AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 23, 1998
REGISTRATION STATEMENT NO. 333-50803
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TECHNISOURCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
FLORIDA 7363 59-2786227
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<S> <C>
JOSEPH W. COLLARD
1901 WEST CYPRESS CREEK ROAD 1901 WEST CYPRESS CREEK ROAD
SUITE 202 SUITE 202
FT. LAUDERDALE, FLORIDA 33309 FT. LAUDERDALE, FLORIDA 33309
(954) 493-8601 (954) 493-8601
(ADDRESS, INCLUDING ZIP CODE, (NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AREA CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
</TABLE>
---------------
COPIES TO:
<TABLE>
<S> <C>
STEVEN SONBERG, ESQ. JEFFREY A. SCHUMACHER, ESQ.
HOLLAND & KNIGHT LLP SACHNOFF & WEAVER, LTD.
701 BRICKELL AVENUE 30 S. WACKER DRIVE
SUITE 3000 SUITE 2900
MIAMI, FLORIDA 33131 CHICAGO, ILLINOIS 60606
(305) 374-8500 (312) 207-1000
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 JUNE 23, 1998
PROSPECTUS
, 1998
3,100,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
All of the 3,100,000 shares of Common Stock offered hereby are being sold
by Technisource, Inc. ("Technisource" or the "Company").
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 $12.00 and $14.00 per share. See "Underwriting"
for information relating to the factors to be considered in determining the
initial public offering price.
Application has been made for the Common Stock to be approved for
quotation on the Nasdaq National Market under the symbol "TSRC."
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Per Share ......... $ $ $
Total(3) .......... $ $ $
- --------------------------------------------------------------------------------
</TABLE>
(1) SEE "UNDERWRITING" FOR INDEMNIFICATION ARRANGEMENTS WITH THE UNDERWRITERS.
(2) BEFORE DEDUCTING EXPENSES, ESTIMATED AT $700,000, WHICH WILL BE PAID BY THE
COMPANY.
(3) CERTAIN SHAREHOLDERS (THE "SELLING SHAREHOLDERS") HAVE GRANTED TO THE
UNDERWRITERS A 30-DAY OPTION TO PURCHASE UP TO 465,000 ADDITIONAL SHARES
OF COMMON STOCK AT THE PRICE TO THE PUBLIC, LESS UNDERWRITING DISCOUNTS
AND COMMISSIONS, SOLELY TO COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION
IS EXERCISED IN FULL, THE TOTAL PRICE TO THE PUBLIC, UNDERWRITING
DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE SELLING SHAREHOLDERS WILL BE
$ , $ AND $ , RESPECTIVELY. THE COMPANY WILL NOT RECEIVE ANY
OF THE PROCEEDS FROM THE SALE OF SHARES OF COMMON STOCK BY THE SELLING
SHAREHOLDERS PURSUANT TO THE UNDERWRITERS' OVER-ALLOTMENT OPTION, IF
EXERCISED. SEE "PRINCIPAL AND SELLING SHAREHOLDERS" AND "UNDERWRITING."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the share certificates will be made in
New York, New York on or about , 1998.
DONALDSON, LUFKIN & JENRETTE WILLIAM BLAIR & COMPANY
SECURITIES CORPORATION
<PAGE>
[MAP OF TECHNISOURCE OFFICE LOCATIONS]
----------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS
PROSPECTUS ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT
EXERCISED. ALL SHARE AND PER SHARE DATA IN THIS PROSPECTUS HAVE BEEN ADJUSTED
TO GIVE RETROACTIVE EFFECT TO A 72,000 FOR 1 STOCK SPLIT EFFECTED MAY 26, 1998.
UNLESS OTHERWISE INDICATED, THE TERMS "COMPANY" AND "TECHNISOURCE" REFER
COLLECTIVELY TO TECHNISOURCE, INC., TECHNISOURCE OF FLORIDA, INC. AND
TECHNISOURCE MIDWEST, INC., AND THE COMPANY'S FINANCIAL STATEMENTS REFER TO THE
COMBINED FINANCIAL STATEMENTS OF SUCH ENTITIES.
THE COMPANY
Technisource is a national provider of information technology ("IT")
services through 22 offices in the United States and Canada, utilizing over 900
highly trained consultants. The Company's consultants provide services which
are used to design, develop and implement IT solutions, including database
development, documentation and training, enterprise resource planning ("ERP")
package implementation, help desk/desktop support, Internet/intranet
development, mainframe development, network engineering, real-time development,
systems administration and testing & quality assurance. The Company's services
are provided to various departments within its client's organization, including
research and product development departments.
Over the last ten years, the Company has developed and refined an internal
growth methodology (the "Technisource Growth Model"), which is focused on
facilitating rapid internal growth through the replication of Technisource
Development Triangles. Each Development Triangle is typically comprised of one
account manager, two trained recruiting professionals and a group of IT
consultants. As the revenues generated by a Development Triangle reach critical
mass, a high-performing recruiting professional from the Development Triangle
is promoted to account manager and forms a new Development Triangle, which is
seeded with a portion of the revenue-generating projects and consultants from
the original Development Triangle. This scalable model fuels growth by
developing and retaining employees within the Technisource culture and by
reducing the time required to achieve profitability and the risks associated
with expansion.
The Company has demonstrated the scalability of the Technisource Growth
Model, having replicated over 40 Development Triangles. This has resulted in
rapid internal growth, as revenues have increased at a five-year compound
annual growth rate of 60.0%, from $10.3 million in 1993 to $67.3 million in
1997. The Company has grown from four branch offices in 1993 to 16 branch
offices in 1997, and has added six branch offices in 1998.
Business organizations are increasingly relying on IT solutions to resolve
business issues and improve productivity. The migration of technology
throughout the business enterprise has created a wide range of opportunities,
including improved service and product capabilities. Organizations are also
outsourcing technology services functions throughout the business enterprise in
order to keep pace with rapidly changing technologies, efficiently match
employee skills and utilization levels with current needs and address the
growing shortage of IT professionals. According to industry sources, the
worldwide market for IT services was estimated at $280 billion in 1997, with a
projected market of $400 billion for 2001.
3
<PAGE>
The Company's goal is to maximize growth and maintain profitability by
capitalizing on key industry dynamics. The key elements of the Company's
business strategy designed to achieve this goal are the following: (i) rapidly
deploy highly trained IT consultants; (ii) apply the Technisource Growth Model
by replicating Development Triangles; (iii) establish long-term client
relationships; (iv) provide a wide range of IT capabilities; (v) capitalize on
local presence; and (vi) leverage established infrastructure. Technisource's
substantial investment in a centralized infrastructure leaves the Company well
positioned to continue its expansion. For example, the Company has expanded its
proprietary TSRC Database to include over 100,000 potential consultants and
their qualifications, which allows the Company to identify and quickly deploy
IT consultants with the appropriate skill sets.
Technisource believes that the breadth of its service offerings fosters
long-term client relationships, affords cross-selling opportunities, reduces
its dependence on any single technology and enables the Company to attract
consultants with a variety of skill sets to service the needs of the Company's
clients. For each of the years 1995, 1996 and 1997, existing clients from the
previous year generated at least 80% of the Company's revenues. In 1997, the
Company provided IT services to over 200 clients in the United States,
including more than 390 divisions or business units, in a diverse range of
industries. Clients include AlliedSignal, AT&T, Caterpillar, Eli Lilly, General
Electric, General Motors, Honeywell, Lockheed Martin, Lucent Technologies,
Motorola, Rockwell and UPS.
The Company's strategy is to leverage the Technisource Growth Model to
generate same-office growth and expansion of branch-office locations, and to
selectively take advantage of acquisition opportunities. The Company's growth
strategy includes the following elements: (i) expand geographic presence
through opening new branch offices; (ii) broaden service lines and IT
capabilities; (iii) leverage existing client base; and (iv) pursue strategic
acquisitions or partnerships.
The Company's executive offices are located at 1901 West Cypress Creek
Road, Suite 202, Ft. Lauderdale, Florida 33309, and its telephone number is
(954) 493-8601.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company ....................... 3,100,000 shares
Common Stock to be outstanding after the offering ......... 10,300,000 shares(1)
Use of proceeds ........................................... Payment of undistributed S corporation
earnings; repayment of existing debt;
expansion of existing operations, including
opening additional branch offices,
development of new service lines and
possible acquisitions of related businesses;
and general corporate purposes, including
working capital.
Proposed Nasdaq National Market Symbol .................... TSRC
</TABLE>
- ---------------------
(1) Excludes: (i) options that will be outstanding upon the consummation of
this offering to purchase 361,620 shares of Common Stock at a weighted
average exercise price of $1.30 per share, assuming an initial public
offering price of $13.00 per share; and (ii) 1,531,538 additional shares
of Common Stock reserved for issuance upon exercise of options that may be
granted in the future under the Company's Incentive Stock Option Plan. See
"Management--Employee Benefit Plans" and Notes 7 and 11 of Notes to
Financial Statements.
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................... $10,285 $15,572 $29,130 $40,360 $ 67,327 $13,400 $ 22,780
Cost of revenues ........................... 8,758 12,050 21,879 30,624 50,775 10,122 17,210
------- ------- ------- ------- -------- ------- --------
Gross profit ............................... 1,527 3,522 7,251 9,736 16,552 3,278 5,570
Selling, general and administrative
expenses ................................. 1,685 2,536 4,778 6,659 12,222 2,360 4,302
------- ------- ------- ------- -------- ------- --------
Operating income (loss) .................... (158) 986 2,473 3,077 4,330 918 1,268
Interest and other income .................. 16 9 23 8 27 -- --
Interest expense ........................... 2 20 60 105 160 44 38
------- ------- ------- ------- -------- ------- --------
Income (loss) before income taxes .......... (144) 975 2,436 2,980 4,197 874 1,230
Income taxes (benefit) ..................... (388) -- 22 231 183 38 59
------- ------- ------- ------- -------- ------- --------
Net income ................................. $ 244 $ 975 $ 2,414 $ 2,749 $ 4,014 $ 836 $ 1,171
Pro forma provision for incremental
income taxes(1) .......................... 335 375 930 851 1,500 312 412
------- ------- ------- ------- -------- ------- --------
Pro forma net income (loss) ................ $ (91) $ 600 $ 1,484 $ 1,898 $ 2,514 $ 524 $ 759
======= ======= ======= ======= ======== ======= ========
Pro forma net income per share--basic ...... $ 0.35 $ 0.11
======== ========
Pro forma net income per share--diluted..... $ 0.31 $ 0.09
======== ========
Weighted average shares outstanding--
basic .................................... 7,200 7,200
Weighted average shares outstanding--
diluted(2) ............................... 8,217 8,217
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
---------------------------
ACTUAL AS ADJUSTED(3)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 163 $26,137
Working capital .................... 6,322 34,991
Total assets ....................... 13,864 40,238
Total debt ......................... 2,305 --
Total shareholders' equity ......... 8,004 36,683
</TABLE>
- ---------------------
(1) The pro forma statement of operations information has been computed for the
pro forma period by adjusting the Company's net income, as reported for
such period, to record incremental income taxes which would have been
recorded had the Company been a C corporation during such period. See "S
Corporation Distribution," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of Notes to
Financial Statements.
(2) The weighted average shares outstanding-diluted includes: (i) the pro forma
effect of the sale (at an assumed initial public offering price of $13.00
per share) of 716,441 shares of Common Stock offered hereby needed to
generate net proceeds sufficient to pay the estimated $8.5 million S
corporation distribution; and (ii) the dilutive effect of common stock
equivalents using the treasury stock method.
(3) As adjusted to give effect to: (i) an estimated $8.5 million S corporation
distribution and the recognition of a net deferred tax asset of
approximately $400,000 upon the termination of the Company's S corporation
election; and (ii) the sale of 3,100,000 shares of Common Stock offered by
the Company hereby, assuming an initial public offering price of $13.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds," "S Corporation Distribution" and Notes 4 and 11 of
Notes to Financial Statements.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN CONNECTION
WITH AN INVESTMENT IN THE SHARES OF THE COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS CAN
GENERALLY BE IDENTIFIED AS SUCH BECAUSE THE CONTEXT OF THE STATEMENT INCLUDES
WORDS SUCH AS THE COMPANY "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS," OR
OTHER WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE THE
COMPANY'S FUTURE PLANS, OBJECTIVES AND GOALS ARE ALSO FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS.
RISKS RELATING TO RECRUITMENT AND RETENTION OF IT PROFESSIONALS
The Company's business involves delivering IT services capabilities and is
labor-intensive. The Company's success depends upon its ability to attract,
develop, motivate and retain highly skilled IT consultants possessing the
technical skills and experience necessary to meet client needs. Qualified IT
consultants are in high demand worldwide and are likely to remain a limited
resource for the foreseeable future. The shortage of IT professionals has in
the past and is likely in the future to result in wage inflation. To the extent
the Company is unable to make corresponding increases in its billing rates, the
Company's results of operations could be materially adversely affected.
Further, IT consultants typically provide services on an
assignment-by-assignment basis and can terminate an assignment with the Company
at any time. The Company's success will depend in part on its ability to
attract consultants with skill sets that keep pace with continuing changes in
industry standards and client preferences. The Company competes for such
individuals with general IT services firms, temporary staffing and personnel
placement companies, general management consulting firms, major accounting
firms, divisions of large hardware and software companies, systems consulting
and implementation firms, programming companies and niche providers of IT
services. Many of the IT consultants who work with the Company also work with
the Company's competitors, and there can be no assurance that IT consultants
currently working on projects for the Company will not choose to work for
competitors on future assignments. There also can be no assurance that
qualified IT consultants will continue to be available to the Company in
sufficient numbers, or that the Company will be successful in retaining current
or future consultants. Failure to attract or retain qualified IT consultants in
sufficient numbers could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business--Human
Resources and Recruiting."
CONCENTRATION OF REVENUES
The Company derives a significant portion of its revenues from a limited
number of clients. During 1997, the Company's two most significant clients,
Motorola and Rockwell, accounted for approximately 21% and 15% of the Company's
revenues, respectively, and the Company's top ten clients accounted for
approximately 53% of its revenues. In 1996, Motorola and Rockwell together
accounted for 32% of the Company's revenues, and for the quarter ended March
31, 1998, these companies together accounted for 38% of the Company's revenues.
There can be no assurance that these clients will continue to engage the
Company for additional projects or do so at the same revenue levels. Clients
engage the Company on an assignment-by-assignment basis, and a client can
generally terminate an assignment at any time without penalty. Conditions
affecting any of the Company's significant clients could cause such clients to
reduce their usage of the Company's services for reasons unrelated to the
Company's performance. The loss of any significant client or a decrease in the
revenues generated from such a client could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Clients and Representative Solutions."
RISKS RELATING TO DEVELOPMENT OF NEW BRANCH OFFICE LOCATIONS
The Company's growth is partially dependent on the internal development of
new branch offices. This expansion is dependent on a number of factors,
including the Company's ability to: attract, hire,
6
<PAGE>
integrate and retain qualified revenue-generating employees; accurately assess
the demand for the Company's IT services in a new market; initiate, develop and
sustain corporate client relationships in each new regional market; and
continue to replicate its Development Triangles to help provide an initial base
of revenues for each new office. The addition of new branch offices typically
results in increases in operating expenses, primarily due to the hiring of
additional employees. Expenses are incurred in advance of forecasted revenue,
and there is typically a delay before the Company's newly opened offices reach
full productivity, resulting in initial losses. Newly opened offices generally
operate at a loss for their first 10 to 12 months of operation; however there
can be no assurance that newly opened offices will become profitable within
expected time frames, or at all. Also, there can be no assurance that the
Company can profitably expand with new branch office locations or that new
offices will meet the growth and profitability objectives of the Company. The
Company's business, operating results and financial condition could be
materially adversely affected if the Company fails to successfully implement
its new branch office strategy. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "Business--Growth
Strategy."
ABILITY TO MANAGE GROWTH
The Company has experienced rapid growth that has placed significant
demands on the Company's managerial, administrative and operational resources.
Revenues have grown from $10.3 million in 1993 to $67.3 million in 1997. The
Company's continued growth depends on its ability to hire recruiting
professionals and to hire and deploy additional IT consultants. Effective
management of the Company's growth will require the Company to continue to
improve its operational, financial and other management processes and systems.
The Company's failure to manage growth effectively could have a material
adverse effect on its business, operating results and financial condition. See
"Business--Growth Strategy."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's revenues and operating results are subject to significant
variation depending on the timing and number of client projects commenced and
completed during the quarter, acceleration in the hiring of recruiting
professionals and IT consultants, attrition and utilization rates, changes in
the pricing of the Company's services and timing of branch and service line
expansion activities, among other factors. The Company generally experiences
lower operating results in the first quarter due in part to the timing of
unemployment taxes, FICA tax accruals and delays in client contract renewals
due to clients' budget approval processes. Further, the Company generally
experiences a certain amount of seasonality in the fourth quarter due to the
number of holidays and the closing of client facilities during that quarter.
Because a high percentage of the Company's expenses, in particular personnel
and facilities costs, are relatively fixed, small variations in revenues may
cause significant variations in operating results. Additionally, the Company
periodically incurs cost increases due to the hiring of new employees and
strategic investments in its infrastructure in anticipation of future
opportunities for revenue growth. No assurances can be given that quarterly
results will not fluctuate, which may have a material adverse effect on the
Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Unaudited Quarterly Results."
COMPETITION
The IT services industry is highly competitive and served by numerous
national, regional and local firms, all of which are either existing or
potential competitors of the Company. The Company competes for both clients and
qualified technical consultants with a variety of competitors, including
general IT services firms, temporary staffing and personnel placement
companies, general management consulting firms, major accounting firms,
divisions of large hardware and software companies, systems consulting and
implementation firms, programming companies and niche providers of IT services.
Many of these competitors have substantially greater financial, technical and
marketing resources and greater name recognition than the Company. The IT
services industry is undergoing consolidation which may result in increasing
pressure on profit margins. In addition, there are relatively few barriers to
entry into the Company's markets and the Company has faced, and expects to
continue to face, additional competition
7
<PAGE>
from new entrants into its markets. Moreover, certain clients enter into
"preferred vendor" contracts to reduce the number of vendors with whom they do
business and obtain better pricing in return for a potential increase in the
volume of business to the preferred vendor. While these contracts may generate
higher volumes, they may also result in lower margins. Also, the failure to be
designated a preferred vendor may preclude the Company from providing services
to existing or potential clients. Further, there is a risk that clients may
elect to increase their internal IT resources to satisfy their needs. These
factors may limit the Company's ability to increase prices commensurate with
increases in employee compensation, which could adversely affect the Company's
profit margins. There can be no assurance that the Company will compete
successfully with existing or new competitors. See "Business--Competition."
RISKS ASSOCIATED WITH YEAR 2000 PROJECTS
The Company anticipates that the competition for technical consultants
will increase substantially as companies continue to hire technical consultants
to perform services to implement Year 2000 solutions. Such increased
competition could materially and adversely affect the Company's ability to
attract and retain qualified technical consultants in the future. The Company
also believes that many of its clients and potential clients will continue to
devote substantial resources to Year 2000 projects. As a result, the Company's
clients or potential clients may postpone other information systems projects
pending completion of their Year 2000 projects. This could adversely affect the
demand for the Company's services. In addition, the Company's competitors
offering Year 2000 services may be able to obtain other assignments from
clients previously served by the Company or may provide solutions which give
them an advantage in competing for new clients. Moreover, the Company expects
that Year 2000 projects will peak prior to calendar year 2000 as companies
address their Year 2000 needs. Thereafter, the availability of a substantial
number of IT consultants formerly engaged in Year 2000 projects could have a
material adverse effect on the Company, including reducing the demand for the
Company's IT consultants, increasing competition for available client
engagements, and creating downward pressure on pricing for the Company's
services.
DEPENDENCE ON KEY EMPLOYEES
The success of the Company is highly dependent on the efforts and
abilities of its key employees, including Joseph W. Collard, President and
Chief Executive Officer, James F. Robertson, Executive Vice President and Chief
Operating Officer, Paul Cozza, Vice President and Director of National Sales,
and John A. Morton, Vice President and Chief Financial Officer. Messrs. Collard
and Robertson each have entered into five-year employment agreements with the
Company that contain noncompetition covenants that extend for a period of one
year following termination of employment. Messrs. Cozza and Morton have each
entered into three-year employment agreements with the Company that contain
noncompetition covenants that extend for a period of two years following
termination of employment. Such agreements contain nondisclosure covenants that
terminate five years following termination of employment. Such agreements do
not guarantee that Messrs. Collard, Robertson, Cozza or Morton will continue
their employment with the Company or that such covenants will be enforceable.
The loss of the services of these or other key employees for any reason could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Management."
LIABILITY RISKS
The Company is exposed to liability with respect to actions taken by its
IT consultants while on assignment, such as damages caused by errors of IT
consultants and misuse of client proprietary information. Although the Company
maintains insurance coverage, due to the nature of the Company's engagements,
and in particular the access by IT consultants to client information systems
and confidential information, and the potential liability with respect thereto,
there can be no assurance that such insurance coverage will continue to be
available on reasonable terms or that it will be adequate to cover any such
liability. Further, many of the Company's engagements involve projects that are
critical to its clients' business or products, and the benefits provided by the
Company may be difficult to quantify. The Company's failure or inability to
meet a client's expectations in the execution of its services could result in a
material adverse effect on the client's business or products and, therefore,
8
<PAGE>
could give rise to claims against the Company or damage the Company's
reputation, which might adversely affect its business, operating results and
financial condition. Moreover, the Company may be exposed to claims of
discrimination and harassment and other similar claims as a result of
inappropriate actions allegedly taken by or against its IT consultants.
RISKS RELATED TO POSSIBLE ACQUISITIONS
The Company may expand its operations through the acquisition of
additional businesses. There can be no assurance that the Company will be able
to identify, acquire or profitably manage additional businesses or successfully
integrate any acquired businesses into the Company without substantial
expenses, delays or other operational or financial problems. Further,
acquisitions may involve a number of special risks, including diversion of
management's attention, failure to retain key acquired personnel, unanticipated
events or circumstances, legal liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's business, operating results and financial condition. To date,
neither the Company nor any member of its senior management has significant
experience completing or integrating acquisitions. Client dissatisfaction or
performance problems within an acquired firm could have a material adverse
impact on the reputation of the Company as a whole. There can be no assurance
that acquired businesses, if any, will achieve anticipated revenues and
earnings. The failure of the Company to manage any possible acquisitions
successfully could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, the Company may issue
additional shares of its capital stock to acquire such additional businesses,
which would have a dilutive effect on the Company's shareholders. See
"Business--Growth Strategy."
CONTROL BY PRINCIPAL SHAREHOLDERS
Upon completion of this offering, Mr. Collard and Mr. Robertson will
beneficially own approximately 35.3% and 33.9% (approximately 33.3% and 31.9%
if the Underwriters exercise their over-allotment option in full),
respectively, of the outstanding shares of Common Stock. As a result, Mr.
Collard and Mr. Robertson will retain the voting power to exercise control over
the election of directors and other matters requiring a vote of the
shareholders of the Company. Such a concentration of ownership may have the
effect of delaying or preventing a change in control of the Company and may
also impede or preclude transactions in which shareholders might otherwise
receive a premium for their shares over then current market prices. See
"Principal and Selling Shareholders."
RELIANCE ON INTELLECTUAL PROPERTY RIGHTS
The Company relies upon a combination of nondisclosure and other
contractual arrangements and trade secret, copyright and trademark laws to
protect its proprietary rights and the proprietary rights of third parties from
whom the Company may license intellectual property. The Company enters into
confidentiality agreements with its key employees and limits distribution of
proprietary information. There can be no assurance that the steps taken by the
Company in this regard will be adequate to deter misappropriation of
proprietary information or that the Company will be able to detect unauthorized
use of and take appropriate steps to enforce its intellectual property rights.
Although the Company does not believe that its activities infringe on the
rights of third parties, there can be no assurance that third parties will not
assert infringement claims against the Company in the future, that such
assertions will not result in costly litigation or require the Company to
obtain a license for the intellectual property rights of third parties, or that
such licenses will be available on reasonable terms or at all.
NO PRIOR MARKET FOR COMMON STOCK; STOCK PRICE VOLATILITY
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price per share of the Common Stock will be
determined by negotiations among management of the Company and representatives
of the Underwriters. The factors to be considered in determining the initial
public offering price include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the historical results of operations of the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at the
9
<PAGE>
time of this offering. The Nasdaq National Market initial listing requirements
include a requirement that there be at least three market makers for the
Company's Common Stock. The Company believes that there will be at least three
market makers for the Company's Common Stock upon the consummation of this
offering. However, there can be no assurance that an active public market in
the Common Stock will develop or be sustained. The Nasdaq National Market has
from time to time experienced extreme price and volume fluctuations that have
often been unrelated to the operating performance of particular companies. In
addition, factors such as announcements of technological innovations, new
products or services or new client engagements by the Company or its
competitors or third parties, conditions and trends in the IT services industry
and general market conditions may have a significant impact on the market price
of the Common Stock. The market price for the Common Stock may also be affected
by the Company's ability to meet analysts' or other market expectations, and
any failure or anticipated failure to meet such expectations, even if minor,
could have a material adverse effect on the market price of the Common Stock.
See "Underwriting."
RELIANCE ON FIXED-PRICE PROJECTS
The Company may bill certain projects on a fixed-price basis and other
projects on a fee-capped basis. These billing methods entail greater risk to
the Company than its standard billing on a time-and-materials basis. The
failure of the Company to complete projects billed other than on a time-and-
materials basis within budget or below the fee-cap would expose the Company to
the risks associated with cost overruns, which could have a material adverse
effect on the Company's business, operating results and financial condition.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Bylaws,
as well as the Florida Business Corporation Act, could make it more difficult
or discourage a third party from attempting to acquire control of the Company
without approval of the Company's Board of Directors. Such provisions could
also limit the price that certain investors might be willing to pay in the
future for shares of Common Stock. Certain of such provisions allow the Board
of Directors to authorize the issuance of preferred stock with rights superior
to those of the Common Stock. Moreover, certain provisions of the Company's
Articles of Incorporation or Bylaws generally permit directors to be removed by
the Board of Directors only for cause or, with or without cause, by a vote of
the holders of at least 50% of the outstanding shares of Common Stock, require
a vote of the holders of at least 60% of the outstanding Common Stock to amend
the Company's Articles of Incorporation or Bylaws, require a demand of the
holders of at least 50% of the outstanding Common Stock to call a special
meeting of shareholders, and prohibit shareholder actions by written consent.
See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Immediately after completion of this offering, the Company will have
10,300,000 shares of Common Stock outstanding, of which the 3,100,000 shares
sold pursuant to this offering will be freely tradeable without restriction or
further registration under the Securities Act of 1933, as amended (the
"Securities Act"), except for shares acquired by affiliates of the Company.
Holders of the remaining shares will be eligible to sell such shares pursuant
to Rule 144 ("Rule 144") under the Securities Act at prescribed times and
subject to the manner of sale, volume, notice and information restrictions of
Rule 144. The Company has granted certain registration rights covering an
aggregate of 7,128,000 shares of currently issued and outstanding Common Stock
(6,709,154 shares if the Underwriters' over-allotment option is exercised in
full). In addition, 361,620 shares of Common Stock are issuable upon the
exercise of stock options that will be outstanding upon the consummation of
this offering (277,539 of which will be exercisable at such time), which shares
will be registered by the Company under the Securities Act and after issuance
upon exercise may be freely tradeable without restriction. The Company and its
directors, executive officers and current shareholders (holding in the
aggregate 7,200,000 shares of Common Stock upon consummation of this offering),
have agreed not to offer, sell, contract to sell or otherwise dispose of,
directly or indirectly, any Common Stock, or any securities convertible into or
exchangeable or exercisable for Common Stock or exercise registration rights,
until 180 days after the date of this Prospectus, without the prior consent of
Donaldson, Lufkin & Jenrette
10
<PAGE>
Securities Corporation, which it may provide in whole or in part, with or
without a public announcement. Sales of substantial amounts of such shares in
the public market or the availability of such shares for future sale could
adversely affect the market price of the shares of Common Stock and the
Company's ability to raise additional capital at a price favorable to the
Company. See "Shares Eligible for Future Sale" and "Underwriting."
SIGNIFICANT UNALLOCATED NET PROCEEDS
The Company expects to use approximately $10.8 million of the estimated
$36.8 million net proceeds it receives from this offering (assuming an initial
public offering price of $13.00 per share) for specific identified purposes,
including payment of undistributed S corporation earnings and repayment of
existing debt, with the remainder of approximately $26.0 million to be used for
expansion of existing operations and general corporate purposes. As a result,
the Board of Directors will have broad discretion with respect to the use of a
large percentage of the net proceeds of this offering. There can be no
assurance that the Company will deploy these proceeds in a manner that enhances
shareholder value. See "Use of Proceeds."
IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price per share of Common Stock is
substantially higher than the net tangible book value per share of the Common
Stock. At an assumed initial public offering price of $13.00 per share,
purchasers of shares of Common Stock in this offering will experience immediate
and substantial dilution of $9.44 in the pro forma net tangible book value per
share of Common Stock. See "Dilution."
11
<PAGE>
THE COMPANY
The Company was incorporated on March 25, 1987 as a Florida corporation.
The Company maintains its principal executive offices at 1901 West Cypress
Creek Road, Suite 202, Ft. Lauderdale, Florida 33309, and its telephone number
is (954) 493-8601. The Company's web site address is www.tsi.net. The Company's
web site is not a part of this Prospectus. References to the Company currently
include two affiliated companies that have common ownership with the Company.
Upon the consummation of this offering, one of these affiliated companies will
become a wholly-owned subsidiary of the Company and the other, which is
currently inactive, will be dissolved.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered by the Company (after deduction of estimated underwriting
discounts and commissions and offering expenses payable by the Company) are
estimated to be approximately $36.8 million, assuming an initial public
offering price of $13.00 per share. The Company expects to use the net proceeds
from this offering for the following purposes: (i) an estimated $8.5 million
for payment of undistributed S corporation earnings to existing shareholders;
(ii) approximately $2.3 million for repayment in full of existing debt, which
bears interest at 0.5% over the prime rate (9.0% as of March 31, 1998) and
matures on August 31, 1998; (iii) expansion of existing operations, including
opening additional branch offices, development of new service lines and
possible acquisitions of related businesses; and (iv) general corporate
purposes, including working capital. The Company has no present commitments or
agreements and is not currently conducting negotiations with respect to any
acquisitions.
The principal purposes of this offering are to obtain additional capital,
facilitate future access for the Company to the public equity markets and
enhance the Company's ability to use its Common Stock as consideration for
potential acquisitions and as a means of attracting and retaining key
employees. The Company's management will retain complete discretion in the
application of a majority of the net proceeds. Pending use of the net proceeds
for the above purposes, the Company intends to invest such funds in short term,
interest-bearing, investment grade obligations. The Company will not receive
any proceeds from the sale of Common Stock by the Selling Shareholders, which
may be sold pursuant to the exercise of the Underwriters' over-allotment
option.
S CORPORATION DISTRIBUTION
Since January 1, 1993, the Company has been a corporation subject to
income taxation under Subchapter S of the Internal Revenue Code of 1986, as
amended (the "Code"). As a result, substantially all of the Company's net
income has been attributed, for income tax purposes, directly to the Company's
shareholders rather than to the Company. The Company's S corporation status
will terminate in connection with this offering and thereupon the Company will
make a final distribution (the "Distribution") to its existing shareholders in
an aggregate amount representing substantially all of the Company's
undistributed earnings taxed or taxable to its shareholders through the closing
of this offering. The Distribution is estimated to be approximately $8.5
million. Purchasers of Common Stock in this offering will not receive any
portion of the Distribution.
Following termination of its S corporation status, the Company will be
subject to corporate income taxation on an accrual basis under Subchapter C of
the Code. In connection with the termination of its S corporation status, the
Company estimates that it will record, in the quarter in which this offering
occurs, a net deferred tax asset and a corresponding net income tax benefit of
approximately $400,000. The majority of this net deferred tax asset will be
recorded in accordance with Statement of Financial Accounting Standards No.
109. See Notes 4 and 11 of Notes to Financial Statements.
12
<PAGE>
DIVIDEND POLICY
The Company made distributions to its shareholders while it was an S
corporation. The Company currently anticipates that it will retain all of its
future earnings for use in the operation and expansion of its business and does
not anticipate paying any cash dividends in the foreseeable future. Any
determination to pay dividends in the future will be at the discretion of the
Company's Board of Directors and will depend upon the Company's results of
operations, financial condition and other factors as the Board of Directors may
deem relevant.
CAPITALIZATION
The following table sets forth the short-term debt and total
capitalization of the Company as of March 31, 1998, and as adjusted to give
effect to: (i) the recording of a net deferred tax asset of approximately
$400,000 upon termination of the Company's S corporation status; (ii) an
estimated $8.5 million payment of undistributed S corporation earnings; and
(iii) the issuance of 3,100,000 shares of Common Stock by the Company (at an
assumed initial public offering price of $13.00 per share) and the application
of the estimated net proceeds therefrom. See "Use of Proceeds" and "S
Corporation Distribution." The following table should be read in conjunction
with the Financial Statements and related Notes thereto included elsewhere in
this Prospectus:
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------
ACTUAL AS ADJUSTED
<S> <C> <C>
Total short-term debt ................................................... $2,295,256 $ --
========== ===========
Notes payable ........................................................... $ 10,000 $ --
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares
issued and outstanding ............................................... -- --
Common stock, $.01 par value; 50,000,000 shares authorized;
7,200,000 issued and outstanding; 10,300,000 issued and outstanding
as adjusted(1) ....................................................... 72,000 103,000
Additional paid-in capital ............................................. -- 36,580,103
Retained earnings(2) ................................................... 7,932,103 --
---------- -----------
Total shareholders' equity ............................................ 8,004,103 36,683,103
---------- -----------
Total capitalization ................................................. $8,014,103 $36,683,103
========== ===========
</TABLE>
- ---------------------
(1) Excludes: (i) options that will be outstanding upon the consummation of
this offering to purchase 361,620 shares of Common Stock at a weighted
average exercise price of $1.30 per share, assuming an initial public
offering price of $13.00 per share; and (ii) 1,531,538 additional shares
of Common Stock reserved for issuance upon exercise of options that may be
granted in the future under the Technisource Long-Term Incentive Plan. See
"Management--Employee Benefit Plans" and Notes 7 and 11 of Notes to
Financial Statements.
(2) As adjusted to give effect to the distribution to existing shareholders of
retained earnings of the Company as an S corporation, which are estimated
to be $8.5 million at the time of the consummation of this offering. See
"S Corporation Distribution" and Note 11 of Notes to Financial Statements.
13
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1998 was
$8,004,103 or $1.11 per share. Net tangible book value per share is determined
by dividing the Company's tangible net worth (total tangible assets less total
liabilities) by the number of shares of Common Stock outstanding. After giving
effect to: (i) the recording of a net deferred tax asset of approximately
$400,000 upon termination of the Company's S corporation status; (ii) an
estimated $8.5 million payment of undistributed S corporation earnings; and
(iii) the issuance of 3,100,000 shares of Common Stock by the Company (at an
assumed initial public offering price of $13.00 per share) and the application
of the estimated net proceeds therefrom, the pro forma net tangible adjusted
book value of the Company as of March 31, 1998 would have been $36.7 million,
or $3.56 per share. See "Use of Proceeds" and "S Corporation Distribution."
This amount represents an immediate increase in net tangible book value of
$2.45 per share to existing shareholders of the Company and an immediate
dilution in net tangible book value of $9.44 per share to the purchasers of
Common Stock in this offering. The following table illustrates this dilution on
a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share of Common Stock ......... $ 13.00
Net tangible book value per share as of March 31, 1998 ................. $ 1.11
Increase in net tangible book value per share attributable to
new investors ........................................................ 2.45
Pro forma net tangible book value per share after this offering ......... 3.56
--------
Dilution in net tangible book value per share to new investors .......... $ 9.44
========
</TABLE>
The following table summarizes the total number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid for such shares by the existing shareholders and by new
investors purchasing Common Stock in this offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders(1) ......... 7,200,000 70.0% $ 72,000 --% $ 0.01
New investors(1) ................. 3,100,000 30.0 40,300,000 100.0 13.00
--------- ----- ----------- -----
Total .......................... 10,300,000 100.0% $40,372,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------------
(1) If the Underwriters' over-allotment option is exercised in full, sales by
the Selling Shareholders in this offering will reduce the number of shares
held by existing shareholders of the Company to 6,735,000 shares or 65.4%
of the total number of shares outstanding after this offering and will
increase the number of shares held by new investors to 3,565,000 shares or
34.6% of the total number of shares outstanding after this offering, and
the total consideration paid by new investors will increase to $46,345,000
or 100%. See "Principal and Selling Shareholders."
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of the Company in the table as of and for the
years ended December 31, 1995, 1996 and 1997 are derived from the financial
statements of the Company, which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere in this
Prospectus. The selected financial data of the Company in the table as of and
for the years ended December 31, 1993 and 1994 and the three months ended March
31, 1997 and 1998 are derived from the 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
information set forth therein. Results for the three months ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. The data presented below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Financial Statements and related Notes thereto
and the other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................................ $10,285 $15,572 $29,130 $40,360 $67,327
Cost of revenues ........................................ 8,758 12,050 21,879 30,624 50,775
------- ------- ------- ------- -------
Gross profit ............................................ 1,527 3,522 7,251 9,736 16,552
Selling, general and administrative expenses ............ 1,685 2,536 4,778 6,659 12,222
------- ------- ------- ------- -------
Operating income (loss) ................................. (158) 986 2,473 3,077 4,330
Interest and other income ............................... 16 9 23 8 27
Interest expense ........................................ 2 20 60 105 160
------- ------- ------- ------- -------
Income (loss) before income taxes ....................... (144) 975 2,436 2,980 4,197
Income taxes (benefit) .................................. (388) -- 22 231 183
------- ------- ------- ------- -------
Net income .............................................. $ 244 $ 975 $ 2,414 $ 2,749 $4,014
Pro forma provision for incremental income
taxes(1) (unaudited) ................................... 335 375 930 851 1,500
------- ------- ------- ------- -------
Pro forma net income (loss) (unaudited) ................. $ (91) $ 600 $ 1,484 $ 1,898 $2,514
======= ======= ======= ======= =======
Pro forma net income per share--basic
(unaudited) ............................................ $ 0.35
=======
Pro forma net income per share--diluted
(unaudited) ............................................ $ 0.31
=======
Weighted average shares outstanding--basic .............. 7,200
Weighted average shares outstanding--diluted(2) ......... 8,217
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1998
(IN THOUSANDS, EXCEPT
PER SHARE
DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................................ $13,400 $22,780
Cost of revenues ........................................ 10,122 17,210
------- -------
Gross profit ............................................ 3,278 5,570
Selling, general and administrative expenses ............ 2,360 4,302
------- -------
Operating income (loss) ................................. 918 1,268
Interest and other income ............................... -- --
Interest expense ........................................ 44 38
------- -------
Income (loss) before income taxes ....................... 874 1,230
Income taxes (benefit) .................................. 38 59
------- -------
Net income .............................................. $ 836 $1,171
Pro forma provision for incremental income
taxes(1) (unaudited) ................................... 312 412
------- -------
Pro forma net income (loss) (unaudited) ................. $ 524 $ 759
======= =======
Pro forma net income per share--basic
(unaudited) ............................................ $ 0.11
=======
Pro forma net income per share--diluted
(unaudited) ............................................ $ 0.09
=======
Weighted average shares outstanding--basic .............. 7,200
Weighted average shares outstanding--diluted(2) ......... 8,217
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
--------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .......... $ 260 $ 58 $ 6 $ 174 $ 470 $ 618 $ 163
Working capital .................... 894 1,836 3,390 3,191 5,964 3,700 6,322
Total assets ....................... 1,028 3,278 4,455 7,949 10,638 9,256 13,864
Total debt ......................... 11 1,021 371 2,693 822 1,964 2,305
Total shareholders' equity ......... 942 1,917 3,681 3,914 7,230 4,639 8,004
</TABLE>
- -------------------
(1) The pro forma statement of operations information has been computed for the
pro forma period by adjusting the Company's net income, as reported for
such period, to record incremental income taxes which would have been
recorded had the Company been a C corporation during such period. See "S
Corporation Distribution," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of Notes to
Financial Statements.
(2) The weighted average shares outstanding-diluted includes: (i) the pro forma
effect of the sale (at an assumed initial public offering price of $13.00
per share) of 716,441 shares of Common Stock offered hereby needed to
generate net proceeds sufficient to pay the estimated $8.5 million S
corporation distribution; and (ii) the dilutive effect of common stock
equivalents using the treasury stock method.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WHICH INVOLVE
SUBSTANTIAL RISKS AND UNCERTAINTIES. THESE FORWARD-LOOKING STATEMENTS CAN
GENERALLY BE IDENTIFIED AS SUCH BECAUSE THE CONTEXT OF THE STATEMENT INCLUDES
WORDS SUCH AS THE COMPANY "BELIEVES," "ANTICIPATES," "EXPECTS," "INTENDS," OR
OTHER WORDS OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE THE
COMPANY'S FUTURE PLANS, OBJECTIVES AND GOALS ARE ALSO FORWARD-LOOKING
STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD
DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Technisource is a national provider of IT services through 22 offices in
the United States and Canada, utilizing over 900 highly trained consultants.
The Company has achieved a compound annual revenue growth rate of 60.0% over
the past five years. This growth rate has been generated internally, without
the benefit of acquisitions.
The Company's revenues grew from $10.3 million in 1993 to $67.3 million in
1997. The Company's revenue growth is driven primarily by increases in the
number of consultants placed with existing and new clients. The number of
consultants utilized by the Company grew from 126 as of December 31, 1993 to
812 as of December 31, 1997, and to 925 as of May 27, 1998. For each of 1995,
1996 and 1997, clients from the previous year generated at least 80% of the
Company's revenues. The Company generates substantially all of its revenues
from fees for the provision of IT consulting services, most of which are billed
at contracted hourly rates. Clients are typically billed and consultants are
paid on a weekly basis. The Company recognizes revenues as services are
performed.
The Company's most significant cost is its personnel expense, which
consists primarily of salaries, fees and benefits of the Company's consultants.
To date, the Company has generally been able to maintain its gross profit
margin by offsetting increases in consultant salaries and fees with increases
in the hourly billing rates charged to clients. However, there can be no
assurance that the Company will continue to be able to offset increases in the
Company's cost of revenues by increasing the amounts the Company bills to its
clients. The Company attempts to control overhead and indirect expenses, which
are not passed through to its clients, by controlling the rate of its branch
office expansion and by maintaining centralized operations and back-office
infrastructure.
In anticipation of the Company's growth, the Company has made substantial
investments in its infrastructure, including: (i) the Company's proprietary
project and consultant TSRC Database; (ii) a national recruiting and training
center; (iii) the development and continued refinement of the Technisource
Growth Model and the process of replicating Development Triangles; and (iv) a
network of 22 branch offices in the United States and Canada. The Company's
substantial investment in a centralized infrastructure leaves the Company well
positioned to continue its expansion.
To support anticipated growth, the Company has invested in the expansion
of its proprietary TSRC Database of over 100,000 potential consultants and
their qualifications to ensure that IT professionals with the appropriate skill
sets are quickly deployed to respond to client needs and are placed on
assignments that utilize their technical skills and optimize their billing
rates. The Company has also established a formal two-week recruiting and
training program designed to train recruiting professionals in the Company's
culture and operating procedures and teach them the Company's proprietary
techniques and technical skills. The Company increased its administrative,
sales, recruiting and training professionals from 99 employees on December 31,
1996 to 190 employees on December 31, 1997.
Over the last ten years, the Company has developed and refined the
Technisource Growth Model, which is focused on facilitating rapid internal
growth through the replication of Development Triangles. The Company has grown
from four Development Triangles as of December 31, 1993 to 33 Development
Triangles as of December 31, 1997, and to more than 40 Development Triangles as
of
16
<PAGE>
May 27, 1998. The Company invested in the creation of over 15 Development
Triangles in 1997 which more than doubled the Company's sales and recruiting
capacities. Although the Company's operating margins may be adversely affected
during periods following relatively large increases in the number of the
Company's Development Triangles, the Company leverages its initial investment
in infrastructure as Development Triangles mature and the Company's sales and
recruiting personnel achieve greater levels of productivity.
The Company has opened six new branch offices in 1998. The Company
anticipates that each new branch office will require an investment of
approximately $100,000 to $150,000 in order to begin operations and fund
operating losses for an initial ten- to twelve-month period of operations,
which is the amount of time management believes should generally be required
for a new office to achieve profitability. The Company expenses the costs of
opening a new office as such expenses are incurred. The Company anticipates
continuing to leverage its current network of 22 branch offices, as the
start-up costs have already been expensed and additional start-up branch office
costs will constitute a smaller percentage of revenues as the Company continues
to increase its revenue base. There can be no assurance that new Development
Triangles or branch offices will be profitable within projected time-frames, or
at all. See "Risk Factors--Development of New Branch Office Locations."
Following termination of its S corporation status, the Company will be
subject to corporate income taxation on an accrual basis under Subchapter C of
the Code. In connection with the termination of its S corporation status, the
Company estimates that it will record, in the quarter in which this offering
occurs, a net deferred tax asset and a corresponding net income tax benefit of
approximately $400,000. The majority of this net deferred tax asset will be
recorded in accordance with Statement of Financial Accounting Standards No.
109. See Notes 4 and 11 of Notes to Financial Statements.
RESULTS OF OPERATIONS
The following tables set forth for the periods indicated the percentage of
revenues and the percentage change from the prior period of certain items
reflected in the Company's statements of income:
<TABLE>
<CAPTION>
PERCENTAGE
THREE MONTHS ENDED CHANGE FROM
YEARS ENDED DECEMBER 31, MARCH 31, PRIOR YEAR
----------------------------------- ----------------------- ---------------------
1995 1996 1997 1997 1998 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ........................... 100.0% 100.0% 100.0% 100.0% 100.0% 38.6% 66.8%
Cost of revenues ................... 75.1 75.9 75.4 75.5 75.5 40.0 65.8
----- ----- ----- ----- -----
Gross profit ....................... 24.9 24.1 24.6 24.5 24.5 34.3 70.0
Selling, general and administrative
expenses ......................... 16.4 16.5 18.2 17.6 18.9 39.4 83.5
----- ----- ----- ----- -----
Operating income ................... 8.5 7.6 6.4 6.9 5.6 24.4 40.7
Interest and other income .......... 0.1 -- -- -- -- * *
Interest expense ................... 0.2 0.2 0.2 0.4 0.2 75.6 51.8
----- ----- ----- ----- -----
Income before income taxes ......... 8.4 7.4 6.2 6.5 5.4 22.3 40.8
Income taxes ....................... 0.1 0.6 0.3 0.3 0.3 * *
----- ----- ----- ----- -----
Net income ......................... 8.3% 6.8% 5.9% 6.2% 5.1% 13.9% 46.0%
Pro forma provision for incremental
income taxes ..................... 3.2 2.1 2.2 2.3 1.8 * *
----- ----- ----- ----- -----
Pro forma net income ............... 5.1% 4.7% 3.7% 3.9% 3.3% 27.9% 32.5%
===== ===== ===== ===== =====
</TABLE>
- ---------------------
* Not meaningful.
17
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
REVENUES. The Company's revenues increased 70.0% from $13.4 million in the
first quarter of 1997 to $22.7 million in the first quarter of 1998. This
growth is primarily attributable to increased sales in existing offices and, to
a lesser extent, the addition of new branch offices. The total number of client
divisions and business units billed increased from 192 during the quarter ended
March 31, 1997 to 323 during the quarter ended March 31, 1998, and the number
of IT consultants working for the Company increased from 547 as of March 31,
1997 to 910 as of March 31, 1998.
GROSS PROFIT. Gross profit consists of revenues less cost of revenues. The
Company's cost of revenues consists primarily of compensation, benefits and
expenses for the Company's consultants and other direct costs associated with
providing services to clients. Gross profit increased 69.9% from $3.3 million
in the first quarter of 1997 to $5.6 million in the first quarter of 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consist primarily of costs associated with the
Company's direct selling and marketing efforts, human resources and recruiting
departments, administration, training and facilities. Selling, general and
administrative expenses increased 82.3% from $2.4 million in the quarter ended
March 31, 1997 to $4.3 million in the quarter ended March 31, 1998. As a
percentage of revenues, selling, general and administrative expenses increased
from 17.6% in the first quarter of 1997 to 18.9% in the first quarter of 1998.
This increase resulted from expenses incurred to build and enhance the
infrastructure necessary to support the Company's anticipated revenue growth,
including opening four branch offices during the first quarter of 1998.
1997 COMPARED TO 1996
REVENUES. The Company's revenues increased 66.8% from $40.4 million in
1996 to $67.3 million in 1997. This growth is primarily attributable to
increased sales in existing offices and, to a lesser extent, the addition of
seven new branch offices. Six of the seven additional offices were opened after
June 1 1997. The total number of client divisions and business units billed
increased from 292 during the year ended December 31, 1996 to more than 390
during the year ended December 31, 1997, and the number of IT consultants
working for the Company increased from 476 as of December 31, 1996 to 812 as of
December 31, 1997.
GROSS PROFIT. The Company's cost of revenues consists primarily of
compensation, benefits and expenses for the Company's consultants and other
direct costs associated with providing services to clients. Gross profit
increased 70.0% from $9.7 million in 1996 to $16.6 million in 1997. As a
percentage of revenues, gross profit increased from 24.1% in 1996 to 24.6% in
1997. This increase was attributable to the Company's shift of its business
toward higher value-added service offerings.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 83.5% from $6.7 million in 1996 to $12.2
million in 1997. As a percentage of revenues, selling, general and
administrative expenses increased from 16.5% in 1996 to 18.2% in 1997. This
increase resulted from expenses incurred to build and enhance the
infrastructure necessary to support the Company's anticipated revenue growth,
including opening six branch offices after June 1, 1997, and more than doubling
the number of Development Triangles and sales, administration, recruiting and
training professionals during 1997.
1996 COMPARED TO 1995
REVENUES. The Company's revenues increased 38.6% from $29.1 million in
1995 to $40.4 million in 1996. This growth is primarily attributable to
increased sales in existing offices and, to a lesser extent, the addition of
five new branch offices. The total number of client divisions and business
units billed increased from 150 during the year ended December 31, 1995 to 292
during the year ended December 31, 1996, and the number of IT consultants
working for the Company increased from 320 as of December 31, 1995 to 476 as of
December 31, 1996.
18
<PAGE>
GROSS PROFIT. Gross profit increased 34.3% from $7.3 million in 1995 to
$9.7 million in 1996. As a percentage of revenues, gross profit decreased from
24.9% in 1995 to 24.1% in 1996. This decrease is primarily attributable to
salary increases for IT consultants in 1996 that were only partially offset by
billing increases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 39.4% from $4.8 million in 1995 to $6.7
million in 1996. As a percentage of revenues, selling, general and
administrative expenses increased from 16.4% in 1995 to 16.5% in 1996.
UNAUDITED QUARTERLY RESULTS
The following table sets forth certain unaudited quarterly operating
information for each of the nine quarters ending March 31, 1998. This data
includes, in the opinion of management, all normal recurring adjustments
necessary for the fair presentation of the information for the periods
presented when read in conjunction with the Company's Financial Statements and
related Notes thereto. Results for any previous fiscal quarter are not
necessarily indicative of results for the full year or for any future quarter.
<TABLE>
<CAPTION>
QUARTERS ENDED
--------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues ....................... $ 8,259 $ 9,401 $ 10,484 $ 12,216
Cost of revenues ............... 6,335 7,030 8,112 9,147
------- ------- -------- --------
Gross profit ................... 1,924 2,371 2,372 3,069
Selling, general and
administrative expenses ....... 1,246 1,590 1,713 2,110
------- ------- -------- --------
Operating income ............... 678 781 659 959
Interest and other income
(expense) ..................... 4 2 -- 2
Interest expense ............... 3 19 26 57
------- ------- -------- --------
Income before income taxes ..... 679 764 633 904
Income taxes ................... 53 59 49 70
------- ------- -------- --------
Net income ..................... $ 626 $ 705 $ 584 $ 834
Pro forma provision for
incremental income taxes ...... 194 218 181 258
------- ------- -------- --------
Pro forma net income ........... $ 432 $ 487 $ 403 $ 576
======= ======= ======== ========
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues ....................... $ 13,400 $ 16,249 $ 17,333 $20,345 $22,780
Cost of revenues ............... 10,122 12,209 13,199 15,245 17,210
-------- -------- -------- ------- -------
Gross profit ................... 3,278 4,040 4,134 5,100 5,570
Selling, general and
administrative expenses ....... 2,360 2,695 3,112 4,055 4,302
-------- -------- -------- ------- -------
Operating income ............... 918 1,345 1,022 1,045 1,268
Interest and other income
(expense) ..................... -- -- 35 (8) --
Interest expense ............... 44 71 31 14 (38)
-------- -------- -------- -------- -------
Income before income taxes ..... 874 1,274 1,026 1,023 1,230
Income taxes ................... 38 53 46 46 59
-------- -------- -------- -------- -------
Net income ..................... $ 836 $ 1,221 $ 980 $ 977 $ 1,171
Pro forma provision for
incremental income taxes ...... 312 456 366 366 412
-------- -------- -------- -------- -------
Pro forma net income ........... $ 524 $ 765 $ 614 $ 611 $ 759
======== ======== ======== ======== =======
</TABLE>
The Company generally experiences lower operating results in the first
quarter due in part to the timing of unemployment taxes, FICA tax accruals and
delays in client contract renewals due to clients' budget approval processes.
Further, the Company generally experiences a certain amount of seasonality in
the fourth quarter due to the number of holidays and the closing of client
facilities during that quarter. No assurance can be given that future quarterly
results will not fluctuate, which may have a material adverse effect on the
Company's business and financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity have been cash flow from
operations and available borrowings under its line of credit. The Company's
cash flow from operating activities was $1.6 million, $1.0 million, $3.8
million and $(0.9) million for the years ended December 31, 1995, 1996 and 1997
and the quarter ended March 31, 1998, respectively. Because the Company has
elected to be treated as an S corporation for tax purposes, which will
terminate on the consummation of this offering, the Company's net cash provided
by operations does not recognize federal income taxes and reflects only certain
state income taxes.
The Company maintains a revolving line of credit with Barnett Bank, N.A.,
which provides for maximum borrowings of up to $8.0 million. The line of credit
is secured by the Company's accounts
19
<PAGE>
receivable and equipment and is guaranteed by the Company's controlling
shareholders. Interest is payable monthly at a variable rate of 0.5% over the
prime rate, which was 9.0% as of March 31, 1998. All interest and principal
outstanding under the line of credit is due on August 31, 1998. As of March 31,
1998, approximately $2.3 million was outstanding under the line of credit,
including bank overdrafts. The Company anticipates using a portion of the
proceeds of this offering to pay off the balance of the line of credit.
The Company anticipates that the net proceeds from the sale of Common
Stock offered hereby, together with existing sources of liquidity and funds
generated from operations, will provide adequate cash to fund its currently
anticipated cash needs at least through the next twelve months.
YEAR 2000 CONTINGENCY
The Company has performed an initial assessment of the impact of the "Year
2000 Issue" on its reporting systems and operations. The "Year 2000 Issue"
exists because many computer systems and applications currently use two-digit
fields to designate a year. As the century date occurs, date sensitive systems
will recognize the year 2000 as 1900, or not at all. Based on the Company's
initial assessment, it believes that its accounting systems and operations
substantially avoid the problems associated with the "Year 2000 Issue," thereby
enabling it to properly process critical financial and operational information.
There can be no assurance, however, that the Company's systems are Year 2000
compliant or that the systems of other companies on which the Company's systems
and operations rely will be timely converted to address the "Year 2000 Issue",
or that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company's business, operating results and financial position.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income," which establishes standards for
the reporting and presentation of comprehensive income and its components. In
June 1997, the FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement establishes standards for
reporting information about a company's operating segments and related
disclosures about its products, services, geographic areas of operations and
major clients. Both statements will be adopted by the Company in 1998. The
adoption of these statements will not impact the Company's results of
operations, cash flows or financial position.
20
<PAGE>
BUSINESS
OVERVIEW
Technisource is a national provider of information technology services
through 22 offices in the United States and Canada, utilizing over 900 highly
trained consultants. The Company's consultants provide services which are used
to design, develop and implement IT solutions, including database development,
documentation and training, ERP package implementation, help desk/desktop
support, Internet/intranet development, mainframe development, network
engineering, real-time development, systems administration and testing &
quality assurance. The Company's services are provided to various departments
within its client's organization, including research and product development
departments.
Since the Company's inception on March 25, 1987, the Company has developed
and refined an internal growth methodology which is focused on facilitating
rapid internal growth through the replication of Technisource Development
Triangles. Each Development Triangle is typically comprised of one account
manager, two trained recruiting professionals and a group of IT consultants. As
the revenues generated by a Development Triangle reach critical mass, a
high-performing recruiting professional from the Development Triangle is
promoted to account manager and forms a new Development Triangle, which is
seeded with a portion of the revenue-generating projects and consultants from
the original Development Triangle. This scalable model fuels growth by
developing and retaining employees within the Technisource culture and by
reducing the time required to achieve profitability and the risks associated
with expansion.
The Company has demonstrated the scalability of the Technisource Growth
Model, having replicated over 40 Development Triangles. This has resulted in
rapid internal growth, as revenues have increased at a five-year compound
annual growth rate of 60.0%, from $10.3 million in 1993 to $67.3 million in
1997. The Company has grown from four branch offices in 1993 to 16 branch
offices in 1997, and has added six branch offices in 1998.
The Company's goal is to maximize growth and maintain profitability by
capitalizing on key industry dynamics. The key elements of the Company's
business strategy designed to achieve this goal are the following: (i) rapidly
deploy highly trained IT consultants; (ii) apply the Technisource Growth Model
by replicating Development Triangles; (iii) establish long-term client
relationships; (iv) provide a wide range of IT capabilities; (v) capitalize on
local presence; and (vi) leverage established infrastructure. Technisource's
substantial investment in a centralized infrastructure leaves the Company well
positioned to continue its expansion. For example, the Company has expanded its
proprietary TSRC Database to include over 100,000 potential consultants and
their qualifications, which allows the Company to identify and quickly deploy
IT consultants with the appropriate skill sets.
Technisource believes that the breadth of its service offerings fosters
long-term client relationships, affords cross-selling opportunities, reduces
its dependence on any single technology and enables the Company to attract
consultants with a variety of skill sets to service the needs of the Company's
clients. For each of the years 1995, 1996 and 1997, existing clients from the
previous year generated at least 80% of the Company's revenues. In 1997, the
Company provided IT services to over 200 clients in the United States,
including more than 390 divisions or business units, in a diverse range of
industries. Clients include AlliedSignal, AT&T, Caterpillar, Eli Lilly, General
Electric, General Motors, Honeywell, Lockheed Martin, Lucent Technologies,
Motorola, Rockwell and UPS.
The Company's strategy is to leverage the Technisource Growth Model to
generate same-office growth and expansion of branch-office locations, and to
selectively take advantage of acquisition opportunities. The Company's growth
strategy includes the following elements: (i) expand geographic presence
through opening new branch offices; (ii) broaden service lines and IT
capabilities; (iii) leverage existing client base; and (iv) pursue strategic
acquisitions or partnerships.
21
<PAGE>
INDUSTRY OVERVIEW
Increased competition, deregulation, globalization and technological
advances are forcing business organizations to increasingly rely on IT
solutions to resolve business issues and increase productivity. The ability of
an organization to integrate, deploy and manage new information technologies
has become critical to its long-term viability and competitiveness. The
migration of technology throughout the business enterprise has created a wide
range of opportunities, including improved service and product capabilities.
These capabilities are being deployed throughout a variety of complicated
networking protocols, operating systems, databases, devices and architectures.
Organizations are increasingly outsourcing technology services functions
throughout the business enterprise in order to: (i) keep pace with rapidly
changing technologies; (ii) efficiently match employee skills and utilization
levels with current needs; and (iii) address the growing shortage of IT
professionals.
KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES. Growth in the IT services
industry has been fueled by the clients' need to remain competitive through the
use of emerging technology capabilities, including open and distributed
computing, client/server architectures, Internet/intranet, relational databases
and object-oriented programming. The pace of change in technology capabilities
quickly renders existing IT infrastructure obsolete and makes it more difficult
for organizations to maintain the requisite internal expertise needed to
evaluate, develop and integrate new technologies.
MATCH EMPLOYEE SKILLS AND UTILIZATION LEVELS WITH CURRENT NEEDS.
Increasingly, organizations are outsourcing technical functions to keep pace
with changes in technology and better match available skills with project
requirements. In today's rapidly changing environment, technical professionals
are often needed on a project by project basis. Organizations typically lack
the quantity or variety of IT skills necessary to efficiently match project
requirements with the availability of qualified internal employees. The
outsourcing of technical skills in a controlled environment creates higher
utilization rates and a more efficient deployment of technical skills.
Outsourcing IT services functions has also reduced management's exposure to
uncertain expenses, including the costs of recruiting, hiring, terminating and
under-utilizing permanent employees.
ADDRESS THE GROWING SHORTAGE OF IT PROFESSIONALS. Demand for consultants
is increasing due to the growing shortage of IT professionals. As business
organizations continue to move from centralized mainframe architectures to
distributed client/server technologies, the Company believes that the demand
for IT professionals will continue to rise. In addition, the shortage of
skilled IT professionals and the complexity of IT solutions have forced senior
executives to increasingly rely on outside specialists to help them execute IT
strategies. Business organizations often lack recruiting and employee
management networks capable of attracting and deploying, on short notice, large
numbers of qualified IT professionals. Further, these organizations often lack
the infrastructure necessary to provide training to IT professionals in
emerging technology skills. Third-party IT services providers have been able to
attract, develop, motivate and retain qualified IT professionals by offering a
variety of benefits, including the opportunity to train and work with emerging
technologies in multiple industries, flexible work and travel schedules, and
accelerating cash and stock compensation.
According to industry sources, the worldwide market for IT services was
estimated at $280 billion in 1997 with a projected market of $400 billion for
2001. The Company believes the IT services industry is highly fragmented and
will experience consolidation as smaller IT services firms are unable to meet
the wide-ranging service needs of, or provide nationwide services to, large
national or international clients, and are unable to achieve economies of scale
in recruiting, training and managing IT consultants. The Company believes that
these trends will provide opportunities for certain industry participants to
expand their operations by acquiring smaller IT consulting firms.
22
<PAGE>
BUSINESS STRATEGY
The Company's goal is to maximize growth and maintain profitability by
capitalizing on key industry dynamics. The key elements of the Company's
business strategy designed to achieve this goal are the following:
RAPIDLY DEPLOY HIGHLY TRAINED IT CONSULTANTS. Technisource's growth has
been fueled by its ability to recruit and deploy, on short notice, experienced
IT professionals to meet client needs on a national basis. The Company's
proprietary TSRC Database of over 100,000 potential consultants and their
qualifications allows the Company to identify and quickly deploy IT consultants
with the appropriate skill sets to meet client needs. In order to maximize its
ability to capitalize on anticipated industry growth, the Company has developed
and maintained an aggressive consultant recruiting strategy, with a full
complement of recruiting professionals to support each of the Company's
offices. Also, the Company has made substantial investments in computer-based
training systems that enable its consultants to learn new skills in response to
changing industry requirements. This helps ensure the high quality of the
Company's consultants and helps them to achieve their career objectives.
APPLY THE TECHNISOURCE GROWTH MODEL BY REPLICATING DEVELOPMENT TRIANGLES.
Over the last ten years, the Company has developed and refined the Technisource
Growth Model. This model is focused on facilitating rapid internal growth
through the replication of Development Triangles. Each Development Triangle is
typically comprised of one account manager, two trained recruiting
professionals and a group of IT consultants, who are assigned to projects
managed by the account managers. As each Development Triangle reaches a
budgeted profitablity level, a high-performing recruiting professional from the
Development Triangle is promoted to account manager and a new Development
Triangle is created. Each new Development Triangle is seeded with a portion of
the revenue-generating projects and consultants from the original Development
Triangle. Account managers involved in the creation of several Development
Triangles may be further promoted to regional manager. The Company's TSRC
Database maximizes employee utilization and the expansion of skill sets by
managing the migration of consultants between projects and Development
Triangles. The Company has replicated over 40 Development Triangles, which
currently include over 900 consultants. The Company has demonstrated the
scalability of the Technisource Growth Model as revenues have increased at a
five-year compound annual growth rate of 60.0%, from $10.3 million in 1993 to
$67.3 million in 1997.
ESTABLISH LONG-TERM CLIENT RELATIONSHIPS. The Company's goal is to
continue to establish long-term client relationships that enable the Company to
cross-sell its capabilities within and expand the Company's business throughout
a client organization. The Company's account managers are trained to understand
the full breadth of the Company's capabilities and their clients' business
needs. By developing long-term client relationships, account managers are
better able to identify client needs and cross-sell the Company's services,
generating recurring revenue streams. For each of the years 1995, 1996, and
1997, existing clients from the previous year generated at least 80% of the
Company's revenues. An example of the Company's success in building long-term
client relationships is its relationship with Motorola, which was serviced by
one account manager and generated revenues of approximately $340,000 from three
client locations in 1993, and grew, through the Technisource Growth Model, to
six account managers, revenues of approximately $14.0 million and eight client
locations in 1997.
PROVIDE A WIDE RANGE OF IT CAPABILITIES. The Company's services are
provided to various departments within its client's organization, including
research and product development departments. The Company provides its clients
with a wide range of IT applications, solutions and services, including
database development, documentation and training, ERP package implementation,
help desk/desktop support, Internet/intranet development, mainframe
development, network engineering, realtime development, systems administration
and testing and quality assurance. These services are provided in a wide
variety of computing environments, and use leading technologies, including
client/server architectures, object-oriented programming languages and tools,
distributed database management systems and the latest networking and
communications technologies. In addition, the Company has
23
<PAGE>
developed proprietary methodologies and tools to improve productivity and
enhance the value of the Company's services. The wide range of the Company's IT
capabilities enhances the Company's ability to establish long-term client
relationships and provides the Company with the opportunity to cross-sell
multiple services.
CAPITALIZE ON LOCAL PRESENCE. Technisource has a geographically diverse
network of 22 branch offices in the United States and Canada, established and
grown by replicating Development Triangles. The Company's branch office network
demonstrates the Company's commitment to each local market, enables the Company
to generate additional client projects, and enhances the Company's ability to
attract experienced, locally based consultants. This branch network increases
efficiencies to clients by enhancing the Company's responsiveness and
minimizing travel expense.
LEVERAGE ESTABLISHED INFRASTRUCTURE. In order to facilitate the
Technisource Growth Model, the Company has made significant capital investments
in its infrastructure, including a centralized client server accounting system,
and centralized, state-of-the-art billing, collections, and payroll systems.
The Company also has a centralized training program in Ft. Lauderdale, Florida
for newly hired recruiting professionals, centralized CBT Systems training
capabilities through the Company's intranet site, and the proprietary TSRC
Database that matches the Company's client requirements with the skill sets of
the Company's IT consultants. This infrastructure has the capacity to support
significant growth with only modest additional capital expenditures and
additions to administrative personnel.
GROWTH STRATEGY
The Company's strategy is to grow its business by using the Technisource
Growth Model to generate same-office growth and expansion of branch office
locations, and to selectively take advantage of acquisition opportunities. The
Company has demonstrated the scalability of the Technisource Growth Model as
revenues have increased at a five-year internal compound annual growth rate of
60.0%, from $10.3 million in 1993 to $67.3 million in 1997. The Company's
growth strategy includes the following elements:
EXPAND GEOGRAPHIC PRESENCE BY REPLICATING DEVELOPMENT TRIANGLES.
Technisource has successfully expanded geographically by servicing new and
existing clients in strategic locations. The Company intends to continue to
expand its geographic presence by opening additional branch offices in selected
locations. The Company utilizes the Technisource Growth Model to establish new
branch offices by replicating Development Triangles in new locations. The
Company believes the Technisource Growth Model reduces the time required to
achieve profitability, as well as the risks associated with opening new
offices, by replicating Development Triangles. The Company has grown from four
branch offices in 1993 to 16 branch offices in 1997, and the Company has added
six branch offices in 1998. The Company's substantial investment in a
centralized infrastructure leaves the Company well positioned to continue the
expansion of its branch office locations. In connection with each new branch
office, the Company's Office Development Team acquires office space, outfits
the new office with appropriate hardware, integrates back-office operations
with the Company's centralized systems, and enables the new office to access
the Company's TSRC Database.
BROADEN SERVICE LINES AND IT CAPABILITIES. Technisource believes that it
can increase its revenues from existing clients and attract new clients by
expanding its base of IT professionals to include additional professionals with
an increasingly broad range of skill sets. The Company has expanded its service
lines and capabilities over the last ten years to utilize consultants with
skill sets, including database development, documentation and training, ERP
package implementation, help desk/desktop support, Internet/intranet
development, mainframe development, network engineering, realtime development,
systems administration and testing and quality assurance. The Company provides
its IT consultants with substantial computer-based training resources in order
to allow them to respond to market needs by retooling their skills. The Company
plans to continue to selectively expand the services it offers its clients in
order to meet its client's evolving technological needs.
LEVERAGE EXISTING CLIENT BASE. The Company intends to continue its
internal growth by expanding the amount of work it performs for existing
clients. By replicating the Development Triangles servicing
24
<PAGE>
existing clients, the Company can service additional divisions and business
units of existing clients and the Company's account managers can better
cross-sell the Company's wide range of capabilities. During 1997, the Company
provided services to over 200 clients in the United States, including more than
390 divisions or business units. The Company believes that its long-term client
relationships and its ability to address its client's needs throughout the life
cycle of their IT systems provides the Company with substantial growth
opportunities. For each of the years 1995, 1996, and 1997, existing clients
from the previous year generated at least 80% of the Company's revenues.
PURSUE STRATEGIC ACQUISITIONS OR PARTNERSHIPS. The Company intends to
selectively pursue strategic acquisitions that will provide well-trained,
high-quality professionals, new service offerings, additional industry
expertise, a broader client base and an expanded geographic presence, both
domestically and internationally. The Company believes that acquisition
opportunities exist due to the highly fragmented nature of the IT services
industry. The Company currently has no agreements, understandings or
commitments with respect to any potential acquisitions.
REPRESENTATIVE SERVICES AND SKILLS
Technisource offers its clients a comprehensive range of IT services
required to successfully design, develop and implement IT solutions. The
following is a summary of representative technology skill sets provided by the
Company:
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION OF SERVICES AND SKILLS
- -------------------------------- -------------------------------------------------------------------
<S> <C>
DATABASE DEVELOPMENT Database developers use products and toolsets including SQL,
Oracle, Sybase, Informix and Access. These professionals provide
data modeling, define relational database structures, resolve
scalability issues, perform physical/logical database design, and
design graphical user interfaces.
DOCUMENTATION AND TRAINING Professionals in this area document technical systems, develop
user manuals and train users on how to operate their technical
systems. Assignments in this area include employee productivity
improvement, knowledge transfer support and document
management.
ENTERPRISE RESOURCE PLANNING These professionals work with ERP packages from SAP,
Peoplesoft, BAAN, Oracle and J.D. Edwards. Assignments in this
area include redesigning the chart of accounts; identifying,
documenting and assessing current business processes; and
converting from a mainframe environment to an ERP
environment.
HELP DESK/DESKTOP SUPPORT These professionals typically support users of a device, software
package or operating system. The typical assignment is to provide
support for a large business with a multi-platform environment.
Specific tasks include providing phone support, on-site support
and troubleshooting.
INTERNET/INTRANET DEVELOPMENT These professionals are proficient in CGI, Perl, IIS, Cold Fusion,
JavaScript ++ and HTML. Typical services involve designing and
developing a web interface, as well as connectivity to a database
server that will allow a user to add to or query existing data.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
CATEGORY DESCRIPTION OF SERVICES AND SKILLS
- ------------------------------ -----------------------------------------------------------------------
<S> <C>
MAINFRAME DEVELOPMENT These professionals typically perform work utilizing MVS,
COBOL, JCL, DB2 and IMS. Services include analyzing change
requests, identifying requirements for fixes and enhancements,
developing project plans for known maintenance activities,
installing upgrades and enhancements and making program code
changes to existing on-line and batch programs.
NETWORK ENGINEERING Professionals providing these services are proficient with
gateways, routers, hubs, bridges, Ethernet, Token Ring, SNA,
FDDI, SONET, T1, DS3, Frame Relay, multi-point and TCP/IP.
The services provided involve network analysis, daily network
management, network utilization trend analysis, integration of
software to perform network/systems management, utilization of
core processes and process design techniques, capacity and
performance management and network tuning.
REALTIME DEVELOPMENT Professionals in this area are proficient in ADA, assembly
language, microprocessor experience and debuggers. Assignments
typically involve working with a large team of engineers
developing a subsystem for an aircraft or a communications
device. These assignments generally involve significant
documentation, testing and quality assurance requirements.
SYSTEMS ADMINISTRATION Professionals performing services in this capacity generally
specialize in a particular operating platform, including Sun/UNIX,
Windows NT, Lotus Notes or HP-UX. The tasks performed range
from establishing user accounts, installing software and hardware
upgrades, monitoring system performance and performing systems
programming and resource utilization studies.
TESTING & QUALITY ASSURANCE These professionals participate in clients' quality assurance efforts.
Services performed include interfacing with clients to develop
systems' test requirements; interpreting, determining and refining
test specifications; writing test plans; overseeing systems tests;
troubleshooting; establishing test tools; and writing test reports.
</TABLE>
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<PAGE>
CLIENTS AND REPRESENTATIVE SOLUTIONS
During 1997, the Company provided services to over 200 clients in the
United States, including more than 390 divisions or business units. More than
50% of the Company's revenues during 1997 were generated from Fortune 500
companies. The Company seeks to maximize its client retention rate and secure
follow-on engagements by being responsive to clients and providing high quality
services. For each of the years 1995, 1996, and 1997, existing clients from the
previous year generated at least 80% of the Company's revenues. During 1997,
the Company's two most significant clients, Motorola and Rockwell, accounted
for approximately 21% and 15% of the Company's revenues, respectively. The IT
services provided to Motorola were divided among a number of divisions and
subsidiaries in eight client locations. The Company has provided services to,
among others, the following clients in 1997:
<TABLE>
<S> <C> <C>
Aegon USA, Inc. General Motors Corporation Publix Super Markets, Inc.
AlliedSignal, Inc. Harris Corporation Raytheon Company
AT&T Corporation Hitachi Ltd. Rockwell International Corp.
Boehringer Mannheim Corp. Honeywell Inc. Scientific-Atlanta, Inc.
Caterpillar Inc Lockheed Martin Corporation Siemens Corporation
Digital Equipment Corporation Lucent Technologies Inc. Sunstrand Corporation
Eaton Corporation Motorola, Inc. Teradyne, Inc.
Eli Lilly & Company NCR Corporation Thomson Consumer Electronics
Florida Power Corporation Norand Corporation 3 Com Corporation
General Electric Company Northrop Grumman Corporation UPS of America, Inc.
</TABLE>
Examples of the Company's engagements are set forth below:
FORTUNE 100 TELECOMMUNICATIONS COMPANY. This technology-driven
telecommunications company, through a joint venture with two other Fortune 500
companies, established a nationwide commercial support service for a new
digital cellular network. The client was administering and supporting a UNIX-
based (Sun/Solaris) switching system that required a background in the area of
UNIX system administration. Over a twelve-month period, Technisource provided
over 30 IT consultants to serve as UNIX system administrators at multiple
locations throughout the United States. These consultants had extensive
backgrounds with Sun/Solaris in a networking and client/server environment and
also possessed expertise working with network cell sites (BTS & HD2) for
switches. The Company's IT consultants also monitored and administered cell
site control centers for large CDMA cellular networks and provided system level
support, including switching platforms, RF products and various processors and
applications, using analog and CDMA technologies. The Company's account manager
coordinated supervision of the project and the technical personnel with the
clients' engineering section project managers. The Company's involvement in
this project has led to an ongoing relationship with the client and a new
engagement with another Fortune 500 company to provide similar services.
FORTUNE 100 AVIONICS COMPANY. A client located in Ft. Lauderdale, Florida
needed to certify a flight critical system in accordance with Federal Aviation
Administration ("FAA") standards within an accelerated time-frame. The Company
supplied a team of more than 50 IT consultants, including a project manager,
team leaders, software engineers and support personnel over a six-month period
in order to complete the certification project on a timely basis. The Company's
highly experienced team of professionals developed the plans, standards and
work product to complete system testing, hardware/ software integration
testing, software integration testing and low-level requirements-based testing.
Certain of the Company's team members also assisted with the development of the
requirements, design and code for the system. All of the work products were
ISO-9001 compliant and the client's product was successfully certified by the
FAA.
The initial certification and development efforts by the Company resulted
in the Company being engaged by the client for four follow-on certification and
development programs. To date, three of these efforts have been successfully
certified by the FAA, and one is in progress.
DIVISION OF A FORTUNE 100 MANUFACTURING COMPANY. The Company was engaged
to assist this client with the upgrade of their development/communications
environment from Windows 3.1 to Windows 95 or Windows NT. Thirty of the
Company's software engineers and IT professionals worked with client
27
<PAGE>
project managers to provide programming, administration, technical expertise,
training, hardware deployment support in multiple locations and a help desk.
During this eight-month project, the Company provided research and tools that
facilitated a smooth transition between operating systems.
This project led to the Company being awarded a contract to provide
similar services in connection with the same client's transition from cc:mail
to Lotus Notes, and in connection with the client's combination of multiple
business units into one division. During a six-month period, the Company
assisted in the installation of a network operating system for the client's
entire multi-office organization.
SALES
New business engagements are generated by account managers, who manage the
Development Triangles. Upon being promoted from a recruiting professional to an
account manager in connection with the replication of a Development Triangle,
the account manager is seeded with a portion of the current revenue-generating
projects and a group of IT consultants from the original Development Triangle.
The Technisource Growth Model is designed to provide incentives to account
managers to generate new client engagements and further replicate Development
Triangles. The Company's execution of the Technisource Growth Model enabled the
Company to generate 76 new clients in 1996 and 89 new clients in 1997. In 1997,
the Company serviced over 200 clients, including more than 390 divisions or
business units.
Each account manager is responsible for managing client relationships,
ensuring that the Development Triangle is performing as expected, and
identifying new business opportunities. The Company has a national sales
director and three regional managers, who are responsible for the performance
of four-to-ten Development Triangles within one or more of the Company's
geographic locations. The Company's regional managers and account managers are
compensated through a highly incentive-based compensation system that includes
a combination of base salary, commissions and bonuses.
The Company intends to compensate all of its regional managers and account
managers with stock options in order to further align their interests with the
Company's shareholders and to increase the performance-based portion of their
compensation packages. The Company believes that its performance-based
compensation structure provides incentives to its employees and allows the
Company to retain high-performing employees by compensating them at competitive
levels.
HUMAN RESOURCES AND RECRUITING
The Technisource Growth Model is designed to expand the skills and develop
the careers of the Company's employees and consultants, while providing
substantial incentives to further the Company's growth. The Company provides
its IT consultants with substantial computer-based training resources in order
to allow its consultants to respond to market needs by retooling their skills.
This has resulted in the Company maintaining a highly skilled pool of
career-oriented IT consultants. The Company also develops the careers of its
recruiting professionals and account managers by promoting high-performing
recruiting professionals to account managers with responsibility for a
Development Triangle, and by promoting high-performing account managers to
regional managers, with responsibility for several Development Triangles in
multiple geographic locations.
The Company's future growth depends in large part on its ability to
attract, develop, motivate and retain highly skilled IT professionals. The
Company's strategy for attracting career-oriented IT professionals includes
providing computer-based training; allocation of assignments in accordance with
employee skills and career objectives; and an optional comprehensive benefits
package including a Company-matched 401(k) plan, health and dental insurance, a
flexible spending account and tuition reimbursement. The Company expects to use
employee stock options as an important part of its recruitment and retention
strategy. See "Management--Employee Benefit Plans."
On May 27, 1998, the Company had 113 full-time recruiting professionals
dedicated to hiring IT consultants and new recruiting professionals. The
Company actively recruits IT consultants and recruiting professionals by
advertising in leading national and local newspapers and trade magazines,
through employee recruitment and skill-matching capabilities on the Company's
web site, and by
28
<PAGE>
participating in career fairs. In addition, the Company provides incentives for
its employees and consultants to refer candidates for new positions.
Each new recruiting professional hired by the Company is trained during a
two-week training course held at the Company's training center located in Ft.
Lauderdale, Florida. The training course teaches the recruiting professionals
the Company's culture and operating procedures, proprietary tools and
techniques, and technical skills.
As part of its retention efforts, the Company has formulated a strategy
for minimizing turnover that emphasizes human resource management, competitive
salaries, comprehensive benefits and employee stock options. The Company's IT
professionals typically have bachelors or masters degrees in Computer Science
or other technical disciplines. As of May 27, 1998, the Company had 1,091
employees, including 840 IT professionals, 46 sales and marketing personnel,
113 recruiting professionals and 92 general and administrative personnel. As of
May 27, 1998, the Company also had 85 independent contractors working on client
engagements. The Company's employees are not represented by a union or covered
by a collective bargaining agreement and the Company believes that the
relationship between the Company and its employees is good.
COMPETITION
The IT services industry is highly competitive. The Company competes for
clients, qualified IT consultants, account managers and recruiting
professionals with a variety of companies, including general IT services firms,
temporary staffing and personnel placement companies, general management
consulting firms, major accounting firms, divisions of large hardware and
software companies, systems consulting and implementation firms, programming
companies and niche providers of IT services. Several traditional staffing
companies, which have historically emphasized the placement of clerical and
other less highly skilled personnel on short-term assignments, have begun to
provide IT services competitive with those provided by the Company. The Company
also competes for technical consultants within the internal IT departments of
its clients and potential clients. In addition, as part of the Company's growth
strategy, the Company may also compete with other IT staffing and services
companies for suitable acquisition candidates.
Several of the Company's competitors are substantially larger than the
Company and have greater financial and other resources. Many of these
competitors have also been in business much longer than the Company and have
significantly greater name recognition. Because the Company's competitors may
be able to meet a broader range of a client's IT staffing and services needs
and serve a broader geographic range than the Company, they may be better able
to compete for national client accounts.
The Company believes that the primary competitive factors in obtaining and
retaining clients are its ability to provide comprehensive IT solutions for all
aspects of a client's IT needs, its understanding of the specific requirements
of a project and its ability to rapidly deploy carefully screened, highly
trained IT consultants at competitive prices. The primary competitive factors
in attracting and retaining qualified candidates for IT consultant positions
are the Company's ability to offer competitive wages and provide a consistent
flow of high-quality and varied assignments.
FACILITIES
The Company's executive offices are located in Ft. Lauderdale, Florida,
where the Company leases approximately 16,000 square feet of office space. The
Company's other current offices are located in Huntsville, Alabama; Phoenix,
Arizona; Los Angeles and San Diego, California; Toronto, Canada; Jacksonville,
Tampa and Orlando, Florida; Atlanta, Georgia; Chicago, Palatine, Peoria and
Willowbrook, Illinois; Carmel, Indiana; Cedar Rapids and Des Moines, Iowa;
Overland Park, Kansas; Hazlet, New Jersey; Raleigh, North Carolina;
Wilkes-Barre, Pennsylvania and San Antonio, Texas. The Company believes that
its facilities are adequate for its current needs and that additional
facilities can be leased to meet future needs.
LITIGATION
There are no material legal proceedings pending against the Company or its
properties or to which the Company is a party.
29
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Joseph W. Collard ........... 41 President, Chief Executive Officer and Director
James F. Robertson .......... 37 Executive Vice President, Chief Operating Officer and Director
Paul Cozza .................. 35 Vice President of Sales and Director of National Sales
John A. Morton .............. 50 Vice President of Finance, Chief Financial Officer and Director
</TABLE>
JOSEPH W. COLLARD. Mr. Collard, a founder of the Company, has served as
its President and Chief Executive Officer and as a director since the formation
of the Company in March 1987. From 1981 to 1987, he served as a computer
consultant on a number of projects for, among others, Allied Signal, Lear
Siegler, Mannesmann Demag A.G., General Electric, IBM and Martin Marrieta. Mr.
Collard has over 15 years of experience in the IT services industry. Mr.
Collard holds a Bachelor of Business Administration degree from the University
of Michigan, Flint.
JAMES F. ROBERTSON. Mr. Robertson, a founder of the Company, serves as its
Executive Vice President and Chief Operating Officer and has served as a
director since the formation of the Company in March 1987. Prior to 1987, he
worked as a software engineer and consultant on a number of projects for, among
others, AlliedSignal, General Dynamics, Honeywell, Lear Siegler and United
Technologies. Mr. Robertson has over 15 years of experience in the IT services
industry. Mr. Robertson received a Bachelor of Science degree in Computer
Science from the University of Central Florida.
PAUL COZZA. Mr. Cozza joined the Company in 1990 and currently serves as
its Vice President of Sales and Director of National Sales. He has served the
Company as a recruiting professional, an account manager and a regional manager
of the Company's Midwest region. Mr. Cozza has over 13 years of sales
experience.
JOHN A. MORTON. Mr. Morton joined the Company as its Vice President of
Finance and Chief Financial Officer in November 1997 and was elected as a
director in April 1998. Prior to joining the Company, Mr. Morton was employed
as the chief financial officer of Tire Group International, Inc. since 1995, as
the chief financial officer of Advanced Promotions Technologies, Inc. between
1991 and 1995, and as the controller at Office Depot, Inc. from 1987 to 1991.
Mr. Morton is a certified public accountant and has an MBA from Southern
Illinois University.
ELECTION, COMMITTEES AND COMPENSATION OF DIRECTORS
The Board of Directors currently consists of three members. The Company
expects to fill two vacancies on the Board with independent directors within 90
days following the consummation of this offering. Each director holds office
until his successor is duly elected and qualified, or until his earlier death,
resignation or removal. An election of directors is held annually at the annual
meeting of the Company's shareholders.
Following the consummation of this offering, the Company intends to
establish a Compensation and Stock Option Committee (the "Compensation
Committee") and an Audit Committee.
The Compensation Committee will be responsible for recommending to the
Board of Directors the salaries, bonuses and other compensation for the
Company's executive officers and will establish such compensation levels for
the other officers and employees of the Company. The Compensation Committee
also will administer the Technisource Long-Term Incentive Plan (the "Incentive
Plan"), including, among other things, determining the amount, exercise price
and vesting schedule of stock options awarded under the Incentive Plan.
30
<PAGE>
The Audit Committee will review the scope and results of the annual audit
of the Company's consolidated financial statements conducted by the Company's
independent accountants, the scope of the other services provided by the
Company's independent accountants, proposed changes in the Company's financial
and accounting standards and principles, and the Company's policies and
procedures with respect to its internal accounting, auditing and financial
controls. The Audit Committee will also examine and consider other matters
relating to the financial affairs and accounting methods of the Company,
including selection and retention of the Company's independent accountants. The
Audit Committee is currently expected to be comprised of one employee director
and two independent directors.
Each non-employee director of the Company is entitled to receive a fee of
$1,500 for attendance at each meeting of the Board of Directors. In addition,
each non-employee director is entitled to receive $500 for attendance at each
separate meeting of a committee of the Board of Directors. All directors are
reimbursed for travel expenses incurred in connection with the performance of
their duties as directors.
Each non-employee director is entitled to receive an option to purchase
5,000 shares of Common Stock upon their appointment to the Board of Directors
and is entitled to receive an option to purchase 2,500 shares of Common Stock
annually thereafter, so long as they continue to serve on the Board of
Directors. See "Management--Employee Benefit Plans."
COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee prior to this offering.
Accordingly, Messrs. Collard and Robertson, the Company's President and Chief
Executive Officer and the Company's Executive Vice President and Chief
Operating Officer, respectively, had responsibility for all decisions with
respect to executive officer compensation.
31
<PAGE>
EXECUTIVE COMPENSATION
The table below sets forth certain information concerning the annual and
long-term compensation paid by the Company for services rendered during the
fiscal year ended December 31, 1997, with respect to those persons who were:
(i) the Company's Chief Executive Officer; and (ii) the other most highly
compensated executive officers of the Company who received compensation in
excess of $100,000 in that year (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------- -----------------------
SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS(#) COMPENSATION(1)
<S> <C> <C> <C> <C>
Joseph W. Collard ........... $ 104,000 $ -- -- $13,665
President and
Chief Executive Officer
James F. Robertson .......... 104,000 -- -- 10,694
Executive Vice President and
Chief Operating Officer
Paul Cozza .................. 175,349 143,000 -- 16,290
Vice President and
Director of National Sales
John A. Morton .............. 14,061(2) -- 15,385(3) --
Vice President and
Chief Financial Officer
</TABLE>
- ---------------------
(1) Consists of life insurance premiums paid by the Company, the Company's
reimbursement of certain personal expenses and matching contributions to
the Company's 401(k) Plan.
(2) Reflects the portion of Mr. Morton's annual salary received between
November 11, 1997, the date on which Mr. Morton commenced employment with
the Company, and December 31, 1997. Mr. Morton's annual salary is
$110,000. See "Management--Employment Agreements."
(3) Assuming an initial public offering price of $13.00 per share.
32
<PAGE>
EXECUTIVE OPTION GRANTS. The following table sets forth information
concerning options to purchase shares of Common Stock granted during 1997 to
the Named Executive Officers at no cost to such officers. The amounts shown as
potential realizable values on the options identified in the table are based on
assumed annualized rates of appreciation in the price of the Common Stock of 5%
and 10% over the term of the options. Actual gains, if any, on stock option
exercises are dependent on any future increases in the market price of the
Common Stock. There can be no assurance that the potential realizable values
reflected in this table will be achieved.
STOCK OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
John A. Morton ......... 15,385(1) 100% $ 9.75(1) 11/11/07 $94,337 $239,067
</TABLE>
- ---------------------
(1) Assuming an initial public offering price of $13.00 per share.
OPTION EXERCISES AND FISCAL YEAR-END VALUES. The following table sets
forth information concerning the value of unexercised options held by the Named
Executive Officers as of December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
------------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Paul Cozza ............. -- 303,158 $ -- $3,902,978
John A. Morton ......... -- 15,385(1) -- 50,001
</TABLE>
- ---------------------
(1) Assuming an initial public offering price of $13.00 per share.
(2) Calculated based on an initial public offering price of $13.00, less the
exercise price payable for such shares.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Joseph W. Collard
effective as of January 1, 1998. Under the agreement, Mr. Collard serves as
President and Chief Executive Officer of the Company for a term expiring on
December 31, 2002, unless earlier terminated for cause, upon the death or
disability of Mr. Collard, or, at the election of Mr. Collard, upon a change in
control of the Company. In the event that Mr. Collard is terminated without
cause or upon a change in control of the Company, in both cases as defined in
the agreement, Mr. Collard is entitled to receive as severance compensation his
base salary, bonus compensation, and annual stock options until the later to
occur of the date 36 months after such termination and December 31, 2002. In the
event of the death or disability of Mr. Collard, he is entitled to receive his
base compensation for the remaining term of the agreement and bonus compensation
for the year in which such death or disability occurred. The agreement provides
that Mr. Collard receives base annual compensation of $170,000 for each year
during the term of the agreement, subject to an annual increase in an amount to
be determined by the Board of Directors. Under the agreement, Mr. Collard also
receives an annual bonus in an amount to be determined by the Board of
Directors, based upon Mr. Collard's and the Company's performance. The agreement
also provides that the Company will provide Mr. Collard with the use of an
automobile. Mr. Collard is prohibited from competing with the Company during the
term of the agreement and for one year after termination thereof and is subject
to certain non-disclosure obligations for five years following termination of
the agreement.
33
<PAGE>
The Company entered into an employment agreement with James F. Robertson
effective as of January 1, 1998. Under the agreement, Mr. Robertson serves as
Executive Vice President and Chief Operating Officer of the Company for a term
expiring on December 31, 2002, unless earlier terminated for cause, upon the
death or disability of Mr. Robertson, or, at the election of Mr. Robertson, upon
a change in control of the Company. In the event that Mr. Robertson is
terminated without cause or upon a change in control of the Company, in both
cases as defined in the agreement, Mr. Robertson is entitled to receive as
severance compensation his base salary, bonus compensation, and annual stock
options until the later to occur of the date 36 months after such termination
and December 31, 2002. In the event of the death or disability of Mr. Robertson,
he is entitled to receive his base compensation for the remaining term of the
agreement and bonus compensation for the year in which such death or disability
occurred. The agreement provides that Mr. Robertson receives base annual
compensation of $160,000 for each year during the term of the agreement, subject
to an annual increase in an amount to be determined by the Board of Directors.
Under the agreement, Mr. Robertson also receives an annual bonus in an amount to
be determined by the Board of Directors based upon Mr. Robertson's and the
Company's performance. The agreement also provides that the Company will provide
Mr. Robertson with the use of an automobile. Mr. Robertson is prohibited from
competing with the Company during the term of the agreement and for one year
after termination thereof and is subject to certain non-disclosure obligations
for five years following termination of the agreement.
The Company entered into an employment agreement with Paul Cozza effective
as of January 1, 1998. Under the agreement, Mr. Cozza serves as Vice President
of Sales and Director of National Sales of the Company for a three-year term,
unless earlier terminated for cause or upon the death or disability of Mr.
Cozza. The term of Mr. Cozza's employment will be automatically renewed for an
additional one-year term unless either Mr. Cozza or the Company provides notice
of their intention not to renew the agreement. In the event that Mr. Cozza is
terminated without cause, as defined in the agreement, Mr. Cozza is entitled to
receive as severance compensation his base salary, bonus compensation, and
annual stock options until the later to occur of the date twelve months after
such termination and the end of the term of the agreement. The agreement
provides that Mr. Cozza will receive base annual compensation of $175,000 for
each year during the term of the agreement, subject to an annual increase in an
amount to be determined by the Board of Directors. Under the agreement, Mr.
Cozza is eligible to receive an annual stock option grant in an amount to be
determined by the Board of Directors based upon Mr. Cozza's and the Company's
performance. Mr. Cozza will also receive a bonus in an amount between $75,000
and $200,000 for 1998, based upon the profitability of the Company, and after
1998 in an amount to be determined by the Board of Directors based upon Mr.
Cozza's and the Company's performance. Mr. Cozza is prohibited from competing
with the Company during the term of the agreement and for two years after
termination thereof.
The Company entered into an employment agreement with John A. Morton
effective as of November 11, 1997. Under the agreement, Mr. Morton serves as
Vice President of Finance and Chief Financial Officer of the Company for a
three-year term, unless earlier terminated for cause or upon the death or
disability of Mr. Morton. The term of Mr. Morton's employment will be
automatically renewed for an additional one-year term unless either Mr. Morton
or the Company provides notice of their intention not to renew the agreement.
In the event that Mr. Morton is terminated without cause, as defined in the
agreement, Mr. Morton is entitled to receive as severance compensation his base
salary, bonus compensation, and annual stock options until the later to occur
of the date twelve months after such termination and the end of the term of the
agreement. The agreement provides that Mr. Morton will receive base annual
compensation of $110,000 for each year during the term of the agreement,
subject to an annual increase in an amount to be determined by the Board of
Directors. Under the agreement, Mr. Morton is eligible to receive an annual
bonus and an annual stock option grant in amounts to be determined by the Board
of Directors based upon Mr. Morton's and the Company's performance. Mr. Morton
is prohibited from competing with the Company during the term of the agreement
and for two years after termination thereof. Mr. Morton has received an option
to purchase 15,385 shares of Common Stock at an exercise price equal to $9.75
per share, based on an assumed initial public offering price of $13.00 per
share. These options vest over a three-year period beginning November 11, 1997
and expire on November 11, 2007.
EMPLOYEE BENEFIT PLANS
PROFIT SHARING 401(K) PLAN. The Company maintains a 401(k) defined
contribution plan (the "401(k) Plan"). All employees of the Company who have
completed three months of employment are
34
<PAGE>
eligible to participate in the 401(k) Plan, pursuant to which each participant
may contribute up to 15.0% of eligible compensation (up to a statutorily
prescribed annual limit of $10,000 in 1998). The Company may at its discretion
match contributions made by employees to the 401(k) Plan. All amounts
contributed by the employee participants and earnings on these contributions
are fully vested at all times. Employee participants may elect to invest their
contributions in various established funds.
LONG-TERM INCENTIVE PLAN. The Incentive Plan became effective January 1,
1998. The Incentive Plan provides for awards ("Awards") consisting of grants,
at no cost to the recipient, of discretionary stock options, formula stock
options, IT Professional stock options, stock appreciation rights, restricted
stock and performance awards to employees, non-employee directors, and other
persons who perform services for the Company.
The Incentive Plan is administered by the Company's Compensation
Committee, consisting of at least two directors of the Company who are
"non-employee directors" within the meaning of Rule 16b-3 promulgated under
Section 16(b) of the Exchange Act and who are "outside directors" within the
meaning of Section 162(m) of the Code and the regulations promulgated under
Section 162(m) of the Code. The Compensation Committee is authorized in its
discretion to select the individuals to whom Awards will be granted, determine
the type, size and terms and conditions of Awards, construe and interpret the
Incentive Plan, and provide for the acceleration of the date or dates on which
an option becomes exercisable. The Compensation Committee is authorized to
delegate the Incentive Plan administration responsibilities to one or more
employees of the Company. No determination has been made regarding the specific
criteria the Compensation Committee will consider in awarding benefits under
the Incentive Plan.
The maximum number of shares of Common Stock that may be made the subject
of Awards granted under the Incentive Plan is 1,590,000. In the event of any
certain changes in capitalization of the Company, however, the Compensation
Committee may adjust the maximum number and class of shares with respect to
which Awards may be granted, the number and class of shares which are subject
to outstanding Awards and the purchase price therefor. In addition, if any
Award expires or terminates without having been exercised, the shares of Common
Stock subject to the Award again become available for grant under the Incentive
Plan.
The Compensation Committee may grant Awards to any employee, non-employee
director, consultant, advisor, or independent contractor of the Company
("Optionee"). The Compensation Committee is authorized to grant to eligible
persons options ("Options") to purchase a specified number of shares of Common
Stock at a stated price per share. An Option may be intended to qualify as an
incentive stock option ("ISO") pursuant to the Code, or may be intended to be a
nonqualified option ("NQO"). The term of an ISO cannot exceed 10 years, and the
exercise price of any ISO must be equal to or greater than the fair market
value of the shares of Common Stock on the date of the grant. Any ISO granted
to a holder of 10% or more of the combined voting power of the capital stock of
the Company must have an exercise price equal to or greater than 110% of the
fair market value of the Common Stock on the date of grant and may not have a
term exceeding five years from the grant date. The exercise price and the term
of an NQO shall be determined by the Compensation Committee on the date that
the NQO is granted.
Options shall become exercisable in whole or in part by the Optionee on
the date or dates specified by the Compensation Committee. The Compensation
Committee may provide that an Option becomes exercisable in installments over a
period of years or upon the attainment of stated goals. The Compensation
Committee, in its sole discretion, may accelerate the date or dates on which an
Option becomes exercisable.
Each Option shall expire on such date or dates as the Compensation
Committee shall determine at the time the Option is granted. Upon termination
of an Optionee's employment with the Company (including by reason of the
Optionee's death), each unexercised Option (whether or not then exercisable)
shall terminate and be forfeited, except that any such Options which are then
exercisable
35
<PAGE>
shall remain exercisable for limited periods following termination of the
Optionee's employment as provided in the Plan. If an Optionee's employment with
the Company is terminated for cause (as defined in the Incentive Plan), all of
such person's Options shall immediately terminate.
Payment for shares of Common Stock purchased upon exercise of an Option
must be made in full at the time of purchase. Payment may be made in cash or in
any other manner as may be authorized by the Compensation Committee. Each
Option shall be evidenced by a written agreement containing such terms and
conditions consistent with the Incentive Plan as shall be established by the
Compensation Committee.
The Incentive Plan provides for automatic grants of NQOs to non-employee
directors ("Formula Options"). Each non-employee director will receive: (i) a
Formula Option to purchase 5,000 shares of Common Stock upon his or her initial
election and qualification as a member of the Board of Directors; and (ii) a
Formula Option to purchase 2,500 shares of Common Stock upon each re-election
and qualification as a member of the Board of Directors. The per share exercise
price of the Formula Option is equal to 100% of the fair market value of the
shares of Common Stock on the date of grant. Each Formula Option becomes
exercisable with respect to 100% of the underlying shares on the first
anniversary of the date of grant. If a non-employee director ceases to serve as
a director of the Company, each Formula Option shall remain exercisable for
limited periods following termination as provided in the Plan. Payment for
shares of Common Stock purchased upon exercise of a Formula Option must be made
in full at the time of purchase. Payment may be made in cash or in any other
manner as may be authorized by the Compensation Committee. Each Formula Option
shall be evidenced by a written agreement containing such terms and conditions
consistent with the Incentive Plan as shall be established by the Compensation
Committee.
The Compensation Committee is authorized in its discretion to grant to IT
professionals options to purchase a specified number of shares of Common Stock
at a stated purchase price per share (an "IT Professional Option"). The
purchase price of the shares of Common Stock subject to each IT Professional
Option shall be equal to 100% of the fair market value as of the date of grant.
No determination has been made regarding the specific criteria the Compensation
Committee will consider in awarding benefits under the Incentive Plan.
IT Professional Options will become exercisable in whole or in part by the
IT Professional on the date or dates specified by the Compensation Committee.
The Compensation Committee may provide that an IT Professional Option becomes
exercisable in installments over a period of years or upon the attainment of
stated goals. The Compensation Committee, in its sole discretion, may
accelerate the date or dates on which an IT Professional Option becomes
exercisable. Each IT Professional Option will terminate not more than ten years
from the date of the grant. If an IT professional's employment with the Company
is terminated for cause (as defined in the Incentive Plan), all of such
person's IT Professional Options will immediately terminate. Payment for shares
of Common Stock purchased upon exercise of an IT Professional Option must be
made in full at the time of purchase. Payment may be made in cash or in any
other manner as may be authorized by the Compensation Committee. Each IT
Professional Option will be evidenced by a written agreement containing such
terms and conditions consistent with the Incentive Plan as shall be established
by the Compensation Committee.
On October 27, 1993, the Company awarded, at no cost, stock options to
Paul Cozza, a Vice President and the Company's Director of National Sales.
Under the terms of the stock option award, Mr. Cozza is entitled to purchase up
to 303,158 shares of Common Stock at an exercise price of approximately $0.13
per share. Options to purchase up to 277,539 shares of Common Stock will become
exercisable upon the consummation of this offering, and the remaining options
become exercisable on December 31, 1998. The stock options expire on January 2,
2004. Concurrently with the closing of this offering, the Company also intends
to issue, at no cost to the recipient, options to purchase an aggregate of
43,077 shares of Common Stock, based on an initial public offering price of
$13.00 per share, to certain of its employees at an exercise price equal to
50% of the initial public offering price. The Company will incur
36
<PAGE>
compensation expense in the aggregate amount of $280,000 as a result of these
options, and will recognize such expense over a three-year period.
CERTAIN TRANSACTIONS
Joseph W. Collard and James F. Robertson, the controlling shareholders of
the Company, and the President and Chief Executive Officer, and Executive Vice
President and Chief Operating Officer of the Company, respectively, have
personally guaranteed the repayment of a loan to the Company by Barnett Bank,
N.A. It is anticipated that the loan will be repaid with a portion of the
proceeds from this offering and that Messrs. Collard and Robertson will be
released from their personal guarantees.
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of May 27, 1998, and as adjusted to
reflect the sale of the Common Stock offered hereby for: (i) each person known
by the Company to own beneficially more than 5.0% of the outstanding Common
Stock; (ii) each of the Company's directors; (iii) each of the Named Executive
Officers; and (iv) all directors and executive officers of the Company as a
group. All information with respect to beneficial ownership by the Company's
directors, Named Executive Officers or beneficial owners has been furnished by
the respective director, Named Executive Officer or beneficial owner, as the
case may be. Unless otherwise indicated below, each person or entity named
below has sole voting and investment power with respect to all Common Stock
shown as beneficially owned by such holder. Unless otherwise indicated in the
footnotes to the table set forth below, each person or entity named below has
an address in care of the Company's principal executive officers at 1901 West
Cypress Creek Road, Suite 202, Ft. Lauderdale, Florida 33309.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING AFTER OFFERING(1)
----------------------- ----------------------
NUMBER OF NUMBER OF
NAME SHARES PERCENT SHARES PERCENT
<S> <C> <C> <C> <C>
Joseph W. Collard ................... 3,635,280 50.5% 3,635,280 35.3
James F. Robertson .................. 3,492,720 48.5 3,492,720 33.9
Paul Cozza(2) ....................... 349,539 4.7 349,539 3.3
John A. Morton ...................... -- -- -- --
All executive officers and directors
as a group (4 persons)(2) ......... 7,477,539 100.0 7,477,539 70.7
</TABLE>
- ---------------------
* Less than 1%
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to an aggregate of 465,000 shares of Common Stock from the Selling
Shareholders, including 209,423 shares from Mr. Collard, 209,423 shares
from Mr. Robertson and 46,154 shares from Mr. Cozza. If the Underwriters'
over-allotment option is exercised in full, upon completion of this
offering Messrs. Collard, Robertson and Cozza would beneficially own
3,425,857 (33.3%), 3,283,297 (31.9%) and 303,385 (2.9%) shares of Common
Stock, respectively.
(2) Includes 277,539 shares subject to options that will become exercisable
upon the consummation of this offering.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01
per share ("Preferred Stock"). As of May 27, 1998, the Company had 7,200,000
shares of Common Stock outstanding and no shares of Preferred Stock
outstanding. As of May 27, 1998, the outstanding shares of Common Stock were
held by three shareholders.
COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote for each
share owned of record on all matters presented to shareholders. In the event of
a liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets of the Company,
if any, remaining after the payment of all debts and liabilities of the Company
and any liquidation preference of any outstanding Preferred Stock. The shares
of Common Stock have no preemptive rights, no cumulative voting rights and no
redemption, sinking fund or conversion provisions.
Holders of shares of Common Stock are entitled to receive dividends if,
as, and when declared by the Board of Directors out of funds legally available
therefor, subject to the dividend and liquidation rights of any Preferred Stock
that may be issued and outstanding and subject to any dividend restrictions in
the Company's credit facilities. No dividend or other distribution (including
redemptions or repurchases of shares of capital stock) may be made if after
giving effect to such distribution, the Company would not be able to pay its
debts as they become due in the usual course of business, or the Company's
total assets would be less than the sum of its total liabilities plus the
amount that would be needed at the time of a liquidation to satisfy the
preferential rights of any holders of Preferred Stock. See "Dividend Policy."
All of the Common Stock offered hereby will be, when issued and sold, duly
authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors of the Company is authorized, without further
shareholder action, to divide any or all shares of the authorized Preferred
Stock into series and to fix and determine the designations, preferences and
relative rights, and qualifications, limitations or restrictions thereon, of
any series so established, including voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. As of the
date of this Prospectus, the Board of Directors has not authorized any series
of Preferred Stock and there are no plans, agreements or understandings for the
authorization or issuance of any shares of Preferred Stock. However, because
the rights and preferences for any series of Preferred Stock may be set by the
Board of Directors in its sole discretion, those rights and preferences may be
superior to those of the Common Stock and thus may adversely affect the holders
of Common Stock.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation provide that special meetings of
shareholders may be called only by: (i) holders of not less than 50% of the
outstanding shares of Common Stock; or (ii) the President or a majority of the
Board of Directors. The Articles of Incorporation establish an advance notice
procedure for the nomination, other than by or at the direction of the Board of
Directors or a committee thereof, of candidates for election as directors, as
well as for other shareholder proposals to be considered at shareholders'
meetings. Moreover, certain provisions of the Company's Articles of
Incorporation and Bylaws generally permit directors to be removed by the Board
of Directors only for cause or, with or without cause, by the affirmative vote
of holders of at least 50% of the outstanding shares of Common Stock. The
preceding provisions of the Articles of Incorporation may be changed only upon
the affirmative vote of holders of 60% of the outstanding shares of Common
Stock.
The provisions of the Articles of Incorporation and Bylaws summarized in
the preceding paragraph and the provisions of Florida's Business Corporation
Act described under "Certain Provisions of Florida
39
<PAGE>
Law," contain provisions that may have the effect of delaying, deferring or
preventing a non-negotiated merger or other business combination. These
provisions are intended to encourage any person interested in acquiring the
Company to negotiate with and obtain the approval of the Board of Directors in
connection with the transaction. Certain of these provisions may, however,
discourage a future acquisition of the Company not approved by the Board of
Directors in which shareholders might receive a premium for their shares or
that a substantial number or even a majority of the Company's shareholders
might believe to be in their best interest. As a result, shareholders who
desire to participate in such a transaction may not have the opportunity to do
so. Such provisions could also discourage bids for the Common Stock at a
premium, as well as create a depressive effect on the market price of the
Common Stock.
CERTAIN PROVISIONS OF FLORIDA LAW
The Company is subject to several anti-takeover provisions under Florida
law that apply to a public corporation organized under Florida law, unless the
corporation has elected to opt out of those provisions in its articles of
incorporation or bylaws. The Company has not elected to opt out of those
provisions. The Florida Business Corporation Act (the "FBCA") prohibits the
voting of shares in a publicly-held Florida corporation that are acquired in a
"control share acquisition" unless the holders of a majority of the
corporation's voting shares (exclusive of shares held by officers of the
corporation, inside directors or the acquiring party) approve the granting of
voting rights as to the shares acquired in the control share acquisition. A
"control share acquisition" is defined as an acquisition that immediately
thereafter entitles the acquiring party to vote in the election of directors
within each of the following ranges of voting power: (i) one-fifth or more but
less than one-third of such voting power; (ii) one-third or more but less than
a majority of such voting power; and (iii) more than a majority of such voting
power.
The FBCA also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder," unless: (i) the transaction is approved by a majority
of disinterested directors before the person becomes an interested shareholder;
(ii) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; or (iii) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An interested shareholder is
defined as a person who together with affiliates and associates beneficially
owns more than 10% of the corporation's outstanding voting shares.
DIRECTOR AND OFFICER INDEMNIFICATION
The Company's Bylaws contain certain provisions indemnifying directors and
officers of the Company to the fullest extent permitted by law and providing
for the advancement of expenses incurred in connection with an action upon the
receipt of an appropriate undertaking to repay such amount if it is determined
that the individual in question is not entitled to indemnification.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the shares of Common Stock will be
American Stock Transfer and Trust Company.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock.
Sales of substantial amounts of Common Stock in the public market, or the
perception that such sales could occur, could adversely affect market prices
prevailing from time to time. Furthermore, since certain contractual and legal
restrictions on resale described below restrict the ability of the Company and
current shareholders of the Company from selling Common Stock, sales of
substantial amounts of Common Stock in the public market after the restrictions
lapse could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of 10,300,000 shares of Common Stock. Of these shares of Common Stock
outstanding, the 3,100,000 shares of Common Stock sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act. The remaining 7,200,000 shares of
Common Stock held by existing shareholders are "restricted securities" as that
term is defined in Rule 144 under the Securities Act ("Restricted Shares") and
have been held by officers of the Company for at least two years. Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rules 144 or 701 promulgated under the
Securities Act, which are summarized below. Sales of the Restricted Shares in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock. The Company has granted certain
registration rights to two of its shareholders. These shareholders have
"piggyback" registration rights to request that the Company register any of
their shares in the event that the Company proposes to register any of its
securities under the Securities Act. Additionally, these shareholders have
"demand" registration rights to have the Company prepare and file, on three
occasions each, a registration statement so as to permit a public offering and
sale of their shares of Common Stock.
The Company and the executive officers and directors of the Company have
each agreed that during the 180-day period after the date of this Prospectus,
they will not, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, sell, offer to sell, contract to sell, grant
any option to purchase or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock,
other than the Common Stock offered hereby, except that the Company may issue
shares upon the exercise of stock options granted prior to the execution of the
Underwriting Agreement, and may grant additional options under stock option and
other employee compensation plans, provided that, without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation, such options
shall not be exercisable during such period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner other than an affiliate of the Company)
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of: (i) one percent of the number of shares of
Common Stock then outstanding (which will equal approximately 103,000 shares
immediately after this offering); or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to certain
manner of sales provisions and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who
is not deemed to have been an affiliate of the Company at any time during the
90 days preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior owner
other than an affiliate), is entitled to sell such shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
Any employee, officer or director of or consultant to the Company who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell such shares in reliance on Rule 144 without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. In both cases, a holder of Rule 701 shares is required to wait until
90 days after the date of this Prospectus before selling such shares.
41
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the Underwriters named below, who
are represented by Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and William Blair & Company, L.L.C. (the "Representatives"), have severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation .........
William Blair & Company, L.L.C. .............................
Total ..................................................... 3,100,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Common Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the initial
offering of the Common Stock, the public offering price and other selling terms
may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Selling Shareholders have granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase, from
time to time, in whole or in part, up to an aggregate of 465,000 additional
shares of Common Stock at the initial public offering price less underwriting
discounts and commissions. The Underwriters may exercise such option solely to
cover over-allotments, if any, made in connection with this offering. To the
extent that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
42
<PAGE>
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers, directors and current
shareholders have agreed, subject to certain exceptions, not to: (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock; or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with
the ownership of any Common Stock (regardless of whether any of the
transactions described in clause (i) or (ii) is to be settled by the delivery
of Common Stock, or such other securities, in cash or otherwise) for a period
of 180 days after the date of this Prospectus without the prior written consent
of DLJ. In addition, during such period, the Company has also agreed not to
file any registration statement with respect to, and each of its executive
officers, directors and the Selling Shareholders have agreed not to make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without DLJ's prior written consent.
Prior to this offering, there has been no established trading market for
the Common Stock. The initial public offering price for the shares of Common
Stock offered hereby will be determined by negotiation among the Company and
the Representatives. The factors to be considered in determining the initial
public offering price include the history of and the prospects for the industry
in which the Company competes, the past and present operations of the Company,
the historical results of operations of the Company, the prospects for future
earnings of the Company, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at the
time of this offering.
Other than in the United States, no action has been taken by the Company,
the Selling Shareholders or the Underwriters that would permit a public
offering of the shares of Common Stock offered hereby in any jurisdiction where
action for that purpose is required. The shares of Common Stock offered hereby
may not be offered or sold, directly or indirectly, nor may this Prospectus or
any other offering material or advertisements in connection with the offer and
sale of any such shares of Common Stock be distributed or published in any
jurisdiction, except under circumstances that will result in compliance with
the applicable rules and regulations of such jurisdiction. Persons into whose
possession this Prospectus comes are advised to inform themselves about and to
observe any restrictions relating to this offering of the Common Stock and the
distribution of this Prospectus. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any shares of Common Stock offered
hereby in any jurisdiction in which such an offer or a solicitation is
unlawful.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot this offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short
position or to stabilize the price of the Common Stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members
if DLJ repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilizing transactions or otherwise or if DLJ receives a
report that indicates that the clients of such syndicate members have "flipped"
the Common Stock. These activities may stabilize or maintain the market price
of the Common Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
The Company and the Underwriters have agreed to reserve up to 155,000
shares of the Common Stock offered hereby for sale by the Underwriters to
certain eligible employees and other designees of the Company at the initial
public offering price set forth on the cover page of the Prospectus. Any
43
<PAGE>
reserved Common Stock not purchased by such persons will be offered by the
Underwriters to the public on the same basis as the other shares of Common
Stock offered hereby.
LEGAL MATTERS
Certain legal matters in connection with the sale of the shares of Common
Stock offered hereby will be passed upon for the Company by Holland & Knight
LLP, Miami, Florida, and for the Underwriters by Sachnoff & Weaver, Ltd.,
Chicago, Illinois.
EXPERTS
The Combined Financial Statements of the Company as of December 31, 1996
and 1997, and for each of the years in the three-year period ended December 31,
1997, have been included in this Prospectus and in the Registration Statement,
of which this Prospectus is a part, in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein or the Registration Statement, and upon their authority as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act of
1933 with respect to the shares of Common Stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement and the
exhibits and schedules thereto, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits and
schedules filed as part of the Registration Statement. Statements contained in
this Prospectus concerning the contents of any contract or any other document
referred to are not necessarily complete; reference is made in each instance to
the copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference
to such exhibit. Copies of the Registration Statement and the exhibits and
schedules thereto may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, Judiciary Plaza, 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
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or
any part of such materials may be obtained from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the prescribed fees. In addition, the Registration
Statement, including the exhibits and schedules thereto, is available on the
Commission's Web site at http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements examined by its independent auditors
and quarterly reports for the first three quarters of each year containing
interim unaudited financial information.
44
<PAGE>
TECHNISOURCE, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants ....................................... F-2
Combined Balance Sheets as of December 31, 1996 and 1997 and as of the three months ended
March 31, 1998 (unaudited) .............................................................. F-3
Combined Statements of Income for the years ended December 31, 1995, 1996 and 1997 and
the three months ended March 31, 1997 and 1998 (unaudited) .............................. F-4
Combined Statements of Shareholders' Equity for the years ended December 31, 1995, 1996
and 1997 and the three months ended March 31, 1998 (unaudited) .......................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997
and the three months ended March 31, 1997 and 1998 (unaudited) .......................... F-6
Notes to Combined Financial Statements ................................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Shareholders
Technisource, Inc.:
We have audited the accompanying combined balance sheets of Technisource,
Inc., Technisource of Florida, Inc. and Technisource Midwest, Inc.
(collectively, "the Company") as of December 31, 1996 and 1997 and the related
combined statements of income, shareholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1997. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined 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 combined financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1997, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
1997 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
February 20, 1998, except as to note 10
which is as of May 26, 1998
F-2
<PAGE>
TECHNISOURCE, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------- MARCH 31,
1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 174,204 $ 469,973 $ 163,121
Trade accounts receivable, less allowance for doubtful
accounts of $336,000, $425,000 and $495,000 in 1996,
1997 and 1998, respectively .......................... 6,975,801 8,743,630 11,707,393
Due from shareholders and employees .................... 41,923 39,986 24,740
Prepaid expenses and other current assets .............. 24,339 108,335 276,696
----------- ----------- -----------
Total current assets ................................ 7,216,267 9,361,924 12,171,950
Property and equipment, net ............................. 709,671 1,229,658 1,632,563
Other assets ............................................ 22,903 46,002 59,779
----------- ----------- -----------
$ 7,948,841 $10,637,584 $13,864,292
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdrafts ........................................ $ 959,741 $ 588,106 $ 779,258
Accounts payable ....................................... 310,681 529,961 1,032,388
Income taxes payable ................................... 108,771 183,001 10,000
Accrued expenses ....................................... 922,500 1,873,004 2,512,545
Line of credit ......................................... 1,723,402 223,460 1,515,998
----------- ----------- -----------
Total current liabilities ........................... 4,025,095 3,397,532 5,850,189
Notes payable ........................................... 10,000 10,000 10,000
----------- ----------- -----------
Total liabilities ................................... 4,035,095 3,407,532 5,860,189
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value, 50,000,000 shares
authorized, 7,200,000 issued and outstanding ......... 72,000 72,000 72,000
Retained earnings ...................................... 3,841,746 7,158,052 7,932,103
----------- ----------- -----------
Total shareholders' equity .......................... 3,913,746 7,230,052 8,004,103
----------- ----------- -----------
$ 7,948,841 $10,637,584 $13,864,292
=========== =========== ===========
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-3
<PAGE>
TECHNISOURCE, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------------- -----------------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues .......................... $ 29,129,819 $40,359,792 $67,326,805 $13,400,441 $22,780,380
Cost of revenues .................. 21,878,869 30,624,300 50,774,870 10,122,084 17,210,443
------------ ----------- ----------- ----------- -----------
Gross profit .................. 7,250,950 9,735,492 16,551,935 3,278,357 5,569,937
Selling, general and
administrative expenses .......... 4,778,120 6,658,589 12,221,748 2,360,072 4,301,760
------------ ----------- ----------- ----------- -----------
Operating income .............. 2,472,830 3,076,903 4,330,187 918,285 1,268,177
Other income (expense):
Interest and other income ........ 22,886 8,419 26,492 -- --
Interest expense ................. (59,906) (105,202) (159,651) (44,100) (37,785)
------------ ----------- ----------- ----------- -----------
Income before
income taxes ............... 2,435,810 2,980,120 4,197,028 874,185 1,230,392
Income taxes ...................... 22,013 230,783 183,001 38,000 59,106
------------ ----------- ----------- ----------- -----------
Net income .................... $ 2,413,797 $ 2,749,337 $ 4,014,027 $ 836,185 $ 1,171,286
============ =========== =========== =========== ===========
Pro forma data:
Net income ....................... $ 2,413,797 $ 2,749,337 $ 4,014,027 $ 836,185 $ 1,171,286
Pro forma provision for
incremental income taxes
(unaudited) .................... 930,193 851,180 1,500,016 312,000 412,000
------------ ----------- ----------- ----------- -----------
Pro forma net income
(unaudited) ................ $ 1,483,604 $ 1,898,157 $ 2,514,011 $ 524,185 $ 759,286
============ =========== =========== =========== ===========
Pro forma net income per share
(unaudited):
Basic ........................... $ 0.35 $ 0.11
=========== ===========
Diluted ......................... $ 0.31 $ 0.09
=========== ===========
Weighted average shares
outstanding:
Basic ........................... 7,200,000 7,200,000
Diluted ......................... 8,217,390 8,217,390
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-4
<PAGE>
TECHNISOURCE, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
<S> <C> <C> <C> <C>
Balance, December 31, 1994 ..................... 7,200,000 $72,000 $ 1,845,012 $ 1,917,012
Net income .................................... -- -- 2,413,797 2,413,797
Shareholder distributions ..................... -- -- (650,000) (650,000)
--------- ------- ------------ ------------
Balance, December 31, 1995 ..................... 7,200,000 72,000 3,608,809 3,680,809
Net income .................................... -- -- 2,749,337 2,749,337
Shareholder distributions ..................... -- -- (2,516,400) (2,516,400)
--------- ------- ------------ ------------
Balance, December 31, 1996 ..................... 7,200,000 72,000 3,841,746 3,913,746
Net income .................................... -- -- 4,014,027 4,014,027
Shareholder distributions ..................... -- -- (697,721) (697,721)
--------- ------- ------------ ------------
Balance, December 31, 1997 ..................... 7,200,000 72,000 7,158,052 7,230,052
Net income (unaudited) ........................ -- -- 1,171,286 1,171,286
Shareholder distributions (unaudited) ......... -- -- (397,235) (397,235)
--------- ------- ------------ ------------
Balance, March 31, 1998 (unaudited) ............ 7,200,000 $72,000 $ 7,932,103 $ 8,004,103
========= ======= ============ ============
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-5
<PAGE>
TECHNISOURCE, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ....................................... $ 2,413,797 $ 2,749,337 $ 4,014,027 $ 836,185 $ 1,171,286
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation .................................... 119,536 190,235 370,201 30,949 67,763
Changes in assets and liabilities:
Increase in trade accounts receivable .......... (1,021,891) (2,850,130) (1,767,829) (630,474) (2,963,763)
Decrease (increase) in due from
shareholders and employees ................... 5,370 (25,370) 1,937 19,488 15,246
Increase in prepaid expenses and
other assets ................................. (5,471) (34,061) (107,095) (104,942) (182,138)
Increase in accounts payable ................... 89,223 147,130 219,280 437,783 502,427
Increase (decrease) in income taxes
payable ...................................... -- 108,771 74,230 (70,771) (173,001)
(Decrease) increase in accrued
expenses ..................................... (25,643) 682,621 950,504 943,711 639,541
------------ ------------ ------------ ---------- ------------
Net cash provided by operating activities ......... 1,574,921 968,533 3,755,255 1,461,929 (922,639)
------------ ------------ ------------ ---------- ------------
Cash flows from investing activities:
Purchases of property and equipment .............. (326,210) (606,344) (890,188) (178,072) (470,668)
------------ ------------ ------------ ---------- ------------
Net cash used in investing activities ............. (326,210) (606,344) (890,188) (178,072) (470,668)
------------ ------------ ------------ ---------- ------------
Cash flows from financing activities:
Proceeds from line of credit ..................... -- 1,723,302 -- 230,721 1,292,538
Principal payments on line of credit ............. (699,900) -- (1,499,942) -- --
Distribution to shareholders ..................... (650,000) (2,516,400) (697,721) (110,637) (397,235)
Increase (decrease) in overdraft ................. -- 599,332 (371,635) (959,741) 191,152
------------ ------------ ------------ ---------- ------------
Net cash (used in) provided by
financing activities ............................. (1,349,900) (193,766) (2,569,298) (839,657) 1,086,455
------------ ------------ ------------ ---------- ------------
Net (decrease) increase in cash ................... (101,189) 168,423 295,769 444,200 (306,852)
Cash and cash equivalents,
beginning of year ................................ 106,970 5,781 174,204 174,204 469,973
------------ ------------ ------------ ---------- ------------
Cash and cash equivalents, end of year ............ $ 5,781 $ 174,204 $ 469,973 $ 618,404 $ 163,121
============ ============ ============ ========== ============
Supplemental disclosures of cash flow
information:
Interest paid .................................... $ 59,671 $ 108,536 $ 165,165 $ 44,100 $ 37,785
Income taxes paid ................................ 22,013 122,012 108,771 108,771 232,107
</TABLE>
See accompanying Notes to Combined Financial Statements.
F-6
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Technisource, Inc. ("Technisource"), Technisource of Florida, Inc.
("Florida") and Technisource Midwest, Inc. ("Midwest"), each being 100 percent
owned by three shareholders (collectively, the "Company"), are affiliated
through common ownership. Technisource is an information technology ("IT")
consulting and staffing services ("IT services") firm , providing IT
consultants principally on a time-and-materials basis to organizations with
complex IT needs. As of December 31, 1997, the Company had offices in 16
locations.
Technisource was incorporated as a Florida corporation in 1987. In 1994,
Florida and Midwest were incorporated as Florida corporations in order to offer
IT services and administer the payroll and human resources activities related
to the Company's consultants. On January 1, 1997, the Company discontinued the
use of Midwest and transferred all of its consultants to Florida. As of
December 31, 1997, the Company's IT services were principally provided by
employees of Florida.
CASH AND CASH EQUIVALENTS
For purposes of the combined statements of cash flows, the Company
considers all highly liquid investments purchased with original maturities of
less than three months to be cash equivalents.
PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on a straight-line basis over the estimated useful
lives of the assets, which range from three to seven years.
OTHER ASSETS
Other assets consist of security deposits related to operating lease
agreements.
INCOME TAXES
The Company has elected to be treated as a subchapter S corporation for
federal income tax purposes. Under S corporation status, the Company is not
liable for federal income taxes as they are borne by the shareholders.
Therefore, the combined statements of income do not include federal income tax
expense, but include a provision for state income taxes for those states that
do not recognize the Company's S corporation status.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare their combined financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from the Company's estimates.
REVENUE RECOGNITION
The Company derives substantially all of its revenues from IT services.
Revenues are recognized as services are performed.
F-7
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. The total amounts
charged to operations for advertising during the years ended December 31, 1995,
1996 and 1997 were approximately $115,000, $299,000 and $638,000, respectively.
The amounts charged to operations for advertising during the three months ended
March 31, 1998 were approximately $293,000 (unaudited).
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, on January 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
an asset to be held and used is measured by a comparison of the carrying amount
of the asset to future net cash flows expected to be generated by the asset. If
such an asset is considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. This pronouncement was
adopted for periods beginning January 1, 1996 and did not have a material
impact on the Company's combined financial statements.
STOCK OPTIONS
Prior to January 1, 1996, the Company accounted for its stock options in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants made in
1995 and future years as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to continue to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS
No. 123.
PRINCIPLES OF COMBINATION
All significant intercompany balances and transactions have been
eliminated in combination.
UNAUDITED INTERIM PERIOD
The unaudited interim condensed combined financial statements for the
three-month periods ended March 31, 1997 and 1998 and as of March 31, 1998 have
been prepared on the same basis as the Company's audited combined financial
statements as of and for the year ended December 31, 1997. In the opinion of
management, all adjustments, consisting of normal, recurring accruals,
necessary to
F-8
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
present fairly the financial position of the Company at March 31, 1998, and the
results of operations and cash flows for the three-month periods ended March
31, 1997 and 1998. The results of operations for the three-month period ended
March 31, 1998 are not necessarily indicative of the results expected for the
year ending December 31, 1998.
ACCOUNTING CHANGES
Effective December 31, 1997, the Company adopted SFAS No. 128, EARNINGS
PER SHARE. This Statement requires the presentation of basic and diluted
earnings per share ("EPS"). Basic EPS is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted EPS reflects the
dilutive effect of potential common shares issuable pursuant to securities such
as stock options. All prior years EPS data have been presented to conform with
the provisions of the new Statement.
PRO FORMA NET INCOME AND PRO FORMA NET INCOME PER SHARE (UNAUDITED)
The pro forma net income presented in the statements of income reflects
the pro forma effects for income taxes at an effective rate of approximately
38%, as if the Company had been a taxable entity for all periods presented.
Dilutive common shares consist of shares issued at nominal value at the
date of the grant and were assumed outstanding for all periods presented. The
weighted average shares outstanding-diluted includes: (i) the pro forma effect
of the sale (at an assumed initial public offering price of $13.00 per share)
of 716,441 shares of common stock offered in connection with the Company's
proposed initial public offering ("IPO") needed to generate net proceeds
sufficient to pay the estimated $8.5 million S corporation distribution; and
(ii) the dilutive effect of common stock equivalents using the treasury stock
method. The weighted average shares outstanding is calculated as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
1997 1998
(UNAUDITED)
<S> <C> <C>
Common stock ................................................... 7,200,000 7,200,000
Dilutive effect of nominal issuances of stock options .......... -- --
Dilutive effect of options to be exercised ..................... 300,949 300,949
Dilutive effect of assumed IPO shares for distribution ......... 716,441 716,441
--------- ---------
Weighted average shares outstanding ............................ 8,217,390 8,217,390
========= =========
</TABLE>
RECLASSIFICATIONS
Certain reported amounts for 1995 and 1996 have been reclassified to
conform to the 1997 presentation.
F-9
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(2) PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following as of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31, USEFUL LIVES
1996 1997 1998 IN YEARS
(UNAUDITED)
<S> <C> <C> <C> <C>
Office equipment ...................... $ 145,779 $ 355,021 $ 441,475 5-7
Computer equipment .................... 915,005 1,459,879 1,658,965 5
Telephone equipment ................... 57,452 180,095 214,796 5
Leasehold improvements ................ 4,325 17,754 24,237 3-5
---------- ---------- ----------
1,122,561 2,012,749 2,339,473
Less accumulated depreciation ......... (412,890) (783,091) (706,910)
---------- ---------- ----------
$ 709,671 $1,229,658 $1,632,563
========== ========== ==========
</TABLE>
(3) LINE OF CREDIT
As of December 31, 1997, the Company maintained a revolving line of credit
with a bank which provides for maximum borrowings of up to $8,000,000. The line
of credit expires on August 31, 1998 and is secured by the Company's accounts
receivable and equipment and guaranteed by two of the Company's shareholders.
As of December 31, 1996 and 1997, the outstanding principal balance under this
line of credit was $1,723,402 and $223,460, respectively. Interest is payable
monthly at a variable rate of 0.5% over the bank's prime rate (9.0% as of
December 31, 1997) through August 31, 1998, at which time any outstanding
balance is due in full.
(4) INCOME TAXES
Income tax expense attributable to income from continuing operations
consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
<S> <C> <C> <C>
Year ended December 31, 1995:
State and local ....................... $ 22,013 $-- $ 22,013
======== === ========
Year ended December 31, 1996:
State and local ....................... $230,783 $-- $230,783
======== === ========
Year ended December 31, 1997:
State and local ....................... $183,001 $-- $183,001
======== === ========
Quarter ended March 31, 1998 (unaudited):
State and local ....................... $ 59,106 $-- $ 59,106
======== === ========
</TABLE>
Deferred income taxes are computed using the asset and liability method.
Under the asset and liability method, deferred income taxes are recognized for
future consequences attributable to differences between the financial
statements carrying amount of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
F-10
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(4) INCOME TAXES--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------------- MARCH 31,
1995 1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Income taxes as reported ................. $ 22,013 $ 230,783 $ 183,001 $ 59,106
Pro forma adjustment (unaudited) ......... 930,193 851,180 1,500,016 412,000
--------- ---------- ---------- --------
Pro forma income taxes (unaudited) $ 952,206 $1,081,963 $1,683,017 $471,106
========= ========== ========== ========
</TABLE>
The unaudited pro forma provision for income taxes presented on the
statements of income represents the estimated taxes that would have been
recorded had the Company been a C corporation for income tax purposes for each
of the periods presented. The pro forma provision for income taxes is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------------- MARCH 31,
1995 1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Pro forma (unaudited)
Federal ................... $803,534 $ 912,500 $1,418,890 $412,000
State ..................... 148,672 169,463 264,127 59,106
-------- ---------- ---------- --------
Total pro forma ......... $952,206 $1,081,963 $1,683,017 $471,106
======== ========== ========== ========
</TABLE>
The pro forma tax expense differs from the amount which would be provided
by applying the statutory federal rate to income before income taxes, primarily
as a result of state income taxes.
A reconciliation of the statutory federal income tax rate and the pro
forma effective rate is as follows (unaudited):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
--------------------------- MARCH 31,
1995 1996 1997 1998
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Statutory tax rate ....................... 34% 34 % 34% 34%
Effect of:
State and local income taxes, net of 4 4 4 4
federal tax benefit ..................
Other, net ............................. 1 (2) 2 --
-- ---- -- --
Pro forma effective tax rate ......... 39% 36 % 40% 38%
== ========= == ==
</TABLE>
(5) BUSINESS AND CREDIT CONCENTRATIONS
The Company provides IT services to clients located in the United States
and Canada. Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of accounts receivable. Trade
accounts receivable are not normally collateralized. As of December 31, 1996
and 1997, approximately 19% and 21%, respectively, of the Company's accounts
receivables were
F-11
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(5) BUSINESS AND CREDIT CONCENTRATIONS--(CONTINUED)
represented by one client. As of March 31, 1998, approximately 18% of the
Company's accounts receivable were represented by one client (unaudited). Three
clients accounted for approximately 49% of revenues for the year ended December
31, 1995. Two clients accounted for approximately 32%, 36% and 38% of revenues
for the years ended December 31, 1996 and 1997 and for the three months ended
March 31, 1998 (unaudited), respectively. Concentration of credit risk may be
mitigated by the dispersion of the Company's clients across different
industries. The Company estimates an allowance for doubtful accounts based on
the specific-identification method for creditworthiness of its clients.
Consequently, an adverse change in the financial condition of its clients would
affect the Company's estimate of its bad debts.
(6) TRANSACTIONS WITH RELATED PARTIES
The table below summarizes related party balances and activity as of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31,
1996 1997 1998
(UNAUDITED)
<S> <C> <C> <C>
Due from shareholders and employees ......... $ 41,923 $39,986 $24,740
======== ======= =======
</TABLE>
(7) EMPLOYEE BENEFIT PLANS
PROFIT-SHARING PLAN
The Company has a contributory 401(k) profit-sharing plan which covers all
employees. Employees may contribute up to 15% of their annual compensation. The
Company makes matching and/or profit-sharing contributions at management's
discretion in amounts not to exceed limitations established by the Internal
Revenue Service. For the years ended December 31, 1995, 1996 and 1997, the
Company contributed $0, $0 and $103,579, respectively. For the three months
ended March 31, 1998, the Company made no contributions to the Plan
(unaudited).
KEY EMPLOYEE STOCK OPTIONS
On October 27, 1993, the Company awarded stock options to one of its key
employees. Under the terms of the stock option award, the employee is entitled
to purchase 303,158 shares of the Company's common stock at an exercise price
per share equal to the book value of a share of common stock at December 31,
1993, which approximated fair value at the date of the award. No termination
date for exercisability of the options was specified, and the options vest on
December 31, 1998, and provide for immediate vesting of the pro rata portion of
options granted in the event of a change in the ownership of the Company. These
stock options, which are exercisable at $0.13 per share, were outstanding as of
the beginning and end of the years ended December 31, 1995, 1996 and 1997 and
the three months ended March 31, 1998. No such options were exercisable as of
December 31, 1995, 1996 and 1997 and March 31, 1998 (unaudited).
Effective November 11, 1997, the Company awarded stock options to another
of its key employees. Under the terms of the stock option award, the employee
is entitled to purchase 15,385 shares of
F-12
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(7) EMPLOYEE BENEFIT PLANS--(CONTINUED)
common stock, assuming an initial public offering price of $13.00 per share.
The per share exercise price of such options is equal to $9.75, which is 75% of
the assumed initial public offering price and was considered by management to
be fair value on the date of grant. These options expire ten years from the
effective date of the award and vest ratably over the next three years. None of
these options were exercisable as of December 31, 1997. As of December 31,
1997, these stock options were outstanding with a remaining contractual life of
9.83 years at the exercise price described above.
No compensation cost has been recognized by the Company related to the
November 11, 1997 stock option grant, using the intrinsic value method of APB
Opinion 25. Had compensation cost for this stock option award been determined
consistent with SFAS 123, using the Black-Scholes option pricing model,
excluding a volatility assumption, with the following weighted average
assumptions: no expected dividend yield, risk-free interest rate of return of
7.0%, and an expected life of 10 years, the Company's net income and earnings
per share would have been reduced to the adjusted amounts indicated below for
the year ended December 31, 1997 and the three-month period ended March 31,
1998 (unaudited):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 MARCH 31, 1998
<S> <C> <C>
Net income: As reported in pro forma data .......... $ 2,514,011 $ 759,286
As adjusted ......................... 2,509,825 753,008
Earnings per share: As reported in pro forma data .......... $ 0.31 $ 0.09
----------- ---------
As adjusted ......................... 0.31 0.09
----------- ---------
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company has entered into several noncancelable operating leases,
primarily for office space.
Future minimum lease payments under noncancelable operating leases as of
December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
<S> <C>
1998 ......................... $ 721,790
1999 ......................... 679,326
2000 ......................... 553,064
2001 ......................... 442,836
2002 ......................... 407,677
Thereafter ................... 93,070
-----------
$ 2,897,763
===========
</TABLE>
Rental expense under operating leases for the years ended December 31,
1995, 1996 and 1997 was approximately $140,000, $279,000 and $552,000,
respectively. The rental expense for the three-month period ended March 31,
1998 was approximately $249,000 (unaudited).
F-13
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(8) COMMITMENTS AND CONTINGENCIES--(CONTINUED)
CONTINGENCIES
The Company is subject to certain legal matters arising in the ordinary
course of business which, in the opinion of management and based on the advice
of its legal counsel, will not have a material adverse effect on the financial
position and results of operations of the Company.
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounts receivable, line of credit facility, accounts payable and accrued
liabilities carrying amounts approximate fair value due to the short maturity
of these instruments.
(10) STOCK SPLIT
On May 26, 1998, the Company authorized a 72,000 for 1 stock split and a
change in par value to $.01 per share. All share and per share data in these
combined financial statements have been retroactively restated to reflect this
stock split and change in par value.
(11) SUBSEQUENT EVENTS RELATED TO THE INITIAL PUBLIC OFFERING (UNAUDITED)
The Company has filed a registration statement with the Securities and
Exchange Commission in connection with the IPO. In connection therewith, the
Company is offering 3,100,000 shares of common stock. The board of directors
approved an increase in the number of shares authorized of common stock of the
Company to 50,000,000 shares, and reduced par value to $.01 per share. The
Company is authorized to issue 10,000,000 shares of preferred stock, par value
$.01 per share. The board of directors of the Company is authorized, without
further shareholder action, to divide any or all shares of the authorized
preferred stock into series and fix and determine the designations, preferences
and relative rights and qualifications, limitations and restrictions thereon,
of any series so established, including voting powers, dividend rights,
liquidation preferences, redemption rights and conversion privileges. The
amended and restated Articles of Incorporation are to be effective on or before
the effective date of the registration statement filed by the Company.
In anticipation of the IPO, the following corporate actions have been
taken:
REORGANIZATION
Since 1995, the Company has been treated as a Subchapter S corporation for
federal income tax purposes under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"), and for certain state income tax purposes. As a
result, substantially all of the income of the Company has been taxed directly
to its shareholders rather than to the Company.
Subsequent to year end and concurrent with the public stock offering, the
Company will terminate the Company's S corporation status. In connection with
the termination of the Company's S corporation status, the Company will record
income taxes in accordance with Statement of Financial Accounting Standards No.
109, ACCOUNTING FOR INCOME TAXES. The income tax effect associated with the
change in tax status is estimated to be a net tax benefit of approximately
$400,000 to record a net deferred tax asset.
F-14
<PAGE>
TECHNISOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997 AND MARCH 31, 1998 (UNAUDITED)
(11) SUBSEQUENT EVENTS RELATED TO THE INITIAL PUBLIC OFFERING
(UNAUDITED)--(CONTINUED)
The Company will declare an S corporation distribution to the existing
shareholders in an aggregate amount representing all undistributed earnings of
the Company taxed or taxable to its shareholders through the closing of the
offering, payable upon such closing in an amount estimated to be $8.5 million.
Effective upon the closing of the IPO, Technisource Midwest, Inc. will be
dissolved and all outstanding shares of capital stock of Technisource of
Florida, Inc. will be contributed to Technisource.
STOCK OPTION PLAN
Effective January 1, 1998, the Company has adopted the Technisource, Inc.
Long-Term Incentive Plan (the "Plan") which provides for the grant of awards
such as stock appreciation rights, restricted stock grants, cash awards, stock
awards and incentive stock options to purchase up to an aggregate of 1,590,000
shares of common stock to any employee, non-employee director, consultant,
advisor or independent contractor. The term of an incentive stock option cannot
exceed 10 years with an exercise price equal to or greater than fair market
value of the shares of common stock on the date of grant, or 5 years and 110%
of the fair market value for options granted to a holder of 10 percent or more
of the voting power. The exercise price and term of a nonqualified option shall
be determined by the compensation committee. Options shall become exercisable
on the date or dates specified by the compensation committee. The Plan provides
for a nonqualified stock option grant to the outside directors of the Company.
These directors will be granted a non-statutory option for 5,000 shares of
common stock on such director's initial election as a director and, upon
reelection as a board member thereafter such director shall be granted an
additional option for 2,500 shares of common stock. The options granted to
outside directors will be exercisable on the first anniversary date of the
grant in full at a price equal to the fair market value of common stock on the
date of grant. The options will expire ten years after the date of grant or one
year after the outside director is no longer a director of the Company,
whichever is earlier.
Concurrently with the closing of the IPO, based on an assumed initial
offering price of $13.00 per share, the Company intends to issue 43,077 options
to certain of its employees at an exercise price per share of 50 percent of
such assumed price. The options vest over a period of three years. Compensation
expense for the difference between the exercise price and the fair market value
on the date of grant will approximate $280,000.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with the Company's four
executive officers. The agreements are effective January 1, 1998, except for
one which is effective November 11, 1997, and provide for initial terms of
three to five years with total annual base salaries ranging from $110,000 to
$175,000, and the employment agreements for two executives automatically renew
for successive one-year terms unless terminated by either party, and entitle
these executives to stock option awards in the discretion of the Board of
Directors. The four executive officers may also receive a performance bonus.
The agreements also contain a non-competition provision following termination
of employment.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
-----------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary .............................. 3
Risk Factors .................................... 6
The Company ..................................... 12
Use of Proceeds ................................. 12
S Corporation Distribution ...................... 12
Dividend Policy ................................. 13
Capitalization .................................. 13
Dilution ........................................ 14
Selected Financial Data ......................... 15
Management's Discussion and Analysis of
Financial Condition and Results
of Operations ................................ 16
Business ........................................ 21
Management ...................................... 30
Certain Transactions ............................ 37
Principal and Selling Shareholders .............. 38
Description of Capital Stock .................... 39
Shares Eligible for Future Sale ................. 41
Underwriting .................................... 42
Legal Matters ................................... 44
Experts ......................................... 44
Additional Information .......................... 44
Index to Combined 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
PARTICIPATING 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.
3,100,000 SHARES
[GRAPHIC OMITTED]
COMMON STOCK
------------------------------------------
PROSPECTUS
------------------------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with
the issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee ................. $ 14,750
National Association of Securities Dealers, Inc. filing fee ......... 5,491
Nasdaq National Market listing fee .................................. 78,875
Printing and engraving costs ........................................ 100,000
Accounting fees and expenses ........................................ 150,000
Legal fees and expenses ............................................. 125,000
Directors and officers insurance premium ............................ 150,000
Transfer agent and registrar fees ................................... 10,000
Miscellaneous ....................................................... 65,884
--------
Total ............................................................. $700,000
========
</TABLE>
- ---------------------
All amounts are estimated except for the SEC registration fee and NASD filing
fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act, as amended (the "FBCA"), provides
that, in general, a business corporation may indemnify any person who is or was
a party to any proceeding (other than an action by, or in the right of, the
corporation) by reason of the fact that he or she is or was a director or
officer of the corporation, against liability incurred in connection with such
proceeding, including any appeal thereof, provided certain standards are met,
including that such officer or director acted in good faith and in a manner he
or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, and provided further that, with respect to any criminal action
or proceeding, the officer or director had no reasonable cause to believe his
or her conduct was unlawful. In the case of proceedings by or in the right of
the corporation, the FBCA provides that, in general, a corporation may
indemnify any person who was or is a party to any such proceeding by reason of
the fact that he or she is or was a director or officer of the corporation
against expenses and amounts paid in settlement actually and reasonably
incurred in connection with the defense or settlement of such proceeding,
including any appeal thereof, provided that such person acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, except that no indemnification shall be made in
respect of any claim as to which such person is adjudged liable unless a court
of competent jurisdiction determines upon application that such person is
fairly and reasonably entitled to indemnity. To the extent that any officers or
directors are successful on the merits or otherwise in the defense of any of
the proceedings described above, the FBCA provides that the corporation is
required to indemnify such officers or directors against expenses actually and
reasonably incurred in connection therewith. However, the FBCA further provides
that, in general, indemnification or advancement of expenses shall not be made
to or on behalf of any officer or director if a judgment or other final
adjudication establishes that his or her actions, or omissions to act, were
material to the cause of action so adjudicated and constitute: (i) a violation
of the criminal law, unless the director or officer had reasonable cause to
believe his or her conduct was lawful or had no reasonable cause to believe it
was unlawful; (ii) a transaction from which the director or officer derived an
improper personal benefit; (iii) in the case of a director, a circumstance
under which the director has voted for or assented to a distribution made in
violation of the FBCA or the corporation's articles of incorporation; or (iv)
willful misconduct or a conscious disregard for the best interests of the
corporation in a proceeding by or in the right of the corporation to procure a
judgment in its favor or in a proceeding by or in the right of a shareholder.
II-1
<PAGE>
The Company's Bylaws provides that the Company shall indemnify any
director, officer or employee or any former director, officer or employee to
the fullest extent permitted by law. The Underwriters, pursuant to the
Underwriting Agreement have also agreed to indemnify the directors and officers
of the Company against certain liabilities.
The Company intends to acquire insurance with respect to, among other
things, certain liabilities that may arise under the statutory provisions
referred to above. The directors and officers of the Company will also be
insured against certain liabilities, including certain liabilities arising
under the Securities Act of 1933, which might be incurred by them in such
capacities and against which they are not indemnified by the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this Registration Statement,
the Company has sold the following securities that were not registered under
the Securities Act of 1933, as amended (the "Securities Act").
On November 11, 1997, the Company granted John A. Morton, in connection
with the Company's hiring him to serve as its Vice President of Finance and
Chief Financial Officer, the option to purchase 15,385 shares of the Company's
Common Stock, based on an initial public offering price of $13.00 per share.
The options are exercisable at $9.75 per share, vest over a three-year period
from the date of grant and expire ten years after such date. These options were
issued pursuant to the exemption from registration provided by Section 4(2) of
the Securities Act and Rule 701 promulgated by the Commission thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed herewith and made a part hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------------------- -------------------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement among the Company, Donaldson, Lufkin & Jenrette
Securities Corporation and William Blair & Company, as Representatives of the several
Underwriters
3.1/dagger/ Amended and Restated Articles of Incorporation of the Company
3.2/dagger/ Amended and Restated Bylaws of the Company
4.1 See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation and Bylaws of the
Company defining the rights of holders of Common Stock of the Company
4.2/dagger/ Specimen certificate for the Company's Common Stock
5 /dagger/ Opinion of Holland & Knight LLP
10.1/dagger/ Employment Agreement, dated as of January 1, 1998, between Joseph W. Collard and the
Company
10.2/dagger/ Employment Agreement, dated as of January 1, 1998, between James F. Robertson and the
Company
10.3/dagger/ Employment Agreement, dated as of November 11, 1997, between John A. Morton and the
Company
10.4/dagger/ Employment Agreement, dated as of January 1, 1998, between Paul Cozza and the Company
10.5/dagger/ Lease, dated January 31, 1998, between Highwoods/Florida Holdings, L.P. and the Company
10.6/dagger/ Registration Rights Agreement, dated April 21, 1998, between Joseph W. Collard and the
Company
10.7/dagger/ Registration Rights Agreement, dated April 21, 1998, between James F. Robertson and the
Company
10.8/dagger/ The Technisource, Inc. Long-Term Incentive Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------------------- ---------------------------------------------------------------------------------------
<S> <C>
10.9/dagger/ Stock Option Agreement between the Company and Paul Cozza
10.10/dagger/ Stock Option Agreement between the Company and John A. Morton
21/dagger/ Subsidiaries of the Company
23.1/dagger/ Consent of Holland & Knight LLP (included in Exhibit 5 of this Registration Statement)
23.2 Consent of KPMG Peat Marwick LLP
24/dagger/ Power of Attorney
27/dagger/ Financial Data Schedule
</TABLE>
- ----------------
/dagger/ Previously filed.
(b) Financial Statement Schedules:
<TABLE>
<CAPTION>
DESCRIPTION
- ----------------
<S> <C>
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS.
The Company hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of
the Company 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 Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 Company 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 the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Technisource,
Inc. has duly caused this Amended Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Ft.
Lauderdale, State of Florida, on the 23rd day of June, 1998.
TECHNISOURCE, INC.
By /S/ JOSEPH W. COLLARD
-------------------------------------
Joseph Collard
Chief Executive Officer
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.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------------------- --------------
<S> <C> <C>
/s/ JOSEPH W. COLLARD President, Chief Executive Officer June 23, 1998
- ------------------------------ and Director
Joseph W. Collard (Principal Executive Officer)
/s/ JAMES F. ROBERTSON Executive Vice President, June 23, 1998
- ------------------------------ Chief Operating Officer
James F. Robertson and Director
/s/ JOHN A. MORTON Chief Financial Officer and Director June 23, 1998
- ------------------------------ (Principal Financial and
John A. Morton Accounting Officer)
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Technisource, Inc.:
Under date of February 20, 1998, except as to note 10 which is as of May
26, 1998 we reported on the combined balance sheets of Technisource, Inc.,
Technisource of Florida, Inc. and Technisource Midwest, Inc. (collectively,
"the Company") as of December 31, 1996 and 1997 and the related combined
statements of income, shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 1997, which are included in the
prospectus. In connection with our audits of the aforementioned combined
financial statements, we also audited the related schedule of Valuation and
Qualifying Accounts--Schedule II in the registration statement. This schedule
is the responsiblity of the Company's management. Our responsibility is to
express an opinion on the schedule based on our audits.
In our opinion, such financial statement schedule, when considered in
relation to the basic combined financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
February 20, 1998 except as to note 10
which is as of May 26, 1998
S-1
<PAGE>
SCHEDULE II
TECHNISOURCE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO AMOUNTS BALANCE AT
BEGINNING COSTS AND DEEMED TO BE END OF
PERIOD ENDED DESCRIPTION OF PERIOD EXPENSES UNCOLLECTIBLE PERIOD
- --------------- -------------------------------------- ------------ ------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
Dec. 31, 1995 Allowance for uncollectible accts.-- $ 0 $ 70 $ 0 $ 70
Dec. 31, 1996 Allowance for uncollectible accts.-- 70 266 0 336
Dec. 31, 1997 Allowance for uncollectible accts.-- 336 178 89 425
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- --------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement among the Company, Donaldson, Lufkin & Jenrette
Securities Corporation and William Blair & Company, as Representatives of the several
Underwriters
23.2 Consent of KPMG Peat Marwick LLP
</TABLE>
EXHIBIT 1
3,100,000 Shares
TECHNISOURCE, INC.
Common Stock
UNDERWRITING AGREEMENT
June __, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY, L.L.C.
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
Technisource, Inc., a Florida corporation (the "COMPANY"), proposes to
issue and sell to the several underwriters named in Schedule I hereto (the
"UNDERWRITERS") an aggregate of 3,100,000 shares of the Common Stock, par value
$.01 per share, of the Company (the "FIRM SHARES"), all of which are to be
issued and sold by the Company. Certain shareholders of the Company named in
Schedule II hereto (the "SELLING SHAREHOLDERS") severally propose to sell to the
several Underwriters, not more than an additional 465,000 shares of the Common
Stock, par value $.01 per share, of the Company (the "ADDITIONAL SHARES"), each
Selling Shareholder selling up to the number of shares set forth opposite such
Selling Shareholder's name in Schedule II hereto, if requested by the
Underwriters as provided in Section 2 hereof. The Firm Shares and the Additional
Shares are hereinafter referred to collectively as the "SHARES." The shares of
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the "COMMON STOCK." The
Company and the Selling Shareholders are hereinafter sometimes referred to
collectively as the "SELLERS."
SECTION 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION") in accordance with the provisions of the Securities Act of 1933,
as amended, and the rules and regulations of the Commission thereunder
(collectively, the "ACT"), a registration statement on Form S-1 (File No.
333-50803), including a prospectus, relating to the Shares. The registration
statement, as amended at the time it became effective, including the information
(if any) deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A under the Act, is hereinafter referred to as
the "REGISTRATION STATEMENT"; and the prospectus in the form included
<PAGE>
in the Registration Statement is hereinafter referred to as the "PROSPECTUS." If
the Company has filed or is required pursuant to the terms hereof to file a
registration statement pursuant to Rule 462(b) under the Act registering
additional shares of Common Stock (a "RULE 462(B) REGISTRATION STATEMENT"),
then, unless otherwise specified, any reference herein to the term "Registration
Statement" shall be deemed to include such Rule 462(b) Registration Statement.
SECTION 2. AGREEMENTS TO SELL AND PURCHASE AND LOCK-UP AGREEMENTS. On
the basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
3,100,000 Firm Shares and (ii) each Underwriter agrees, severally and not
jointly, to purchase from the Company at a price per Share of $______ (the
"PURCHASE PRICE") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) set forth opposite the name of
such Underwriter in Schedule I hereto.
On the basis of the representations and warranties contained in this Agreement,
and subject to its terms and conditions, (i) each Selling Shareholder agrees,
severally and not jointly, to sell the number of Additional Shares set forth
opposite such Selling Shareholder's name in Schedule II hereto, and (ii) the
Underwriters shall have the right to purchase, severally and not jointly, up to
465,000 Additional Shares from the Selling Shareholders at the Purchase Price.
Additional Shares may be purchased solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. The
Underwriters may irrevocably, subject to the conditions herein set forth,
exercise their right to purchase Additional Shares in whole or in part from time
to time by giving written notice thereof to the Company within 30 days after the
date of this Agreement. You shall give any such notice on behalf of the
Underwriters and such notice shall specify the aggregate number of Additional
Shares to be purchased pursuant to such exercise and the date for payment and
delivery thereof, which date shall be a business day (i) no earlier than two
business days after such notice has been given (and, in any event, no earlier
than the Closing Date (as hereinafter defined)) and (ii) no later than ten
business days after such notice has been given. If any Additional Shares are to
be purchased, each Underwriter, severally and not jointly, agrees to purchase
from the Selling Shareholders the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears the
same proportion to the total number of Additional Shares to be purchased from
the Selling Shareholders as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I bears to the total number of Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus (the "LOCK-UP PERIOD")
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation
2
<PAGE>
("DLJ"). Notwithstanding the foregoing, during the Lock-Up Period (i) the
Company may grant stock options pursuant to the Company's existing stock option
plan; provided that such options are, by their terms, not exercisable during the
Lock-Up Period; (ii) the Company may issue shares of Common Stock upon the
exercise of an option or warrant or the conversion of a security outstanding on
the date hereof; and (iii) each Selling Shareholder may at any time transfer any
or all of such Selling Shareholder's shares of Common Stock to one or more of
the following: the spouse or any sibling or lineal descendant of such Selling
Shareholder, any corporation or other entity in which 50% or more of the
beneficial ownership of equity interests and 50% or more of the voting
securities is owned by such Selling Shareholder or the spouse or any sibling or
lineal descendant of such Selling Shareholder, or any trust for the benefit of
such Selling Shareholder or the spouse or any sibling or lineal descendant of
such Selling Shareholder (each of the foregoing, a "SELLING SHAREHOLDER
TRANSFEREE"), and a Selling Shareholder Transferee may transfer any or all of
its shares of Common Stock to another Selling Shareholder Transferee, in each
case so long as such Selling Shareholder Transferee shall have agreed in a
signed writing reasonably acceptable to DLJ to be bound by restrictions
substantially similar to those contained in this paragraph for the balance of
the Lock-Up Period. The Company also agrees not to file any registration
statement, other than a registration statement on Form S-8 relating to the
registration of the issuance and sale of securities pursuant to the Technisource
Long-Term Incentive Plan, with respect to any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
during the Lock-Up Period without the prior written consent of DLJ. In addition,
each Selling Shareholder agrees that, during the Lock-Up Period without the
prior written consent of DLJ, it will not make any demand for, or exercise any
right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock. The
Company shall, prior to or concurrently with the execution of this Agreement,
deliver an agreement executed by (i) each Selling Shareholder, and (ii) each of
the directors and officers of the Company who is not a Selling Shareholder to
the effect that such person will not, during the period commencing on the date
such person signs such agreement and ending at the expiration of the Lock-Up
Period, without the prior written consent of DLJ, (A) engage in any of the
transactions described in the first sentence of this paragraph or (B) make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock.
SECTION 3. TERMS OF PUBLIC OFFERING. The Sellers are advised by you
that the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
SECTION 4. DELIVERY AND PAYMENT. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
registered in such names as DLJ shall request no later than two business days
prior to the Closing Date or the applicable Option Closing Date (as defined
below), as the case may be. The Shares shall be delivered by or on behalf of the
Company or the Selling Shareholders, as the case may be, with any transfer taxes
thereon duly paid by the respective Seller, to DLJ through the facilities of The
Depository Trust Company ("DTC"), for the respective accounts of the several
Underwriters, against
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payment to the Company or the Selling Shareholders, as the case may be, of the
Purchase Price therefore by wire transfer of Federal or other funds immediately
available in New York City. The certificates representing the Shares shall be
made available for inspection not later than 9:30 A.M., New York City time, on
the business day prior to the Closing Date or the applicable Option Closing Date
(as defined below), as the case may be, at the office of DTC or its designated
custodian (the "DESIGNATED OFFICE"). The time and date of delivery and payment
for the Firm Shares shall be 9:00 A.M., New York City time, on ________, 1998 or
such other time on the same or such other date as DLJ and the Company shall
agree in writing. The time and date of delivery and payment for the Firm Shares
are hereinafter referred to as the "CLOSING DATE." The time and date of delivery
and payment for any Additional Shares to be purchased by the Underwriters shall
be 9:00 A.M., New York City time, on the date specified in the applicable
exercise notice given by you pursuant to Section 2 or such other time on the
same or such other date as DLJ and the Company shall agree in writing. The time
and date of delivery and payment for any Additional Shares are hereinafter
referred to as the "OPTION CLOSING DATE."
The documents to be delivered on the Closing Date or any Option Closing Date on
behalf of the parties hereto pursuant to Section 9 of this Agreement shall be
delivered at the offices of Sachnoff & Weaver, Ltd., 30 South Wacker Dr., 29th
floor, Chicago, Illinois 60606, and the Shares shall be delivered at the
Designated Office, all on the Closing Date or such Option Closing Date, as the
case may be.
SECTION 5. AGREEMENTS OF THE COMPANY. The Company agrees with you:
a) To advise you promptly and, if requested by you, to confirm such
advice in writing, of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, when any amendment to the
Registration Statement becomes effective, if the Company is required to file a
Rule 462(b) Registration Statement after the effectiveness of this Agreement,
when the Rule 462(b) Registration Statement has become effective and of the
happening of any event during the period referred to in Section 5(d) below which
makes any statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements of
material fact therein not misleading. If at any time the Commission shall issue
any stop order suspending the effectiveness of the Registration Statement, the
Company will use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
b) To furnish to you three signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
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c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the Commission
within the applicable period specified in Rule 424(b) under the Act; during the
period specified in Section 5(d) below, not to file any further amendment to the
Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall have reasonably objected after being so advised; and, during such period,
to prepare and file with the Commission, promptly upon your reasonable request,
any amendment to the Registration Statement or amendment or supplement to the
Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements of material fact therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if, in the opinion of counsel for the Underwriters, it is necessary to amend
or supplement the Prospectus to comply with applicable law, forthwith to prepare
and file with the Commission an appropriate amendment or supplement to the
Prospectus so that the statements of material fact in the Prospectus, as so
amended or supplemented, will not in the light of the circumstances when it is
so delivered, be misleading, or so that the Prospectus will comply with
applicable law, and to furnish to each Underwriter and to any dealer as many
copies thereof as such Underwriter or dealer may reasonably request.
f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such registration or qualification in effect so
long as required for distribution of the Shares and to file such consents to
service of process or other documents as may be necessary in order to effect
such registration or qualification; PROVIDED, HOWEVER, that the Company shall
not be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Prospectus, the Registration
Statement, any preliminary prospectus or the offering or sale of the Shares, in
any jurisdiction in which it is not now so subject.
g) To mail and make generally available to its shareholders as soon as
practicable an earnings statement covering the twelve-month period ending
September 30, 1999 that shall
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satisfy the provisions of Section 11(a) of the Act, and to advise you in writing
when such statement has been so made available.
h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or filed with the
Commission or any national securities exchange on which any class of securities
of the Company is listed and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: the fees, disbursements and expenses of the Company's
counsel, the Company's accountants and any Selling Shareholder's counsel (in
addition to the Company's counsel) in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the filing
fees and disbursements of counsel for the Underwriters in connection with the
review and clearance of the offering of the Shares by the National Association
of Securities Dealers, Inc., (vi) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A relating to the
Common Stock and all costs and expenses incident to the listing of the Shares on
the Nasdaq National Market, (vii) the cost of printing certificates representing
the Shares, (viii) the costs and charges of any transfer agent, registrar and/or
depositary, and (ix) all other costs and expenses incident to the performance of
the obligations of the Company and the Selling Shareholders hereunder for which
provision is not otherwise made in this Section.
j) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National Market, the American Stock Exchange or the New York Stock Exchange for
a period of three years after the date of this Agreement.
k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any
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Option Closing Date, as the case may be, and to satisfy all conditions precedent
to the delivery of the Shares.
l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Underwriter that:
a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and to the
knowledge of the Company, no proceedings for such purpose are pending before or
threatened by the Commission.
b) The Registration Statement (other than any Rule 462(b) Registration
Statement to be filed by the Company after the effectiveness of this Agreement),
when it became effective, did not contain and, as amended, if applicable, will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading. The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement) and the Prospectus comply and, as amended or supplemented, if
applicable, will comply in all material respects with the Act. If the Company is
required to file a Rule 462(b) Registration Statement after the effectiveness of
this Agreement, such Rule 462(b) Registration Statement and any amendments
thereto, when they become effective (A) will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (B) will comply
in all material respects with the Act and the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
c) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
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necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or omissions
in any preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
d) Each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole (a
"MATERIAL ADVERSE EFFECT").
e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
f) All of the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Shareholders) have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights; and the Shares to be issued and sold by the
Company have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.
g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound.
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j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
federal securities laws or the securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company or any
of its subsidiaries or any indenture, loan agreement, mortgage, lease or other
agreement or instrument that is material to the Company and its subsidiaries,
taken as a whole, to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries or their respective property is
bound, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Company, any of its subsidiaries or their
respective property or (iv) result in the suspension, termination or revocation
of any Authorization (as defined below) of the Company or any of its
subsidiaries or any other impairment of the rights of the holder of any such
Authorization.
k) There are no legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is or could be a party or to
which any of their respective property is or could be subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described; nor are there any statutes, regulations, contracts or other documents
that are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a Material Adverse Effect.
m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and to the best of the Company's knowledge,
no event has occurred (including, without limitation, the receipt of any notice
from any authority or governing body) which allows, or after notice or lapse of
time or both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would
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result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a Material Adverse Effect.
n) To the best of the Company's knowledge, the Company is not
responsible for any costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
Material Adverse Effect.
o) This Agreement has been duly authorized, executed and delivered by
the Company.
p) KPMG Peat Marwick LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
q) The combined financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the combined financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data relating to the Company or
its industry set forth in the Registration Statement and the Prospectus (and any
amendment or supplement thereto) are, in all material respects, accurately
presented and prepared.
r) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
s) Except as disclosed in the Registration Statement, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares registered
pursuant to the Registration Statement.
t) Since the respective dates as of which information is given in the
Prospectus, other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto
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subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there has not been any material adverse change or any development
involving a prospective material adverse change in the capital stock or in the
long-term debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent.
u) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them which is material to the business of the Company and its
subsidiaries, in each case free and clear of all liens, encumbrances and defects
except such as are described in the Prospectus or such as do not materially
affect the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
v) The Company and its subsidiaries own or possess, or can reasonably
expect to be able to acquire on reasonable terms, all patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), trademarks, service marks and trade names ("INTELLECTUAL
PROPERTY") currently employed by them in connection with the business now
operated by them except where the failure to own or possess or otherwise be able
to acquire such intellectual property would not, singly or in the aggregate,
have a Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict with
asserted rights of others, by such third parties or their agents, with respect
to any of such intellectual property which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would have a Material
Adverse Effect.
w) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries (i) has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order to
continue such insurance or (ii) has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers at a cost that would not
have a Material Adverse Effect.
x) No "nationally recognized statistical rating organization" as such
term is defined for purposes of Rule 436(g)(2) under the Act has indicated to
the Company that it is considering (i) the downgrading, suspension or withdrawal
of, or any review for a possible change that does not indicate the direction of
the possible change in, any rating assigned to the Company or any
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securities of the Company or (ii) any change in the outlook for any rating of
the Company or any securities of the Company.
y) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
z) The PRO FORMA financial and statistical information and data set
forth in the Registration Statement and the Prospectus (and any supplement or
amendment thereto) are, in all material respects, accurately presented and have
been prepared on a basis consistent with the historical financial statements of
the Company and its subsidiaries.
aa) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or threatened against the Company or
any of its subsidiaries before the National Labor Relations Board or any state
or local labor relations board, (ii) strike, labor dispute, slowdown or stoppage
pending or, to the best of the Company's knowledge, threatened against the
Company or any of its subsidiaries or (iii) union representation question
existing with respect to the employees of the Company and its subsidiaries,
except for such actions specified in clause (i), (ii) or (iii) above, which,
singly or in the aggregate, would not have a Material Adverse Effect. To the
best of the Company's knowledge, no collective bargaining organizing activities
are taking place with respect to the Company or any of its subsidiaries.
bb) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (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
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
cc) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or pursuant to any assessment received by the
Company or any of its subsidiaries have been paid, other than those being
contested in good faith and for which adequate reserves have been provided.
dd) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS.
Each Selling Shareholder, severally and not jointly, represents and warrants to
each Underwriter that:
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a) Such Selling Shareholder is the lawful owner of the Additional
Shares to be sold by such Selling Shareholder pursuant to this Agreement and
has, and on the Option Closing Date will have, good and clear title to such
Shares, free of all restrictions on transfer, liens, encumbrances, security
interests, equities and claims whatsoever.
b) The Additional Shares to be sold by such Selling Shareholder on the
Option Closing Date will have been duly authorized and are validly issued, fully
paid and non-assessable.
c) Such Selling Shareholder has, and on the Closing Date and the Option
Closing Date will have, full legal right, power and authority, and all
authorizations and approvals required by law, to enter into this Agreement and
to sell, assign, transfer and deliver the Additional Shares to be sold by such
Selling Shareholder in the manner provided herein.
d) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Shareholder.
e) Upon delivery of and payment for the Additional Shares to be sold by
such Selling Shareholder pursuant to this Agreement, good and clear title to
such Additional Shares will pass to the Underwriters, free of all restrictions
on transfer, liens, encumbrances, security interests, equities and claims
whatsoever.
f) The execution, delivery and performance of this Agreement, the
compliance by such Selling Shareholder with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
federal securities laws or the securities or Blue Sky laws of the various
states), conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the organizational documents of such Selling
Shareholder, if such Selling Shareholder is not an individual, or any indenture,
loan agreement, mortgage, lease or other agreement or instrument to which such
Selling Shareholder is a party or by which such Selling Shareholder or any
property of such Selling Shareholder is bound or violate or conflict with any
applicable law or any rule, regulation, judgment, order or decree of any court
or any governmental body or agency having jurisdiction over such Selling
Shareholder or any property of such Selling Shareholder.
g) The information in the Registration Statement under the caption
"Principal and Selling Shareholders" that specifically relates to such Selling
Shareholder does not, and will not on the Closing Date or the Option Closing
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
h) At any time during the period described in Section 5(d), if there is
any change in the information referred to in Section 7(g), such Selling
Shareholder will immediately notify you of such change.
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i) Such Selling Shareholder has not taken, and will not take, directly
or indirectly, any action designed to, or which might reasonably be expected to,
cause or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Shares pursuant to the
distribution contemplated by this Agreement, and other than as permitted by the
Act, such Selling Shareholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares.
j) Certificate(s) in negotiable form for up to the maximum number of
shares of Common Stock that may be sold by such Selling Shareholder to the
Underwriters have been placed in custody with American Stock Transfer and Trust
Company for the purpose of effecting delivery thereof under this Agreement.
k) Such Selling Shareholder is not a "member" of the NASD, a
controlling shareholder of a "member", a "person associated with a member" or an
"affiliate" of a "member" or a member of the "immediate family" of any of the
foregoing or an "underwriter or related person" with respect to the proposed
offering of the Common Stock.
l) Such Selling Shareholder will furnish any and all information which
the Company, the Underwriters or their respective counsel deems reasonably
necessary or desirable in connection with the preparation and filing of all
amendments, post-effective amendments and supplements to the Registration
Statement, any Prospectus or any other filing with any regulatory body or agency
(including the NASD), as well as any and all information which the Commission,
the NASD or any state securities regulatory authority may request.
m) Each certificate signed by such Selling Shareholder and delivered to
the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by such Selling Shareholder to the Underwriters as
to the matters covered thereby.
SECTION 8. INDEMNIFICATION.
a) The Sellers, jointly and severally, agree to indemnify and hold
harmless each Underwriter, its directors, its officers and each person, if any,
who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages, liabilities and
judgments (including, without limitation, any legal or other expenses incurred
in connection with investigating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for
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use therein; PROVIDED, HOWEVER, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter who failed to deliver a Prospectus (as then amended or supplemented,
provided by the Company to the several Underwriters in the requisite quantity
and on a timely basis to permit proper delivery on or prior to the Closing Date)
to the person asserting any losses, claims, damages and liabilities and
judgments caused by any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, if such
material misstatement or omission or alleged material misstatement or omission
was cured in such Prospectus and such Prospectus was required by law to be
delivered at or prior to the written confirmation of sale to such person.
Notwithstanding the foregoing, the aggregate liability of any Selling
Shareholder pursuant to this Section 8(a) shall be limited to an amount equal to
(i) the total net proceeds (before deducting expenses) received by such Selling
Shareholder from the Underwriters for the sale of the Shares sold by such
Selling Shareholder hereunder plus (ii) an amount equal to the proceeds received
by such Selling Shareholder from the Company for payment of undistributed S
corporation earnings (the "DISTRIBUTION") less (iii) an amount equal to the
state and federal tax obligations of the respective Selling Stockholder actually
paid as a direct result of the Distribution; PROVIDED further that the amount
set forth in clause (iii) above shall not be deducted from the aggregate
liability of a Selling Stockholder if such losses, claims, damages, liabilities
or judgments are caused by any untrue statement or omission or alleged untrue
statement or omission based upon information relating to any Selling Shareholder
furnished in writing to the Company by each Selling Shareholder through you
expressly for use in the Registration Statement.
b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Shareholder and each person, if any, who controls such Selling Shareholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment thereto), the Prospectus (or any
amendment or supplement thereto) or any preliminary prospectus.
c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ separate
counsel in any such action and
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participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the indemnified party unless (i) the employment of
such counsel shall have been specifically authorized in writing by the
indemnifying party, (ii) the indemnifying party shall have failed to assume the
defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the indemnified party and the indemnifying
party, and the indemnified party shall have been advised by such counsel that
there may be one or more legal defenses available to it which are different from
or additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the indemnified party). In any such case, the indemnifying party
shall not, in connection with any one action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for (i) the fees and expenses of
more than one separate firm of attorneys (in addition to any local counsel) for
all Underwriters, their officers and directors and all persons, if any, who
control any Underwriter within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act, (ii) the fees and expenses of more than one
separate firm of attorneys (in addition to any local counsel) for the Company,
its directors, its officers who sign the Registration Statement and all persons,
if any, who control the Company within the meaning of either such Section and
(iii) the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all Selling Shareholders and all persons, if
any, who control any Selling Shareholder within the meaning of either such
Section, and all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Underwriters, their
officers and directors and such control persons of any Underwriters, such firm
shall be designated in writing by DLJ. In the case of any such separate firm for
the Company and such directors, officers and control persons of the Company,
such firm shall be designated in writing by the Company. In the case of any such
separate firm for the Selling Shareholders and such control persons of any
Selling Shareholders, such firm shall be designated in writing by the Attorneys.
The indemnifying party shall indemnify and hold harmless the indemnified party
from and against any and all losses, claims, damages, liabilities and judgments
by reason of any settlement of any action (i) effected with the indemnifying
party's written consent or (ii) effected without the indemnifying party's
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
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d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by each
of the Sellers on the one hand and the Underwriters on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause 8(d)(i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause 8(d)(i) above
but also the relative fault of each of the Sellers on the one hand and the
Underwriters on the other hand in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative benefits
received by each of the Sellers on the one hand and the Underwriters on the
other hand shall be deemed to be in the same proportion as the total net
proceeds from the offering (after deducting underwriting discounts and
commissions, but before deducting expenses) received by each of the Sellers, and
the total underwriting discounts and commissions received by the Underwriters,
bear to the total price to the public of the Shares, in each case as set forth
in the table on the cover page of the Prospectus. The relative fault of each of
the Sellers on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the Selling
Shareholders on the one hand or the Underwriters on the other hand and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Sellers and the Underwriters agree that it would not be just and equitable
if contribution pursuant to this Section 8(d) were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
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e) The remedies provided for in this Section 8 are not exclusive and shall not
limit any rights or remedies which may otherwise be available to any indemnified
party at law or in equity.
f) Each Selling Shareholder hereby designates Technisource, Inc., 1901
West Cypress Creek Road, Suite 202, Ft. Lauderdale, Florida 33309, as its
authorized agent, upon which process may be served in any action which may be
instituted in any state or federal court in the State of New York by any
Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each Selling Shareholder
will accept the jurisdiction of such court in such action, and waives, to the
fullest extent permitted by applicable law, any defense based upon lack of
personal jurisdiction or venue. A copy of any such process shall be sent or
given to such Selling Shareholder, at the address for notices specified in
Section 12 hereof.
SECTION 9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Joseph W. Collard and John A. Morton, in their
capacities as the President and Chief Executive Officer and the Vice President
of Finance and Chief Financial Officer of the Company, confirming the matters
set forth in Sections 6(t), 9(a) and 9(b) and that the Company has complied with
all of the agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied by the Company on or prior to the
Closing Date.
d) Since the respective dates as of which information is given in the
Prospectus, other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole; (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries; and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
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9(d)(ii) or 9(d)(iii), in your reasonable judgment, is material and adverse and,
in your reasonable judgment, makes it impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
e) All the representations and warranties of each Selling Shareholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received on the Closing Date a certificate dated the Closing Date from each
Selling Shareholder to such effect and to the effect that such Selling
Shareholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Shareholder on or prior to the Closing Date.
f) You shall have received on the Closing Date an opinion (reasonably
satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Holland & Knight LLP counsel for the Company and the Selling Shareholders, to
the effect that:
i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described in
the Prospectus and to own, lease and operate its properties;
ii) each of the Company and its subsidiaries is duly qualified
and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or
its ownership or leasing of property requires such qualification,
except where the failure to be so qualified would not have a Material
Adverse Effect;
iii) all the outstanding shares of capital stock of the
Company (including the Shares to be sold by the Selling Shareholders)
have been duly authorized and validly issued and are fully paid,
non-assessable and not subject to any preemptive or similar rights;
iv) the Shares to be issued and sold by the Company hereunder
have been duly authorized and, when issued and delivered to the
Underwriters against payment therefor as provided by this Agreement,
will be validly issued, fully paid and non-assessable, and the issuance
of such Shares will not be subject to any preemptive or similar rights;
v) all of the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued
and are fully paid and non-assessable, and are owned by the Company,
directly or indirectly through one or more subsidiaries, free and clear
of any security interest, claim, lien, encumbrance or adverse interest
of any nature;
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vi) this Agreement has been duly authorized, executed and
delivered by the Company and by or on behalf of each Selling
Shareholder;
vii) the authorized capital stock of the Company conforms in
all material respects as to legal matters to the description thereof
contained in the Prospectus;
viii) based solely on telephonic, verbal confirmation provided
to such counsel by the staff of the Commission, the Registration
Statement has become effective under the Act, no stop order suspending
its effectiveness has been issued and, to the best of such counsel's
knowledge, no proceedings for that purpose are, and to the best of such
counsel's knowledge after due inquiry, pending before or contemplated
by the Commission;
ix) the statements under the captions "Risk
Factors-Anti-Takeover Provisions, "Risk Factors-Shares Eligible for
Future Sale," "Management-Employee Benefit Plans," "Description of
Capital Stock," and "Shares Eligible for Future Sale," in the
Prospectus and Items 14 and 15 of Part II of the Registration
Statement, in each case insofar as such statements constitute a summary
of the legal matters, documents or proceedings referred to therein,
fairly present in all material respects the information called for with
respect to such legal matters, documents and proceedings;
x) neither the Company nor any of its subsidiaries is in
violation of its respective charter or by-laws and, to the best of such
counsel's knowledge after due inquiry, neither the Company nor any of
its subsidiaries is in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is
bound;
xi) the execution, delivery and performance of this Agreement
by the Company, the compliance by the Company with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the federal securities
laws or the securities or Blue Sky laws of the various states), (B)
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, the charter or by-laws of the Company or any of
its subsidiaries or, to the knowledge of such counsel, any indenture,
loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to
which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or their respective property is
bound, (C) violate or conflict with any applicable law or any rule,
regulation, or, to the best of such counsel's knowledge, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over the Company, any of its subsidiaries or their
respective property or (D) result in the suspension, termination or
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revocation of any Authorization of the Company or any of its
subsidiaries or any other impairment of the rights of the holder of any
such Authorization;
xii) after due inquiry, such counsel does not know of any
legal or governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is or could be a party or to which
any of their respective property is or could be subject that are
required to be described in the Registration Statement or the
Prospectus and are not so described, or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not so described or filed as
required;
xiii) to the best of such counsel's knowledge, neither the
Company nor any of its subsidiaries has violated any Environmental Law,
any provisions of the Employee Retirement Income Security Act of 1974,
as amended, or any provisions of the Foreign Corrupt Practices Act or
the rules and regulations promulgated thereunder, except for such
violations which, singly or in the aggregate, would not have a Material
Adverse Effect;
xiv) to the best of such counsel's knowledge, each of the
Company and its subsidiaries has such Authorizations of, and has made
all filings with and notices to, all governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate
its respective properties and to conduct its business, except where the
failure to have any such Authorization or to make any such filing or
notice would not, singly or in the aggregate, have a Material Adverse
Effect; to the best of such counsel's knowledge, each such
Authorization is valid and in full force and effect and each of the
Company and its subsidiaries is in compliance with all the terms and
conditions thereof and with the rules and regulations of the
authorities and governing bodies having jurisdiction with respect
thereto; and, to the best of such counsel's knowledge, no event has
occurred (including, without limitation, the receipt of any notice from
any authority or governing body) which allows or, after notice or lapse
of time or both, would allow, revocation, suspension or termination of
any such Authorization or results or, after notice or lapse of time or
both, would result in any other impairment of the rights of the holder
of any such Authorization; and, to the best of such counsel's
knowledge, such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such
failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any
such restriction would not, singly or in the aggregate, have a Material
Adverse Effect;
xv) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be, an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended;
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xvi) to the best of such counsel's knowledge after due
inquiry, except as disclosed in the Registration Statement, there are
no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with
the Shares registered pursuant to the Registration Statement;
xvii) (A) the Registration Statement and the Prospectus and
any supplement or amendment thereto (except for the financial
statements and schedules and other financial and statistical data
included therein as to which no opinion need be expressed) comply as to
form in all material respects with the Act, (B) such counsel has no
reason to believe that at the time the Registration Statement became
effective or on the date of this Agreement, the Registration Statement
and the prospectus included therein (except for the financial
statements and schedules and other financial and statistical data as to
which such counsel need not express any belief) contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading and (C) such counsel has no reason to believe
that the Prospectus, as amended or supplemented, if applicable (except
for the financial statements and schedules and other financial and
statistical data, as aforesaid) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading;
xviii) each Selling Shareholder has valid title to the Shares
to be sold by such Selling Shareholder pursuant to this Agreement or
has the right to acquire such Shares upon the exercise of currently
exercisable stock options free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever;
xix) each Selling Shareholder has full legal right, power and
authority, and all authorizations and approvals required by law, to
enter into this Agreement and to sell, assign, transfer and deliver the
Shares to be sold by such Selling Shareholder in the manner provided
herein;
xx) upon delivery of and payment for the Shares to be sold by
each Selling Shareholder pursuant to this Agreement, good and clear
title to such Shares will pass to the Underwriters, free of all
restrictions on transfer, liens, encumbrances, security interests,
equities and claims whatsoever;
xxi) to the best of such counsel's knowledge, the execution,
delivery and performance of this Agreement by such Selling Shareholder,
the compliance by such Selling Shareholder with all the provisions
hereof and the consummation of the transactions contemplated hereby
will not (A) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or
agency (except such as may be required under the federal securities
laws or the securities
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or Blue Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the organizational documents of such Selling Shareholder, if
such Selling Shareholder is not an individual, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument known to
such counsel to which such Selling Shareholder is a party or by which
any property of such Selling Shareholder is bound, or (C) violate or
conflict with any applicable law or any rule, regulation, judgment,
order or decree of any court or any governmental body or agency having
jurisdiction over such Selling Shareholder or any property of such
Selling Shareholder; and
xxii) The transfer of all the outstanding shares of capital
stock of Technisource of Florida, Inc. (the "SUBSIDIARY") have been
contributed to the Company in a tax-free reorganization, and the
Subsidiary is the only subsidiary, direct or indirect, of the Company.
The opinion of Holland & Knight LLP described in Section 9(f) above shall be
rendered to you at the request of the Company and the Selling Shareholders and
shall so state therein. In rendering such opinion such counsel may assume that
the laws of the State of New York are the same as the laws of the State of
Florida.
g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Sachnoff & Weaver, Ltd., counsel for the Underwriters, as to
the matters referred to in Sections 9(f)(iv), 9(f)(vi) (but only with respect to
the Company), 9(f)(ix) (but only with respect to the statements under the
caption "Description of Capital Stock" and "Underwriting") and 9(f)(xvii).
In giving such opinions with respect to the matters covered by Section
9(f)(xvii), Holland & Knight LLP and Sachnoff & Weaver, Ltd. may state that
their opinion and belief are based upon their participation in the preparation
of the Registration Statement and Prospectus and any amendments or supplements
thereto and review and discussion of the contents thereof, but are without
independent check or verification except as specified.
h) You shall have received, on each of the date hereof and the Closing
Date, a letter dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from KPMG Peat Marwick LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
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k) The Company and the Selling Shareholders shall not have failed on or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or the
Selling Shareholders, as the case may be, on or prior to the Closing Date.
The several obligations of the Underwriters to purchase any Additional Shares
hereunder are subject to the delivery to you on the applicable Option Closing
Date of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of such Additional
Shares and other matters related to the issuance of such Additional Shares.
SECTION 10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing Date by
you by written notice to the Sellers if any of the following has occurred: any
outbreak or escalation of hostilities or other national or international
calamity or crisis, in each case involving the United States; any change in
economic conditions or in the financial markets of the United States or
elsewhere that, in your judgment, is material and adverse and, in your judgment,
makes it impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus; the suspension or material limitation of trading
in securities or other instruments on the New York Stock Exchange, the American
Stock Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq National Market or limitation
on prices for securities or other instruments on any such exchange or the Nasdaq
National Market; the suspension of trading of any securities of the Company on
any exchange or in the over-the-counter market; the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your reasonable
opinion has or will have a Material Adverse Effect; the declaration of a banking
moratorium by either federal or New York State authorities or the taking of any
action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be, any one
or more of the Underwriters shall fail or refuse to purchase the Firm Shares or
Additional Shares, as the case may be, which it has or they have agreed to
purchase hereunder on such date and the aggregate number of Firm Shares or
Additional Shares, as the case may be, which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the total number of Firm Shares or Additional Shares, as the case may be, to
be purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters have agreed to purchase, or in
such other proportion as you may specify, to purchase the Firm Shares or
Additional Shares, as the case may be, which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; PROVIDED
that in no event shall the number
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of Firm Shares or Additional Shares, as the case may be, which any Underwriter
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such number of Firm
Shares or Additional Shares, as the case may be, without the written consent of
such Underwriter. If on the Closing Date any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased by all Underwriters and
arrangements satisfactory to you, the Company and the Selling Shareholders for
purchase of such Firm Shares are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Shareholders. In any such
case which does not result in termination of this Agreement, either you or the
Sellers shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. If, on an Option Closing Date, any Underwriter or Underwriters
shall fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased on such
date, the non-defaulting Underwriters shall have the option to (i) terminate
their obligation hereunder to purchase such Additional Shares or (ii) purchase
not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase on such date in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of any such
Underwriter under this Agreement.
SECTION 11. AGREEMENTS OF THE SELLING SHAREHOLDERS. Each Selling
Shareholder agrees with you and the Company:
a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Shareholder to the Underwriters.
b) To do and perform all things to be done and performed by such
Selling Shareholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Shareholder pursuant to this Agreement.
SECTION 12. MISCELLANEOUS. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to
Technisource, Inc., 1901 West Cypress Creek Road, Suite 202, Ft. Lauderdale,
Florida 33309; (ii) if to the Selling Shareholders, to ________________________
______________________; and (iii) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York,
New York 10172, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations, warranties
and other statements of the Company, the Selling Shareholders and the several
Underwriters set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Shares, regardless of any investigation, or statement as
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to the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Shareholder or any person controlling such Selling
Shareholder, acceptance of the Shares and payment for them hereunder and
termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any Seller as
provided herein (other than as a result of any termination of this Agreement
pursuant to Section 10), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) incurred by them. Notwithstanding any termination of
this Agreement, the Company shall be liable for all expenses which it has agreed
to pay pursuant to Section 5(i) hereof. The Company also agrees to reimburse the
several Underwriters, their directors and officers and any persons controlling
any of the Underwriters for any and all fees and expenses (including, without
limitation, the reasonable fees and disbursements of counsel) incurred by them
in connection with enforcing their rights hereunder (including, without
limitation, pursuant to Section 8 hereof).
Except as otherwise provided, this Agreement has been and is made solely for the
benefit of and shall be binding upon the Company, the Selling Shareholders, the
Underwriters, the Underwriters' directors and officers, any controlling persons
referred to herein, the Company's directors and the Company's officers who sign
the Registration Statement and their respective successors and assigns, all as
and to the extent provided in this Agreement, and no other person shall acquire
or have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any of the Shares from any of the
several Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the laws of
the State of New York.
This Agreement may be signed in various counterparts, each of which shall be an
original or facsimile, which together shall constitute one and the same
instrument.
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Please confirm that the foregoing correctly sets forth the agreement among the
Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
TECHNISOURCE, INC.
By: ________________________________
Title: ________________________________
THE SELLING SHAREHOLDERS NAMED IN SCHEDULE II HERETO, ACTING SEVERALLY
----------------------------------------
Joseph W. Collard
----------------------------------------
James F. Robertson
----------------------------------------
Paul Cozza
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
WILLIAM BLAIR & COMPANY, L.L.C.
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: _______________________________
Title: _______________________________
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SCHEDULE I
NUMBER OF FIRM SHARES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------------
Donaldson, Lufkin & Jenrette Securities
Corporation................................................
William Blair & Company, L.L.C...............................
--------------
Total............................................... 3,100,000
<PAGE>
SCHEDULE II
SELLING SHAREHOLDERS
NUMBER OF ADDITIONAL
NAME SHARES BEING SOLD
---- --------------------
Joseph W. Collard............................................ 209,423
James F. Robertson........................................... 209,423
Paul Cozza................................................... 46,754
----------
Total............................................... 465,000
EXHIBIT 23.2
The Board of Directors
Technisource, Inc.
We consent to the use of our reports included herein and to the reference
to our firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
June 23, 1998
