, Houston, Texas 77002-2781, Attention: Gary W. Orloff
(telecopier number: 713-221-1212); if sent to the Company will be mailed,
delivered or telecopied and confirmed to the Company at its corporate
headquarters, Attention: Patrick J. Newton, Chief Operating Officer (telecopier
number: 713-361-3560) with a copy to Pepper, Hamilton & Scheetz LLP, 3000 Two
Logan Square, 18th and Arch Street, Philadelphia, Pennsylvania 19103-2799,
Attention: Barry M. Abelson (telecopier number: 215-981-4750); and if sent to
the Selling Shareholders will be mailed, delivered or telecopied and confirmed
to the Agents and the Custodian c/o the Company and the Representatives, with a
copy to Pepper, Hamilton & Scheetz LLP, Attention: Barry M. Abelson.
SECTION 17. Successors. This Agreement and the Pricing Agreement will
inure to the benefit of and be binding upon the parties hereto and their
respective successors, personal representatives and assigns, and to the benefit
of the officers and directors and controlling persons referred to in Section 11,
and no other person will have any right or obligation hereunder. The term
"successors" shall not include any purchaser of the Shares as such from any of
the Underwriters merely by reason of such purchase.
SECTION 18. Representation of Underwriters. You will act as
Representative for the several Underwriters in connection with this financing,
and any action under or in respect of this Agreement taken by you will be
binding upon all the Underwriters.
SECTION 19. Partial Unenforceability. If any section, paragraph or
provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other section paragraph or provision hereof.
SECTION 20. Counterparts. This Agreement and the Pricing Agreement may
each be executed in any number of counterparts, each of which shall be deemed an
original, but all of which shall together constitute one and the same Agreement
and Pricing Agreement, respectively.
SECTION 21. Applicable Law. This Agreement and the Pricing Agreement
shall be governed by and construed in accordance with the laws of the State of
Illinois.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed counterparts hereof, whereupon it will
become a binding agreement among
-30-
<PAGE>
the Company, the Selling Shareholders and the several Underwriters including
you, all in accordance with its terms.
Very truly yours,
DA Consulting Group, Inc.
By ____________________________________
Name:
Title:
SELLING SHAREHOLDERS NAMED IN SCHEDULE B
By ____________________________________
Agent and Attorney-in-Fact on behalf
of each Selling Shareholder named in
in Schedule B to this Agreement
The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written.
WILLIAM BLAIR & COMPANY, L.L.C.
ROBERT W. BAIRD & CO. INCORPORATED
PENNSYLVANIA MERCHANT GROUP LTD.
Acting as Representatives of the several
Underwriters named in Schedule A
By: William Blair & Company, L.L.C.
By ____________________________
Principal
-31-
<PAGE>
SCHEDULE A
Number of
Firm Shares
Underwriter to be Purchased
- ----------- ---------------
William Blair & Company, L.L.C.
Robert W. Baird & Co. Incorporated
Pennsylvania Merchant Group ltd.
---------
TOTAL 2,500,000
=========
A-1
<PAGE>
SCHEDULE B
Number of Number of
Firm Shares Option Shares
to be Sold to be Sold
---------- ----------
Company 1,700,000 120,000
- -------
Selling Shareholders:
Nicholas H. Marriner -0- 23,814
Patrick J. Newton 60,480 -0-
Michael J. Mackey -0- 4,200
Virginia L. Pierpont 131,321 -0-
Amicable Discretionary Trust 133,392 -0-
Worcester Discretionary Trust 132,133 43,152
Woodbourne Discretionary Trust 34,441 57,834
Piero Granelli 80,438 -0-
Alison Smith 147,000 37,800
Cynthia Gibson 80,795 -0-
David Michael Payne Settlement -0- 88,200
---------- ----------
TOTAL 2,500,000 375,000
========== ==========
B-1
<PAGE>
SCHEDULE C
Officers, Directors and Certain Shareholders
Executing Lock-Up Agreements
Amicable Discretionary Trust
Worcester Discretionary Trust
Woodbourne Discretionary Trust
Virginia L. Pierpont
Nicholas H. Marriner
Patrick J. Newton
Michael J. Mackey
Nigel Curlet
Gunther Fritze
Richard W. Thatcher, Jr.
Lisa L. Costello
Eric Fernette
Joe van der Westhuizen
Piero Granelli
Alison Smith
Cynthia Gibson
David Michael Payne Settlement
C-1
<PAGE>
SCHEDULE D
Comfort Letter of Coopers & Lybrand L.L.P.
(i) They are independent public accountants with respect to the Company
and its subsidiaries within the meaning of the 1933 Act.
(ii) In their opinion the consolidated financial statements and schedules
of the Company and its subsidiaries included in the Registration Statement and
the consolidated financial statements of the Company from which the information
presented under the captions "Summary Financial Data" and "Selected Financial
Data" has been derived which are stated therein to have been examined by them
comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act.
(iii) On the basis of specified procedures (but not an examination in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company and its subsidiaries responsible for financial
and accounting matters as to transactions and events subsequent to
_______________, 19__, a reading of minutes of meetings of the shareholders and
directors of the Company and its subsidiaries since ______________, 19__, a
reading of the latest available interim unaudited consolidated financial
statements of the Company and its subsidiaries (with an indication of the date
thereof) and other procedures as specified in such letter, nothing can to their
attention which caused them to believe that (i) the unaudited consolidated
financial statements of the Company and its subsidiaries included in the
Registration Statement do not comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act or that such unaudited
financial statements are not fairly presented in accordance with generally
accepted accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration Statement,
and (ii) at a specified date not more than five days prior to the date thereof
in the case of the first letter and not more than two business days prior to the
date thereof in the case of the second and third letters, there was any change
in the capital stock or long-term debt or short-term debt (other than normal
payments) of the Company and its subsidiaries on a consolidated basis or any
decrease in consolidated net current assets or consolidated shareholders' equity
as compared with amounts shown on the latest unaudited balance sheet of the
Company included in the Registration Statement or for the period from the date
of such balance sheet to a date not more than three days prior to the date
thereof in the case of the first letter and not more than two business days
prior to the date thereof in the case of the second and third letters, there
were any decreases, as compared with the corresponding period of the prior year,
in consolidated net sales, consolidated income before income taxes or in the
total or per share amounts of consolidated net income except, in all instances,
for changes or decreases which the Prospectus discloses have occurred or may
occur or which are set forth in such letter.
(iv) They have carried out specified procedures, which have been agreed to
by the Representatives, with respect to certain information in the Prospectus
specified by the Representatives, and on the basis of such procedures, they have
found such information to be in agreement with the general accounting records of
the Company and its subsidiaries.
D-1
<PAGE>
EXHIBIT A
PRICING AGREEMENT
2,500,000 Shares of Common Stock/1/
____________,1998
William Blair & Company, L.L.C.
Robert W. Baird & Co. Incorporated
Pennsylvania Merchant Group Ltd.
As Representatives of the Several
Underwriters
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement dated __________, 1998 (the
"Underwriting Agreement") relating to the sale by the Company and the Selling
Shareholders and the purchase by the several Underwriters for whom William Blair
& Company, L.L.C., Robert W. Baird & Co. Incorporated and Pennsylvania Merchant
Group Ltd. are acting as representatives (the "Representatives"), of the above
Shares. All terms herein shall have the definitions contained in the
Underwriting Agreement except as otherwise defined herein.
Pursuant to Section 5 of the Underwriting Agreement, the Company and each
of the Selling Shareholders agree with the Representatives as follows:
1. The initial public offering price per share for the Shares shall
be $__________.
2. The purchase price per share for the Shares to be paid by the several
Underwriters shall be $_________, being an amount equal to the initial public
offering price set forth above less $_________ per share.
Schedule A is amended as follows:
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed counterparts hereof, whereupon it will
become a binding agreement among the Company, the Selling Shareholders and the
several Underwriters, including you, all in accordance with its terms.
- -----------------
/1/ Plus an option to acquire up to 375,000 additional shares to cover over-
allotments.
<PAGE>
Very truly yours,
DA Consulting Group, Inc.
By ______________________________
Name:
Title:
Selling Shareholders Named in Schedule B to
the above-referenced Underwriting Agreement
By ______________________________
Agent and Attorney-in-Fact on behalf of each
Selling Shareholder named in Schedule B to
the above-referenced Underwriting Agreement
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
WILLIAM BLAIR & COMPANY, L.L.C.
ROBERT W. BAIRD & CO. INCORPORATED
PENNSYLVANIA MERCHANT GROUP LTD.
Acting as Representatives of the
several Underwriters named in Schedule A
By William Blair & Company, L.L.C.
By__________________________
Principal
<PAGE>
EXHIBIT B
______________, 1998
William Blair & Company, L.L.C.
Robert W. Baird & Co. Incorporated
Pennsylvania Merchant Group Ltd.
As Representatives of the Several
Underwriters Named in Schedule A
to the Underwriting Agreement
hereinafter referred to
c/o William Blair & Company, L.L.C.
222 West Adams Street
Chicago, Illinois 60606
Re: Proposed Public Offering by DA Consulting Group, Inc.
-----------------------------------------------------
Ladies and Gentlemen:
The undersigned, a [shareholder, officer and/or director] of DA Consulting
Group, Inc. (the "Company"), understands that William Blair & Company, L.L.C.
("William Blair"), Robert W. Baird & Co. Incorporated and Pennsylvania Merchant
Group Ltd. propose to enter into an Underwriting Agreement (the "Underwriting
Agreement") with the Company providing for the public offering of shares (the
"Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), and a related Pricing Agreement (the "Pricing Agreement") which will
set forth, among other things, the initial public offering price of the Shares.
In recognition of the benefit that such an offering will confer upon the
undersigned as a [shareholder, officer and/or director] of the Company, and for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each underwriter to be named in the
Underwriting Agreement that, during a period of 180 days from the date of the
Pricing Agreement, the undersigned will not, without the prior written consent
of William Blair, as representative of the several underwriters named in the
Underwriting Agreement, directly or indirectly, sell, offer to sell, contract to
sell, grant any option for the sale of, or otherwise dispose of or transfer, any
shares of the Company's Common Stock or any securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or hereafter
acquired by the undersigned or with respect to which the undersigned has or
hereafter acquires the power of disposition, or file any registration statement
under the Securities Act of 1933, as amended, with respect to any of the
foregoing.
Very truly yours,
Signature:____________________
Print Name:___________________
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DA CONSULTING GROUP, INC.
ARTICLE ONE
DA Consulting Group, Inc., a Texas corporation (the "Company"),
pursuant to the provisions of Article 4.07 of the Texas Business Corporation
Act, hereby adopts these Amended and Restated Articles of Incorporation, which
accurately copy the Articles of Incorporation of the Company and all amendments
thereto in effect on the date hereof, as further amended by these Amended and
Restated Articles of Incorporation as hereinafter set forth, and contain no
other change in any provisions thereof.
ARTICLE TWO
The Articles of Incorporation of the Company are amended by these
Amended and Restated Articles of Incorporation as follows:
The amendments made by these Amended and Restated Articles of
Incorporation (the "Amendments") alter or restate Articles One through Twelve
and delete Article Thirteen of the Articles of Incorporation. The full text of
each provision altered or added is as set forth in Article Five hereof.
ARTICLE THREE
The Amendments have been effected in conformity with the provisions of
the Texas Business Corporation Act, and the Amended and Restated Articles of
Incorporation were duly adopted by a majority of the shareholders of the Company
pursuant to a written consent effective _____________ , 1997.
ARTICLE FOUR
On that date there were ______ shares of Common Stock outstanding, all
of which were entitled to vote on the Amendments. ______ shares of Common
Stock were voted in favor of the Amendments.
ARTICLE FIVE
The Articles of Incorporation of the Company filed with the Secretary
of State of the State of Texas on November 22, 1993, as amended on May 16, 1996,
are hereby superseded by the following Amended and Restated Articles of
Incorporation, which accurately copy the entire text thereof as amended hereby:
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DA CONSULTING GROUP, INC.
ARTICLE ONE
The name of the corporation is DA Consulting Group, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the corporation is organized is to
engage in the transaction of all lawful business for which a corporation may be
incorporated under the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares that the corporation shall have the
authority to issue is 50,000,000 shares, consisting of 40,000,000 shares of
common stock, par value $0.01 per share (the "Common Stock"), and 10,000,000
shares of Preferred Stock, par value $0.01 per share (the "Preferred Stock").
The descriptions of the different classes of capital stock of the
corporation and the preferences, designations, relative rights, privileges and
powers, and the restrictions, limitations and qualifications thereof, are as
follows:
Division A
The shares of Preferred Stock may be divided into and issued in one or
more classes or series, the relative rights and preferences of which classes or
series may vary in any and all respects. The board of directors of the
corporation is hereby vested with the authority to establish classes or series
of Preferred Stock by fixing and determining all the preferences, limitations
and relative rights of the shares of any class or series so established, to the
extent not provided for in these Articles of Incorporation or any amendment
hereto, and with the authority to increase or decrease the number of shares
within each such series; provided, however, that the board of directors may not
decrease the number of shares within a series below the number of
<PAGE>
shares within such series that is then issued. The authority of the board of
directors with respect to each such series shall include, but not be limited to,
determination of the following:
(1) the distinctive designation and number of shares of that
series;
(2) the rate of dividend, if any, (or the method of calculation
thereof) payable with respect to shares of that series, the dates, terms and
other conditions upon which such dividends shall be payable, and the relative
rights of priority of such shares of that series to dividends payable on any
other class or series of capital stock of the corporation;
(3) the nature of the dividend payable, if any, with respect to
shares of that series as cumulative, noncumulative or partially cumulative, and
if cumulative or partially cumulative, from which date or dates and under what
circumstances;
(4) whether shares of that series shall be subject to redemption
(including sinking fund provisions), and, if made subject to redemption, the
times, prices, rates, adjustments and other terms and conditions of such
redemption (including the manner of selecting shares of that series for
redemption if fewer than all shares of such series are to be redeemed);
(5) the rights of the holders of shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
corporation (which rights may be different if such action is voluntary than if
it is involuntary), including the relative rights of priority in such event as
to the rights of the holders of any other class or series of capital stock of
the corporation;
(6) the terms, amounts and other conditions of any sinking or
similar purchase or other fund provided for the purchase or redemption of shares
of that series;
(7) whether shares of that series shall be convertible into or
exchangeable for shares of capital stock or other securities of the corporation
or of any other corporation or entity, and, if provision be made for conversion
or exchange, the times, prices, rates, adjustments and other terms and
conditions of such conversion or exchange;
(8) the extent, if any, to which the holders of shares of that
series shall be entitled (in addition to any voting rights provided by law) to
vote as a class or otherwise with respect to the election of directors or
otherwise;
(9) the restrictions and conditions, if any, upon the issue or
reissue of any additional Preferred Stock ranking on a parity with or prior to
shares of that series as to dividends or upon liquidation, dissolution or
winding up;
(10) any other repurchase obligations of the corporation, subject to
any limitations of applicable law; and
<PAGE>
(11) notwithstanding their failure to be included in (1) through
(10) above, any other designations, preferences, limitations or relative rights
of shares of that series.
Any of the designations, preferences, limitations or relative rights
(including the voting rights) of any series of Preferred Stock may be dependent
on facts ascertainable outside these Articles of Incorporation.
Shares of any series of Preferred Stock shall have no voting rights
except as required by law or as provided in the preferences, limitations and
relative rights of such series.
Division B
1. Dividends. Dividends may be paid on the Common Stock out of
funds legally available for such purpose subject to the rights of all
outstanding shares of capital stock ranking senior to the Common Stock in
respect of dividends.
2. Distribution of Assets. In the event of any liquidation,
dissolution or winding up of the corporation, after there shall have been paid
to or set aside for the holders of capital stock ranking senior to the Common
Stock in respect of rights upon liquidation, dissolution or winding up the full
preferential amounts to which they are respectively entitled, the holders of the
Common Stock shall be entitled to receive, pro rata, all of the remaining assets
of the corporation available for distribution to its shareholders.
3. Voting Rights. The holders of the Common Stock shall be
entitled to one vote per share for all purposes upon which such holders are
entitled to vote.
Division C
1. No Preemptive Rights. No shareholder of the corporation shall by
reason of his holding shares of any class have any preemptive or preferential
right to acquire or subscribe for any additional, unissued or treasury shares of
any class of the corporation now or hereafter to be authorized, or any notes,
debentures, bonds or other securities convertible into or carrying any right,
option or warrant to subscribe to or acquire shares of any class now or
hereafter to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividends or voting or other rights of such shareholder, and the board of
directors may issue or authorize the issuance of shares of any class, or any
notes, debentures, bonds or other securities convertible into or carrying
rights, options or warrants to subscribe to or acquire shares of any class,
without offering any such shares of any class, either in whole or in part, to
the existing shareholders of any class.
2. Share Dividends. Subject to any restrictions in favor of any
series of Preferred Stock provided in the relative rights and preferences of
such series, the corporation may pay a
<PAGE>
share dividend in shares of any class or series of capital stock of the
corporation to the holders of shares of any class or series of capital stock of
the corporation.
3. No Cumulative Voting. Cumulative voting for the election of
directors is expressly prohibited as to all shares of any class or series.
ARTICLE FIVE
The corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000.00), consisting of any tangible or intangible benefit to the
corporation, including cash, promissory notes, services performed, contracts for
services to be performed or other securities of the corporation.
ARTICLE SIX
The street address of the corporation's registered office is 5847 San
Felipe Rd., Suite 3700, Houston, Texas 77057, and the name of its registered
agent at such address is Nicholas H. Marriner.
ARTICLE SEVEN
1. Number and Term of Directors. The number of directors shall be
fixed by, or in the manner provided by, the bylaws of the corporation. The
directors shall be divided into three classes as nearly equal in number as
possible and one class shall be elected at each annual meeting of shareholders
to hold office for a three-year term. The three classes shall be distinguished
as follows: "Class A" directors shall serve for a term to expire at the 2001
annual meeting of shareholders, "Class B" directors shall serve for a term to
expire at the 2000 annual meeting of shareholders and "Class C" directors shall
serve for a term to expire at the 1999 annual meeting of shareholders. The
number of directors constituting the current board of directors is five, and the
names, classes of directorships held and addresses of such persons constituting
the board of directors, who are to serve until their successors are elected and
qualified are as follows:
Name Class Address
---- ----- -------
Ms. Virginia Pierpont _____ 5847 San Felipe Plaza, Suite 3700, Houston,
TX 77057
Mr. Nigel Curlet _____ 5847 San Felipe Plaza, Suite 3700, Houston,
TX 77057
Mr. Gunther Fritze _____ 5847 San Felipe Plaza, Suite 3700, Houston,
TX 77057
<PAGE>
Name Class Address
---- ----- -------
Mr. Richard Thatcher _____ 5847 San Felipe Plaza, Suite 3700, Houston,
TX 77057
Mr. Nicholas H. Marriner _____ 5847 San Felipe Plaza, Suite 3700, Houston,
TX 77057
2. Removal of Directors. No director of the Company shall be removed from
such office by vote or other action of the shareholders of the Company or
otherwise, except by the affirmative vote of holders of at least a majority of
the then outstanding Voting Stock (as defined below), voting together as a
single class. The term "Voting Stock" shall mean all outstanding shares of all
classes and series of capital stock of the Company entitled to vote generally in
the election of directors of the Company, considered as one class; and, if the
Company shall have shares of Voting Stock entitled to more or less than one vote
for any such share, each reference in these Articles of Incorporation to a
proportion or percentage of Voting Stock shall refer to that proportion or
percentage of the total number of votes entitled to be cast by the holders of
the then outstanding Voting Stock. No director of the Company shall be removed
from such office, except for cause, which shall be deemed to exist only if: (i)
such director has been convicted, or such director is granted immunity to
testify where another has been convicted, of a felony by a court of competent
jurisdiction (and such conviction is no longer subject to direct appeal); (ii)
such director has been found by a court of competent jurisdiction (and such
finding is no longer subject to direct appeal) to have been grossly negligent or
guilty of willful misconduct in the performance of his duties to the Company in
a matter of substantial importance to the Company; (iii) such director has been
adjudicated by a court of competent jurisdiction to be mentally incompetent,
which mental incompetency directly affects his ability to perform as a director
of the Company; or (iv) such director has been found by a court of competent
jurisdiction (and such finding is no longer subject to direct appeal) to have
breached such director's duty of loyalty to the Company or its shareholders or
to have engaged in any transaction with the Company from which such director
derived an improper personal benefit. No director of the Company so removed may
be nominated, re-elected or reinstated as a director of the Company so long as
the cause for removal continues to exist. This paragraph shall be subject to the
rights, if any, of holders of any class or series of stock to elect directors
and remove directors elected by them.
ARTICLE EIGHT
A director of the corporation shall not be liable to the corporation or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this article does not eliminate or limit the
liability of a director for: (1) a breach of a director's duty of loyalty to the
corporation or its shareholders; (2) an act or omission not in good faith that
constitutes a breach of duty of that director to the corporation or an act or
omission that involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which a director received an improper personal benefit,
whether or not the benefit resulted from an action taken
<PAGE>
within the scope of the director's office; or (4) an act or omission for which
the liability of a director is expressly provided for by an applicable statute.
If the Texas Miscellaneous Corporation Laws Act or the Texas Business
Corporation Act (the "TBCA") is amended to authorize action further eliminating
or limiting the personal liability of directors, then the liability of a
director of the corporation shall be eliminated or limited to the fullest extent
permitted by such statutes, as so amended. Any repeal or modification of this
article shall not adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or modification.
ARTICLE NINE
All actions of the shareholders must be taken at an annual or special
meeting of shareholders; provided, however, that any action by such
shareholders may be taken by majority consent in accordance with the Texas
Business Corporation Act.
ARTICLE TEN
The vote of shareholders required for approval of any amendment of these
Amended and Restated Articles of Incorporation of the Company for which the TBCA
requires a shareholder vote, shall be (in the absence of any greater vote
required by the TBCA) the affirmative vote of the holders of a majority of the
outstanding Voting Stock entitled to vote thereon, unless any class or series of
shares is entitled to vote as a class thereon, in which event the vote required
shall be the affirmative vote of the holders of outstanding shares constituting
a majority of the votes entitled to be cast within each class or series of
shares entitled to vote thereon as a class and at least a majority of the
outstanding Voting Stock otherwise entitled to vote thereon.
ARTICLE ELEVEN
Special meetings of shareholders may be called by the corporation's
chairman of the board, the president or a majority of the board of directors.
Subject to the provisions of the corporation's bylaws governing special
meetings, holders of not less than 50% of the outstanding shares of stock
entitled to vote at the proposed special meeting may also call a special meeting
of shareholders by furnishing the corporation a written request which states the
purpose or purposes of the proposed meeting in the manner set forth in the
bylaws.
ARTICLE TWELVE
Except to the extent such power may be modified or divested by action of
shareholders representing a majority of the issued and outstanding Voting Stock
of the Company, the power to alter, amend or repeal the Bylaws of the Company
shall be vested in the Board of Directors.
<PAGE>
EXECUTED AND EFFECTIVE this ___ day of ______________, 1997.
DA CONSULTING GROUP, INC.
By: ____________________________
Mr. Nicholas H. Marriner
President
<PAGE>
EXHIBIT 3.2
DA CONSULTING GROUP, INC.
A TEXAS CORPORATION
BYLAWS
ARTICLE 1
OFFICES
Section 1.1. Registered Office. The registered office of the Company
within the State of Texas shall be located at either (i) the principal place of
business of the Company in the State of Texas or (ii) the office of the
corporation or individual acting as the Company's registered agent in Texas.
Section 1.2. The Company may, in addition to its registered office in
the State of Texas, have such other offices and places of business, both within
and without the State of Texas, as the Board of Directors of the Company (the
"Board") may from time to time determine or as the business and affairs of the
Company may require.
ARTICLE 2
SHAREHOLDER MEETINGS
Section 2.1. Annual Meetings. Annual meetings of shareholders
shall be held at a place and time on any weekday which is not a holiday and
which is not more than 120 days after the end of the fiscal year of the Company
as shall be designated by the Board and stated in the notice of the meeting, at
which the shareholders shall elect the directors of the Company and transact
such other business as may properly be brought before the meeting.
Section 2.2. Special Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by law or
by the Articles of Incorporation, (i) may be called by the Chairman of the Board
or the President and (ii) shall be called by the President or Secretary at the
request in writing of a majority of the Board or shareholders owning capital
stock of the Company representing at least fifty percent (50%) of the votes of
all capital stock of the Company entitled to vote thereat. Such request of the
Board or the shareholders shall state the purpose or purposes of the proposed
meeting.
Section 2.3. Notices. Written or printed notice of each
shareholders' meeting stating the place, date and hour of the meeting shall be
given to each shareholder of record entitled to vote thereat by or at the
direction of the President, the Secretary or the officer or person calling such
meeting not less than ten (10) nor more than sixty (60) days before the date
<PAGE>
of the meeting. If said notice is for a shareholders' meeting other than an
annual meeting, it shall in addition state the purpose or purposes for which
said meeting is called, and the business transacted at such meeting shall be
limited to the matters so stated in said notice and any matters reasonably
related thereto. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to each shareholder at his address
as it appears on the stock transfer books of the Company, with postage thereon
prepaid.
Section 2.4. Quorum. The presence at a shareholders' meeting of
the holders, present in person or represented by proxy, of capital stock of the
Company representing a majority of the votes of all capital stock of the Company
entitled to vote thereat shall constitute a quorum at such meeting for the
transaction of business except as otherwise provided by law, the Articles of
Incorporation or these Bylaws. If a quorum shall not be present or represented
at any meeting of the shareholders, the holders of capital stock of the Company
representing a majority of the votes of all capital stock of the Company
entitled to vote thereat and present in person or represented by proxy shall
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At any such reconvened meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally notified. If the adjournment is for more than
thirty (30) days, or if after the adjournment a new record date is fixed for the
reconvened meeting, a notice of said reconvened meeting shall be given to each
shareholder entitled to vote at said meeting. The shareholders present at a
duly convened meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
Section 2.5. Voting of Shares.
2.5.1. Voting Lists. The officer or agent who has charge of the
stock transfer books of the Company shall prepare, at least ten (10) days before
every meeting of shareholders, a complete list of the shareholders entitled to
vote thereat arranged in alphabetical order and showing the address and the
number of shares registered in the name of each shareholder. Such list shall be
open to the examination of any such shareholder, for any purpose germane to the
meeting, during ordinary business hours for a period of at least ten (10) days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held and at the registered
office of the Company. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
shareholder who is present. The original stock transfer books shall be prima
facie evidence as to who are the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders. Failure to comply with
the requirements of this Section shall not affect the validity of any action
taken at said meeting.
2.5.2. Votes Per Share. Unless otherwise provided by law or in
the Articles of Incorporation, each shareholder shall be entitled to one vote,
in person or by proxy, on
-2-
<PAGE>
each matter submitted to a vote at a meeting of the shareholders, for each share
of capital stock held by such shareholder.
2.5.3. Proxies. Every shareholder entitled to vote at a meeting
or to express consent or dissent without a meeting or a shareholder's duly
authorized attorney-in-fact may authorize another person or persons to act for
him by proxy. Each proxy shall be in writing, executed by the shareholder group,
the proxy or by his duly authorized attorney. No proxy shall be voted on or
after eleven (11) months from its date, unless the proxy provides for a longer
period. Each proxy shall be revocable unless expressly provided therein to be
irrevocable and unless otherwise made irrevocable by law.
2.5.4. Required Vote. When a quorum is present at any meeting,
the vote of the holders of capital stock of the Company representing a majority
of the votes of all capital stock of the Company entitled to vote thereat and
present in person or represented by proxy shall decide any question brought
before such meeting, unless the question is one upon which, by express provision
of law or the Articles of Incorporation or these Bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question.
2.5.5. Consents in Lieu of Meeting. Any action required to be
or which may be taken at any meeting of shareholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holder or holders of
shares having not less than the minimum number of votes that would be necessary
to take such action at a meeting at which the holders of all shares entitled to
vote on the action were present and voted. Such signed consent shall have the
same force and effect as a unanimous vote of shareholders and shall be filed
with the minutes of proceedings of the shareholders.
ARTICLE 3
DIRECTORS
Section 3.1. Purpose. The business and affairs of the Company
shall be managed by or under the direction of the Board, which may exercise all
such powers of the Company and do all such lawful acts and things as are not by
law, the Articles of Incorporation or these Bylaws directed or required to be
exercised or done by the shareholders. Directors need not be shareholders or
residents of the State of Texas.
Section 3.2. Number. The number of directors constituting the
Board shall never be less than one (1) and shall be determined by resolution of
the Board, except for the number of directors constituting the initial Board,
which number is fixed by the Articles of Incorporation.
-3-
<PAGE>
Section 3.3. Election. Directors shall be elected by the shareholders
by plurality vote at each annual meeting of shareholders, except as hereinafter
provided, and each director so elected shall hold office until his successor has
been duly elected and qualified.
Section 3.4. Vacancies and Newly-Created Directorships.
3.4.1. Vacancies. Any vacancy occurring in the Board may be
filled in accordance with subsection 3.4.3 or may be filled by the affirmative
vote of a majority of the remaining directors though less than a quorum of the
Board. A director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office.
3.4.2. Newly-Created Directorships. A directorship to be filled
by reason of an increase in the number of directors may be filled in accordance
with subsection 3.4.3 or may be filled by the Board for a term of office
continuing only until the next election of one or more directors by the
shareholders; provided that the Board may not fill more than two such
directorships during the period between any two successive annual meetings of
shareholders.
3.4.3. Election by Shareholders. Any vacancy occurring in the
Board or any directorship to be filled by reason of an increase in the number of
directors may be filled by election at an annual or special meeting of
shareholders called for that purpose.
Section 3.5. Removal. Any director or the entire Board of Directors
may be removed, but only for cause, by the holders of a majority of the shares
then entitled to vote at an election of directors.
Section 3.6. Compensation. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, the Board shall have the authority to
fix the compensation of directors. The directors may be reimbursed for their
expenses, if any, of attendance at each meeting of the Board and may be paid
either a fixed sum for attendance at each meeting of the Board or a stated
salary as director. No such payment shall preclude any director from serving the
Company in any other capacity and receiving compensation therefor. Members of
committees of the Board may be allowed like compensation for attending committee
meetings.
ARTICLE 4
BOARD MEETINGS
Section 4.1. Annual Meetings. The Board shall meet as soon as
practicable after the adjournment of each annual shareholders' meeting at the
place of such shareholders' meeting. No notice to the directors shall be
necessary to legally convene this meeting, provided a quorum is present.
-4-
<PAGE>
Section 4.2 Regular Meetings. Regularly scheduled, periodic
meetings of the Board may be held without notice at such times and places as
shall from time to time be determined by resolution of the Board and
communicated to all directors.
Section 4.3. Special Meetings. Special meetings of the Board (i)
may be called by the Chairman of the Board or President and (ii) shall be called
by the President or Secretary on the written request of two directors or the
sole director, as the case may be. Notice of each special meeting of the Board
shall be given, either personally or as hereinafter provided, to each director
at least (i) twenty-four (24) hours before the meeting if such notice is
delivered personally or by means of telephone, telegram, telex or facsimile
transmission delivery; (ii) two days before the meeting if such notice is
delivered by a recognized express delivery service; and (iii) three days before
the meeting if such notice is delivered through the United States mail. Any and
all business may be transacted at a special meeting which may be transacted at a
regular meeting of the Board. Except as may be otherwise expressly provided by
law, the Articles of Incorporation or these Bylaws, neither the business to be
transacted at, nor the purpose of, any special meeting need be specified in the
notice or waiver of notice of such meeting.
Section 4.4. Quorum, Required Vote. A majority of the directors
shall constitute a quorum for the transaction of business at any meeting of the
Board, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board, except as may be
otherwise specifically provided by law, the Articles of Incorporation or these
Bylaws. If a quorum shall not be present at any meeting, a majority of the
directors present may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present.
Section 4.5. Consent In Lieu of Meeting. Unless otherwise
restricted by the Articles of Incorporation or these Bylaws, any action required
or permitted to be taken at any meeting of the Board or any committee thereof
may be taken without a meeting, if a consent in writing, setting forth the
action so taken, is signed by all the members of the Board or committee, as the
case may be. Such signed consent shall have the same force and effect as a
unanimous vote at a meeting and shall be filed with the minutes of proceedings
of the Board or committee.
ARTICLE 5
COMMITTEES OF DIRECTORS
Section 5.1. Establishment; Standing Committees. The Board may by
resolution establish, name or dissolve one or more committees, each committee to
consist of one or more of the directors. Each committee, to the extent provided
in such resolution, shall have and may exercise all of the authority of the
Board of Directors, except that no such committee shall have the authority of
the Board of Directors in reference to amending the Articles of Incorporation,
approving a merger or consolidation, recommending to the shareholders the sale,
lease or
-5-
<PAGE>
exchange of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of business,
recommending to the shareholders a voluntary dissolution of the corporation or a
revocation thereof, amending, altering, or repealing the bylaws of the
corporation or adopting new bylaws for the corporation, filling vacancies in the
Board or any such committee, filling any directorship to be filled by reason of
an increase in the number of directors, electing or removing officers or members
of any such committee, fixing the compensation of any member of such committee
or altering or repealing any resolution of the Board which by its term provides
that it shall not be so amendable or repealable, and, unless such resolution
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of shares of the corporation.
Each committee shall keep regular minutes of its meetings and report the same to
the Board when required.
5.1.1. Audit Committee. The Audit Committee shall, from time to
time and to the extent it exists, but no less than two times per year, meet to
review and monitor the financial and cost accounting practices and procedures of
the Company, review the qualifications of the Company's independent auditors,
make recommendations to the Board of Directors regarding the selection of
independent auditors, review the scope, fees and results of any audit, review
non-audit services and related fees provided by the independent auditors, and to
report its findings and recommendations to the Board for final action. The Audit
Committee shall not be empowered to approve any corporate action, of whatever
kind or nature, and the recommendations of the Audit Committee shall not be
binding on the Board, except when, pursuant to the provisions of Section 5.2 of
these Bylaws, such power and authority have been specifically delegated to such
committee by the Board by resolution. In addition to the foregoing, the specific
duties of the Audit Committee shall be determined by the Board by resolution.
5.1.2. Compensation Committee. The Compensation Committee
shall, from time to time and to the extent it exists, meet to review the various
compensation plans, policies and practices of the Company, and to report its
findings and recommendations to the Board for final action. The Compensation
Committee shall be responsible for the administration of all salary for the
executive officers of the Company, including bonuses, and the administration of
the Company's compensation programs, including the grant of options under the
Company's 1997 Stock Option Plan. The Compensation Committee shall not be
empowered to approve any other corporate action, of whatever kind or nature, and
any recommendations of the Compensation Committee shall not be binding on the
Board, except when, pursuant to the provisions of Section 5.2 of these Bylaws,
such power and authority have been specifically delegated to such committee by
the Board by resolution. In addition to the foregoing, the specific duties of
the Compensation Committee shall be determined by the Board by resolution.
Section 5.2. Available Powers. Any committee established pursuant
to Section 5.1 of these Bylaws, including the Audit Committee and the
Compensation Committee, but only to the extent provided in the resolution of the
Board establishing such committee or otherwise delegating specific power and
authority to such committee and as limited by law, the Articles of Incorporation
and these Bylaws, shall have and may exercise all the powers and authority of
the
-6-
<PAGE>
Board in the management of the business and affairs of the Company, and may
authorize the seal of the Company to be affixed to all papers which may require
it.
Section 5.3. Alternate Members. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of such committee.
Section 5.4. Procedures. Time, place and notice, if any, of
meetings of a committee shall be determined by the members of such committee. At
meetings of a committee, a majority of the number of members designated by the
Board shall constitute a quorum for the transaction of business. The act of a
majority of the members present at any meeting at which a quorum is present
shall be the act of the committee, except as otherwise specifically provided by
law, the Articles of Incorporation or these Bylaws. If a quorum is not present
at a meeting of a committee, the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present.
ARTICLE 6
OFFICERS
Section 6.1. Elected Officers. The Board shall elect a President
and Secretary (collectively, the "Required Officers") having the respective
duties enumerated below and may elect such other officers having the titles and
duties set forth below which are not reserved for the Required Officers or such
other titles and duties as the Board may by resolution from time to time
establish:
6.1.1. Chairman of the Board. The Chairman of the Board, or in
his absence, the President, shall preside when present at all meetings of the
shareholders and the Board. The Chairman of the Board shall advise and counsel
the President and other officers and shall exercise such powers and perform such
duties as shall be assigned to or required of him from time to time by the Board
or these Bylaws. The Chairman of the Board may execute bonds, mortgages and
other contracts requiring a seal under the seal of the Company, except where
required by law to be otherwise signed and executed and except where the signing
and execution thereof shall be expressly delegated by the Board to some other
officer or agent of the Company. The Chairman of the Board may delegate all or
any of his powers or duties to the President, if and to the extent deemed by the
Chairman of the Board to be desirable or appropriate.
6.1.2. President. The President shall be the Chief Executive
Officer of the Company, unless the Board of Directors designates the Chairman of
the Board as Chief Executive Officer, and shall have general and active
management of the business and affairs of the Company and shall see that all
orders and resolutions of the Board are carried into effect. The President may
agree upon and execute all leases, contracts, evidences of indebtedness, and
-7-
<PAGE>
other obligations in the name of the corporation and may sign all certificates
for shares of capital stock of the corporation; and shall have such other powers
and duties as designated in accordance with these Bylaws and as from time to
time may be assigned to him by the Board of Directors. In the absence of the
Chairman of the Board or in the event of his inability or refusal to act, the
President shall perform the duties and exercise the powers of the Chairman of
the Board.
6.1.3. Chief Operating Officer. The chief operating officer
shall have supervision of the operation of the corporation, subject to the
policies and directions of the Board. He shall provide for the proper operation
of the corporation and oversee the internal interrelationship amongst any and
all departments of the corporation. He shall submit to the chief executive
officer and the board of directors timely reports on the operations of the
corporation.
6.1.4. Chief Financial Officer. The chief financial officer
shall be the chief accounting officer of the corporation and shall arrange for
the keeping of adequate records of all assets, liabilities and transactions of
the corporation. He shall provide for the establishment of internal controls and
see that adequate audits are currently and regularly made. He shall submit to
the chief executive officer and the board timely statements of the accounts of
the corporation and the financial results of the operations thereof.
6.1.5. Vice Presidents. In the absence of the President or in
the event of his inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated by the Board, or in the absence of any designation, then in the order
of their election or appointment) shall perform the duties of the President, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the President. The Vice Presidents shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
6.1.6. Secretary. The Secretary shall attend all meetings of
the shareholders, the Board and (as required) committees of the Board and shall
record all the proceedings of such meetings in minute books to be kept for that
purpose. He shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board and shall perform such other
duties as may be prescribed by the Board or the President. He shall have custody
of the corporate seal of the Company and he, or an Assistant Secretary, shall
have authority to affix the same to any instrument requiring it, and when so
affixed, it may be attested by his signature or by the signature of such
Assistant Secretary. The Board may give general authority to any other officer
to affix the seal of the Company and to attest the affixing thereof by his
signature.
6.1.7. Assistant Secretaries. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board (or if there be no such determination, then in the order of their election
or appointment) shall, in the absence of the Secretary or in the event of his
inability or refusal to act, perform the duties and exercise the
-8-
<PAGE>
powers of the Secretary and shall perform such other duties and have such other
powers as the Board may from time to time prescribe.
6.1.8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities, shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Company and shall deposit
all moneys and other valuable effects in the name and to the credit of the
Company in such depositories as may be designated by the Board. He shall
disburse the funds of the Company as may be ordered by the Board, taking proper
vouchers for such disbursements, and shall render to the President and the
Board, at its regular meetings, or when the Board so requires, an account of all
his transactions as treasurer and of the financial condition of the Company. He
may, when necessary or proper, endorse on behalf of the corporation for
collection checks, notes and other obligations and shall deposit the same to the
credit of the corporation in such banks or depositories as shall be designated
in the manner prescribed by the Board of Directors, and he may sign all receipts
and vouchers for payments made to the corporation, either along or jointly with
such other officer as is designated by the Board of Directors.
6.1.9. Assistant Treasurers. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board (or if there be no such determination, then in the order of their
election or appointment) shall, in the absence of the treasurer or in the event
of his inability or refusal to act, perform the duties and exercise the powers
of the treasurer and shall perform such other duties and have such other powers
as the Board may from time to time prescribe.
6.1.10. Divisional Officers. Each division of the Company, if
any, may have a President, Secretary, Treasurer or Controller and one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers and other assistant
officers. Any number of such offices may be held by the same person. Such
divisional officers will be appointed by, report to and serve at the pleasure of
the Board and such other officers that the Board may place in authority over
them. The officers of each division shall have such authority with respect to
the business and affairs of that division as may be granted from time to time by
the Board, and in the regular course of business of such division may sign
contracts and other documents in the name of the division where so authorized;
provided that in no case and under no circumstances shall an officer of one
division have authority to bind any other division of the Company except as
necessary in the pursuit of the normal and usual business of the division of
which he is an officer.
Section 6.2. Election. All elected officers shall serve until their
successors are duly elected and qualified or until their earlier death,
disqualification, retirement, resignation or removal from office.
Section 6.3. Appointed Officers. The Board may also appoint or
delegate the power to appoint such other officers, assistant officers and
agents, and may also remove such officers and agents or delegate the power to
remove same, as it shall from time to time deem
-9-
<PAGE>
necessary, and the titles and duties of such appointed officers may be as
described in Section 6.1 for elected officers; provided that the officers and
any officer possessing authority over or responsibility for any functions of the
Board shall be elected officers.
Section 6.4. Multiple Officeholders, Shareholder and Director
Officers. Any number of offices may be held by the same person, unless the
Articles of Incorporation or these Bylaws otherwise provide. Officers need not
be shareholders or residents of the State of Texas. Officers, such as the
Chairman of the Board, possessing authority over or responsibility for any
function of the Board must be directors.
Section 6.5. Compensation, Vacancies. The compensation of elected
officers shall be set by the Board. The Board shall also fill any vacancy in an
elected office. The compensation of appointed officers and the filling of
vacancies in appointed offices may be delegated by the Board to the same extent
as permitted by these Bylaws for the initial filling of such offices.
Section 6.6. Additional Powers and Duties. In addition to the
foregoing especially enumerated powers and duties, the several elected and
appointed officers of the Company shall perform such other duties and exercise
such further powers as may be provided by law, the Articles of Incorporation or
these Bylaws or as the Board may from time to time determine or as may be
assigned to them by any competent committee or superior officer.
Section 6.7. Removal. Any officer or agent or member of a committee
elected or appointed by the Board may be removed by the Board whenever in its
judgment the best interest of the Company will be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent or member of a
committee shall not of itself create contract rights.
ARTICLE 7
SHARE CERTIFICATES
Section 7.1. Entitlement to Certificates. Every holder of the capital
stock of the Company, unless and to the extent the Board by resolution provides
that any or all classes or series of stock shall be uncertificated, shall be
entitled to have a certificate, in such form as is approved by the Board and
conforms with applicable law, certifying the number of shares owned by him. Each
certificate representing shares shall state upon the face thereof:
(1) that the corporation is organized under the laws of the State of Texas;
(2) the name of the person to whom issued;
-10-
<PAGE>
(3) the number and class of shares and the designation of the series, if any,
which such certificate represents; and
(4) the par value of each share represented by such certificate, or a statement
that the shares are without par value.
Section 7.2. Multiple Classes of Stock; Preemptive Rights. In the
event the Company shall be authorized to issue shares of more than one class,
each certificate representing shares issued by the Company (1) shall
conspicuously set forth on the face or back of the certificate a full statement
of (a) all of the designations, preferences, limitations and relative rights of
the shares of each class authorized to be issued and, (b) if the Company is
authorized to issue shares of any preferred or special class in series, the
variations in the relative rights and preferences of the shares of each such
series to the extent they have been fixed and determined and the authority of
the Board to fix and determine the relative rights and preferences of subsequent
series; or (2) shall conspicuously state on the face or back of the certificate
that (a) such a statement is set forth in the Articles of Incorporation on file
in the office of the Secretary of State of the State of Texas and (b) the
Company will furnish a copy of such statement to the record holder of the
certificate without charge on written request to the Company at its principal
place of business or registered office. In the event the Company has by its
Articles of Incorporation limited or denied the preemptive right of shareholders
to acquire unissued or treasury shares of the Company, each certificate
representing shares issued by the Company (1) shall conspicuously set forth on
the face or back of the certificate a full statement of the limitation or denial
of preemptive rights contained in the Articles of Incorporation, or (2) shall
conspicuously state on the face or back of the certificate that (a) such a
statement is set forth in the Articles of Incorporation on file in the office of
the Secretary of State of the State of Texas and (b) the Company will furnish a
copy of such statement to the record holder of the certificate without charge on
request to the Company at its principal place of business or registered office.
Section 7.3. Signatures. Each certificate representing capital stock
of the Company shall be signed by or in the name of the Company by (1) the
Chairman of the Board, the President or a Vice President; and (2) the Treasurer,
an Assistant Treasurer, the Secretary or an Assistant Secretary of the Company.
The signatures of the officers of the Company may be facsimiles. In case any
officer who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to hold such office before such certificate is
issued, it may be issued by the Company with the same effect as if he held such
office on the date of issue.
Section 7.4. Issuance and Payment. Subject to any provision of the
Constitution of the State of Texas to the contrary, the Board may authorize
shares to be issued for consideration consisting of any tangible or intangible
benefit to the Company, including, cash, promissory notes, services performed,
contracts for services to be performed, or other securities of the Company.
Shares may not be issued until the full amount of the consideration, fixed as
provided by law, has been paid. When such consideration shall have been paid to
the Company or to a corporation of which all the outstanding shares of each
class are owned by the Company,
-11-
<PAGE>
the shares shall be deemed to have been issued and the subscriber or shareholder
entitled to receive such issue shall be a shareholder with respect to such
shares, and the shares shall be considered fully paid and non-assessable. In the
absence of fraud in the transaction, the judgment of the Board or the
shareholders, as the case may be, as to the value of the consideration received
for shares shall be conclusive.
Section 7.5. Lost Certificates. The Board may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
to give the Company a bond in such sum as it may direct as indemnity against any
claim that may be made against the Company with respect to the certificate
alleged to have been lost, stolen or destroyed.
Section 7.6. Transfer of Stock. Upon surrender to the Company or its
transfer agent, if any, of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer and of
the payment of all taxes applicable to the transfer of said shares, the Company
shall be obligated to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books; provided,
however, that the Company shall not be so obligated unless such transfer was
made in compliance with applicable state and federal securities laws.
Section 7.7. Registered Shareholders. The Company shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, vote and be held liable for calls and
assessments and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any person other than such
registered owner, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE 8
INDEMNIFICATION
Section 8.1. Definitions. For purposes of this Article VIII:
(1) "Corporation" includes any domestic or foreign predecessor entity of the
Company in a merger, consolidation, or other transaction in which the
liabilities of the predecessor are transferred to the Company by operation
of law and in any other transaction in which the
-12-
<PAGE>
Company assumes the liabilities of the predecessor but does not
specifically exclude liabilities that are the subject matter of this
article;
(2) "Director" means any person who is or was a director of the Company and any
person who, while a director of the Company, is or was serving at the
request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another
foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other enterprise;
(3) "Expenses" include, without limitation, court costs and attorneys' fees;
(4) "Official capacity" means
(i) when used with respect to a Director, the office of Director of the
Company, but does not include service for any other foreign or domestic
corporation or any partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise;
(ii) when used with respect to a person other than a Director, the
elective or appointive office in the Company held by the officer or the
employment or agency relationship undertaken by the employee or agent on behalf
of the Company, but does not include service for any other foreign or domestic
corporation or any partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise; and
(5) "Proceeding" means any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, any appeal in such an action, suit, or proceeding, and any
inquiry or investigation that could lead to such an action, suit, or
proceeding.
Section 8.2. Mandatory Indemnification. The Company shall indemnify a
person who was, is, or is threatened to be made a named defendant or respondent
in a proceeding because the person is or was a Director only if it is determined
in accordance with Section 8.6 of this Article 8 that the person:
(a) conducted himself in good faith;
(b) reasonably believed:
(i) in the case of conduct in his official
capacity as a Director of the Company, that his conduct was in the Company's
best interests; and
(ii) in all other cases, that his conduct was at
least not opposed to the Company's best interests; and
-13-
<PAGE>
(c) in the case of any criminal proceeding, had no
reasonable cause to believe his conduct was unlawful.
In the event it is determined in accordance with Section 8.6 of this Article 8
that a person has met the applicable standard of conduct as to some matters but
not as to others, amounts to be indemnified may be reasonably prorated.
Section 8.3. Prohibited Indemnification. Except to the extent
permitted by Section 8.5 of this Article 8, a Director may not be indemnified
under Section 8.2 of this Article 8 in respect of a proceeding:
(a) in which the person is found liable on the basis
that personal benefit was improperly received by him, whether or not the benefit
resulted from an action taken in the person's official capacity; or
(b) in which the person is found liable to the Company.
Section 8.4. Termination of Proceedings. The termination of a
proceeding by judgment, order, settlement, or conviction, or on a plea of nolo
contendere or its equivalent is not of itself determinative that the person did
not meet the requirements set forth in Section 8.2 of this Article 8. A person
shall be deemed to have been found liable in respect of any claim, issue or
matter only after the person shall have been so adjudged by a court of competent
jurisdiction after exhaustion of all appeals therefrom.
Section 8.5. Judgments, Expenses, etc. A person may be indemnified
under Section 8.2 of this Article 8 against judgments, penalties (including
excise and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person in connection with the proceeding; but if the person is
found liable to the Company or is found liable on the basis that personal
benefit was improperly received by the person, the indemnification (1) is
limited to reasonable expenses actually incurred by the person in connection
with the proceeding and (2) shall not be made in respect of any proceeding in
which the person shall have been found liable for willful or intentional
misconduct in the performance of his duty to the Company.
Section 8.6. Determination of Indemnification. A determination of
indemnification under Section 8.2 of this Article 8 must be made:
(a) by a majority vote of a quorum consisting of
directors who at the time of the vote are not named defendants or respondents in
the proceeding;
(b) if such a quorum cannot be obtained, by a majority
vote of a committee of the Board, designated to act in the matter by a majority
vote of all directors, consisting solely of two or more directors who at the
time of the vote are not named defendants or respondents in the proceeding;
-14-
<PAGE>
(c) by special legal counsel selected by the Board or a
committee thereof by vote as set forth in subsection (1) or (2) of this Section
8.6, or, if such a quorum cannot be obtained and such a committee cannot be
established, by a majority vote of all Directors; or
(d) by the shareholders of the Company in a vote that
excludes the shares held by Directors who are named defendants or respondents in
the proceeding.
Section 8.7. Determination of Reasonableness of Expenses.
Determination as to reasonableness of expenses must be made in the same manner
as the determination that indemnification is permissible, except that if the
determination that indemnification is permissible is made by special legal
counsel, determination as to reasonableness of expenses must be made in the
manner specified by subsection (c) of Section 8.6 of this Article 8 for the
selection of special legal counsel.
Section 8.8. Indemnification Against Reasonable Expenses. The
Company shall indemnify a Director against reasonable expenses incurred by him
in connection with a proceeding in which he is a named defendant or respondent
because he is or was a Director if he has been wholly successful, on the merits
or otherwise, in the defense of the proceeding.
Section 8.9. Payments in Advance of Disposition. Reasonable expenses
incurred by a Director who was, is, or is threatened to be made a named
defendant or respondent in a proceeding shall be paid or reimbursed by the
Company, in advance of the final disposition of the proceeding and without any
of the determinations specified in Sections 8.6 and 8.7 of this Article 8, after
the Company receives a written affirmation by the Director of his good faith
belief that he has met the standard of conduct necessary for indemnification
under this Article 8 and a written undertaking by or on behalf of the Director
to repay the amount paid or reimbursed if it is ultimately determined that he
has not met those requirements.
Section 8.10. Written Undertaking. The written undertaking required by
Section 8.9 of this Article 8 must be an unlimited general obligation of the
Director but need not be secured. It may be accepted without reference to
financial ability to make repayment.
Section 8.11. Consistency with Articles of Incorporation. Any
provision for the Company to indemnify or to advance expenses to a Director who
was, is, or is threatened to be made a named defendant or respondent in a
proceeding, whether contained in the Articles of Incorporation, these Bylaws, a
resolution of shareholders or Directors, an agreement, or otherwise, except in
accordance with Section 8.16 of this Article 8, is valid only to the extent it
is consistent with this Article 8 as limited by the Articles of Incorporation,
if such a limitation exists.
-15-
<PAGE>
Section 8.12. Other Expenses. Notwithstanding any other provision
of this Article 8, the Company may pay or reimburse expenses incurred by a
Director in connection with his appearance as a witness or other participation
in a proceeding at a time when he is not a named defendant or respondent in the
proceeding.
Section 8.13. Officers, Employees and Agents. An officer, employee
or agent of the Company shall be indemnified as, and to the same extent,
provided by Section 8.8 of this Article 8 for a Director and is entitled to seek
indemnification under such Section to the same extent as a Director. The
Company shall advance expenses to an officer and may advance expenses to an
employee or agent of the Company to the same extent that it shall advance
expenses to Directors under this Article 8.
Section 8.14. Other Capacities. A corporation may indemnify and
advance expenses to persons who are not or were not officers, employees, or
agents of the Company, but who are or were serving at the request of the Company
as a director, officer, partner, venturer, proprietor, trustee, employee, agent,
or similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise to the same extent that it shall indemnify and advance expenses to
Directors under this Article 8.
Section 8.15. Further Indemnification. The Company may indemnify
and advance expenses to an officer, employee, agent, or person identified in
Section 8.14 of this Article 8 and who is not a Director to such further extent,
consistent with law, as may be provided by the Articles of Incorporation, these
Bylaws, general or specific action of the Board, or contract or as permitted or
required by common law.
Section 8.16. Continuation of Indemnification. The indemnification
and advance payment provided by this Article 8 shall continue as to a person who
has ceased to hold his position as a director, officer, employee or agent, or
other person described in Article 8, Section 8.14, and shall inure to his heirs,
executors and administrators.
Section 8.17. Insurance. The Company may purchase and maintain
insurance or another arrangement on behalf of any person who is or was a
Director, officer, employee, or agent of the Company or who is or was serving at
the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, against any liability asserted
against him and incurred by him in such a capacity or arising out of his status
as such a person, whether or not the Company would have the power to indemnify
him against that liability under this Article 8. If the insurance or other
arrangement is with a person or entity that is not regularly engaged in the
business of providing insurance coverage, the insurance or arrangement may
provide for payment of a liability with respect to which the Company would not
have the power to indemnify the person only if including coverage for the
additional liability has been approved by the shareholders of
-16-
<PAGE>
the Company. Without limiting the power of the Company to procure or maintain
any kind of insurance or other arrangement, the Company may, for the benefit of
persons indemnified by the Company, (1) create a trust fund; (2) establish any
form of self-insurance; (3) secure its indemnity obligation by grant of a
security interest or other lien on the assets of the Company; or (4) establish a
letter of credit, guaranty, or surety arrangement. The insurance or other
arrangement may be procured, maintained, or established within the Company or
with any insurer or other person deemed appropriate by the Board regardless of
whether all or part of the stock or other securities of the insurer or other
person are owned in whole or part by the Company. In the absence of fraud, the
judgment of the Board as to the terms and conditions of the insurance or other
arrangement and the identity of the insurer or other person participating in an
arrangement shall be conclusive and the insurance or arrangement shall not be
voidable and shall not subject the Directors approving the insurance or
arrangement to liability, on any ground, regardless of whether Directors
participating in the approval are beneficiaries of the insurance or arrangement.
Section 8.18. Report To Shareholders. Any indemnification of or
advance of expenses to a Director in accordance with this Article 8 shall be
reported in writing to the shareholders with or before the notice or waiver of
notice of the next shareholders' meeting or with or before the next submission
to shareholders of a consent to action without a meeting pursuant to Section A,
Article 9.10, of the Texas Business Corporation Act and, in any case, within the
12-month period immediately following the date of the indemnification or
advance.
Section 8.19. Employee Benefit Plans. For purposes of this Article
8, the Company is deemed to have requested a Director to serve in capacity in
connection with an employee benefit plan whenever the performance by him of his
duties to the Company also imposes duties on or otherwise involves services by
him to the plan or participants or beneficiaries of the plan. Excise taxes
assessed on a Director with respect to an employee benefit plan pursuant to
applicable law are deemed fines. Action taken or omitted by him with respect to
an employee benefit plan in the performance of his duties for a purpose
reasonably believed by him to be in the interest of the participants and
beneficiaries of the plan is deemed to be for a purpose which is not opposed to
the best interests of the Company.
Section 8.20. Change in Governing Law. In the event of any amendment
or addition to Article 2.02-1 of the Texas Business Corporation Act or the
addition of any other section to such law which shall limit indemnification
rights thereunder, the Company shall, to the extent permitted by the Texas
Business Corporation Act, indemnify to the fullest extent authorized or
permitted hereunder, any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of the Company), by reason of the fact that he is or was a
Director, officer, employee or agent of the Company or is or was serving at the
request of the Company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise,
-17-
<PAGE>
against all judgments, penalties (including excise and similar taxes), fines,
settlements and reasonable expenses (including attorneys' fees and court costs)
actually and reasonably incurred by him in connection with such action, suit or
proceeding.
Section 8.21. Construction. The indemnification provided by this
Article shall be subject to all valid and applicable laws, including, without
limitation, Article 2.02-1 of the Texas Business Corporation Act, and, in the
event this Article or any of the provisions hereof or the indemnification
contemplated hereby are found to be inconsistent with or contrary to any such
valid laws, the latter shall be deemed to control and this Article 8 shall be
regarded as modified accordingly, and, as so modified, to continue in full force
and effect.
Section 8.22. Contract Right. The foregoing indemnification and
advancement of expenses provisions shall be deemed to be a contract between the
corporation and each director and officer who serves in any such capacity at any
time while these provisions, as well as the relevant provisions of the Texas
Business Corporation Act, are in effect, and any repeal or modification thereof
shall not affect any right or obligation then existing with respect to any state
of facts then or previously existing or any action, suit, or proceeding
previously or thereafter brought or threatened based in whole or in part upon
any such state of facts. Such a "contract right" may not be modified
retroactively without consent of such director, officer, employee or agent.
Notwithstanding this provision and subject to applicable provisions of the Texas
Business Corporation Act, the corporation may enter into additional contracts of
indemnity with these persons to provide rights provided in these bylaws, or to
otherwise modify, amend, increase or decrease these rights, as the Board of
Directors may see fit.
`
Section 8.23. Effect of Amendment. No amendment, modification or
repeal of this Article 8 or any provision hereof shall in any manner terminate,
reduce or impair the right of any past, present or future persons to be
indemnified by the corporation, nor the obligation of the corporation to
indemnify any such persons, under and in accordance with the provisions of this
Article as in effect immediately prior to such amendment, modification or
repeal, with respect to claims arising from or relating to matters occurring, in
whole or in part, prior to such amendment, modification or repeal, regardless of
when such claims may arise or be asserted.
ARTICLE 9
INTERESTED DIRECTORS, OFFICERS AND SHAREHOLDERS
Section 9.1. Validity; Disclosure; Approval. No contract or
transaction between the Company and one or more of its directors or officers, or
between the Company and any other corporation, partnership, association, or
other organization in which one or more of its directors or officers are
directors or officers or have a financial interest, shall be void or voidable
solely because the director or officer is present at or participates in the
meeting of the Board or
-18-
<PAGE>
committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(1) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) the material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the shareholders; or
(3) the contract or transaction is fair as to the Company as of the time it
is authorized, approved, or ratified by the Board, a committee thereof, or the
shareholders.
Section 9.2. Quorum. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board or of a committee
which authorizes the contract or transaction.
Section 9.3. Nonexclusive. This Article 9 shall not be construed to
invalidate any contract or transaction which would be valid in the absence of
this Article 9.
ARTICLE 10
MISCELLANEOUS
Section 10.1. Place of Meetings. All shareholders, directors and
committee meetings shall be held at such place or places, within or without the
State of Texas, as shall be designated from time to time by the Board or such
committee and stated in the notices thereof. If no such place is so designated,
said meetings shall be held at the principal business office of the Company.
Section 10.2. Fixing Record Dates.
(a) In order that the Company may determine the
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, to receive payment of any dividend or other
distribution or allotment of any rights, to exercise any rights in respect of
any change, conversion or exchange of stock or to effect any other lawful
action, or to make a determination of shareholders for any other proper purpose
(other than determining shareholders entitled to consent to action by
shareholders proposed to be taken without a meeting of shareholders), the Board
may fix, in advance, a record date for any such
-19-
<PAGE>
determination of shareholders, which shall not be more than sixty (60) nor less
than ten (10) days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. In the absence of any action
by the Board, the date on which a notice of meeting is given, or the date the
Board adopts the resolution declaring a dividend or other distribution or
allotment or approving any change, conversion or exchange, as the case may be,
shall be the record date. A record date validly fixed for any meeting of
shareholders and the determination of shareholders entitled to vote at such
meeting shall be valid for any adjournment of said meeting except where such
determination has been made through the closing of stock transfer books and the
stated period of closing has expired.
(b) In order that the Company may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board, and which date shall not be more than ten (10) days after the date upon
which the resolution fixing the record date is adopted by the Board. If no
record date has been fixed by the Board, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is otherwise required, shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company by delivery to its registered
office in the State of Texas, its principal place of business, or an officer or
agent of the Company having custody of the book in which proceedings of meetings
of stockholders are recorded. Delivery made to the Company's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board and prior action by the Board is
required, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board adopts the resolution taking such prior action.
Section 10.3. Notice and Waiver of Notice. Whenever any notice is
required to be given under law, the Articles of Incorporation or these Bylaws, a
written waiver of such notice, signed before or after the date of such meeting
by the person or persons entitled to said notice, shall be deemed equivalent to
such required notice. All such waivers shall be filed with the corporate
records. Attendance at a meeting shall constitute a waiver of notice of such
meeting, except where a person attends for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened. Whenever any notice is required to be given under law, the
Articles of Incorporation or these Bylaws, said notice shall be deemed to be
sufficient if given by depositing the same in a post office box in a sealed
prepaid envelope addressed to the person entitled thereto at his post office
address as it appears on the books of the Company and such notice shall be
deemed to have been given on the day of such mailing.
Section 10.4. Attendance via Communications Equipment. Unless
otherwise restricted by law, the Articles of Incorporation or these Bylaws,
members of the Board, members of any committee thereof or the shareholders may
hold a meeting by means of conference
-20-
<PAGE>
telephone or other communications equipment by means of which all persons
participating in the meeting can effectively communicate with each other. Such
participation in a meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 10.5. Dividends. Dividends on the capital stock of the
Company, paid in cash, property, or securities of the Company, or any
combination thereof, and as may be limited by applicable law and applicable
provisions of the Articles of Incorporation (if any), may be declared by the
Board at any regular or special meeting.
Section 10.6. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Company available for dividends such sum or
sums as the Board from time to time, in its absolute discretion, thinks proper
as a reserve or reserves to meet contingencies, for equalizing dividends, for
repairing or maintaining any property of the Company, or for such other purpose
as the Board shall determine to be in the best interest of the Company; and the
Board may modify or abolish any such reserve in the manner in which it was
created.
Section 10.7. Reports to Shareholders. The Board shall present at each
annual meeting of shareholders, and at any special meeting of shareholders when
called for by vote of the shareholders, a statement of the business and
condition of the Company.
Section 10.8. Contracts and Negotiable Instruments. Except as
otherwise provided by law or these Bylaws, any contract or other instrument
relative to the business of the Company may be executed and delivered in the
name of the Company and on its behalf by the Chairman of the Board, the
President, its Chief Operating Officer, the Chief Financial Officer or any Vice
President; and the Board may authorize any other officer or agent of the Company
to enter into any contract or execute and deliver any contract in the name and
on behalf of the Company, and such authority may be general or confined to
specific instances as the Board may by resolution determine. All bills, notes,
checks or other instruments for the payment of money shall be signed or
countersigned by such officer, officers, agent or agents and in such manner as
are permitted by these Bylaws and/or as, from time to time, may be prescribed by
resolution (whether general or special) of the Board. Unless authorized so to do
by these Bylaws or by the Board, no officer, agent or employee shall have any
power or authority to bind the Company by any contract or engagement, or to
pledge its credit, or to render it liable pecuniarily for any purpose or to any
amount.
Section 10.9. Fiscal Year. The fiscal year of the Company shall be
fixed by resolution of the Board.
-21-
<PAGE>
Section 10.10. Seal. The seal of the Company shall be in such form as
shall from time to time be adopted by the Board. The seal may be used by causing
it or a facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 10.11. Books and Records. The Company shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders, Board and committees and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addresses of all
shareholders and the number and class of the shares held by each.
Section 10.12. Resignation. Any director, committee member, officer
or agent may resign by giving written notice to the Chairman of the Board, the
President or the Secretary. The resignation shall take effect at the time
specified therein, or immediately if no time is specified. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 10.13. Surety Bonds. Such officers and agents of the Company
(if any) as the Chairman of the Board, the President or the Board may direct,
from time to time, shall be bonded for the faithful performance of their duties
and for the restoration to the Company, in case of their death, resignation,
retirement, disqualification or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in their possession or under
their control belonging to the Company, in such amounts and by such surety
companies as the Chairman of the Board, the President or the Board may
determine. The premiums on such bonds shall be paid by the Company and the bonds
so furnished shall be in the custody of the Secretary.
Section 10.14. Proxies in Respect of Securities of Other Corporations.
The Chairman of the Board, the President, any Vice President or the Secretary
may from time to time appoint an attorney or attorneys or an agent or agents for
the Company to exercise, in the name and on behalf of the Company, the powers
and rights which the Company may have as the holder of stock or other securities
in any other corporation to vote or consent in respect of such stock or other
securities, and the Chairman of the Board, the President, any Vice President or
the Secretary may instruct the person or persons so appointed as to the manner
of exercising such powers and rights; and the Chairman of the Board, the
President, any Vice President or the Secretary may execute or cause to be
executed, in the name and on behalf of the Company and under its corporate seal
or otherwise, all such written proxies or other instruments as he may deem
necessary or proper in order that the Company may exercise such powers and
rights.
Section 10.15. Amendments. These Bylaws may be altered, amended,
repealed or replaced by the shareholders, or by the Board when such power is
conferred upon the Board by the Articles of Incorporation, at any annual
shareholders meeting or annual or regular meeting of the Board, or at any
special meeting of the shareholders or of the Board if notice of such
alteration, amendment, repeal or replacement is contained in the notice of such
special meeting. If the power to adopt, amend, repeal or replace these Bylaws is
conferred upon the Board by the
-22-
<PAGE>
Articles of Incorporation, the power of the shareholders to so adopt, amend,
repeal or replace these Bylaws shall not be divested or limited thereby.
-23-
<PAGE>
EXHIBIT 10.7
October 1, 1997
PRIVATE AND CONFIDENTIAL
- ------------------------
Mr. Nicholas H. Marriner, President & CEO
DA Consulting Group, Inc.
Suite 3700
5842 San Felipe Road
Houston, TX 77057
Dear Nick:
Based on my recent discussions with you, I am pleased to propose this agreement
for DA Consulting Group, Inc. ("the Company") to retain me as its strategic
financial advisor.
1. Services to be Rendered The services that I will render to the Company
will include but not be limited to, the following:
a. stay current on the status of the Company, including assets,
financial condition and its prospects, with the assistance of
your management team;
b. assist in identifying, qualifying and contacting (subject to
prior approval) potential acquisition or merger partners;
c. advise and assist the Company with respect to structuring the
proposed acquisitions; and
d. work with the Company in the negotiations to ensure appropriate
valuation and proper fit with the Company's objectives; this
will include advising the Company regarding the strategy and
tactics to be used during the process;
f. help the Company prepare for its forthcoming initial public
offering;
g. work with the Company to help make select investments, including
potential acquisitions of (or mergers with) companies and
products.
260 PLYMOUTH ROAD . GWYNEDD VALLEY, PA . 19437-0006
TEL:215.643.1622 . FAX: 215.643.1633
<PAGE>
DA - page 2
2. Fees As compensation for my advisory and transaction services, the fees
shall be:
a. retainer of $5,000 per month, plus reimbursement, on a monthly
basis, of reasonable out-of-pocket expenses;
b. for acquisitions/mergers completed, a transaction success fee
("Success Fee") equal to 5% of the initial $5 million and 1% of
the total valuation above $5 million for each transaction
successfully completed payable in cash on the Closing Date of
the transaction. The total valuation would include all cash,
equity securities, contingent payments, non-compete agreements,
all debt assumed, acquired, retired or defeased and the face
value of any debt securities issued in such a transaction. 100%
of the retainer fees paid from June 1, 1997 (the July invoice)
and not previously credited, will be credited towards the
Success Fees;
c. if the transaction includes contingent payments, the Company and
I shall mutually attempt to agree on the net present value of
such payments. If the Company and I cannot agree on the net
present value, then I shall receive the contingent Success Fees
as they occur;
d. in the event the Company enters into a transaction with a firm
that I have contacted on behalf of the Company within 12 months
after the termination of this agreement, the Company will pay me
the Success Fee.
3. Term of Agreement This Agreement shall commence, subject to necessary
approvals, as of October 1, 1997 and shall continue in effect until
December 31, 1998 and thereafter until terminated by either the Company
or me. Termination shall become effective 30 days after written notice
of termination is received by the other party, subject to those
provisions of this Agreement which have application subsequent to the
termination of this Agreement.
4. Indemnity The Company agrees to indemnify and hold me, and any
affiliated companies, and their respective officers, directors,
controlling persons and employees and any persons retained in connection
with the proposed transactions (whether or not consummated), harmless
from and against all claims, (including any legal or other expenses
incurred in connection with investigating or defending against any such
loss, claim, damage or liability or any action in respect thereof),
related to or arising out of our activities. Notwithstanding the
foregoing, the Company shall not be liable for indemnity under this
agreement in respect of any loss, claim, damage, liability or expense
arising from my willful misconduct or gross negligence in performing the
services described above. This provision shall survive any termination
of my engagement as well as the consummation or abandonment of any
transaction.
<PAGE>
DA - page 3
5. MISCELLANEOUS This is the entire agreement of the parties and may not
be amended or modified except in a writing signed by all parties, and shall be
governed by and construed in accordance with the laws of the Commonwealth of
Pennsylvania. This agreement shall be binding upon the parties and their
respective successors and assigns.
Nick, I look forward to the continuation of our successful relationship. If the
foregoing correctly sets forth your understanding, please so indicate by signing
and returning to me the enclosed copy of this letter.
Sincerely,
/s/ Dick
- ----------------
Richard W. Thatcher, Jr.
DA Consulting Group, Inc.
BY: /s/ Nicholas H. Marriner Date: 27th October 1997
------------------------- ------------------
Nicholas H. Marriner, President.
<PAGE>
EXHIBIT 10.8
LETTER LOAN AGREEMENT
---------------------
March 18, 1996
Southwest Bank of Texas, N.A.
P.O. Box 27459
Houston, Texas 77227-7459
Attn: Brooks McGee
Gentlemen:
The undersigned, DOCUMENTATION ASSOCIATES, INC., a Texas corporation
("Borrower"), duly organized and existing under the laws of the State of Texas,
has requested that SOUTHWEST BANK OF TEXAS, N.A. ("Lender") lend to Borrower the
sum of $1,000,000.00. Lender has advised Borrower that Lender is willing to
lend such funds to Borrower upon the terms and subject to the conditions set
forth in this letter loan agreement (the "Agreement"). In consideration for the
above premises and the mutual promises and covenants herein contained, Borrower
and Lender do hereby agree as follows:
1. Loans. On the terms and subject to the conditions hereinafter set
forth, Lender agrees to lend to Borrower the sum of $1,000,000.00 (the "Loan").
The Loan shall be evidenced by (i) a master revolving credit note (the "Note")
in a form satisfactory to Lender, duly executed by Borrower in the principal
amount of $1,000,000.00 and made payable to the order of Lender. Principal and
interest on the Note shall be due and payable in the manner and at the times set
forth in the Note with final maturity on March 18, 1997 (the "Maturity Date").
2. Revolving Credit Advances. Subject to the terms hereof, Borrower may
borrow, pay, reborrow and repay under the Note, provided, however, the maximum
principal outstanding under the Note shall not exceed the lesser of (i)
$1,000,000.00, or (ii) the Borrower's Loan Limit, as such term is defined in
Schedule "A" attached hereto and made a part hereof. Borrower's requests for
advances under the Note shall specify the aggregate amount of the advance and
the date of such advance. Borrower shall furnish to Lender a request for
borrowing in a form satisfactory to Lender at least one business day prior to
the requested borrowing date. After receiving notice of a requested advance in
the manner provided herein, Lender shall make the requested funds available to
Borrower on the requested borrowing date at Lender's principal banking office in
Houston, Texas. The funds advanced under the Note are to enable Borrower to
finance working capital needs and general corporate purposes. If at any time
prior to the Maturity Date, the outstanding advances under the Note exceed the
Borrower's Loan Limit, Borrower shall prepay on the Note such amount as may be
necessary to eliminate such excess.
3. Conditions Precedent.
(a) The obligation of Lender to make the initial advance under the
Note is subject to the conditions precedent that, as of the date of such
advance, (i) Lender shall have received duly executed copies of each document
listed on the last page hereof relating to the Loan, in form and substance
acceptable to Lender and its legal counsel (all the documents listed on the last
page hereof, together with this Agreement and any other security documents
relating to the Loan, and
<PAGE>
any modifications thereof, are hereinafter collectively referred to as the "Loan
Documents"), and (ii) Lender's approval of a pre-closing field audit performed
by Creekwood Capital.
(b) Lender's obligation to make any advances under the Loan
shall be subject to the additional conditions precedent that, as of the date of
such advance and after giving effect thereto: (i) all representations and
warranties made by Borrower to Lender are true and correct, as if made on such
date, (ii) all documents and proceedings shall be reasonably satisfactory to
legal counsel for Lender, (iii) no condition or event exists which constitutes
an Event of Default (as hereinafter defined) or which, with the lapse of time
and/or giving of notice, would constitute an Event of Default, and (iv) all
conditions precedent set forth in subparagraph (a) above shall have been
satisfied.
4. Representations and Warranties. In order to induce Lender to
make the Loan, Borrower represents and warrants to Lender that:
(a) The Loan Documents are the legal and binding obligations of
Borrower, enforceable in accordance with their respective terms, except as
limited by bankruptcy, insolvency or other laws of general application relating
to the enforcement of creditors' rights;
(b) All financial statements delivered by Borrower to Lender
prior to the date hereof are true and correct, fairly present the consolidated
financial condition of Borrower and its subsidiaries in all material respects
and have been prepared in accordance with generally accepted accounting
principles, consistently applied; as of the date hereof, there are no
obligations, liabilities or indebtedness (including contingent and indirect
liabilities) which are material to Borrower or its subsidiaries and not
reflected in such financial statements; and no material adverse changes have
occurred in the financial condition or business of Borrower or its subsidiaries
since the date of the most recent financial statements which Borrower has
delivered to Lender;
(c) Neither the execution and delivery of this Agreement and the
other Loan Documents, nor consummation of any of the transactions herein or
therein contemplated, nor compliance with the terms and provisions hereof or
thereof, will contravene or conflict in any material respect with any provision
of law, statute or regulation to which Borrower is subject or any judgment,
license, order or permit applicable to Borrower or any indenture, mortgage, deed
of trust or other instrument to which Borrower may be subject; no consent,
approval, authorization or order of any court, governmental authority or third
party is required in connection with the execution and delivery by Borrower of
this Agreement or transactions contemplated herein or therein;
(d) No litigation, investigation, or governmental proceeding is
pending, or, to the knowledge of any of Borrower's officers, threatened against
or affecting Borrower or any of its subsidiaries, which may result in any
material adverse change in Borrower's or its subsidiaries' business, properties
or operations;
(e) There is no specific fact known to Borrower that Borrower
has not disclosed to Lender in writing which is likely to result in any material
adverse change in Borrower's or its subsidiaries' business, properties or
operations;
-2-
<PAGE>
(f) Borrower (or its subsidiaries) owns all of the assets
reflected on its most recent balance sheet free and clear of all liens, security
interest or other encumbrances, except as previously disclosed in writing to
Lender;
(g) The principal office, chief executive office and principal
place of business of Borrower is in Houston, Texas;
(h) All taxes required to be paid by Borrower and its
subsidiaries have in fact been paid, except for taxes being contested in good
faith by appropriate proceedings for which adequate reserves have been
established;
(i) Borrower is not in violation of any law, ordinance,
governmental rule or regulation to which it is subject, and is not in default
beyond any cure period under any material agreement, contract or understanding
to which it is a party; and
(j) No written certificate or written statement herewith or
heretofore delivered by Borrower to Lender in connection herewith, or in
connection with any transaction contemplated hereby, contains any untrue
statement of a material fact or fails to state any material fact necessary to
keep the statements contained therein from being misleading.
5. Affirmative Covenants. Until payment in full of the Note and all
other obligations and liabilities of Borrower hereunder, Borrower agrees and
covenants that (unless Lender shall otherwise consent in writing):
(a) As soon as available, and in any event within thirty (30)
days after the close of each calendar month, Borrower shall deliver to Lender an
unaudited financial statement showing the financial condition of Borrower and
its subsidiaries at the close of each such month and the results of operations
during such month, which financial statements shall include, but shall not be
limited to, a profit and loss statement, balance sheet, and such other matters
as Lender may reasonably request; all such monthly financial statements shall be
certified on the face thereof by the chief financial officer of Borrower, or any
officer of Borrower acceptable to Lender, and shall be forwarded to Lender with
a letter of transmittal from him in which he shall certify that Borrower is in
compliance with all of the covenants contained in Paragraph 5 and Paragraph 6
hereof, and further stating that, to Borrower's best knowledge, no Event of
Default exists in the performance by Borrower of any of the other terms,
conditions and covenants required under this Agreement to be performed by
Borrower;
(b) As soon as available, and in any event within ninety (90)
days after the end of each fiscal year of Borrower, Borrower shall deliver to
Lender a copy of the annual audited consolidated financial statement of Borrower
prepared in conformity with generally accepted accounting principles by Melton &
Melton or independent certified public accountants selected by Borrower and
acceptable to Lender, which show the financial condition of Borrower and its
subsidiaries at the close of such fiscal year and the results of operations
during such fiscal year, and shall include, but not be limited to, a profit and
loss statement, balance sheet and such other matters as Lender may reasonably
request;
(c) As soon as available, and in any event within thirty (30)
days after the end of each month, and upon each request for an advance Borrower
shall deliver to Lender a (i)
-3-
<PAGE>
Borrowing Base Certificate and Compliance Certificate in the form of Schedule
"B" attached hereto together with such other information as may be deemed
necessary or appropriate by Lender and (ii) an aging and listing of all accounts
receivable, accounts payable and inventory of Borrower in a form acceptable to
Lender;
(d) Borrower shall furnish to Lender within thirty (30) days
after the end of September 1996 and each six month period after September 1996
field audit reports prepared by a company mutually acceptable to Lender and
Borrower, in a form acceptable to Lender;
(e) As soon as available, and in any event within thirty (30)
days after the end of each calendar year, Borrower shall cause the Guarantor
(hereinafter defined) to deliver to Lender a copy of the annual financial
statement of such Guarantor, which statement shall include, but not be limited
to, a balance sheet, an income statement, a cash flow statement, a statement of
contingent liabilities, and such other matters as Lender may reasonably
request;
(f) As soon as available, and in any event no later than April
30 of each year, Borrower shall cause Guarantor to deliver to Lender a copy of
her federal income tax return(s) filed for the immediately preceding calendar
year (or, in the alternative, should an extension be filed, the extension must
be delivered to Lender by April 30 of such year, and the tax return must be
delivered to Lender within 15 days after the date it is actually filed);
(g) Borrower shall conduct its business in an orderly and
efficient manner consistent with good business practices and in accordance with
all valid regulations, laws and orders of any governmental authority and will
act in accordance with customary industry standards in maintaining and operating
its assets, properties and investments;
(h) Borrower shall maintain complete and accurate books and
records of its transactions in accordance with generally accepted accounting
principles, and will give Lender access, after forty-eight hours prior notice,
during business hours to all books, records and documents of Borrower and permit
Lender to make and take away copies thereof;
(i) Borrower shall furnish to Lender, immediately upon becoming
aware of the existence of any condition or event constituting an Event of
Default or event which, with the lapse of time and/or giving of notice, would
constitute an Event of Default, written notice specifying the nature and period
of existence thereof and any action which Borrower is taking or proposes to take
with respect thereto;
(j) Borrower shall promptly notify Lender of (i) any material
adverse change in its financial condition or business; (ii) receipt of notice of
any default under any material agreement, contract or other instrument to which
Borrower is a party or by which any of its properties are bound, or any
acceleration of any maturity of any indebtedness owing by Borrower; (iii) any
material adverse claim against or affecting Borrower or any of its subsidiaries
or properties; and (iv) any litigation, or any claim or controversy which might
become the subject of litigation, against Borrower or its subsidiaries affecting
any property, if such litigation or potential litigation might, in the event of
an unfavorable outcome, have a material adverse effect on Borrower's financial
condition or business or might cause an Event of Default;
-4-
<PAGE>
(k) Borrower shall promptly pay all lawful claims, whether for
labor, materials or otherwise, which might or could, if unpaid, become a lien or
charge on any property or assets of Borrower, unless and to the extent only that
the same are permitted hereby or are being contested in good faith by
appropriate proceedings and reserves deemed adequate by Lender have been
established therefor;
(l) Borrower shall maintain or cause to be maintained insurance
from responsible and reputable companies in such amounts and covering such risks
as is acceptable to Lender, is prudent and is usually carried by companies
engaged in businesses similar to that of Borrower; Borrower shall furnish
Lender, on request, with certified copies of insurance policies or other
appropriate evidence of compliance with the foregoing covenant;
(m) Borrower shall preserve and maintain all licenses,
privileges, franchises, certificates and the like necessary for the operation of
its business;
(n) Borrower shall promptly furnish to Lender, at Lender's
request, such additional financial or other information concerning assets and
liabilities of Borrower as Lender may from time to time reasonably request; and
(o) Borrower shall make, execute or endorse, and acknowledge and
deliver or file or cause the same to be done, all such vouchers, invoices,
notices, certifications and additional security agreements, financing statements
with respect to the Collateral and take any and all such other action, as Lender
may, from time to time, deem reasonably necessary or proper in connection with
any of the Loan Documents, the obligations of Borrower, or for better assuring
and confirming unto Lender all or any part of the security for any of such
obligations as set forth herein.
(p) Borrower shall establish a lock box arrangement with Lender
in accordance with its normal practices in connection with the payment and
collection of Borrower's accounts receivable.
6. Negative Covenants. Until payment in full of the Note and all
other obligations and liabilities of Borrower hereunder, Borrower covenants that
it shall not (unless Lender shall otherwise consent in writing):
(a) Permit at any time Borrower's Tangible Net Worth to be less
than:
from the date hereof through
June 29, 1996 $800,000.00;
from June 30, 1996 through
December 30, 1996 $1,050,000.00; and
from December 31, 1996 through
the Maturity Date $1,300,000.00;
as used herein, the term "Tangible Net Worth" shall mean the total assets of
Borrower, minus its total liabilities (including contingent liabilities), minus
all intangibles, expenses and other items
-5-
<PAGE>
deducted in arriving at tangible net worth as determined by Borrower's regularly
employed certified public accountant in a manner consistent with prior
practice;
(b) Permit, at any time during the periods set forth below, its ratio of
total liabilities to Tangible Net Worth to be more than 2.50 to 1.00.
(c) Permit, at any time, its ratio of Current Assets to Current
Liabilities to be less than 1.25 to 1.00; as used herein, the term "Current
Assets" shall mean all assets of Borrower that, in accordance with generally
accepted accounting principles, would be included as current assets on a balance
sheet as of such date, and the term "Current Liabilities" shall mean all
liabilities of Borrower that, in accordance with generally accepted accounting
principles, would be included as current liabilities on a balance sheet as of
such date;
(d) Incur or assume any indebtedness or borrow money without Lender's
consent, except for (i) the Loan; (ii) debt incurred in the ordinary course of
business; and (iii) debt reflected on Borrower's most recent balance sheet and
any renewal, extension or modifications thereof; or sell any of its accounts
receivable, with or without recourse;
(e) Permit, for any three consecutive months, Borrower's Net Income to
be less than zero for each such month during the three month period; as used
herein, the term "Net Income" means, for any period, the net earnings (or loss)
after taxes of Borrower for such period determined in accordance with GAAP;
(f) Endorse, guarantee, or otherwise become liable for the obligations
of any person, firm or corporation except for endorsements of negotiable
instruments by Borrower in the ordinary course of business;
(g) Mortgage, assign, encumber, incur, assume or grant a security
interest in or lien upon any of Borrower's assets, except to Lender and as
permitted herein (provided, however, that the foregoing shall not apply to an
inchoate lien for taxes which are not delinquent or which are being contested in
good faith and liens resulting from deposits to secure the payments of worker's
compensation or social security or to secure the performance of bids or
contracts in the ordinary course of business or others arising by operation of
law);
(h) Liquidate, dissolve or reorganize; or merge or consolidate with, or
acquire all or substantially all of the assets of, any other company, firm or
association; or make any other substantial change in its capitalization or its
business;
(i) Sell any of its assets, except in the ordinary course of business;
or sell any of its assets to any other person, firm or corporation with the
agreement that such assets shall be leased back to Borrower, unless replaced
with assets of equal value;
(j) Own, purchase or acquire, directly or indirectly, any promissory
notes, stock or securities of any other person, firm or corporation, other than
securities guaranteed as to the principal and interest by the United States
government; or make any loans or advances to any other person or affiliated
entity, in excess of $100,000 in the aggregate;
-6-
<PAGE>
(k) Permit any transfer, pledge or other change in the ownership of
controlling interest of the stock of Borrower during the term of the Loan,
without the prior written consent of Lender; as used herein, the term
"controlling interest" shall mean 51% of the stock of Borrower; and if a
shareholder is an individual, the death of such shareholder shall not be deemed
to be a change in the ownership of such stock of Borrower.
(l) Expend or enter into any commitment to expend any amount for the
acquisition or lease of tangible, fixed or capital assets, including repairs,
replacements and improvements, which are capitalized under proper accounting
practice, and which exceeds, in the aggregate, $100,000.
7. Default. An "Event of Default" shall exist if any one or more of the
following events (herein collectively called "Events of Default") shall occur:
(a) Borrower shall fail to pay when due any principal of, or interest
on, the Note or any other fee or payment due hereunder or under any other
indebtedness owing to Lender or any of the Loan Documents;
(b) Any representation or warranty made in any of the Loan Documents
shall prove to be untrue or inaccurate in any material respect as of the date on
which such representation or warranty is made;
(c) Default shall occur in the performance of any of the covenants or
agreements of Borrower contained herein or in any other documents securing any
other indebtedness owing to Lender or in any of the other Loan Documents and
with respect to the Affirmative Covenants set forth herein [except subparagraphs
5(h), 5(i), 5(j), 5(n), and 5(o)] and Negative Covenants set forth herein such
default shall continue for more than thirty (30) days after Lender's sending
written demand therefor;
(d) Borrower shall (i) apply for or consent to the appointment of a
receiver, custodian, trustee, intervenor or liquidator of it or of all or a
substantial part of its assets, (ii) voluntarily become the subject of a
bankruptcy, reorganization or insolvency proceeding or be insolvent or admit in
writing that it is unable to pay debts as they become due, (iii) make a general
assignment for the benefit of creditors, (iv) file a petition or answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy or insolvency laws, (v) file an answer admitting the material
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceeding, (vi) become the
subject of an order for relief under any bankruptcy, reorganization or
insolvency proceeding, or (vii) fail to pay any money judgment against it or
obtain a supersedeas bond before the expiration of thirty (30) days after such
judgment becomes final and no longer subject to appeal;
(e) An order, judgment or decree shall be entered by any court of
competent jurisdiction or other competent authority approving a petition
appointing a receiver, custodian, trustee, intervenor or liquidator of Borrower
or of all or substantially all of its assets, and such order, judgment or decree
shall continue unstayed and in effect for a period of ninety (90) days; or a
complaint or petition shall be filed against Borrower seeking or instituting a
bankruptcy,
-7-
<PAGE>
insolvency, reorganization, rehabilitation or receivership proceeding of
Borrower, and such petition or complaint shall not have been dismissed within
ninety (90) days; or
(f) Borrower shall default in the payment of any indebtedness of
Borrower to financial institutions or in the performance of any of Borrower's
obligations to financial institutions and such default shall continue for more
than any applicable period of grace.
8. Remedies Upon Event of Default. If an Event of Default shall have
occurred and be continuing, then Lender, at its option, may (i) declare the
principal of, and all interest then accrued on, the Note and any other
liabilities of Borrower to Lender to be forthwith due and payable, whereupon the
same shall forthwith become due and payable without notice, presentment, demand,
protest, notice of intention to accelerate, or other notice of any kind, all of
which Borrower hereby expressly waives, anything contained herein or in the Note
to the contrary notwithstanding, (ii) reduce any claim to judgment, and/or (iii)
without further notice of default or demand, pursue and enforce any of Lender's
rights and remedies under the Loan Documents or otherwise provided under or
pursuant to any applicable law or agreement.
9. Collateral. Payment of the Note and performance of the obligations
described herein shall be secured, directly or indirectly, by the following:
(a) a first priority perfected security interest in all of Borrower's
accounts, and general intangibles;
(b) the guaranty of Virginia Pierpont (the "Guarantor").
10. Miscellaneous.
(a) Waiver. No failure to exercise, and no delay in exercising, on the
part of Lender, any right hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. The rights of Lender hereunder and
under the other Loan Documents shall be in addition to all other rights provided
by law. No notice or demand given in any case shall constitute a waiver of the
right to take other action in the same, similar or other instances without such
notice or demand.
(b) Notices. Any notices or other communications required or permitted
to be given by any of the Loan Documents must be given in writing and must be
personally delivered, or mailed by prepaid certified or registered mail to the
party to whom such notice or communication is directed at the address of such
party as follows:
(i) Borrower: Documentation Associates, Inc.
12200 Northwest Freeway
Houston, Texas 77092
Attention: Alison Smith
-8-
<PAGE>
(iii) Lender: Southwest Bank of Texas
P. O. Box 27459
Houston, Texas 77227-7459
Attention: Brooks McGee
Any such notice or other communication shall be deemed to have been given
(whether actually received or not) on the day it is personally delivered as
aforesaid, or, if mailed, on the third day after it is mailed as aforesaid. Any
party may change its address for purposes of this Agreement by giving notice of
such damage to all other parties pursuant to this Paragraph.
(c) Governing Law. This Agreement and the other Loan Documents are
being executed and delivered, and are intended to be performed, in the State of
Texas, and the substantive laws of Texas shall govern the validity,
construction, enforcement and interpretation of this Agreement and all other
Loan Documents, except to the extent: (i) otherwise specified therein; (ii) the
federal or state laws governing national banking associations expressly
supersede and have contrary application; or (iii) federal laws governing maximum
interest rates shall provide for rates of interest higher than those permitted
under the laws of the State of Texas.
(d) Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the term of this Agreement, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unforceable provision or by its
severance from this Agreement.
(e) Maximum Interest Rate. It is the intention of the parties hereto to
comply with the usury laws of the State of Texas and the United States;
accordingly, it is agreed that notwithstanding any provision to the contrary in
the Note, or in any of the documents securing payment hereof or otherwise
relating hereto, no such provision shall require the payment or permit the
collection of interest in excess of the maximum permitted by applicable state or
Federal Law. If any excess of interest in such respect is provided for, or shall
be adjudicated to be so provided for, in the Note or in any of the documents
securing payment hereof or otherwise relating hereto, or in the event the
maturity of the indebtedness evidenced by the Note is accelerated in whole or in
part, or in the event that all or part of the principal or interest of the Note
shall be prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received under the Note or under any of the
instruments securing payment hereof or otherwise relating hereto, on the amount
of principal actually outstanding from time to time under the Note shall exceed
the maximum amount of interest permitted by the usury laws of the State of Texas
and the United States, then, in any such event, (i) the provisions of this
paragraph shall govern and control, (ii) neither Borrower nor its legal
representatives or assigns or any other party liable for the payment hereof
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum amount permitted by applicable state or Federal law,
(iii) any such excess which may have been collected shall be, at the holder's
option (at maturity or in the Event of Default hereunder), either applied as a
credit against the then unpaid principal amount hereof or refunded to Borrower,
and (iv) the effective rate of interest shall be automatically subject to
reduction to the maximum lawful contract rate allowed under the usury laws of
the State of Texas or the United States as now or hereafter construed by the
courts
-9-
<PAGE>
having jurisdiction. It is further agreed that without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under the Note or under such other documents which are made for the
purpose of determining whether such rate exceeds the maximum lawful rate of
interest, shall be made, to the extent permitted by the laws of the State of
Texas and the United States, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the Loans, all
interest at any time contracted for, charged or received from Borrower or
otherwise by the holder of the Note in connection with such Loan.
(f) Entirety and Amendments. The Loan Documents embody the entire
agreement between the parties and supersede all prior agreements and
understandings, if any, relating to the subject matter hereof and thereof, and
this Agreement and the other Loan Documents may be amended only by an instrument
in writing executed by the party, or an authorized officer of the party,
against whom such amendment is sought to be enforced.
(g) Parties Bound. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns; provided, however, that Borrower may
not, without the prior written consent of Lender, assign any rights, powers,
duties or obligations hereunder.
(h) Headings. Paragraph and section headings are for convenience of
reference only and shall in no way affect the interpretation of this Agreement.
(i) Financial Terms. As used in this Agreement, all financial and
accounting terms not otherwise defined herein shall be defined and calculated in
accordance with generally accepted accounting principles consistently applied.
(j) Expenses of Lender. Borrower will, on demand, reimburse Lender
for all expenses except as otherwise provided herein, including the reasonable
fees and expenses of legal counsel for Lender, incurred by Lender in connection
with the preparation, administration, amendment, modification or enforcement of
this Agreement, the Note and the Loan Documents and the collection or the
attempted collection of the Note.
(k) Construction and Conflicts. The provisions of this Agreement
shall be in addition to those of the Note, the Loan Documents and any guaranty,
pledge or security agreement, note or other evidence of liability held by
Lender, all of which shall be construed as complementary to each other. Nothing
herein contained shall prevent Lender from enforcing the Note, the Loan
Documents and any and all other notes, guaranty, pledge or security agreements
in accordance with their respective terms. To the extent of any irreconcilable
conflict between the terms hereof and the terms of the Note, the Loan Documents
or any other document executed in connection herewith, the terms of this
Agreement shall control.
11. Agreement for Binding Arbitration. The parties agree to be bound by
the terms and provisions of the Arbitration Agreement by and among the parties
hereto, which Agreement is incorporated by reference herein, pursuant to which
any and all disputes shall be resolved by mandatory binding arbitration upon the
request of any party.
-10-
<PAGE>
12. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, and each counterpart executed by any party shall be deemed an
original and shall be binding upon the person or entity executing the same,
irrespective of whether any other party has executed that or any other
counterpart of this Agreement. Production of any counterpart other than the one
to be enforced shall not be required.
13. NO ORAL AGREEMENTS. THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
If Lender agrees to the foregoing, Lender should execute this Agreement
in the space indicated below.
"Borrower"
DOCUMENTATION ASSOCIATES, INC.
By: /s/ Alison Smith
----------------------------
Alison Smith, Vice President
"Guarantor"
/s/ Virginia Pierpont
-------------------------------
VIRGINIA PIERPONT, to evidence
Guarantor's agreement to
paragraph 11 hereof
<PAGE>
ACCEPTED:
"Lender"
SOUTHWEST BANK OF TEXAS, N.A.
By /s/ Brooks McGee
-----------------------------
Brooks McGee
Senior Vice President
UNITED KINGDOM )
Great Britain and Northern Ireland )
London, England ) ss
Embassy of the United States of America )
THE EMBASSY OF THE UNITED )
STATES OF AMERICA )
BEFORE ME, the undersigned authority, a Vice Consul of the United States
of America resident in London, the United Kingdom, duly commissioned and
qualified, on this day personally appeared VIRGINIA PIERPONT, known to me or
proven to me to be the person whose name is subscribed to the foregoing
instrument and acknowledged to me that she executed the same for purposes and
consideration therein expressed.
GIVEN UNDER MY HAND AND SEAL this Eighteenth day of March, 1996.
/s/ Melissa Buchanan Arkley
---------------------------------------------
---------------------------------------------
(Typed name of foreign service officer)
of the United States of America
--------------
(Title)
MELISSA BUCHANAN ARKLEY
VICE CONSUL OF THE
UNITED STATES OF AMERICA
LONDON, ENGLAND
<PAGE>
EXHIBIT 10.9
FIRST AMENDMENT TO LETTER LOAN AGREEMENT
THIS FIRST AMENDMENT TO LETTER LOAN AGREEMENT ("Amendment") is made and
entered into as of November 30, 1996, by and between D.A. CONSULTING GROUP,INC.,
a Texas corporation, formerly known as Documentation Associates, Inc., a Texas
corporation (herein called "Borrower"), and SOUTHWEST BANK OF TEXAS, N.A., a
national banking association with offices of Houston, Texas (herein called
"Lender").
R E C I T A L S:
- - - - - - - -
WHEREAS, Documentation Associates, Inc. and Lender entered into a Letter
Loan Agreement dated March 18, 1996 (which, as amended, is herein called the
"Loan Agreement"; the terms defined therein being used herein as therein defined
unless otherwise defined herein); and
WHEREAS, Borrower and Lender desire to further amend the Loan Agreement
to (i) provide for the issuance of one or more Letters of Credit (hereinafter
defined) and (ii) amend certain terms and provisions of the Loan Agreement.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Borrower and Lender hereby agree to amend the Loan Agreement as
hereinafter set forth.
1. AMENDMENTS TO LOAN AGREEMENT.
(a) Section 2 of the Loan Agreement is effective the date hereof and
subject to the satisfaction of the conditions precedent set forth in Section 2
hereof, hereby amended to include the following provisions:
(i) The letter "(a)" is inserted after the term "Revolving Credit
Advances" and before the first full paragraph of Section 2; and
(ii) "On the terms and subject to the conditions hereinafter set
forth, Lender agrees to make Advances to Borrower for the issuance of
one or more letters of credit. Each of the letters of credit shall be
evidenced by an Application and Agreement for Letter of Credit (the
"Application") in a form satisfactory to Lender. Each of these letters
of credit and any renewals, extensions and modifications thereof are
collectively referred to herein as the "Letter of Credit". Repayment of
drafts against the Letter of Credit shall be governed by this Agreement
and the Application, and shall be and is secured by the collateral and
guaranties provided in this Agreement. Borrower's requests for Advances
under the Letter of Credit shall specify the aggregate amount of the
Advance an the date of such Advance. Borrower shall furnish to Lender a
request for borrowing in a form satisfactory to Lender at least two (2)
business days
<PAGE>
prior to the requested borrowing date. Lender shall make the requested
funds or Letter of Credit available to Borrower at Lender's principal
banking office in Houston, Texas."
(b) Section 5 of the Loan Agreement is effective the date hereof and
subject to the satisfaction of the conditions precedent set forth in Section 2
hereof, hereby amended to include the following provision:
"(q) Borrower shall pay a letter of credit commission to Lender in
respect of each Letter of Credit issued by Lender equal to the
lesser of $250 or an amount determined by multiplying (i) one
percent (1%) of the face amount of such Letter of Credit by (ii) a
fraction, the numerator of which shall be the number of days between
the date of such Letter of Credit and the stated expiration date
thereof and the denominator of which shall be 360; such commission
shall be payable at the time a Letter of Credit is issued and upon
any renewal or extension thereof, additionally, Borrower agrees to
reimburse Lender for all actual out-of-pocket expenses incurred by
Lender, such as advising or confirming bank fees, telex charges and
the like and to pay those fees customarily charged by Lender for any
amendments to a Letter of Credit."
(c) Section 6 of the Loan Agreement is effective as of the date hereof
and subject to the satisfaction of the conditions precedent set forth in Section
2 hereof, hereby amended to delete (6)(1) and substitute the following provision
therefor:
"(l) Expend or enter into any commitment to expend any amount for the
acquisition or lease of tangible, fixed or capital assets, including
repairs, replacements and improvements, which are capitalized under
proper accounting practice, in which exceeds, in the aggregate,
$800,000.00."
(d) Section 10(b)(i) of the Loan Agreement is deleted and replaced with
the following:
(i) Borrower: D. A. Consulting Group, Inc.
12200 Northwest Freeway, Suite 200
Houston, Texas 77092
Attention: Alison Smith
2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
when, and only when, Lender shall have received the following:
(a) counterparts of this Amendment executed by Borrower;
(b) Consent of Guarantor from the Guarantor;
(c) Corporate Certificate and Resolutions form of Borrower; and
(d) any additional documentation or materials reasonably required by
Lender.
-2-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants as follows:
(a) Borrower is duly authorized and empowered to execute, deliver and
perform this Amendment and all other instruments referred to or
mentioned herein to which it is a party, and all action on its part
requisite for the due execution, delivery and the performance of this
Amendment has been duly and effectively taken. This Amendment, when
executed and delivered, will constitute valid and binding obligations of
Borrower enforceable in accordance with its terms. This Amendment does
not violate any provisions of Borrower's Articles of Incorporation,
By-Laws, or any contract, agreement, law or regulation to which Borrower
is subject, and does not require the consent or approval of any
regulatory authority or governmental body of the United States or any
state.
(b) The representations and warranties made by Borrower in the Loan
Agreement are true and correct as of the date of this Amendment.
(c) No event has occurred and is continuing which constitutes an Event
of Default or would constitute an Event of Default but for the
requirement that notice be given or time elapse or both.
4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof each reference in the Loan Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each
reference in the other Loan Documents, shall mean and be a reference to
the Loan Agreement as amended hereby.
(b) Except as specifically amended above, the Loan Agreement and the
Notes and all other instruments securing or guaranteeing Borrower's
obligations to Lender (the "Loan Documents") shall remain in full force
and effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, the Loan Documents and all collateral
described therein do and shall continue to secure the payment of all
obligations of Borrower under the Loan Agreement and the Notes, as
amended hereby, and under the other Loan Documents.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of Lender under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
5. WAIVER. As additional consideration for the execution, delivery and
performance of this Amendment by the parties hereto and to induce Lender to
enter into this Amendment, Borrower and Guarantor warrant and represent to
Lender that no facts, events, statuses or conditions exist or have existed
which, either now or with the passage of time or giving of notice, or both,
constitute or will constitute a basis for any claim or cause of action
-3-
<PAGE>
against Lender or any defense to (i) the payment of any obligations and
indebtedness under the Notes and/or the Loan Documents or (ii) the performance
of any of their obligations with respect to the Notes and/or the Loan Documents,
and in the event any such facts, events, statuses or conditions exist or have
existed, Borrower and Guarantor unconditionally and irrevocably waive any and
all claims and causes of action against Lender and any defense to their payment
and performance obligations in respect to the Notes and the Loan Documents.
6. COSTS AND EXPENSES. Borrower agrees to pay on demand all costs and
expenses of Lender in connection with the preparation, reproduction, execution
and delivery of this Amendment and the other instruments and documents to be
delivered hereunder, including the reasonable fees of out-of-pocket expenses of
counsel for Lender. In addition, Borrower shall pay any and all fees payable or
determined to be payable in connection with the execution and delivery, filing
or recording of this Amendment and the other instruments and documents to be
delivered hereunder, and agrees to save Lender harmless from and against any
and all liabilities with respect to or resulting from any delay in paying or
omission to pay such fees, except such liabilities arising from the gross
negligence of Lender.
7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
8. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas.
9. FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed in multiple counterparts, each of which is an original
instrument for all purposes, all as of the day and year first above written.
"BORROWER"
D.A. CONSULTING GROUP, INC.,
formerly known as Documentation
Associates, Inc.
By: /s/ Alison Smith
-------------------------------
Name: Alison Smith
-----------------------------
Title: Vice President
----------------------------
-4-
<PAGE>
"LENDER"
SOUTHWEST BANK OF TEXAS, N.A.
By: /s/ Brooks H. McGee
--------------------------------------
Brooks H. McGee, Senior Vice President
-5-
<PAGE>
EXHIBIT 10.10
SECOND AMENDMENT TO LETTER LOAN AGREEMENT
THIS SECOND AMENDMENT TO LETTER LOAN AGREEMENT ("Amendment") is made and
entered into effective as of March 18, 1997, by and between D. A. CONSULTING
GROUP, INC., a Texas corporation, formerly known as Documentation Associates,
Inc., a Texas corporation (herein called "Borrower"), and SOUTHWEST BANK OF
TEXAS, N.A., a national banking association with offices in Houston, Texas
(herein called "Lender").
R E C I T A L S:
WHEREAS, Documentation Associates, Inc. and Lender entered into a Letter
Loan Agreement dated March 18, 1996, as amended by First Amendment to Letter
Loan Agreement dated November, 1996 executed by and between Borrower and Lender
(which, as amended, is herein called the "Loan Agreement"; the terms defined
therein being used herein as therein defined unless otherwise defined herein);
and
WHEREAS, Borrower and Lender desire to further amend the Loan Agreement
to (i) extend the maturity date of the Note, (ii) increase the principal amount
of the Note, and (iii) amend certain terms and provisions of the Loan Agreement.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Borrower and Lender hereby agree to amend the Loan Agreement as
hereinafter set forth.
1. AMENDMENTS TO LOAN AGREEMENT.
(a) The references to "1,000,000.00" in the opening paragraph,
paragraph 1 and paragraph 2 of the Loan Agreement are deleted and replaced with
"1,500,000.00".
(b) Section 5 of the Loan Agreement is effective the date hereof and
subject to the satisfaction of the conditions precedent set forth in Section 2
hereof, hereby amended as follows:
(i) Subsection (d) is hereby deleted and replaced with the
following:
"(d) Borrower shall furnish to Lender within thirty (30)
days after the end of June 30, 1997, and each June 30 after June 30,
1997, field audit reports prepared by a company mutually acceptable to
Lender and Borrower, in a form acceptable to Lender;"
<PAGE>
(ii) Subsection (q) is deleted and replaced with the following
provision:
"(q) Borrower shall pay a letter of credit commission to
Lender in respect of each Letter of Credit issued by Lender equal to the
greater of $250 or an amount determined by multiplying (i) one percent
(1%) of the face amount of such Letter of Credit by (ii) a fraction, the
numerator of which shall be the number of days between the date of such
Letter of Credit and the stated expiration date thereof and the
denominator of which shall be 360; such commission shall be payable at
the time a Letter of Credit is issued and upon any renewal or extension
thereof; additionally, Borrower agrees to reimburse Lender for all
actual out-of-pocket expenses incurred by Lender, such as advising or
confirming bank fees, telex charges and the like and to pay those fees
customarily charged by Lender for any amendments to a Letter of Credit."
(c) Section 6 of the Loan Agreement is effective as of the date hereof
and subject to the satisfaction of the conditions precedent set forth in
Section 2 hereof, hereby amended as follows:
(i) Subsection 6(a) is deleted and replaced with the following:
"(a) Permit at any time Borrower's Tangible Net Worth to be
less than $1,750,000.00, as used herein, the term "Tangible Net Worth"
shall mean the total assets of Borrower, minus its total liabilities
(including contingent liabilities), minus all intangibles, expenses and
other items deducted in arriving at tangible net worth as determined by
Borrower's regularly employed certified public accountant in a manner
consistent with prior practice;"
(ii) Subsection 6(b) is deleted and replaced with the following:
"(b) Permit, at any time during the periods set forth below,
its ratio of total liabilities to Tangible Net Worth to be more than
2.00 to 1.00."
(iii) Subsection 6(l) is deleted and replaced with the
following:
"(l) Expend or enter into any commitment to expend any
amount for the acquisition or lease of tangible, fixed or capital
assets, including repairs, replacements and improvements, which are
capitalized under proper accounting practice, in which exceeds, in the
aggregate, $1,000,000.00" --See attached page.
(d) Section 9(b) of the Loan Agreement is deleted.
2
<PAGE>
2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become effective
when, and only when, Lender shall have received the following:
(a) counterparts of this Amendment executed by Borrower;
(b) $1,500,000.00 Renewal Promissory Note (Revolving Credit) executed
by Borrower;
(c) Corporate Certificate and Resolutions from Borrower; and
(d) any additional documentation or materials reasonably required by
Lender.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants as follows:
(a) Borrower is duly authorized and empowered to execute, deliver and
perform this Amendment and all other instruments referred to or
mentioned herein to which it is a party, and all action on its part
requisite for the due execution, delivery and the performance of this
Amendment has been duly and effectively taken. This Amendment, when
executed and delivered, will constitute valid and binding obligations of
Borrower enforceable in accordance with its terms. This Amendment does
not violate any provisions of Borrower's Articles of Incorporation,
By-Laws, or any contract, agreement, law or regulation to which
Borrower is subject, and does not require the consent or approval of any
regulatory authority or governmental body of the United States or any
state.
(b) The representations and warranties made by Borrower in the Loan
Agreement are true and correct as of the date of this Amendment.
(c) No event has occurred and is continuing which constitutes an Event
of Default or would constitute an Event of Default but for the
requirement that notice be give or time elapse or both.
4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the effectiveness of Section 1 hereof, on and after the
date hereof each reference in the Loan Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each
reference in the other Loan Documents, shall mean and be a reference to
the Loan Agreement as amended hereby.
(b) Except as specifically amended above, the Loan Agreement and the
Note and all other instruments securing or guaranteeing Borrower's
obligations to Lender (the "Loan Documents") shall remain in full force
and effect and hereby ratified and confirmed. Without limiting the
generality of the foregoing, the Loan Documents and all collateral
described therein do and shall continue to secure the
-3-
<PAGE>
payment of all obligations of Borrower under the Loan Agreement and the
Note, as amended hereby, and under the other Loan Documents.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of Lender under any of the Loan
Documents, nor constitute a waiver of any provision of any of the
Loan Documents.
5. WAIVER. As additional consideration for the execution, delivery and
performance of this Amendment by the parties hereto and to induce Lender to
enter into this Amendment, Borrower warrants and represents to Lender that no
facts, events, statuses or conditions exist or have existed which, either now or
with the passage of time or giving of notice, or both, constitute or will
constitute a basis for any claim or cause of action against Lender or any
defense to (i) the payment of any obligations and indebtedness under the Note
and/or the Loan Documents or (ii) the performance of any of their obligations
with respect to the Note and/or the Loan Documents, and in the event any such
facts, events, statuses or conditions exist or have existed, Borrower
unconditionally and irrevocably waives any and all claims and causes of action
against Lender and any defense to their payment and performance obligations in
respect to the Note and the Loan Documents.
6. COSTS AND EXPENSES. Borrower agrees to pay on demand all costs and
expenses of Lender in connection with the preparation, reproduction, execution
and delivery of this Amendment and the other instruments and documents to be
delivered hereunder, including the reasonable fees of out-of-pocket expenses of
counsel for Lender. In addition, Borrower shall pay any and all fees payable or
determined to be payable in connection with the execution and delivery, filing
or recording of this Amendment and the other instruments and documents to be
delivered hereunder, and agrees to save Lender harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such fees, except such liabilities arising from the gross
negligence of Lender.
7. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas.
8. FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed in multiple counterparts, each of which is an original instrument
for all purposes, all as of the day and year first above written.
"BORROWER"
D.A. CONSULTING GROUP, INC.,
formerly known as Documentation
Associates, Inc.
By: /s/ MICHAEL J. MACKEY
_______________________________________
Name: Michael J. Mackey
_____________________________________
Title: CFO
____________________________________
"LENDER"
SOUTHWEST BANK OF TEXAS, N.A.
By: /s/ Brooks H. McGee
_______________________________________
Brooks H. McGee, Senior Vice President
-5-
<PAGE>
EXHIBIT 10.11
THIRD AMENDMENT TO LETTER LOAN AGREEMENT
THIS THIRD AMENDMENT TO LETTER LOAN AGREEMENT ("Amendment") is made and
entered into effective as of May 27, 1997, by and between D.A. CONSULTING GROUP,
INC., a Texas corporation, formerly known as Documentation Associated, Inc. a
Texas corporation (herein called "Borrower"), and SOUTHWEST BANK OF TEXAS, N.A.,
a national association with offices in Houston, Texas (herein called "Lender").
R E C I T A L S:
- - - - - - - -
WHEREAS, Documentation Associates, Inc. and Lender entered into a Letter
Loan Agreement dated March 18, 1996, as amended by First Amendment to Letter
Loan Agreement dated November, 1996 executed by and between Borrower and Lender,
and as amended by Second Amendment to Letter Loan Agreement dated effective May
18, 1997 (which, as amended, is herein called the "Loan Agreement"; the terms
defined therein being used herein as therein defined unless otherwise defined
herein); and
WHEREAS, Borrower and Lender desire to further amend the Loan Agreement
to (i) increase the principal amount of the Note, and (ii) amend certain terms
and provisions of the Loan Agreement.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Borrower and Lender hereby agree to amend the Loan Agreement as
hereinafter set forth.
1. AMENDMENTS TO LOAN AGREEMENT.
(a) The references to "1,500,000.00" in the opening paragraph,
paragraph 1 and paragraph 2 of the Loan Agreement are deleted and replaced with
"3,500,000.00". The reference to the Maturity Date in paragraph 1 of the Loan
Agreement is hereby amended to be June 18, 1998.
(b) Section 5 of the Loan Agreement is effective as of the date
hereof and subject to the satisfaction of the conditions precedent set forth in
Section 2 hereof, hereby amended by adding the following subsection thereto:
"(r) Pay to Lender a commitment fee calculated at the rate of
one-fourth of one percent (1/4%) per annum (determined on a daily basis and for
the actual number of days elapsed based on a 365-day year) after the date hereof
on the average daily unborrowed amount of the Note, payable, in arrears,
quarter-annually commencing on August 31, 1997, (for the period and from the
date of this Agreement until such date) and continuing on the same day of each
November, February, May and August thereafter, with a final payment on the
Maturity Date. Borrower acknowledges and agrees that such commitment fee is in
consideration of Lender's holding monies in readiness for Borrower prior to the
funding of Borrower's requests for advances and is not intended as additional
compensation for Lender."
<PAGE>
(c) Section 6 of the Loan Agreement is effective as of the date
hereof and subject to the satisfaction of the conditions precedent set forth in
Section 2 hereof, hereby amended as follows:
(i) Subsection 6(a) is deleted and replaced with the
following:
"(a) Permit at any time Borrower's Tangible Net Worth to
be less than the following amounts during the following periods:
Period Amount
------ ------
Date hereof through
September 30, 1997 $1,750,000
October 1, 1997 through
December 31, 1997 $2,000,000
January 1, 1998 through
March 31, 1998 $2,250,000
April 1, 1998 through
the Maturity Date $2,500,000
As used herein, the term "Tangible Net Worth" shall mean the
total assets of Borrower, minus its total liabilities (including
contingent liabilities), minus all intangibles, expenses and
other items deducted in arriving at tangible net worth as
determined by Borrower's regularly employed certified public
accountant in a manner consistent with prior practice;"
(ii) Subsection 6(b) is deleted and replaced with the
following:
"(b) Permit, at any time, its ratio of total liabilities
to Tangible Net Worth to be more than 2.75 to 1.00;"
(d) Section 9(b) of the Loan Agreement is hereby added:
"(b) the guaranty of D.A. International, Inc. (the
"Guarantor")."
2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when, Lender shall have received the following:
(a) counterparts of this Amendment executed by Borrower;
(b) $3,500,000.00 Modification Promissory Note (Revolving Credit)
executed by Borrower;
-2-
<PAGE>
(c) Corporate Certificate and Resolutions from Borrower;
(d) Continuing Guaranty from Guarantor;
(e) Corporate Certificate and Resolutions from Guarantor; and
(f) any additional documentation or materials reasonably required by
Lender.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower represents and
warrants as follows:
(a) Borrower is duly authorized and empowered to execute, deliver and
perform this Amendment and all other instruments referred to or
mentioned herein to which it is a party, and all action on its part
requisite for the due execution, delivery and the performance of this
Amendment has been duly and effectively taken. This Amendment, when
executed and delivered, will constitute valid and binding obligations of
Borrower enforceable in accordance with its terms. This Amendment does
not violate any provisions of Borrower's Articles of Incorporation,
By-Laws, or any contract, agreement, law or regulation to which Borrower
is subject, and does not require the consent or approval of any
regulatory authority or governmental body of the United States or any
state.
(b) The representations and warranties made by Borrower in the Loan
Agreement are true and correct as of the date of this Amendment.
(c) No event has occurred and is continuing which constitutes an Event
of Default or would constitute an Event of Default but for the
requirement that notice be given or time elapse or both.
4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the effectiveness of Section 1 hereof, on and after the
date hereof each reference in the Loan Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each
reference in the other Loan Documents, shall mean and be a reference to
the Loan Agreement as amended hereby.
(b) Except as specifically amended above, the Loan Agreement and
the Note and all other instruments securing or guaranteeing Borrower's
obligations to Lender (the "Loan Documents") shall remain in full force
and effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, the Loan Documents and all collateral
described therein do and shall continue to secure the payment of all
obligations of Borrower under the Loan Agreement and the Note, as
amended hereby, and under the other Loan Documents.
-3-
<PAGE>
(c) The execution, delivery and effectiveness of ????????????????????
expressly provided herein, operate as a waiver of any right, power or
remedy of Lender under any of the Loan Documents, nor constitute a
waiver of any provision of any of the Loan Documents.
5. WAIVER. As additional consideration for the execution, delivery and
performance of this Amendment by the parties hereto and to induce Lender to
enter into this Amendment, Borrower warrants and represents to Lender that no
facts, events, statuses or conditions exist or have existed which, either now
or with the passage of time or giving of notice, or both, constitute or will
constitute a basis for any claim or cause of action against Lender or any
defense to (i) the payment of any obligations and indebtedness under the Note
and/or the Loan Documents or (ii) the performance of any of their obligations
with respect to the Note and/or the Loan Documents, and in the event any such
facts, events, statuses or conditions exist or have existed, Borrower
unconditionally and irrevocably waives any and all claims and causes of action
against Lender and any defense to their payment and performance obligations in
respect to the Note and the Loan Documents.
6. COSTS AND EXPENSES. Borrower agrees to pay on demand all costs and
expenses of Lender in connection with the preparation, reproduction, execution
and delivery of this Amendment and the other instruments and documents to be
delivered hereunder, including the reasonable fees of out-of-pocket expenses of
counsel for Lender. In addition, Borrower shall pay any and all fees payable or
determined to be payable in connection with the execution and delivery, filing
or recording of this Amendment and the other instruments and documents to be
delivered hereunder, and agrees to save Lender harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such fees, except such liabilities arising from the gross
negligence of Lender.
7. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas.
8. FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed in multiple counterparts, each of which is an original instrument
for all purposes, all as of the day and year first above written.
"BORROWER"
D.A. CONSULTING GROUP, INC.
a Texas corporation, formerly known as
Documentation Associates, Inc.
By:/s/ Michael J. Mackey
----------------------------------
Name: Michael J. Mackey
--------------------------------
Title: CFO
-------------------------------
"LENDER"
SOUTHWEST BANK OF TEXAS, N.A.
By: /s/ Brooks H. McGee
------------------------------------
Brooks H. McGee, Senior Vice President
-5-
<PAGE>
EXHIBIT 10.12
FOURTH AMENDMENT TO LETTER LOAN AGREEMENT
THIS FOURTH AMENDMENT TO LETTER LOAN AGREEMENT ("Amendment") is made and
entered into effective as of November 26, 1997, by and between D. A. CONSULTING
GROUP, INC., a Texas corporation, formerly known as Documentation Associates,
Inc., a Texas corporation (herein called "Borrower"), and SOUTHWEST BANK OF
TEXAS, N.A., a national banking association with offices in Houston, Texas
(herein called "Lender").
R E C I T A L S:
- - - - - - - -
WHEREAS, Documentation Associates, Inc. and Lender entered into a Letter
Loan Agreement dated March 18, 1996, as amended by First Amendment to Letter
Loan Agreement dated November, 1996 executed by and between Borrower and Lender,
as amended by Second Amendment to Letter Loan Agreement dated effective May 18,
1997 executed by and between Borrower and Lender, and as amended by Third
Amendment to Letter Loan Agreement dated effective May, 1997 executed by and
between Borrower and Lender (which, as amended, is herein called the "Loan
Agreement"; the terms defined therein being used herein as therein defined
unless otherwise defined herein); and
WHEREAS, Borrower and Lender desire to further amend the Loan Agreement
to (i) increase the principal amount of the Note, and (ii) amend certain terms
and provisions of the Loan Agreement.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the mutual promises herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, Borrower and Lender hereby agree to amend the Loan Agreement as
hereinafter set forth.
1. AMENDMENTS TO LOAN AGREEMENT.
(a) The references to "3,500,000.00" in the opening paragraph, paragraph
1 and paragraph 2 of the Loan Agreement are deleted and replaced with
"5,000,000.00". The reference to the MATURITY DATE is paragraph 1 of the Loan
Agreement is hereby amended to be NOVEMBER 18, 1998.
(b) Section 6 of the Loan Agreement is effective as of the date hereof
and subject to the satisfaction of the conditions precedent set forth in Section
2 hereof, hereby amended as follows:
(i) Section (6)(1) is deleted and the following provision is
substituted therefor:
"(1) Expend or enter into any commitment to expend any amount for the
acquisition or lease of tangible, fixed or capital assets, including repairs,
replacements and improvements, which are capitalized under proper accounting
practice, in which exceeds, in the aggregate, $1,000,000.00."
<PAGE>
(c) Section 10(b)(i) of the Loan Agreement is deleted and replaced
with the following:
(i) Borrower: D.A. Consulting Group, Inc.
5847 San Felipe, Suite 3700
Houston, Texas 77057
Attention: Mike Mackey
2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when, Lender shall have received the following:
(a) counterparts of this Amendment executed by Borrower;
(b) Consent of Guarantor executed by the Guarantor;
(c) $5,000,000.00 Modification Promissory Note (Revolving Credit)
executed by Borrower;
(d) Supplemental Security Agreement executed by Borrower;
(e) Corporate Certificate and Resolutions from Borrower;
(f) any additional documentation or materials reasonably required by
Lender.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER. Borrower
represents and warrants as follows:
(a) Borrower is duly authorized and empowered to execute, deliver
and perform this Amendment and all other instruments referred to or mentioned
herein to which it is a party, and all action on its part requisite for the due
execution, delivery and the performance of this Amendment has been duly and
effectively taken. This Amendment, when executed and delivered, will constitute
valid and binding obligations of Borrower enforceable in accordance with its
terms. This Amendment does not violate any provisions of Borrower's Articles of
Incorporation, By-Laws, or any contract, agreement, law or regulation to which
Borrower is subject, and does not require the consent or approval of any
regulatory authority or governmental body of the United States or any state.
(b) The representations and warranties made by Borrower in the Loan
Agreement are true and correct as of the date of this Amendment.
(c) No event has occurred and is continuing which constitutes an
Event of Default or would constitute an Event of Default but for the requirement
that notice be given or time elapse or both.
-2-
<PAGE>
4. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the effectiveness of Section 1 hereof, on and after the
date hereof each reference in the Loan Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each
reference in the other Loan Documents, shall mean and be a reference to
the Loan Agreement as amended hereby.
(b) Except as specifically amended above, the Loan Agreement and
the Note and all other instruments securing or guaranteeing Borrower's
obligations to Lender (the "Loan Documents") shall remain in full force
and effect and are hereby ratified and confirmed. Without limiting the
generality of the foregoing, the Loan Documents and all collateral
described therein do and shall continue to secure the payment of all
obligations of Borrower under the Loan Agreement and the Note, as
amended hereby, and under the other Loan Documents.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of Lender under any of the Loan Documents,
nor constitute a waiver of any provision of any of the Loan Documents.
5. WAIVER. As additional consideration for the execution, delivery and
performance of this Amendment by the parties hereto and to induce Lender to
enter into this Amendment, Borrower and Guarantor warrant and represent to
Lender that no facts, events, statuses or conditions exist or have existed
which, either now or with the passage of time or giving of notice, or both,
constitute or will constitute a basis for any claim or cause of action against
Lender or any defense to (i) the payment of any obligations and indebtedness
under the Note and/or the Loan Documents or (ii) the performance of any of their
obligations with respect to the Note and/or the Loan Documents, and in the event
any such facts, events, statuses or conditions exist or have existed, Borrower
and Guarantor unconditionally an irrevocably waive any and all claims and causes
of action against Lender and any defense to their payment and performance
obligations in respect to the Note and the Loan Documents.
6. COSTS AND EXPENSES. Borrower agrees to pay on demand all costs and
expenses of Lender in connection with the preparation, reproduction, execution
and delivery of this Amendment and the other instruments and documents to be
delivered hereunder, including the reasonable fees of out-of-pocket expenses of
counsel for Lender. In addition, Borrower shall pay any and all fees payable or
determined to be payable in connection with the execution and delivery, filing
or recording of this Amendment and the other instruments and documents to be
delivered hereunder, and agrees to save Lender harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such fees, except such liabilities arising from the gross
negligence of Lender.
7. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Texas.
8. FINAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR
3
<PAGE>
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed in multiple counterparts, each of which is an original instrument
for all purposes, all as of the day and year first above written.
"BORROWER"
D.A. CONSULTING GROUP, INC.,
a Texas corporation, formerly known as
Documentation Associates, Inc.
By: /s/ Michael J. Mackey
----------------------------------------
Name: Michael J. Mackey
--------------------------------------
Title: CFO, EVP Finance & Administration
-------------------------------------
"LENDER"
SOUTHWEST BANK OF TEXAS, N.A.
By: /s/ Brooks H. McGee
----------------------------------------
Brooks H. McGee, Senior Vice President
"GUARANTOR" to evidence its agreement to
Section 5 hereof
D.A. INTERNATIONAL, INC.
By: /s/ Michael J. Mackey
----------------------------------------
Name: Michael J. Mackey
--------------------------------------
Title: CFO, EVP Finance & Administration
-------------------------------------
4
<PAGE>
EXHIBIT 10.13
CONTINUING GUARANTY
(D.A. INTERNATIONAL, INC.)
WHEREAS, D.A. CONSULTING GROUP, INC., a Texas corporation, formerly known
as DOCUMENTATION ASSOCIATES, INC., hereinafter called "Borrower," may from time
to time become indebted to SOUTHWEST BANK OF TEXAS, N.A., a national banking
association, hereinafter called "Lender."
FOR GOOD AND VALUABLE CONSIDERATION, receipt of which is hereby
acknowledged, and to induce Lender, at its option, at any time or from time to
time to lend money to Borrower, the undersigned (individually and collectively
called "Guarantor") hereby (jointly and severally if more than one)
unconditionally guarantees unto Lender the prompt and complete payment of the
Guaranteed Indebtedness (as herein defined) when due (whether at its stated
maturity, by acceleration or otherwise) in accordance with the terms of the Loan
Documents (as herein defined).
The term "Guaranteed Indebtedness," as used herein, means all indebtedness
of every kind and character, whether now existing or hereafter arising, of
Borrower to Lender, whether direct or indirect, primary or secondary, joint or
several, fixed or contingent and whether evidenced by note, draft, open account,
acceptance, overdraft, line of credit, endorsement, guaranty, security
agreement, loan agreement, application for letter of credit or otherwise, and
without limit as to amount except that if, but only if, the following blank in
this sentence is filled in, the amount of the Guaranteed Indebtedness shall be
limited to the aggregate at any one time to the principal sum of $ [unlimited]
(but see the last paragraph of this Guaranty) together with interest thereon,
and all penalties, costs, fees and expenses (including, but not limited to,
attorneys' fees) as provided for under any of the Loan Documents and as incurred
by Lender in connection with any of the foregoing indebtedness, including, but
not limited to, collecting or attempting to collect any of the foregoing
indebtedness from Borrower or incurred by Lender in connection with this
Guaranty (including, but not limited to, attorneys' fees and costs of
collection). The term "Other Indebtedness," as used herein, means all
indebtedness, if any, of Borrower to Lender that is not Guaranteed Indebtedness.
"Loan Documents," as used herein, shall include each and every note, draft, line
of credit, loan agreement, application for letter of credit, guaranty or other
similar document or instrument (if any) at any time and from time to time
executed in connection with the Guaranteed Indebtedness, all amendments,
modifications, restatements, supplements, endorsements, renewals, extensions and
rearrangements thereof and substitutions therefor, and each and every deed of
trust, mortgage, security agreement, pledge, assignment or other similar
instrument (if any), at any time and from time to time securing, in whole or in
part, the Guaranteed Indebtedness. "Collateral Proceeds" shall mean any
proceeds, credits or recoveries from any source, including, without limitation,
all proceeds, credits and amounts received from the exercise of any Non-
Exclusive Remedy. "Non-Exclusive Remedies" shall mean the right, power and
privilege of Lender, following the occurrence of a default or an event of
default hereunder or under any of the other Loan Documents, (a) to receive and
obtain payment of all or a portion of the Guaranteed Indebtedness and (b) to
seek and obtain performance of the obligations, covenants and agreements of
Borrower and each Guarantor to and with Lender, through pursuit of, among other
remedies, rights and privileges, one or more of the following remedies, rights
and privileges:
Page 1 of 10 Pages
<PAGE>
(i) foreclosure of any liens and security interests relating to the
Loan Documents to the full extent of the value of the collateral
securing the Guaranteed Indebtedness;
(ii) enforcement of Borrower's monetary obligations to Lender under the
Loan Documents;
(iii) enforcement of any Guarantor's monetary obligation to Lender under
this Guaranty;
(iv) enforcement of all other obligations, covenants and agreements of
Borrower, any of its joint venturers or partners, and any Guarantor
under the Loan Documents, whether through any judicial or non-
judicial foreclosure, self-help or other repossession of collateral
or security, institution of suit, settlement, compromise,
enforcement of specific performance or any other means which Lender
may elect in its sole discretion;
(v) recovery against Borrower, any of its joint venturers or partners,
for appropriation by the Borrower, any of its joint venturers or
partners, to its own use of any rents, revenues, insurance
proceeds, deposits, distributions or other property of a similar
nature after Lender shall have become entitled thereto; and
(vi) enforcement of all other rights, remedies, powers and privileges of
Lender under the Loan Documents or allowed by law.
The foregoing list of Non-Exclusive Remedies is not an exhaustive or
exclusive list, but is cumulative of all rights, remedies, powers and privileges
of Lender under the Loan Documents and at law.
This Guaranty is unconditional and absolute, and if for any reason all or
any portion of the Guaranteed Indebtedness shall not be paid promptly when due,
Guarantor will immediately (jointly and severally if more than one) pay the same
to Lender or any other person or entity entitled thereto, regardless of any
defense, right of setoff or counterclaim which Borrower may have or assert, and
regardless of whether Lender or any other person or entity shall have taken any
steps to enforce any rights against Borrower or any other entity to collect such
sum, and regardless of any other condition or contingency. This Guaranty shall
also cover interest on the Guaranteed Indebtedness (as provided for in the Loan
Documents) and all reasonable expenses incurred by Lender in enforcing any of
the Loan Documents, this Guaranty, or both.
The obligations, covenants, agreements and duties of each Guarantor under
this Guaranty shall in no way be affected or impaired by reason of the happening
from time to time of any of the following with respect to the Loan Documents,
without the necessity of any notice to, or further consent of any Guarantor:
(a) the release or waiver, by operation of law or otherwise, of the performance
or observance by Borrower or any co-guarantor, surety, endorser or other obligor
of any express or implied agreement, covenant, term or condition in any of the
Loan Documents to be performed or observed by such party; (b) the extension of
the time for the payment of all or any portion of the Guaranteed Indebtedness or
any other sums payable under the Loan Documents or the extension of time for the
performance of any other obligation under, arising out of or in connection with
the Loan Documents; (c) the supplementing, modification or amendment (whether
material or otherwise) of any of the Loan Documents or of the obligations of
Borrower, any Guarantor or any surety for Borrower set forth in the Loan
Documents or otherwise; (d) any failure, omission, delay or lack of diligence on
the part of Lender, or any other person or entity, to enforce, assert or
exercise any right, privilege, power or remedy conferred on Lender or any other
person or entity in any of the Loan Documents, or any action on the part of
Lender or such other person or entity granting indulgence or extension of any
kind; (e) the release of any security under any deed of trust, mortgage,
security agreement, pledge, assignment or other Loan Document, or the release,
Page 2 of 10 Pages
<PAGE>
modification, waiver or failure to enforce any pledge, security device,
insurance agreement, bond or other guaranty, surety or indemnity agreement
whatsoever; (f) the release, modification, waiver or failure to enforce any
right, benefit, privilege or interest under any contract or agreement, under
which the rights of Borrower or any other obligor have been collaterally or
absolutely assigned, or in which a security interest has been granted to Lender
as direct or indirect security for payment of the Guaranteed Indebtedness or
performance of any obligations to Lender; (g) the voluntary or involuntary
liquidation, dissolution, sale of any collateral, marshalling of assets and
liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or deficiency readjustment
of debt of, or other similar proceedings affecting Borrower or any other surety
for Borrower or any of the assets of Borrower; (h) any invalidity of or defect
or deficiency in any of the Loan Documents or failure to acquire, perfect or to
maintain perfection of any lien on or security interest in any collateral
securing payment of the Guaranteed Indebtedness or any portion thereof or
performance of Borrower's or any other person's obligations under the Loan
Documents or securing this Guaranty; (i) the settlement, compromise or
subordination of any obligation guaranteed hereby or hereby incurred; (j) the
insanity, minority or other disability or bankruptcy, insolvency, death or
corporate dissolution of Borrower (even though the same shall render the
Guaranteed Indebtedness void or unenforceable or uncollectible, in whole or in
part, as against Borrower); and (k) the receipt of any Collateral Proceeds by
Lender from whatever source, each Guarantor hereby expressly agreeing that,
unless otherwise agreed to by Lender in writing, Collateral Proceeds shall not
be applied to reduce the Guaranteed Indebtedness unless and until Lender has
determined, in its sole discretion, that all Other Indebtedness has been fully
paid and satisfied and that all obligations, if any, of Lender to advance monies
to or on behalf of Borrower pursuant to the Loan Documents have terminated.
Each Guarantor hereby WAIVES marshalling of assets and liabilities, sale in
inverse order of alienation, notice of acceptance of this Guaranty and of any
liability to which it applies or may apply, presentment, demand for payment,
protest, notice of non-payment, notice of dishonor, notice of acceleration,
notice of intent to accelerate and all other notices and demands, collection
suit or taking of any other action by Lender. Further, each Guarantor expressly
waives each and every right to which it may be entitled by virtue of the
suretyship law of the State of Texas, including, without limitation, any rights
it may have pursuant to Rule 31, Texas Rules of Civil Procedure, Chapter 34 of
the Texas Business and Commerce Code and Section 17.001, Texas Civil Practice
and Remedies Code.
This is an absolute guaranty of payment and not of collection, and each
Guarantor WAIVES any right to require that any action be brought against
Borrower or any other person or entity. Should Lender seek to enforce the
obligations of any Guarantor by action in any court, such Guarantor WAIVES any
necessity, substantive or procedural, that a judgement previously be rendered
against Borrower or any other person or entity or that Borrower or any other
person or entity be joined in such cause or that a separate action be brought
against Borrower or any other person or entity; the obligations of each
Guarantor hereunder are several from those of Borrower or any other person or
entity (including any other surety for Borrower), and are primary obligations
concerning which each Guarantor is the principal obligor. All waivers herein
contained shall be without prejudice to Lender at its option to proceed against
Borrower or any other person or entity, whether by separate action or by
joinder. Notwithstanding any payment or payments made by any Guarantor
hereunder or any setoff or application of funds of any Guarantor by Lender, no
Guarantor shall be entitled to be subrogated to any of the rights of Lender
against Borrower or any collateral security or rights of offset held by Lender
for
Page 3 of 10 Pages
<PAGE>
the payment of the Guaranteed Indebtedness until all of the Guaranteed
Indebtedness is paid in full and all obligations (if any) of Lender to extend
credit to Borrower in connection with the Loan Documents shall have terminated.
This is a continuing guaranty, and all extensions of credit and financial
accommodations heretofore, concurrently herewith or hereafter made by Lender to
Borrower shall be conclusively presumed to have been made in acceptance of and
reliance on this Guaranty.
This Guaranty is an absolute and unconditional guaranty of the Guaranteed
Indebtedness, is irrevocable (except as stated elsewhere in this paragraph) and
shall continue in full force and effect until payment in full of the Guaranteed
Indebtedness. In the event of the death of any Guarantor, the obligations of
the deceased shall continue in full force and effect as to all indebtedness
guaranteed hereby prior to the day five business days after the day on which
Lender shall have received notice in writing of the termination of this Guaranty
as hereinabove set forth. Each Guarantor shall remain fully liable hereunder in
accordance with the terms set forth herein notwithstanding a revocation by, or
the death of, or complete or partial release for any cause of, any one or more
of the remainder of the undersigned, or of Borrower or of anyone liable in any
manner for the liabilities (including those hereunder) incurred directly or
indirectly in respect thereof or hereof, and notwithstanding the dissolution,
termination or change in personnel of any one or more of the undersigned.
Each Guarantor agrees that so long as all or any part of the Guaranteed
Indebtedness remains unpaid: (a) Lender may determine in its sole discretion
which Non-Exclusive Remedy or Non-Exclusive Remedies to pursue and Lender may
pursue any one or more of the Non-Exclusive Remedies without prejudice to the
right of Lender to pursue any other Non-Exclusive Remedy (including enforcement
and collection of this Guaranty); (b) except as expressly provided herein or
agreed to by Lender, the receipt of sums by Lender through pursuit of any one or
more Non-Exclusive Remedies shall not prejudice the right of Lender to receive
payment of sums through pursuit of any other Non-Exclusive Remedy, and the
rights of Lender under the Loan Documents are cumulative; (c) realization upon
the collateral security or guaranties and the other obligations provided for in
any Loan Documents and application of the proceeds thereof to reduce the
Guaranteed Indebtedness shall not affect or impair Lender's right to seek
enforcement of any other Loan Documents in accordance with their respective
terms; and (d) Lender may apply any sums realized through pursuit of any
Non-Exclusive Remedy toward payment of principal, interest and other expenses
owing by Borrower, by any Guarantor or by any other obligor or surety in such
order of priority and manners as Lender may elect in its sole discretion.
Guarantor (jointly and severally if more than one) represents and warrants
to Lender that: (a) as to any Guarantor which is a corporation, it is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, is duly qualified and in good standing in each
other jurisdiction in which the conduct of its business or the maintenance of
its property so requires, and has full power and authority to carry on its
business as presently conducted and to execute, deliver and perform this
Guaranty; (b) this Guaranty has been duly authorized, executed and delivered by
such Guarantor and constitutes a legal, valid and binding obligation of such
Guarantor enforceable in accordance with its terms; (c) the execution, delivery
and performance of this Guaranty (i) do not and will not violate any Guarantor's
articles of incorporation, certificate of incorporation, bylaws or any other
restriction by which any Guarantor or any of its properties may be bound, (ii)
do not and will not violate or conflict with any law, governmental rule or
regulation or any judgment, writ, order, injunction, award or decree of any
court, arbitrator, administrative agency or other governmental authority
applicable to any Guarantor or any indenture, mortgage, contract, agreement or
other undertaking to which any
Page 4 of 10 Pages
<PAGE>
Guarantor is a party or by which any Guarantor or any of its property may be
bound or affected, and (iii) do not and will not require any consent of any
other person or any consent, license, permit, authorization or other approval
of, registration with, any giving of notice to or any exemption by, any court,
arbitrator, administrative agency or other governmental authority; (d) there is
no action, suit or proceeding pending or, to the knowledge of Guarantor,
threatened against of affecting any Guarantor before any court or administrative
agency which might result in any material adverse change in the business or
financial condition of any Guarantor; (e) each Guarantor has filed all federal
and state tax returns which are required to be filed, and has paid all taxes
as shown on said returns and all assessments against the property of such
Guarantor to the extent that such taxes and assessments have become due and
payable; (f) no Guarantor is a party to any contract or agreement which
materially and adversely affects the business, property or assets, or financial
condition of such Guarantor; (g) all information supplied and statements made to
Lender by or on behalf of any Guarantor prior to, contemporaneously with or
subsequent to the execution of this Guaranty are and shall be true, correct,
complete, valid and genuine; (h) all financial statements and applications for
credit furnished to Lender by or on behalf of any Guarantor fully and accurately
present the financial condition of the subject thereof as of the dates thereof
and for the periods then ended; (i) no material adverse change has occurred in
the financial condition reflected in such financial statements and applications
for credit since the respective dates thereof; (j) no Guarantor is in default
with respect to any order, writ, injunction, decree or demand of any court or
other governmental authority, or in the payment of any indebtedness for borrowed
money or under the terms or provisions of any agreement or instrument evidencing
or securing any such indebtedness; (k) as to any Guarantor which is a
corporation, the execution and delivery of this Guaranty to Lender will benefit
directly or indirectly such Guarantor; and (l) no representation or warranty
contained in this Guaranty and no statement contained in any certificate,
schedule, list, financial statement or other instrument furnished to Lender
contains, or will contain, any untrue statement of material fact or omits or
will omit, to state a material fact necessary to make the statement contained
herein or therein not misleading.
Each Guarantor shall furnished to Lender all such financial statements and
other information relating to the financial condition, properties and affairs of
such Guarantor as Lender may from time to time request.
No Guarantor will change its address, name or identity without notifying
Lender of such change in writing at least thirty (30) days prior to the
effective date of such change.
Upon the occurrence of any of the following events: (a) Borrower's failure
to pay any Guaranteed Indebtedness when due or any other default or event of
default under any terms of the Loan Documents; or (b) any representation or
warranty made by or on behalf of any Guarantor herein or in any writing
furnished in connection with or pursuant to this Guaranty shall be incorrect,
false or misleading on the date as of which made; or (c) any Guarantor shall
default in the punctual and complete performance or observance of any agreement,
covenant, term or condition contained herein or in any instrument given to
secure Guarantor's obligations hereunder; or (d) any Guarantor shall fail to pay
at maturity, or within any applicable period of grace, any obligation for
borrowed monies or advances in excess of $10,000.00, or fail to observe or
perform any term, covenant or agreement contained in any agreement or obligation
by which it is bound evidencing or securing borrowed money for such period of
time as would accelerate, or would permit the holder thereof, or of any
obligation issued thereunder, to accelerate, the maturity thereof, or of any
such obligation; or (e) a final judgment or judgments in the aggregate for the
payment of money in excess of $100,000.00 shall be rendered
Page 5 of 10 Pages
<PAGE>
against any Guarantor and the same shall remain undischarged for a period of
thirty (30) days during which execution shall not effectively be stayed; or (f)
any Guarantor shall claim, or any court shall find or rule, that Lender does not
have a valid lien on any security which may have been provided by any Guarantor
or such other person for the Guaranteed Indebtedness; or (g) any Guarantor shall
make a general assignment for the benefit of creditors or shall petition or
apply to any tribunal for the appointment of a custodian, liquidator, trustee or
receiver of all or any substantial part of the business, estate or assets of any
Guarantor or shall commence any proceeding relating to such Guarantor or its
property under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect; or (h) any such petition or application
shall be filed or any such proceeding shall be commenced against any Guarantor,
and such Guarantor by any act or omission shall indicate approval thereof,
consent thereto or acquiescence therein, or an order shall be entered appointing
any such custodian, liquidator, trustee or receiver of all or any substantial
part of the assets of any Guarantor, or granting relief to any Guarantor or
approving the petition in any such proceeding, and such order shall remain in
effect for more than sixty (60) days; or (i) any Guarantor shall fail generally
to pay its debts as they become due, or suffer any writ of attachment or
execution or any similar process to be issued or levied against it or any
substantial part of its property which is not released, stayed, bonded or
vacated within sixty (60) days after its issue or levy; or (j) any Guarantor
shall have concealed, removed, or permitted to be concealed or removed, any part
of its property, with intent to hinder, delay or defraud its creditors or any of
them, or made or suffered a transfer of any of its property which would be
fraudulent under any bankruptcy, fraudulent conveyance or similar law; or shall
have made any transfer of its property to or for the benefit of a creditor at a
time when other creditors similarly situated have not been paid or shall have
suffered or permitted, while insolvent, any creditor to obtain a lien upon any
of its property through legal proceedings or distraint which is not vacated
within sixty (60) days from the date thereof; or (k) as to any Guarantor who is
an individual, such Guarantor shall die and his estate or a substantial part of
such estate shall be distributed by the executor or administrator thereof to his
heirs or in accordance with such Guarantor's will prior to all the distributees
of such estate or part thereof (by an instrument approved in form and substance
by Lender) either (i) jointly and severally assuming all of such deceased
Guarantor's obligation hereunder or (ii) to secure the payment of the Guaranteed
Indebtedness effectively pledging, mortgaging or otherwise creating a first lien
(but without any personal liability on such distributee's part) on a portion of
the assets of such estate valued by a qualified appraiser approved by Lender at
not less than the principal amount of the Guaranteed Indebtedness then
outstanding; or (l) as to any Guarantor which is a corporation, partnership or
joint venture, the dissolution, liquidation or termination of existence of such
Guarantor or the sale, conveyance, lease or other disposition of a substantial
part of the assets of such Guarantor; or (m) any adverse material change shall
occur in the assets, liabilities, financial condition, business operations,
affairs or circumstances of any Guarantor, then an event of default under this
Guaranty shall have occurred and the holder or holders of the Guaranteed
Indebtedness may, at its or their option, declare the unpaid balance of the
Guaranteed Indebtedness, together with all interest then accrued thereon, to be
immediately due and payable, and thereupon the Guaranteed Indebtedness shall
immediately due and payable and thereupon the Guaranteed Indebtedness shall
immediately be due and payable without presentation, notice of protest, other
notice of dishonor, notice of intent to accelerate, or notice of acceleration,
all of which are hereby expressly WAIVED by each Guarantor.
If, at any time, there be Other Indebtedness, (a) Lender, without in any
manner impairing its rights hereunder, may, at its option, exercise rights of
offset by applying first, to the Other Indebtedness, any deposit balances to the
credit of Borrower and (b) except as stated in the last sentence of this
paragraph, Lender may
Page 6 of 10 Pages
<PAGE>
apply, first, to the Other Indebtedness, all payments by Borrower and all
amounts realized by Lender from collateral or security held by Lender for the
payment of Borrower's indebtedness. If a particular security instrument
expressly requires an application different from that permitted under the
preceding sentence, proceeds realized by Lender from such security instrument
shall be applied as provided in such instrument.
If more than one person executes this Guaranty, their obligations under
this Guaranty shall be joint and several. Suit may be brought against such
person jointly and severally or against any one or more but less than all of
them, without impairing or releasing the rights of Lender against any other such
person.
No delay on the part of Lender in exercising any right hereunder or
failure to exercise the same shall operate as a waiver of such right, nor shall
any single or partial exercise of any right, power or privilege bar any further
or subsequent exercise of the same or any other right, power or privilege.
This Guaranty shall not be changed orally, but shall be changed only by
agreement in writing signed by the person against whom enforcement of such
chance is sought.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor or (except as otherwise expressly provided herein) by depositing the
same in the United States Postal Service, postage prepaid, registered or
certified mail, return receipt requested, addressed to the respective parties
at the address shown below or to such other address as the intended recipient
may have specified in a prior written notice received by the sender (and if so
given, shall be deemed given on the business day following the day on which such
communication was mailed).
The masculine and neuter genders used herein shall each include the
masculine, feminine and neuter genders and the singular number used herein shall
include the plural number. The words "person" and "entity" shall include
individuals, corporations, partnerships, joint ventures, associations, joint
stock companies, trusts, unincorporated organizations, and governments and any
agency or political subdivision thereof.
This Guaranty shall be binding upon each Guarantor, his heirs, devisees,
executors, administrators, personal representatives, trustees, receivers,
successors and assigns and shall inure to the benefit of, and be enforceable by,
Lender and its successors and assigns and each and every other person who shall
from time to time be or become the owner or holder of any of the Guaranteed
Indebtedness, and each and every reference herein to "Lender" shall also include
each and every successor or holder. No Guarantor shall assign its obligations
hereunder without the prior written consent of Lender. This Guaranty may be
executed in multiple counterparts, and each counterpart executed by any party
shall be deemed an original and shall be binding upon the person or entity
executing the same, irrespective of whether any other Guarantor has executed
that or any other counterpart of this Guaranty. Production of any counterpart
other than the one to be enforced shall not be required.
This Guaranty shall be governed by and construed and interpreted in
accordance with the laws of the United States of America and the State of Texas.
The county in which Lender has its principal place of business in Texas shall be
the proper place of venue to enforce payment or performance of this Guaranty.
Each Guarantor irrevocably agrees that any legal proceeding arising out of or in
connection with this Guaranty shall
Page 7 of 10 Pages
<PAGE>
be brought in the state district courts of the county in which Lender has its
principal place of business in Texas, or in the United States District Court for
the district in which such county is located.
Notwithstanding anything to the contrary herein, with respect to any
portion of the Guaranteed Indebtedness which is a "consumer credit obligation"
(hereinafter called a "consumer credit obligation") as defined in 12 C.F.R. 227
Regulation AA, promulgated by the Federal Reserve Board (hereinafter called
"Regulation AA"), this Guaranty shall be construed as to comply with Regulation
AA. In the event any provision hereof, including, without limitation, any waiver
provision, shall be found by either Lender or a court of competent jurisdiction
to be in violation of Regulation AA, then such provision only shall
automatically become a nullity as to such consumer credit obligation and shall
have no further force and effect with respect thereto, without, however,
rendering such provision unenforceable as to any portion of this Guaranty,
unenforceable as to any of the Guaranteed Indebtedness or rendering this entire
Guaranty unenforceable and without in any other manner cancelling, amending,
discharging or limiting this Guaranty.
If any other person or entity shall with respect to any of the
Guaranteed Indebtedness at any time execute and deliver any guaranty, or any
other agreement or document with substantially the same effect as a guaranty, or
grant any collateral security, the obligations of each Guarantor hereunder shall
be joint and several with the obligations of such other person or entity
pursuant to such agreement or document and the agreement or document granting
such collateral security.
Nothing herein shall be construed to cancel, amend, discharge or limit
any other guaranty or similar obligation executed by any Guarantor in favor of
Lender. If (a) any Guarantor shall have previously executed any other guaranty
in favor of Lender which has not been cancelled, terminated or revoked and (b)
the blank in the third paragraph of this Guaranty has been filled in, then the
aggregate amount of the Guaranteed Indebtedness shall (notwithstanding any limit
stated in said blank) be limited to the aggregate of the debt guaranteed by all
such previous uncancelled, unrevoked and unterminated guaranties plus the amount
to which this Guaranty is limited (as stated in that blank).
THIS WRITTEN CONTINUING GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
Page 8 of 10 Pages
<PAGE>
THIS GUARANTY is executed as of the 27th day of May, 1997.
GUARANTOR:
D.A. INTERNATIONAL, INC.
a Texas corporation
By: /s/ Michael Mackey
-----------------------------
Name: Michael Mackey
---------------------------
Title: CFO
--------------------------
Address of Guarantor
12200 NW Freeway, Suite 200
Houston, TX 77092
LENDER:
SOUTHWEST BANK OF TEXAS, N.A.,
a national banking association
By: /s/ Brooks H. McGee, Sr. Vice President
-----------------------------------------
Brooks H. McGee, Senior Vice President
Page 9 of 10 Pages
<PAGE>
THE STATE OF TEXAS )
)
COUNTY OF TEXAS )
This instrument was acknowledged before me on this the _________ day of
_____________________________, 1997, by ______________________________________,
_________________________________________________ of D. A. INTERNATIONAL, INC.,
a Texas corporation, on behalf of said corporation.
---------------------------------------
Notary Public in and for
The State of T E X A S
Page 10 of 10 Pages
<PAGE>
EXHIBIT 10.14
Loan No.:______________
PROMISSORY NOTE
$762,043.77 October 7, 1997
FOR VALUE RECEIVED, DA CONSULTING GROUP, INC., a Texas corporation
("Maker"), promises to pay to the order of HELLER FINANCIAL, INC., a Delaware
corporation (together with any holder of this Note, "Payee"), at its office
located at 500 West Monroe Street, Chicago, Illinois 60661, or at such other
place as Payee may from time to time designate, the principal sum of Seven
Hundred Sixty Two Thousand Forty Three and 77/100 Dollars ($762,043.77),
together with interest thereon at a fixed rate equal to Nine and 08/100 percent
(9.08%) pre annum. Principal and interest shall be payable in thirty-six (36)
consecutive monthly installments commencing November 1, 1997, and continuing on
the same day of each consecutive calendar month thereafter until this Note is
fully paid, each such installment in the amount of Twenty Four Thousand Two
Hundred Thirty and 81/100 Dollars ($24,230.81); provided, however, that in any
and all events the final installment payment hereunder shall be in the amount of
the entire then outstanding principal balance hereunder, plus all accrued and
unpaid interest, charges and other amounts owing hereunder or under the Security
Agreement (defined below). All payments shall be applied first to interest and
then to principal. Interest shall be computed on the basis of a 360 day year for
the actual number of days elapsed during each month, and shall be billed through
the end of each month.
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause the interest contracted for or charged herein or
collectable hereunder to exceed the applicable lawful maximum rate, then the
interest shall be limited to such applicable lawful maximum.
This Note is secured by the collateral described in the Security
Agreement dated October 7, 1997, between Maker and Payee (the "Security
Agreement;" and together with all related documents and instruments, the "Loan
Documents") to which reference is made for a statement of the nature and extent
of protection and security afforded, certain rights of Payee and certain rights
and obligations of Maker, including Maker's rights, if any, to prepay the
principal balance hereof; provided, however, that in addition to any other sum
payable hereunder, under the Security Agreement or any of the other Loan
Documents, in the event of a prepayment of the principal balance hereunder,
whether voluntary, following acceleration or otherwise, Maker shall pay to Payee
the greater of (i) a prepayment fee in a sum equal to three percent (3%) of the
principal balance prepaid during Loan Year 1, two percent (2%) of the principal
balance prepaid during Loan Year 2, and one percent (1%) of the principal
balance prepaid during Loan Year 3, or (ii) a Breakage Fee, together with the
prepayment fee and amounts payable under Section 3 of the Security Agreement, if
any, represent liquidated damages to Payee for the loss of its bargain and not a
penalty. As used herein, the term "Breakage Fee" shall mean the amount, if any,
by which (A) the present value, in the aggregate, of the then remaining
installments of principal and interest due hereunder, absent the prepayment,
using a discount rate equal to (i) the yield to maturity as of the date two (2)
days prior to the date of the prepayment on United States Treasury securities
with a final maturity approximately equal to the remaining term hereof, absent
the prepayment, as published in The Wall Street Journal, plus (ii) one percent
(1%), exceeds (B) the then outstanding principal balance hereunder, absent the
prepayment. The phrase "Loan Year" means each twelve (12) consecutive months
commencing on the date of the Note. The prepayment fee and Breakage Fee
described in clause (i) above shall also be due upon the acceleration of the
maturity date of any Note following the occurrence of any Event of Default.
Time is of the essence hereof. If payment of any installment or any
other sum due under this Note or the Loan Documents is not paid within 10 days
of the date when due, Maker agrees to pay a late charge equal to the lesser of
(i) five cents (5c) per dollar on, and in addition to, the amount of each such
payment, or (ii) the maximum amount Payee is permitted to charge by law. In the
event of the occurrence of an Event of Default (as defined in the Security
Agreement), then the entire unpaid principal balance hereof with accrued and
unpaid interest thereon, together with all other sums payable under this Note or
the Loan Documents, shall, at the option of Payee and without notice or demand,
become immediately due and payable, such accelerated balance bearing interest
until
1
<PAGE>
paid at the rate of two and 00/100 percent (2.0%) per annum above the fixed rate
set forth in the first paragraph of this Note.
Maker and all endorsers, guarantors or any others who may at any time
become liable for the payment hereof hereby consent to any and all extensions of
time, renewals, waivers and modifications of, and substitutions or release of
security or of any party primarily or secondarily liable on, or with respect to,
this Note or any of the Loan Documents or any of the terms and provisions
thereof that may be made, granted or consented to by Payee, and agree that suit
may be brought and maintained against any one or more of them, at the election
of Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor, in order to enforce payment of this Note by any one or more of them.
Maker and all endorsers, guarantors or any others who may at any time become
liable for the payment hereof hereby severally waive presentment, demand for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
and all other notices in connection with this Note, filing of suit and diligence
in collecting this Note or enforcing any of the security herefor, and, without
limiting any provision of any of the Loan Documents, agree to pay, if permitted
by law, all expenses incurred in collection, including reasonable attorneys'
fees, and hereby waive all benefits of valuation, appraisement and exemption
laws.
If there be more than one Maker, all the obligations, promises,
agreements and covenants of Maker under this Note are joint and several.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. AT PAYEE'S ELECTION AND WITHOUT LIMITING
PAYEE'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER JURISDICTION, MAKER HEREBY
SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURT (FEDERAL, STATE OR
LOCAL) HAVING SITUS WITHIN THE STATE OF ILLINOIS, EXPRESSLY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS TO SERVICE BY CERTIFIED MAIL, POSTAGE PREPAID,
DIRECTED TO THE LAST KNOWN ADDRESS OF MAKER, WHICH SERVICE SHALL BE DEEMED
COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF MAILING THEREOF.
MAKER HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE. THIS WAIVER IS INFORMED AND
FREELY MADE. MAKER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT PAYEE HAS ALREADY RELIED ON THE WAIVER
IN MAKING THE LOAN EVIDENCED BY THIS NOTE, AND THAT PAYEE WILL CONTINUE TO RELY
ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. MAKER FURTHER WARRANTS AND
REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
Witness/Attest: DA CONSULTING GROUP, INC.
/s/ Laura Q. Lopez By: /s/ Michael J. Mackey
- ------------------ --------------------------
Laura Q. Lopez Name: Michael J. Mackey
5847 San Felipe, Ste. 3700 ------------------------
Houston, TX 77057 Title: CFO & EVP
-----------------------
Finance & Administration
2
<PAGE>
EXHIBIT 10.15
Loan No.: ______________
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made this 7th day of October, 1997, by
and between DA CONSULTING GROUP,INC., a Texas corporation ("Debtor"), whose
business address is 5847 San Felipe, Suite 3700, Houston, Texas 77057 and HELLER
FINANCIAL, INC., a Delaware corporation ("Secured Party"), whose address is
Commercial Equipment Finance Division, 500 West Monroe Street, Chicago, Illinois
60661.
WITNESSETH:
1. Secure Payment. To secure payment of indebtedness in the principal sum of up
to One Million and 00/ 100 Dollars ($1,000,000.00), as evidenced by a note or
notes executed and delivered by Debtor to Secured Party (the "Notes") and any
obligations arising under this Agreement, including all future advances or loans
which may be made at the option of Secured Party (all the foregoing hereinafter
called the "Indebtedness"), Debtor hereby grants and conveys to Secured Party a
first priority continuing lien and security interest in the personal property
described on any schedule(s) now or hereafter attached to or made a part hereof
by reference hereto (the "Schedules"), all products and proceeds (including
insurance proceeds) thereof, if any, and all substitutions, replacements,
attachments, additions, and accessions thereto (all of the foregoing hereinafter
called the "Collateral.") The Schedules may be supplemented from time to time to
evidence the Collateral subject to this Agreement.
Debtor shall request in writing each advance of principal under the Notes, which
request shall be satisfactory to Secured Party in form and substance. Each
advance shall be on and subject to the terms and conditions set forth in this
Agreement and shall otherwise be at Secured Party's sole discretion. Each Note
shall be in an amount not less than $50,000.00. No principal advance under any
Notes shall be made after January 4, 1998, and each advance shall reduce, dollar
for dollar, the amount that may be advanced under the Notes in the aggregate.
Amounts advanced and repaid may not be reborrowed.
2. Representations, Warranties and Covenants. Except as otherwise provided,
each representation and warranty made by Debtor in this Agreement shall be true,
correct and complete as of the date of this
1
<PAGE>
Agreement and as of the date of each advance of funds under a Note. Debtor
hereby represents, warrants and covenants as follows:
(a) Perform Obligations. Debtor shall pay as and when due all
Indebtedness secured by this Agreement and perform all of the obligations
contained in this Agreement according to its terms. Debtor shall use the loan
proceeds for business uses and not for personal, family, household, or
agricultural uses.
(b) Perfection. This Agreement and all necessary Uniform Commercial Code
filings together create a valid, perfected and first priority continuing lien
and security interest in the Collateral, securing the payment and performance of
the Indebtedness, and all filings and other actions necessary or desirable to
create, perfect and protect such security interest have been or will be duly
taken.
(c) Collateral Free and Clear. Except as may be set forth on a Schedule,
the Collateral is and shall remain free and clear of all liens, claims, charges,
encumbrances and other security interests of any kind (other than the security
interest granted hereby). Debtor shall defend the title to the Collateral
against all persons and against all claims and demands whatsoever.
(d) Possession and Operating Order of the Collateral. Debtor shall
retain possession of the Collateral at all times and shall not sell, exchange,
assign, loan, deliver, lease, mortgage, or otherwise dispose of the Collateral
or any part thereof without the prior written consent of Secured Party. Debtor
shall at all times keep the Collateral at the locations specified on the
Schedules (except for removals thereof in the usual course of business for
temporary periods). At Debtor's sole cost and expense, Debtor shall keep the
Collateral in good repair and condition and shall not misuse, abuse, waste or
otherwise allow it to deteriorate, except for normal wear and tear. Secured
Party may verify any Collateral in any reasonable manner which Secured Party may
consider appropriate, and Debtor shall furnish all reasonable assistance and
information and perform any acts which Secured Party may reasonably request in
connection therewith.
(e) Insurance. Debtor shall insure the Collateral against loss by fire
(including extended coverage), theft and other hazards, for its full insurable
value including replacement costs, with a deductible not to exceed Fifty
Thousand and 00/100 Dollars ($50,000.00) per occurrence and without
co-insurance. In addition, Debtor shall obtain liability insurance covering
liability for bodily injury, including death and property damage, in an amount
of at least Five Million and 00/100 Dollars ($5,000,000.00) per
2
<PAGE>
occurrence or such greater amount as may comply with general industry standards,
or in such other amounts as Secured Party may otherwise require. All policies of
insurance required hereunder shall be in such form, amounts, and with such
companies as Secured Party may approve; shall provide for at least thirty (30)
days prior written notice to Secured Party prior to any modification or
cancellation thereof; shall name Secured Party as loss payee or additional
insured, as applicable, and shall be payable to Debtor and Secured Party as
their interests may appear; shall waive any claim for premium against Secured
Party; and shall provide that no breach of warranty or representation or act or
omission of Debtor shall terminate, limit or affect the insurers' liability to
Secured Party. Certificates of insurance or policies evidencing the insurance
required hereunder along with satisfactory proof of the payment of the premiums
therefor shall be delivered to Secured Party. Debtor shall give immediate
written notice to Secured Party and to insurers of loss or damage to the
Collateral and shall promptly file proofs of loss with insurers. Debtor hereby
irrevocably appoints Secured Party as Debtor's attorney-in-fact, coupled with an
interest, for the purpose of obtaining, adjusting and canceling any such
insurance and endorsing settlement drafts. Debtor hereby assigns to Secured
Party, as additional security for the Indebtedness, all sums which may become
payable under such insurance.
In the event Debtor fails to provide Secured Party with evidence of the
insurance coverage required by this Agreement, Secured Party may purchase
insurance at Debtor's expense to protect Secured Party's interests in the
Collateral. This insurance may, but need not, protect Debtor's interests. The
coverage purchased by Secured Party may not pay any claim made by Debtor or any
claim that is made against Debtor in connection with the Collateral. Debtor may
later cancel any insurance purchased by Secured Party, but only after providing
Secured Party with evidence that Debtor has obtained insurance as required by
this Agreement. If Secured Party purchases insurance for the Collateral, Debtor
will be responsible for the costs of that insurance, including interest and
other charges imposed by Secured Party in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to the Indebtedness. The
costs of the insurance may be more than the cost of insurance Debtor is able to
obtain on its own.
(f) If Collateral Attaches to Real Estate. If the Collateral or any part
thereof has been attached to or is to be attached to real estate, an accurate
description of the real estate and the name and address of the record owner is
set forth on the Schedules. Debtor shall, on demand of Secured Party, furnish
Secured Party with a disclaimer or waiver of any interest in any such Collateral
satisfactory to Secured Party and signed by all persons having an
3
<PAGE>
interest in the real estate. Notwithstanding the foregoing, the Collateral shall
remain personal property and shall not be affixed to realty without the prior
written consent of Secured Party.
(g) Financial Statements. Debtor shall furnish to Secured Party, as soon
as practicable, and in any event within forty-five (45) days after the end of
each fiscal quarter of Debtor and each guarantor of all or any part of the
Indebtedness (each, a "Guarantor"), respectively, Debtor's and each Guarantor's
unaudited financial statements including in each instance, balance sheets,
income statements, and statements of cash flow, on a consolidated and
consolidating basis, as appropriate, and separate profit and loss statements as
of and for the quarterly period then ended and for the respective person's
fiscal year to date, prepared in accordance with generally accepted accounting
principles, consistently applied ("GAAP"). Debtor shall also furnish to Secured
Party, as soon as practicable, and in any event within one hundred twenty (120)
days after the end of each fiscal year of Debtor and each Guarantor,
respectively, Debtor's and each Guarantor's annual audited financial statements,
including balance sheets, income statements and statements of cash flow for the
fiscal year then ended, on a consolidated and consolidating basis, as
appropriate, which have been prepared by its independent accountants in
accordance with GAAP. Such audited financial statements shall be accompanied by
the independent accountant's opinion, which opinion shall be in form generally
recognized as "unqualified". In addition, Debtor shall furnish to Secured Party,
as soon as practicable, and in any event within forty-five (45) days after the
end of each fiscal quarter of Debtor other than the last fiscal quarter of each
fiscal year, and within one hundred twenty (120) days after the last fiscal
quarter of each fiscal year of Debtor, a compliance certificate in form and
substance satisfactory to Secured Party.
(h) Authorization. Debtor is now, and so long as the Indebtedness is
outstanding, will at all times remain, duly licensed, qualified to do business
and in good standing in every jurisdiction where failure to be so licensed or
qualified and in good standing would have a material adverse effect on its
business, properties or assets. The execution and delivery of this Agreement,
the Notes and any other documents and instruments executed contemporaneously
with or delivered pursuant to this Agreement and the Notes, all as amended from
time to time (collectively the "Loan Documents"), have been duly authorized by
Debtor and constitute legal, valid, and binding obligations of Debtor,
enforceable against Debtor in accordance with their respective terms. So long as
the Indebtedness is outstanding, Debtor shall preserve and maintain its
existence and shall not wind up its affairs or otherwise dissolve. Debtor shall
not, without thirty (30) days prior written notice to Secured Party, (1) change
its name or so change its structure such
4
<PAGE>
that any financing statement or other record notice becomes misleading or (2)
change its principal place of business or chief executive or accounting offices
from the address stated herein.
(i) Litigation. Except as disclosed by Debtor on a Schedule, there are
no judgments outstanding against or affecting Debtor, its officers, directors or
affiliates or any part of the Collateral and there ar no actions, charges,
claims, demands, suits, proceedings, or investigations pending or, to Debtor's
knowledge, threatened against Debtor or otherwise affecting any part of the
Collateral ("Litigation"). Debtor shall furnish to Secured Party all information
regarding any material Litigation as Secured Party shall reasonably request and
in any event shall promptly notify Secured Party in writing of any Litigation
against it which if decided against it would materially and adversely affect the
finances or operations of Debtor. For the purposes of this subsection 2(i), Five
Hundred Thousand and 00/100 Dollars ($500,000.00) shall be deemed material.
(j) No Conflicts. Debtor is not in violation of any material term or
provision of its by-laws, or of any material agreement or instrument, decree,
order, or any statute, rule, or governmental regulation applicable to it. The
execution, delivery, and performance of the Loan Documents do not and will not
violate, constitute a default under, or otherwise conflict with any such term or
provision or result in the creation of any security interest, lien, charge, or
encumbrance upon any of the properties or assets of Debtor, except for the
security interest created hereunder.
(k) Compliance with Laws. Debtor shall use and maintain the Collateral
in accordance with all applicable laws, regulations, ordinances, and codes and
shall otherwise comply in all material respects with all applicable laws, rules,
and regulations and duly observe and be in compliance in all material respects
with all valid requirements of all governmental authorities, and all statutes,
rules and regulations relating to its business as in effect from time to time
during the term of this Agreement.
(l) Taxes. Debtor has timely filed all tax returns (federal, state,
local, and foreign) required to be filed by it and has paid or established
reserves for all taxes, assessments, fees, and other governmental charges in
respect of its properties, assets, income and franchises. Debtor shall promptly
file, pay and discharge all taxes, assessments, license fees (related to the
Collateral) and other governmental charges prior to the date on which penalties
are attached thereto, establish adequate reserves for the payments of such
taxes, assessments, and other governmental charges and make all required
withholding and other tax deposits, and, upon request, provide Secured Party
with receipts or other proof that any or all of such taxes, assessments, license
5
<PAGE>
fees or governmental charges have been paid in a timely fashion; provided,
however, that nothing contained herein shall require the payment of any tax,
assessment, or other governmental charge so long as its validity is being
diligently contested in good faith and by appropriate proceedings diligently
conducted and Debtor has established cash reserves therefor in accordance with
GAAP. Should any stamp, excise, or other tax, including mortgage, conveyance,
deed, intangible, or recording taxes become payable in connection with or
respect of any of the Loan Documents, Debtor shall pay the same (including
interest and penalties, if any) and shall hold Secured Party harmless with
respect thereto.
(m) Environmental Laws/Compliance. Except as disclosed by Debtor on a
Schedule, Debtor (1) has not received any claim, summons, complaint, order, or
other notice that it is not in compliance with, or that any public authority is
investigating its compliance with, any federal, state, and local laws, rules,
regulations, orders, and decrees relating to pollution, hazardous substances,
waste, disposal or the protection of human health or safety, plant life or
animal life, natural resources or the environment, all as amended from time to
time (collectively, "Environmental Laws"), (2) has no knowledge of any material
violation of any Environmental Laws on or about its assets or property, and (3)
is not under any current clean up or other remediation program or order. Debtor
has obtained all environmental, health and safety permits necessary for the
operation of Debtor's business. Debtor is and shall remain in compliance, in all
respects, with the terms and conditions of all permits and with all applicable
Environmental Laws. Debtor shall provide Secured Party, promptly following
receipt, copies of any correspondence, notice, complaint, order, or other
document that it receives asserting or alleging a circumstance or condition
which requires or may require a cleanup, removal, remedial action or other
response by or on the part of Debtor under any Environmental Laws, or which
seeks damages or civil, criminal or punitive penalties from Debtor for an
alleged violation of any Environmental Laws. Debtor will promptly notify Secured
Party of any release, spill or material change in the nature or extent of any
hazardous substances or contaminants used, transported or stored by Debtor or
any subsidiary of Debtor, and allow no material change in the use thereof or of
Debtor's operations that would increase in any material amount the risk of
violation of any Environmental Laws without the express prior written approval
of Secured Party.
(n) Regulations. No proceeds of the loans or any other financial
accommodation hereunder will be used, directly or indirectly, for the purpose of
purchasing or carrying any margin security, as that term is defined in
Regulations G, T, U, X of the Board of Governors of the Federal Reserve System.
6
<PAGE>
(o) Books and Records. Debtor shall maintain, at all times, true and
complete books and records in accordance with GAAP and consistent with those
applied in the preparation of Debtor's financial statements. At all reasonable
times, upon reasonable notice, and during normal business hours, Debtor shall
permit Secured Party or its agents to audit, examine and make extracts from or
copies of any of its books, ledgers, reports, correspondence, and other records
relating to the Collateral.
(p) Setoff. Without limiting any other right of Secured Party, whenever
Secured Party has the right to declare any Indebtedness to be immediately due
and payable (whether or not it has so declared), Secured Party is hereby
authorized at any time and from time to time to the fullest extent permitted by
law, but shall not be obligated to, set off and apply against any and all
Indebtedness, any and all monies then or thereafter owed to Debtor by Secured
Party, whether or not the obligation to pay such monies owed by Secured Party is
then due. An election by Secured Party to exercise its right of setoff shall be
effective immediately upon such election even though any charge therefor is made
or entered on Secured Party's records subsequent thereto.
(q) Standard of Care; Notice of Claims. Debtor acknowledges and agrees
that Secured Party shall not be liable for any acts or omissions nor for any
error of judgment or mistake of fact or law other than as a sole and direct
result of Secured Party's gross negligence or willful misconduct. Debtor shall
give Secured Party written notice of any action or inaction by Secured Party or
any agent or attorney of Secured Party that may give rise to a claim against
Secured Party or any agent or attorney of Secured Party or that may be a defense
to payment of the Indebtedness or performance hereunder for any reason,
including commission of a tort (subject, in any event, to the first sentence of
this paragraph) or violation of any contractual duty or duty implied by law.
(r) Indemnity. Debtor shall indemnify, defend and hold Secured Party,
its parent, affiliates, officers, directors, agents, employees, consultants,
persons engaged by Secured Party to evaluate or monitor the Collateral, auditors
and attorneys harmless from and against any loss, cost, expense (including
reasonable attorneys' fees and costs and any consultants' or other experts' fees
and expenses), damage, penalty, fine, claim, lien, suit, judgment or liability
of every kind and nature arising directly or indirectly out of (i) any Loan
Document, (ii) the ownership, possession, lease, operation, use, condition,
sale, return, or other disposition of the Collateral, (iii) any Environmental
Laws, and (iv) the enforcement by Secured Party of its rights or remedies
hereunder, except to the extent the loss, expense, damage or
7
<PAGE>
liability arises solely and directly from Secured Party's gross negligence or
willful misconduct. Any payments required to be made hereunder shall be due and
payable on demand.
(s) Payments Set Aside. If any payment is made to Secured Party or
Secured Party enforces its security interest or exercises its right of set off,
and such payment or part, or any proceeds of such enforcement or set off are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Indebtedness or part thereof originally intended to
be satisfied, and all liens, security interests, rights and remedies therefor,
shall be revived and continued in full force and effect as if such payment had
not been made or such enforcement or set off had not occurred.
(t) Expenses and Attorneys' Fees. Debtor shall be liable for all charges,
costs, expenses and reasonable attorneys' fees incurred by Secured Party
(including, following the occurrence of an Event of Default, allocated costs of
internal counsel): (i) in perfecting, defending, protecting or terminating its
security interest in the Collateral, or any part thereof; (ii) in the
negotiation, execution, delivery, administration, amendment or enforcement of
the Loan Documents or the collection of any amounts due under any Note or other
Loan Document; (iii) in any lawsuit or other legal proceeding in any way
connected with any of the Loan Documents, including any contract or tort or
other actions, any arbitration or other alternative dispute resolution
proceeding, all appeals and judgement enforcement actions and any bankruptcy
proceeding (including any relief from stay and/or adequate protection motions,
cash collateral disputes, assumption/rejection motions and disputes or
objections to any proposed disclosure statement or reorganization plan).
(u) Complete Information. No representation or warranty made by Debtor in
any Loan Document and no other document or statement now or hereafter furnished
to Secured Party by or on behalf of Debtor contains or will contain any
misstatement of a material fact or omit to state any material fact which would
make the statements contained therein misleading as of the date made. Except as
expressly set forth in the Schedules, there is no fact known to Debtor that has
or is reasonably likely to have a materially adverse affect on the business,
operation, condition (financial or otherwise), performance, properties or
prospects of Debtor or Debtor's ability to timely pay all of the Indebtedness
and perform all of its other obligations contained in or secured by this
Agreement.
8
<PAGE>
(v) Collateral Documentation. Debtor shall deliver to Secured Party prior
to any advance, satisfactory documentation regarding the Collateral to be
financed, including such invoices, canceled checks evidencing payments, or other
documentation as may be reasonably requested by Secured Party. Additionally,
Debtor shall satisfy Secured Party that Debtor's business and financial
information is as has been represented and there has been no material change in
Debtor's business, financial condition, or operations.
(w) Dividend Restriction. Restricted Payments. If any Event of Default
exists (or would exist as a result of any payment described in this subsection
(w)), Debtor will not and will not permit any of its subsidiaries directly or
indirectly to declare, order, pay, make or set apart any sum for (i) any
dividend or other distribution, direct or indirect, on account of any shares of
any class of stock of Debtor or any of its subsidiaries now or hereafter
outstanding, except (A) a dividend payable solely in shares of that class of
stock to the holders of that class; or (B) subsidiaries of Debtor may make
payments with respect to their stock provided that such stock is 100% owned by
Debtor; (ii) any redemption, conversion, exchange, retirement, sinking fund or
similar payment, purchase or other acquisition for value, direct or indirect, of
any shares of any class of stock of Debtor or any of its subsidiaries now or
hereafter outstanding; and (iii) any payment made to retire, or to obtain the
surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of stock of Borrower or any of its subsidiaries now or
hereafter outstanding; provided Debtor's wholly-owned subsidiaries may make
payments and distributions to Debtor.
(x) Tangible Net Worth. Debtor shall maintain at all times, on a
consolidated basis, Tangible Net Worth of at least $1,750,000. As used herein,
"Tangible Net Worth" means total assets of Debtor minus its total liabilities
(including contingent liabilities), minus all intangibles, expenses and other
items deducted in arriving at tangible net worth as determined by Debtor's
regular employed certified public accountant in a manner consistent with past
practice.
3. Prepayment. Upon forty-five (45) days prior written notice to Secured
Party, Debtor may prepay in whole, but not in part, the then entire unpaid
principal balance of any Note, together with all accrued and unpaid interest
thereon to the date of such prepayment, provided that in addition to such
prepayment, Debtor shall pay (i) any and all other sums then due under any of
the Loan Documents, and (ii) the prepayment fee and breakage fee as liquidated
damages and not as a penalty set forth in any Note. The prepayment fee
described in clause (ii) above shall also be due upon the acceleration of the
maturity date of any Note following the occurrence of any Event of Default.
9
<PAGE>
4. Events of Default. If any one of the following events (each of which is
herein called an "Event of Default") shall occur: (a) Debtor fails to pay any
part of the Indebtedness within ten (10) calendar days of its due date, or (b)
any warranty or representation of Debtor in any Loan Document is materially
untrue, misleading or inaccurate, or (c) Debtor or any Guarantor breaches or
defaults in the performance of any other agreement or covenant under any Loan
Document other than those contained in subsections 2(b) and 2(e) hereof and such
breaches or defaults are not cured within thirty (30) days after Debtor knew or
should have known of the occurrence (provided that the thirty (30) day cure
period shall not apply to the extent any breach or default is not curable in
Secured Party's opinion), or (d) Debtor or any Guarantor breaches or defaults in
the performance of any covenant contained in subsections 2(b) and 2(e) hereof,
or (e) Debtor or any Guarantor breaches or defaults in the payment or
performance of any debt or other obligation owed by it to Secured Party or any
affiliate of Secured Party, and Secured Party has (without being obligated to do
so) declared such event, an Event of Default hereunder, or (f) Debtor breaches
or defaults in the payment or performance of any debt or other obligation,
whether now or hereafter existing, with an outstanding principal balance in
excess of One Million and 00/100 Dollars ($1,000,000.00), and the same is
subsequently accelerated, or (g) there shall be a change in the beneficial
ownership and control, directly or indirectly, of the majority of the
outstanding voting securities or other interests entitled (without regard to the
occurrence of any contingency) to elect or appoint members of the board of
directors or other managing body of Debtor or any Guarantor ( a "change of
control"), or there is any merger, consolidation, dissolution, liquidation,
winding up or sale or other transfer of all or substantially all of the assets
of Debtor or any Guarantor pursuant to which there is a change of control or
cessation of Debtor or the Guarantor or the business of either without the prior
written consent of Secured Party, or (h) any money judgement is entered or filed
against Debtor or any Guarantor in excess of One Million and 00/100 Dollars
($1,000,000.00) execution against which is not stayed, bonded or insured pending
appeal in a manner reasonably satisfactory to Secured Party, or (i) Debtor or
any Guarantor shall file a voluntary petition in bankruptcy, shall apply for or
permit the appointment by consent or acquiescence of a receiver, conservator,
administrator, custodian or trustee for itself or all or a substantial part of
its property, shall make an assignment for the benefit of creditors or shall be
unable, fail or admit in writing its inability to pay its debts generally as
such debts become due, or (j) there shall have been filed against Debtor or any
Guarantor an involuntary petition in bankruptcy or Debtor or any Guarantor shall
suffer or permit the involuntary appointment of a receiver, conservator,
administrator, custodian or trustee for all or a substantial part of its
property or the issuance of a warrant of attachment, diligence, execution or
similar
<PAGE>
process against all or any substantial part of its property; unless, in each
case, such petition, appointment or process is fully bonded against, vacated or
dismissed within sixty (60) days from its effective date, but no later than ten
(10) days prior to any proposed disposition of any assets pursuant to any such
proceeding, or (k) if there is a material adverse change in the business or
financial condition or prospects of Debtor, or any Guarantor, which affects the
net worth (as determined in accordance with GAAP) of either such party, in
Secured Party's opinion, in an amount equal to or greater than $500,000 then,
and in any such event, Secured Party shall have the right to exercise any one or
more of the remedies hereinafter provided.
5. Remedies. Upon the occurrence of an Event of Default, in addition to all
rights and remedies of a secured party under the Uniform Commercial Code,
Secured Party may, at its option, at any time (a) declare the Indebtedness to be
immediately due and payable; (b) without demand or legal process, enter the
premises where the Collateral may be found and take possession of and remove the
Collateral, all without charge to or liability on the part of Secured Party; or
(c) require Debtor to assemble the Collateral, render it unusable, and crate,
pack, ship, and deliver the Collateral to Secured Party in such manner and at
such place as Secured Party may require, all at Debtor's sole cost and expense.
DEBTOR HEREBY EXPRESSLY WAIVES ITS RIGHTS, IF ANY TO (1) PRIOR NOTICE OF
REPOSSESSION AND (2) A JUDICIAL OR ADMINISTRATIVE HEARING PRIOR TO SUCH
REPOSSESSION. Secured Party may, at its option, ship, store and repair the
Collateral so removed and sell any or all of the Collateral at a public or
private sale or sales. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, Secured Party will give Debtor reasonable notice of the time and place
of any public sale thereof or of the time after which any private sale or any
other intended disposition thereof is to be made, it being understood and
agreed that Secured Party may be a buyer at any such sale and Debtor may not,
either directly or indirectly, be a buyer at any such sale. The requirements,
if any, for reasonable notice will be met if such notice is mailed postage
prepaid to Debtor at its address shown above, at least five (5) days before the
time of sale or disposition. After any such sale or disposition, Debtor shall
be liable for any deficiency of the Indebtedness remaining unpaid, with interest
thereon at the rate set forth in the related Notes.
6. Cumulative Remedies/Marshaling. All remedies of Secured Party hereunder are
cumulative, are in addition to any other remedies provided for by law or in
equity, or under any other provision of any of the Loan Documents, or under the
provisions of any other document, instrument or other writing executed by Debtor
or any third party in favor of Secured Party, all of which may, to the extent
permitted by law, be exercised
11
<PAGE>
concurrently or separately, and the exercise of any one remedy shall not be
deemed an election of such remedy or to preclude the exercise of any other
remedy. No failure on the part of Secured Party to exercise, and no delay in
exercising any right or remedy, shall operate as a waiver thereof or in any way
modify or be deemed to modify the terms of this Agreement or any other Loan
Document or the Indebtedness, nor shall any single or partial exercise by
Secured Party of any right or remedy preclude any other or further exercise of
the same or any other right or remedy. Secured Party shall not be under any
obligation to marshal any assets in favor of Debtor, any Guarantor or any other
person or against or in payment of any or all of the Indebtedness.
7. Assignment. Secured Party may transfer or assign all or any part of the
Indebtedness and the Loan Documents without releasing Debtor or the Collateral,
and upon such transfer or assignment the assignee or holder shall be entitled to
all the rights, powers, privileges and remedies of Secured Party to the extent
assigned or transferred. The obligations of Debtor shall not be subject, as
against any such assignee or transferee, to any defense, set-off, or
counter-claim available to Debtor against Secured Party and any such defense,
set-off, or counter-claim may be asserted only against Secured Party.
8. Time is of the Essence. Time and manner of performance by Debtor of its
duties and obligations under the Loan Documents is of the essence. If Debtor
shall fail to comply with any provision of any of the Loan Documents, Secured
Party shall have the right, but shall not be obligated, to take action to
address such non-compliance, in whole or in part, and all moneys spent and
expenses and obligations incurred or assumed by Secured Party shall be paid by
Debtor upon demand and shall be added to the Indebtedness. Any such action by
Secured Party shall not constitute a waiver of Debtor's default.
9. ENFORCEMENT. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. AT SECURED PARTY'S ELECTION
AND WITHOUT LIMITING SECURED PARTY'S RIGHT TO COMMENCE AN ACTION IN ANY OTHER
JURISDICTION, DEBTOR HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION AND VENUE OF
ANY COURT (FEDERAL, STATE OR LOCAL) HAVING SITUS WITHIN THE STATE OF ILLINOIS,
EXPRESSLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE BY
CERTIFIED MAIL, POSTAGE PREPAID, DIRECTED TO THE LAST KNOWN ADDRESS OF DEBTOR,
WHICH SERVICE SHALL BE DEEMED COMPLETED WITHIN TEN (10) DAYS AFTER THE DATE OF
MAILING THEREOF.
12
<PAGE>
10. Further Assurance; Notice. Debtor shall, at its expense, execute and
deliver such documents and do such further acts as Secured Party may from time
to time reasonably require to assure and confirm the rights created or intended
to be created hereunder, to carry out the intention or facilitate the
performance of the terms of the Loan Documents or to assure the validity,
perfection, priority or enforceability of any security interest created
hereunder. Debtor agrees to execute any instrument or instruments necessary or
expedient for filing, recording, perfecting, notifying, foreclosing, and/or
liquidating of Secured Party's interest in the Collateral upon reasonable
request of, and as determined by, Secured Party, and Debtor hereby specifically
authorizes Secured Party to prepare and file Uniform Commercial Code financing
statements and other documents and to execute same for and on behalf of Debtor
as Debtor's attorney-in-fact, irrevocably and coupled with an interest, for such
purposes. All notices required or otherwise given by either party shall be in
writing and shall be delivered by hand, by registered or certified first class
United States mail, return receipt requested, or by overnight courier to the
other party at its address stated herein or at such other address as the other
party may from time to time designate by written notice. All notices shall be
deemed given when received, when delivery is refused or when returned for
failure to be called for. Each provision of this Agreement shall remain in full
force and effect until all of the Indebtedness is fully, finally and
indefeasibly satisfied and, notwithstanding anything in this Agreement or
implied by law to the contrary, the agreements of Debtor and Secured Party set
forth in Sections 2(p), 2(r), 2(s), 2(t), 9 and 12 shall survive the full, final
and indefeasible satisfaction of the Indebtedness.
11. Joint and Several Obligation. If this Agreement is executed by more than
one person as Debtor, each such Debtor hereby acknowledges it is jointly and
severally liable for and unconditionally guarantees the prompt and full payment
and performance of all obligations of each other Debtor hereunder and under the
other Loan Documents.
12. WAIVER OF JURY TRIAL. DEBTOR AND SECURED PARTY HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING IN CONNECTION WITH ANY OF THE LOAN DOCUMENTS. DEBTOR AND SECURED PARTY
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THE
LOAN DOCUMENTS, AND THAT EACH WILL CONTINUE TO RELY ON THE WAIVER IN THEIR
RELATED FUTURE DEALINGS. DEBTOR AND SECURED PARTY FURTHER WARRANT AND REPRESENT
THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
13
<PAGE>
13. Complete Agreement. The Loan Documents embody the entire agreement among
the parties hereto superseding all prior commitments, agreements,
representations, and understandings, whether written or oral relating to the
subject matter hereof, and may not be contradicted or varied by evidence of
prior, contemporaneous, or subsequent oral agreements or discussions of the
parties hereto. The Loan Documents may not be altered, modified or terminated
in any manner except by a writing duly signed by the parties thereto. Debtor
and Secured Party intend the Loan Documents to be valid and binding and no
provisions hereof and thereof which may be deemed unenforceable shall in any way
invalidate any other provisions of the Loan Documents, all of which shall
remain in full force and effect. The Loan Documents shall be binding upon the
respective successors, legal representatives, and assigns of the parties. The
Schedules are incorporated herein by this reference and made a part hereof.
IN WITNESS WHEREOF, Secured Party and Debtor have each signed this Agreement as
of the day and year first above written.
HELLER FINANCIAL, INC. DA CONSULTING GROUP, INC.
a Delaware corporation a Texas corporation
By: /s/ DAVID G. ROEDER By: /s/ MICHAEL J. MACKEY
------------------------------ ------------------------------
Name: David G. Roeder Name: Michael J. Mackey
---------------------------- ----------------------------
Title: Vice President Title: CFO, EVP Finance & Administration
--------------------------- ---------------------------
14
<PAGE>
EXHIBIT 10.16
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER ANY APPLICABLE STATE OR FEDERAL SECURITIES LAW. NO OFFER,
SALE, TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS NOTE MAY BE
MADE WITHOUT THE PRIOR WRITTEN CONSENT OF THE MAKER OF THIS NOTE, AND, IF SUCH
CONSENT IS GIVEN, UNLESS THE NOTE IS REGISTERED UNDER THE ACT AND ANY OTHER
APPLICABLE SECURITIES LAW,OR AN EXEMPTION FROM ANY SUCH REGISTRATION
REQUIREMENTS IS APPLICABLE TO SUCH TRANSACTION. THE PAYMENTS TO BE MADE UNDER
THIS NOTE ARE SUBJECT TO ANY COUNTERCLAIM, ANY RIGHT OF SET-OFF, ANY RIGHT OF
RECOUPMENT OR ANY OTHER CLAIM THAT THE MAKER OF THIS NOTE MAY HAVE AGAINST ANY
HOLDER OR ANY PRIOR HOLDER OF THIS NOTE, WHENEVER ARISING.
NON-NEGOTIABLE
PROMISSORY NOTE
Amount: $89,640 Date: August 8, 1997
1. General. FOR VALUE RECEIVED, Michael J. Mackey ("Maker") promises to
pay to the order of DA INTERNATIONAL, INC. ("Payee"), at 12200 N.W. Freeway,
Suite 200 Houston, Texas 77092, or at such other place as may be designated in
writing by Payee, the principal sum of Eighty Nine Thousand Six Hundred Forty
Dollars ($89,640) (the "Principal Amount") in a single payment on the earlier to
occur of (a) the closing of a public offering of the Payee's shares of common
stock, (b) the closing of a transaction for the sale of substantially all of
Payee's assets to an independent third party, or (c) June 30, 2001. Interest on
the outstanding Principal Amount shall accrue at a rate per annum equal to the
Prime Rate (as defined below) plus 0.25%, in arrears, and shall be payable on or
before the first day of each calendar quarter beginning on October 1, 1997. As
used in this Note, "Prime Rate" shall mean, for each calendar quarter, the prime
rate of interest as listed in The Wall Street Journal for the first business day
of such calendar quarter. Notwithstanding anything to the contrary contained in
this Note, the effective rate of interest under this Note shall not exceed the
lesser of ten percent (10%) or the maximum rate of interest permitted from time
to time by applicable law or regulation. Amounts received by Payee in excess of
such highest rate of interest shall be considered reductions to principal to the
extent of such excess.
2. Prepayment. This Note may be prepaid in full or in part without
premium or penalty. Any such prepayments shall first be applied against accrued
interest and thereafter against any unpaid Principal Amount.
3. Default. In the event of a default in payment of principal or
interest under this Note, the entire outstanding principal amount of this Note,
plus interest thereon, will become immediately due and payable upon written
demand by Payee. A "default in payment" is defined as any payment required to be
made under this Note that is not made within fifteen (15) days of the due date,
which payment remains unpaid for fifteen (15) days after Maker's receipt of
written notice from Payee thereof. Maker hereby waives presentment, protest,
<PAGE>
notice of protest, and notice of dishonor.
4. Binding Effect. This Note shall be binding upon and inure to the
benefit of each of the parties to this Note and their respective heirs, personal
representatives, and successors and permitted assigns; provided, that Payee may
not assign or otherwise negotiate this Note without Maker's prior written
consent, which consent shall not be unreasonably withheld. This Note shall be
governed by the laws of the State of Texas without giving effect to the choice
of law rules of Texas or any other jurisdiction.
IN WITNESS WHEREOF, Maker has caused this Note to be executed on the
date first above written.
By: /s/ Michael J. Mackey
---------------------------
Michael J. Mackey
2
<PAGE>
EXHIBIT 11.1
DA CONSULTING GROUP, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computation of net income per
share(1):
Net income................... $ 198 $ 663 $ 308 $ 713 $ 940
======= ======= ======== ======== ========
Weighted average shares
outstanding(2).............. 3,624 3,624 4,218 4,029 4,809
Common shares issuable under
outstanding stock options... 449 449 449 449 449
Less shares assumed
repurchased with proceeds
from exercise of stock
options..................... (204) (204) (204) (204) (204)
------- ------- -------- -------- --------
3,869 3,869 4,463 4,274 5,054
======= ======= ======== ======== ========
Net income per share......... $ 0.05 $ 0.17 $ 0.07 $ 0.17 $ 0.19
======= ======= ======== ======== ========
</TABLE>
- --------
(1) Fully diluted net income per share and weighted average shares outstanding
have not been presented as these are the same as primary net income per
share and weighted average shares outstanding.
(2) Common stock issued within a one-year period prior to the registration
statement related to the IPO has been treated as outstanding for all
periods presented.
<PAGE>
EXHIBIT 16.1
January 9, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the statements made by DA Consulting Group, Inc., formerly DA
International, Inc., (copy attached), which we understand will be filed with
the Securities and Exchange Commission, as Exhibit 16.1 to the Company's
Registration Statement on Form S-1. We only agree with the statements
concerning our Firm contained in the Prospectus included in the Registration
Statement under the caption "Experts." Melton & Melton, L.L.P. reissued the
1995 audit report.
Very Truly Yours,
/s/ Melton & Melton, L.L.P.
-------------------------------------
Melton & Melton, L.L.P.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OR
JURISDICTION
OF
COMPANY INCORPORATION
------- --------------
<S> <C>
DA Consulting Group (USA) Inc. Texas
DA Consulting Services Limited United Kingdom
DA Consulting (Proprietary) Limited South Africa
Documentation Software Distributors (PTY) Ltd. South Africa
DA Consulting Group (Canada), Ltd. Canada
DA Consulting Group Pty Limited Australia
Documentation Associates (NZ) Ltd. New Zealand
DA Consulting Group Ltd. Isle of Man
DA Consultores de Mexico, S. de R.L. Mexico
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF DA CONSULTING GROUP, INC. AS OF SEPTEMBER 30,
1997 AND DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND FOR THE YEAR ENDED DECEMBER 31,
1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 2,199 683
<SECURITIES> 0 0
<RECEIVABLES> 4,507 9,488
<ALLOWANCES> 0 (79)
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,107 11,568
<PP&E> 1,307 2,832
<DEPRECIATION> (356) (559)
<TOTAL-ASSETS> 8,058 14,070
<CURRENT-LIABILITIES> 5,478 9,468
<BONDS> 0 0
0 0
0 0
<COMMON> 44 45
<OTHER-SE> 2,536 4,557
<TOTAL-LIABILITY-AND-EQUITY> 8,058 14,070
<SALES> 26,202 30,056
<TOTAL-REVENUES> 26,202 30,056
<CGS> 14,190 16,702
<TOTAL-COSTS> 25,848 28,478
<OTHER-EXPENSES> (132) 96
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 37 (33)
<INCOME-PRETAX> 449 1,515
<INCOME-TAX> 141 575
<INCOME-CONTINUING> 308 940
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 308 940
<EPS-PRIMARY> .07 .19
<EPS-DILUTED> .07 .19
</TABLE>
